Message-ID: <32868065.1075859676458.JavaMail.evans@thyme> Date: Mon, 13 Nov 2000 07:29:00 -0800 (PST) From: peter.keohane@enron.com To: elizabeth.sager@enron.com Subject: Ontario Master Project Cc: mark.haedicke@enron.com, chris.gaffney@enron.com, greg.johnston@enron.com, mark.powell@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: mark.haedicke@enron.com, chris.gaffney@enron.com, greg.johnston@enron.com, mark.powell@enron.com X-From: Peter Keohane X-To: Elizabeth Sager X-cc: Mark E Haedicke, Chris Gaffney, Greg Johnston, Mark Powell X-bcc: X-Folder: \Mark_Haedicke_Dec2000_1\Notes Folders\Notes inbox X-Origin: Haedicke-M X-FileName: mhaedic.nsf Elizabeth, in Mark's legal conference call this morning you updated your meeting in Toronto. Gaffney spoke to me last week after the meeting and his summary was in essence the same as yours. My thoughts which I passed along to Chris were: 1. I do not agree with OPGI's contention that the Ontario market will be financial only. I have crossed this issue a number of times in Ontario, and believe that this assertion is ill-conceived and would not be agreed to by those familiar with the developing market rules. Most notably, Aleck Dadson of the Government Affairs group in Toronto knows the market rules as they currently stand as well as any one in the market, and Rob Milnthorp is on the Board of the IMO. Both would, I believe, agree that there is a distinction as to how the IMO-controlled market will operate and physical bilateral OTC contracting. Operationally, the IMO-controlled market will be set up as a pool mechanism where physical bilats are permitted and indeed contemplated, but if there are deficiencies in physical delivery/receipt obligations those will be settled through the pool. This does not mean, however, that, in terms of legal obligations, there is not a physical delivery obligation and all that goes with it (such as force majeure, etc). Nor is the settlement in the pool costless to the non-defaulting party (prudential requirements, etc). To the extent that a party wants to rely on the pool to settle the deficiencies, and subject to issues such as compensating the non-defaulting party for any increased prudentials and other associated costs, there is still a physical bilat and the party with the delivery obligation can rely, if it chooses, on the contractula obligation to deliver "or cause to be delivered" the energy. In other words, I distinguish how the pool operates from the nature of the legal obligations. 2. I think the issue of force majeure needs to be reconsidered along the lines originally proposed by Greg. For pool level deliveries, whether in gas or in power, we (Canada) have always restricted force majeure to failure of the pool if it affects everyone transacting at the pool. This is the type of force majeure we use for "NIT" or "Hub" delivery obligations in gas, and is the type of force majeure Greg envisioned for the Alberta Power Pool and the IMO-Controlled Grid. This type of force majeure eliminates force majeure risk from our portfolio, as we therefore are never long or short as a result of force majeure. If we are transacting at a point outside of the pool, that will be the exception and not the rule, and should be dealt with specifically in the transaction Confirm. This is how we handle our gas business as set up by Lavorato. 3. Aleck Dadson should attend the next meeting (if not all meetings) with Chris to answer to any market rule issues. 4. Please involve Greg in your discusions on the form of Master that is developed. Peter.