Subject: Update 2: Austin Project Property Tax Issue (12-1-00)
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Thu, 30 Nov 2000 23:27:00 -0800 (PST)

Here is the latest on this issue:

On Monday, Austin Energy asked if they could take early title certain 
equipment (the foxbourgh equipment - sp?) in order to "work around" an 
internal budget issue.  Apparently, if AE takes early title, they will be 
able to pay for the equipment (approx $440,000) from another fund and avoid 
the appearance of being over budget on the 4 LM project.
Based upon my discussions with various internal groups, ENA is comfortable 
with either option #2 or option #3 below.  See the tax response from Warren 
below.  David Marshall is comfortable from an insurance perspective.  Kay 
Mann (lawyer on GE breakout contract) confirmed in a voicemail that she did 
not anticipate the title transfer creating an issue with the warranties 
granted to ENA in the breakout agreement.
Keenan phoned Chris Kirksey yesterday to relay the message that based upon 
preliminary discussions, we are comfortable with either approach.

Next Steps:

Jeffrey anticipates hearing from Chris today to get preliminary feedback on 
if Austin needs title (option #3) or if the "acknowledgement letter" (option 
#2) would suffice.
Monday, December 4, there is an internal meeting to discuss the topic.

Let me know if you have any thoughts or concerns.

Regards,

Eric

Warren Schick@ENRON
11/28/2000 09:01 AM
To: Eric Booth/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Patrick Maloy/HOU/ECT@ECT, Matthew F Gockerman/HOU/ECT@ECT, Billy 
Lemmons/Corp/Enron@ENRON, Stuart Zisman/HOU/ECT@ECT, Ben Jacoby/HOU/ECT@ECT, 
Jeffrey Keenan/HOU/ECT@ECT, Eric Booth/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 
Subject: Re: Update: Austin Project Property Tax Issue  

Eric:

Regarding the various scenarios you discussed I think the best, from a 
property tax prospective, is proposal #2.  It is not reasonable to think that 
the taxing authorities will overlook the property as discussed in #1.  The 
City of Austin is a taxing unit within Travis County and there is a good 
possibility that they will go after the value and assess it all to ENA.  We 
would be in a much stronger position if we took the proactive approach with 
an agreement as discussed in #2, and if the question was ever raised we would 
have the explanation in our "hip pocket".

Please call me if you have any questions at 30689.

Warren  

Eric Boyt
11/27/2000 03:31 PM
Sent by: Eric Boyt
To: Warren Schick/Corp/Enron@ENRON, Patrick Maloy/HOU/ECT@ECT, Matthew F 
Gockerman/HOU/ECT@ECT
cc: Billy Lemmons/Corp/Enron@ENRON, Stuart Zisman/HOU/ECT@ECT, Ben 
Jacoby/HOU/ECT@ECT, Jeffrey Keenan/HOU/ECT@ECT, Eric 
Booth/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 

Subject: Update: Austin Project Property Tax Issue

Gentleman,

I have discussed the property tax issue with Billy Lemmons, Stuart Zisman, 
Ben Jacoby and Jeff Keenan.   A couple of thoughts came to mind and we need 
your opinion on these matters so we can take the most appropriate steps 
necessary to reduce the potential tax liability.

First, a couple of facts for clarification:

It is anticipated the turbines (and transformers) will be on the City of 
Austin site on or before 12/31/00 (the City owns the land);
It is anticipated ENA will be the legal owner of the assets on 12/31/00 (the 
NEPCO assignment will not be complete);
Under the current participation agreement, the City of Austin will not take 
title to their 91.4% ownership until the plant is complete and successfully 
tested (sometime 1Q 2001);
However, by 12/31/00 the City of Austin will have paid for 100% of their 
ownership in the plant ($85,641,800);
The tax liability could be $250,000 per turbine, $1,000,000 in total.

The thoughts/ideas are as follows:

Is it reasonable to assume the Travis County taxing authorities will not tax 
the equipment at all because it will be located on land owned by the City of 
Austin at year end?  What is the probability they will actually review items 
of the property and trace legal owner?
If #1 above is a risky position, and one you would not support, would it be 
acceptable to the taxing authorities, in your opinion,  for ENA and the City 
of Austin to sign a letter stating that ENA is simply holding title to the 
equipment for the benefit of the City of Austin.  Therefore, because of this 
and the fact that the City has paid for its 91.4% ownership, only the 8.6% is 
taxable.
If neither #1 or #2 are acceptable in you view, would it be acceptable for 
ENA and Austin sign a side letter agreement to officially convey 91.4% of the 
project to the City of Austin, but totally indemnify the City of Austin from 
all liabilities.  After year-end, ENA would "take back" the conveyance and 
the plant would continue in ENA's name until the plant is officially 
conducted its final performance tests.

Please provide your thoughts on these ideas as soon as possible.  If these do 
not work, we need some creative thinking on your behalf to minimize the 
liability.  I look forward to hearing from you soon.

Regards, 

Eric
x5-7754