Message-ID: <10856757.1075853409114.JavaMail.evans@thyme> Date: Tue, 20 Mar 2001 08:38:00 -0800 (PST) From: elizabeth.sager@enron.com To: wes.colwell@enron.com Subject: CDWR draft Cc: cris.sherman@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: cris.sherman@enron.com X-From: Elizabeth Sager X-To: Wes Colwell X-cc: Cris Sherman X-bcc: X-Folder: \Elizabeth_Sager_Nov2001\Notes Folders\All documents X-Origin: Sager-E X-FileName: esager.nsf Wes Here is current draft of CDWR agreement. Negotiations are still underway. The underlying contract is the EEI Master - let me know if you need that standard form. Call w/ any questions/comments Elizabeth 36349 ----- Forwarded by Elizabeth Sager/HOU/ECT on 03/20/2001 04:32 PM ----- "JOHN G KLAUBERG" 03/20/2001 10:18 AM To: jpirog@water.ca.gov cc: cyoder@ect.enron.com, Elizabeth.Sager@enron.com, "MICHAEL W E DIDRIKSEN" Subject: Revised Draft John: as per your request, attached are revised drafts of the Confirmation and Cover Sheet, which are blacklined against the respective documents from the short-term deal. I recognize that you are still reviewing certain questions/points with CDWR and there may be some items reflected in this draft that neither you nor CDWR has "signed off" on. Nonetheless, in certain cases I thought it made sense to provide you with specific contract language on some of the points we discussed so that you could clearly see what we may be proposing on a particular item. Please note, in particular, the following: --on the LD calculation, we reverted to your proposed language on obtaining multiple market quotes, etc. However, after talking to Enron this evening, we would like to propose that if quotes cannot be obtained despite the parties' good faith efforts to do so, then only in that circumstance would the calculation be based on the Non-Defaulting Party's losses. While, based on the product Enron is selling, we anticipate that quotes will be readily obtainable, we think it makes sense to revert to the Non-Defaulting Party's loss calculation in the highly unlikely event that quotes are not obtainable despite using all efforts to do so. I know that you expressed some reservations the other evening that this process potentially could be subject to some manipulation. This is not so. If CDWR was the Defaulting Party and it disputes the loss calculation made by Enron, such dispute would become the subject of arbitration. In such case, the Non-Defaulting Party's would have to furnish its historical and current power curves to prove its case. Since those same figures necessarily are needed by Enron to report its trading positions on a day to day basis as part of its normal business operations and such information feeds directly into its financial reporting statements and other relevant financial information, etc. that becomes, in part, part of its SEC filings, in a discovery proceeding this information would be very transparent. --with respect to the situs of any arbitration proceeding, Enron strongly believes that it is only fair to both parties that this be conducted in a neutral site. The draft provides for New York City, although Enron is open to other possible locations. --the revised draft reflects only the $127/MWh alternative scenario since you indicated that, preliminarily, you felt that CDWR would not be likely to choose the alternative structure we had discussed. --we would like to further discuss the effect of an adverse federal regulatory change. I'm sure you can appreciate this in light of the current environment, although we would think that freely negotiated bilateral contracts would not be subject to the types of changes being discussed. Enron is not seeking a termination right with LDs, but would like to further discuss a termination right without compensation in the event of a major adverse federal development affecting the contract. --we have dropped our request that Enron have the right to suspend performance in the case of a Bond downgrade event. However, we think it is appropriate that if that circumstance occurs, that the due date for payments by CDWR should shorten to 7 days and if the Bonds are subsequently upgraded that the payment schedule would revert accordingly. --you requested that we propose a limit on the right of a Non-Defaulting Party to suspend its performance in the case of a Default by the Defaulting Party. We included a 60-NERC day limit on such right in the revised draft. This is important to Enron as we discussed, particularly in light of Enron's acceptance of the 180 day period on the timing of a Termination Payment which, as you know, is unheard of in the power sale (or virtually any other) arena. (Nonetheless, we fully understand the position enunciated by the bond people on this point). --on assignment, the Enron commercial people cannot agree to a pre-approved right of CDWR to assign the contract to the IOUs. As we discussed, it may very well be the case that at the time any assignment were to be effected that Enron may already be at the limit of its overall exposure with those counter parties. It can't be in a position where such an assignment could cause it to violate those limits. --we included an outside date by which Enron must decide whether or not to go forward of the first to occur of (1) September 30, 2001 or (2) seven days after the Bonds are issued. You had indicated that CDWR might be willing to consider such an "outside date" as long as (i) the $127/MWh pricing was in effect from April 1 and (2) Enron had to act very shortly after the Bonds are issued. We have proposed 7 days for this. --in concept, we probably will be ok with the alternative of securing a credit rating for the Fund (as opposed to the Bonds), although we have referred that question to the credit people to make sure. --in light of your response about opinions not being provided by outside counsel, we modified the confirmation to request that the opinions could be from the AG, or if CDWR cannot do that, then from the GC of CDWR. We felt that this would not involve additional work since these presumably will be rendered in connection with the Bonds and we provided that they generally would be provided to us after the Bonds are issued. I think the foregoing represent most of the items we had discussed. Please let me know when you wish to discuss. Also, it may make sense for our next call to have the respective Enron and CDWR commercial folks on the call since it may be the case that many of the final decisions involved may be commercial ones. Lastly, please note that while we have discussed most of the points addressed in the revised drafts with Enron, in order to expedite the process, we are sending these drafts simultaneously to you and Enron. Thus, it is possible that Enron may have further modifications or changes to the documents. Thanks. We look forward to working with you to finalize the requisite documents. 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 - CDWRConf.doc - CDWRMaster.doc - Conf-bl.doc.rtf - Master-bl.doc.rtf