Message-ID: <24021190.1075853408709.JavaMail.evans@thyme> Date: Thu, 15 Mar 2001 08:44:00 -0800 (PST) From: elizabeth.sager@enron.com To: tana.jones@enron.com Subject: per my vm Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Elizabeth Sager X-To: Tana Jones X-cc: X-bcc: X-Folder: \Elizabeth_Sager_Nov2001\Notes Folders\All documents X-Origin: Sager-E X-FileName: esager.nsf ----- Forwarded by Elizabeth Sager/HOU/ECT on 03/15/2001 04:44 PM ----- "JOHN G KLAUBERG" <JKLAUBER@LLGM.COM> 03/15/2001 10:20 AM To: cyoder@ect.enron.com, Elizabeth.Sager@enron.com cc: chris.calger@enron.com, pboylston@stoel.com Subject: Call with Pirog ** PRIVATE ** Set forth is a brief summary of my call with John Pirog last night. Overall, I felt we made a lot of progress. At the end of the call, Pirog said that prior to the call he was uncertain whether a deal was possible, but at the end he said that he thought we could probably work through a number of the issues and he said he was going to send some sample language for our consideration on a few of the points. We said that we would be begin to modify our draft as well to reflect some of the concepts we spoke about and that we could then "compare notes." He said that CDWR viewed the Enron Contract as an important one and he said he would be back to us fairly quickly. Material Regulatory Change Provision. Pirog said CDWR would be willing to accept such a provision if it were limited to an event that adversely affects CDWR's ability to perform under the contract, most particularly its ability to pay for power. (Such an event likely would be a CA legislature or regulatory generated change). Pirog said he thought that CDWR would agree to a termination payment if this occurred, although they may not want the MRC to be characterized as a "default" (which should not be a problem from our standpoint). CDWR would not be willing to protect EPMI for a change (e.g., in law) that materially affects EPMI's business, but does not adversely affect CDWR's ability to make payments to EPMI. (For example, a new CA law that requires sellers into CA to turn over all their books and records to the CPUC). Further, as we anticipated, he said CDWR was not willing to be on the hook for a termination payment for an event outside its control, such as a FERC change or Federal Legislation that adversely affects us. However, he did say that CDWR might entertain a "no LD walk right" for EPMI if such a change adversely affected it. My sense is that ultimately Pirog/CDWR will back track on that since such a change could occur when our contract is heavily in the money to CDWR and this would allow us an out without paying LDs. Early Walk Provision. He reiterated that CDWR would not extend the Option. With respect to the early walk away right that has been offered, it was discussed that this could be structured in such a way that EPMI could walk from the deal (without receiving or paying a Termination Payment) up until a date certain (September 1 and September 30 were mentioned by me as possibilities, although Pirog said that other suppliers had a shorter window) (our request is based on the gloomy news that has been eminating from the CA Treasurer's office about the bond issue), provided that if the bonds were issued earlier than that, the walk away right would terminate; that is, EPMI would not be free to walk if CDWR was able to issue bonds with an investment grade rating prior to the Drop Dead Date. Termination Payment Due Date. Pirog said CDWR cannot shorten it from 180 days. He said all other suppliers have lived with that. Pirog is sympathetic to our concerns, but said that the "bond guys" are already nervous about only having 180 days (if they had to issue bonds to pay the LDs). Suspension of Delivery. Emphasizing our concern with the 180 days, I requested that CDWR provide some flexibility on our right to suspend perfromance in the event of an event of default and, perhaps some other events, such as a bond downgrade. Pirog said he thought CDWR could work with us on that. Downgrade not a Default. CDWR was not willing to have a bond downgrade an event of default. However, he said CDWR would be willing to consider having a Downgrade Event a "no LD walk right" for EPMI and perhaps an event justifying EPMI in suspending deliveries. In other words, a Downgrade Event would be treated like an Event of Default, but no termination payment would be owed and EPMI would have the flexibility to suspend performance. Pirog also discussed adding a covenant that CDWR would attempt to secure a Credit Rating with respect to the claims paying ability of the Fund in the event that no bonds were issued. That is, if no Bonds were outstanding and the Fund did not have an investment grade rating, we could terminate, but without LDs. Cross Defaults. This clearly is one of CDWR's hot buttons, and we will not be able to get this is my sense. However, when asked about the idea of a Cross Default Out w/out a termination payment, he stated that he would like to discuss that further with CDWR. LD Calculation Methodology. Pirog said it was very unlikely CDWR would accept our proposed language. He said they are striving for consistency among contracts and said their proposal is viewed as more "objective." My sense is that we will need to get comfortable with it in general. Arbitration. In general, Pirog did not have a problem, except for the following: a desire to limit it to contractual claims only (i.e., no tort actions, extra-contractual disputes, etc. would be subject to it). Also, holding hearings in New York City was not well received, and a request was made that all three arbitrators be neutral. I would think that the situs issue will be a big one for Richard Sanders in light of the political environment if a dispute were to arise. My general sense, however, is that this is not a "deal breaker" for CDWR. Assignment. In general, he understood the nature of our changes on this issue and said they were reasonable although he caveated that on this issue as well they are looking for some consistency. We were again asked if assignment back to the IOUs would be acceptable, even though he knew what our reaction would be. Pirog offered to provide us sample language, which we said we would look at. We stated that conceptually this would be a difficult sell in light of the environment. He did not elaborate on how stringent the assignment standards are in the other deals. New Govt Charge Pass Throughs. A pass through of some governmental charges was considered to be okay, but he said our proposed language was too broad. Pirog offered to provide some examples of acceptable language on this. He di agre, howeve, that if for example, CA imposed an excess profits tax, that it was fair for us to be protected from that. Legal Opinions. Pirog did not think that a legal opinion from Hawkins would be forthcoming, although he did say that he would look into whether or not they would be providing one on the bonds. Also, he said it was a possibility that the California Attorney General would issue the opinion on the bonds, so we might possibly ask for that in lieu of an opinion from Hawkins. Realistically, it likely will be very difficult to get this before we have to extend the option; perhaps, we can put in a covenant on CDWR to get us that before our walk right expires. Additional CDWR Covenants. Pirog stated that the additional covenants we have requested are conceptually okay with him, but need to be discussed internally with CDWR. Pro Rata "Spread" Amortization. Pirog had not reviewed the idea of amortizing the Credit Amount over the four year term, and said that he would run it by CDWR. CDWR Information. Pirog said he would follow up with CDWR on how often it plans to give suppliers financial information. He was resisting our request for monthly information, although I pointed out that we really only wanted information that frequently in the beginning of the transaction as things start to fall into place. Let me know when you wish to follow up. John "This e-mail, including attachments, contains information that is confidential and it may be protected by the attorney/client or other privileges. This e-mail, including attachments, constitutes non-public information intended to be conveyed only to the designated recipient(s). If you are not an intended recipient, please delete this e-mail, including attachments and notify me by return mail, e-mail or by phone at 212 424-8125. The unauthorized use, dissemination, distribution or reproduction of the e-mail, including attachments, is prohibited and may be unlawful. John Klauberg LeBoeuf, Lamb, Greene & MacRae, L.L.P. 212 424-8125 jklauber@llgm.com