Message-ID: <30172485.1075859587825.JavaMail.evans@thyme>
Date: Mon, 30 Apr 2001 09:01:00 -0700 (PDT)
From: peter.keohane@enron.com
To: chris.gaffney@enron.com
Subject: Re: Ontario Standard Contract
Cc: mark.haedicke@enron.com, elizabeth.sager@enron.com, rob.milnthorp@enron.com, 
	sharon.crawford@enron.com
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Chris, the simple fact, which we know from past experience and which OPG is 
missing, is that there is a large segment of counterparties who for various 
reasons (logistics/scheduling fixed-priced physical requirements for term 
with a with a marketer; corporate authorizations for physical transacting 
only; industrial culture; commercial sophistication; etc) will only want to 
transact physically.  To ignore this is to ignore a large segment of the 
market.  

If OPG wants out of the process I nonetheless urge you to continue as I am 
confident that once the market opens, or gets closer to opening, they will 
realize this.  If they want to compete fully in the trading business they 
will come back to what the industry is using for physical settlement, which 
is the EEI form you will have developed.

I also think that OPG is missing the point on physical settlement.  As we 
discussed the IMO is merely the pool settlement mechanism.  That does not 
mean that the underlying transaction cannot be a physical bilateral which 
allocates physical settlement risk as between the parties for physical 
delivery obligations (such as for failure to deliver; increased costs and 
prudential support for failure to deliver even where the IMO mechanism makes 
up the deficiency volume; force majeure; volume management; etc).

I think it can be said in all markets that in many cases the distinctions 
between physical and financial trading can be distinctions without a 
difference, but nonetheless there are some real distinctions and more 
importantly, even if there are no differences, certain counterparties will 
only want to deal in what they believe to be a physically settled product. 

So it seems you are close with the other counterparties, and I suggest you 
just march on with them if OPG does not want to participate further.

Peter.