Message-ID: <26546925.1075845019068.JavaMail.evans@thyme> Date: Mon, 29 Jan 2001 00:24:00 -0800 (PST) From: travis.mccullough@enron.com To: vicki.sharp@enron.com, kevin.hughes@enron.com, mike.smith@enron.com, wes.colwell@enron.com, elizabeth.sager@enron.com, mark.haedicke@enron.com, jklauber@llgm.com Subject: Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Travis McCullough X-To: Vicki Sharp, Kevin Hughes, Mike D Smith, Wes Colwell, Elizabeth Sager, Mark E Haedicke, jklauber@llgm.com X-cc: X-bcc: X-Folder: \Mark_Haedicke_Oct2001\Notes Folders\All documents X-Origin: HAEDICKE-M X-FileName: mhaedic.nsf PRIVILEGED AND CONFIDENTIAL Vicki Sharp, John Klauberg and I had a short call on Sunday to discuss any legal issues associated with the proposed accounting treatment of certain of transactions between EPMI and EES. 1. EPMI has requested that the economics of the Assigned Transactions (the PGET transactions assumed by EPMI and referred to in the December 28, 2000 letter between EPMI and EEMC) be held by EPMI, and not retained by EEMC as provided by the letter agreement. Wes, could you confirm that EPMI wishes to assume the economics of those transactions effective 1/1/2001? I have assumed that this is the case, and have drafted an amendment to the December 28 letter accordingly (attached below). Please review and let me know if this is something we can work with (note that the draft letter may need revisions based upon resolutions of other issues raised in this e-mail). We will also need to confirm that there are no undesirable tax or bankruptcy implications to this approach. One element of the assignment of the "Regulatory Receivable" and the assignment to EPMI of the PGET trades that we have questions regarding is the apparent lack of consideration flowing back to EEMC/EES as a result of these transactions -- we will have transferred some fairly substantial assets from EEMC/EES to EPMI, but have made no provision for those entities receiving anything in exchange. The December 28 letter did make reference to the possibility of "back-to-back" transactions between EPMI and EEMC, which may answer that questions with respect to the assignment of the PGET trades, but if we are going to go that route, we would need to work out the terms of those "back-to-back" transaction by which EPMI sells the power that it purchases from PGET/Avista to EEMC to enable EEMC to fill its short position. For instance, at what price would EPMI resell the PGET/Avista power to EEMC so that EEMC can supply the requirements of its Direct Access Customers? If the transfer price is at market, EEMC will recognize a significant loss on sales to its DACs. 2. On January 17, 2001, EES and EEMC assigned certain of their "Regulatory Receivables" to EPMI. The assignment was intended to be an absolute transfer and true sale of EEMC/EES' rights in those receivables, but the Assignment Agreement does not recite any consideration for that transfer. Again, we assume that the transfers of those receivables would leave a "hole" in EES' books that, in an arms-length transaction, would be filled by the consideration that EES/EEMC received for the sale. Has there been any conversation about the benefits that may ultimately flow back to EES/EEMC in consideration for their transfer of these receivables to EPMI? While the attached amendment is not intended to address the assignment of that receivable, it may be beneficial to make reference to those benefits in this amendment. 3. The January 17, 2001 assignment transferred that portion of the negative CTC that had accrued to date, but we have not effected any transaction to transfer the risk of the remaining marked position to EPMI. There was some discussion of an EES/EPMI "swap" that would transfer the risk in the remaining position to EPMI. Is that still being contemplated? Travis McCullough Enron North America Corp. 1400 Smith Street EB 3817 Houston Texas 77002 Phone: (713) 853-1575 Fax: (713) 646-3490