Subject: RE: GT11 Incident Discussions at Cuiaba 9 & 10 Oct 01
From: [email-masked]
To: [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked]
Date: Mon, 15 Oct 2001 06:06:21 -0700 (PDT)

Will the madness never end?   We go through this on every claim.  I don't know why our insurance guys cannot get on Enron's side to get as much paid for as possible.  Let there be no mistake--Enron Risk Management has a long held disdain for lawyers gettin involved to examine their policies.  I don't doubt for a minute Stuart was preconditioed on this one.  Eddy & I are meeting with Jim Bouillion today and we'll see what we can do.  I agree with Eddy that if they pay the big stuff, we need to be careful. I'm pissed but don't worry--I'll be charming and nice as long as I have to be.  There are definitely a list of things that should be covered, although I agree examination of the policy for coverage probably is not.  But Gordon and Jack's work on that was limited and most of their advice has been related to the Siemens issues, mitigation of damages, conduct as the prudent uninsured, and questions as to how to address these issues under Brazilian law which governs the policy.  The correspondence, the POs, agreements etc should be covered.

 -----Original Message-----
From: 	Daniels, Eddy  
Sent:	Saturday, October 13, 2001 6:00 PM
To:	Powell, Laine; Guidry, John
Cc:	Gordon Grimes; John Montgomery; Blaine, Michelle
Subject:	RE: GT11 Incident Discussions at Cuiaba 9 & 10 Oct 01

They have no right to refuse to pay legal costs -- especially for the Brazilian & US counsel used to paper the deal with Siemens.  Much of Gordon and Jack's work can be characterized as necessary to analyze Siemens claims in connection with their bargaining position.  Certainly Cliffs work on the agreements shoudl eb covered.  

If they promptly pay the big claims, we may not want to push this.  But we shouldn't give it up just yet. 

 -----Original Message-----
From: 	Powell, Laine  
Sent:	Saturday, October 13, 2001 6:42 AM
To:	Guidry, John
Cc:	Gordon Grimes; John Montgomery; Blaine, Michelle; Daniels, Eddy
Subject:	RE: GT11 Incident Discussions at Cuiaba 9 & 10 Oct 01

Folks -

	Further to John's comments Stuart's body language and general comments left no doubt that he would not agree to pay for legal costs outside of the very narrow range described below.  In fact he once again questioned why we had engaged counsel at all.  Let's not kid ourselves - getting insurance to pay for legal costs is like having a 50 foot putt on a green at Augusta.

rgds

Laine

From:	John Guidry/ENRON@enronXgate on 10/11/2001 04:56 PM CDT
To:	Gordon Grimes <[email-masked]>@SMTP@enronXgate
cc:	John Montgomery <[email-masked]>@SMTP@enronXgate, Michelle Blaine/ENRON@enronXgate, Eddy Daniels/ENRON@enronXgate, Laine A Powell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 

Subject:	RE: GT11 Incident Discussions at Cuiaba 9 & 10 Oct 01

Gordon,

Stuart did not elaborate on the legal support issue, other than to say that any work would have to be preapproved by him and that the only possible role that he could see would be related to subrogation issues.  He seemed leary of outside attorney involvement and questioned why we might want lawyers involved in the claim (other than the administrative issues related to agreement preparation). 

During our discussions, he did state that the underwriters would settle the claim with us and that they would figure out how to deal with Siemens.

I have never read the policy (nor do I intend to), but Stuart is working toward getting advanced payments for us. The underwriters in London seem to be cooperating on this issue. For the amount that we are looking at, $21 MM, the underwriters would have to get their board approval.  If they agree to do advanced payments (and we hope that they do), it does not matter what the policy says on this issue. He was, however, pleased to hear that we were looking at an interim financing structure with an Enron company paying. He said that this approach would make it easier to get the funds approved with the underwriters (no board approval required).

John

-----Original Message-----
From: Gordon Grimes [mailto:[email-masked]]
Sent: Thursday, October 11, 2001 8:07 AM
To: Guidry, John
Cc: John Montgomery; Blaine, Michelle
Subject: RE: GT11 Incident Discussions at Cuiaba 9 & 10 Oct 01

John- This looks like great progress.  Two questions.  There is some mention
of legal fees being limited to "subrogation" issues.  Can you elaborate?
What are such issues? We know what subrogation is.  Does this mean work to
preserve the subrogation position of the insurer is allowed?  If Siemens is
named as an additional insured, insurers would have no such rights.  This,
of course, would depend on their reading of the cover- i.e. if they might
say that this had nothing to do with gas commissioning.  We, of course, are
supposed to have covered Siemens with a "maintenance cover" which would have
protected them for design defects etc.  Need to figure out what Stuart is
getting at.  

We had understood that any work done to facilitate the repair would also be
covered, such as work on the Change Order, Parts Agreement, etc..  We are
about to send out our bill and would like to do two separate bills- one
which would cover things which the insurer might reimburse, and one which is
clearly advice to you on issues like the PPA, etc. Let us know ASAP so we
can work up something. 

Second, there is discussion of "advance payment".  Jim Studdert's recent
e-mail said that this policy is an "indemnity" policy which he describes as
a "pay if paid" approach.    That is, EPE would have to have spent the money
already in order to get paid by insurers, rather than be paid against an
estimate of cost, or against a PO being issued. That is in fact how most of
the language is phrased, but there are provisions which could be read the
other way too. Did Stuart get into that issue?  

Thanks   Gordon 

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-----Original Message-----
From: [email-masked]
[mailto:[email-masked]]
Sent: Wednesday, October 10, 2001 7:06 PM
To: [email-masked]
Cc: [email-masked]; [email-masked];
[email-masked]
Subject: GT11 Incident Discussions at Cuiaba 9 & 10 Oct 01

Stuart,

I would like to take this opportunity to summarize the discussions that we
have had over the last two days in Cuiaba.

Payment of Insurance Proceeds
?    Payments from the London underwriters will flow to the IRB
?  Payments made by the IRB to EPE direct will be in Reais; the claim is
   dollar based and will be converted from dollars to reais at the exchange
   rate at the time of payment [S. Stromeyer to determine if IRB can pay
   directly to EPE in dollars]
?  Payments can be made to third parties outside of Brazil in dollars at
   EPE's direction [S. Stromeyer to check with IRB to determine if this is
   accepted by Central Bank]

Siemens Meeting Last Week in Erlangen
   Root Cause
?    To prevent coking problems from occurring in the fuel nozzles, Siemens
increased the volume of purge water used to purge fuel oil from the burner
fuel lines following a trip from premix.
   ? The increased volume of purge water resulted in quenching of Row 3
     blades.
   ? The quenching produced high thermo-mechanical forces on the blades
     which produced cracks.
   ? One of the blade cracks eventually resulted in a blade failure.
   ? A meeting is scheduled for 30 October in London for Siemens to explain
     their conclusions on root cause.
   Commercial Issues
?    Parts will be purchased in accordance with the Spare Parts Agreement
(SPA) with the following significant exceptions:
?    A 30% expediting fee will be paid on turbine blades and vanes
     ?  Prices are FOB port of export with Siemens listed prices
     ?  The SPA 20% discount will not apply
     ?  Payment must be made prior to shipment
?    There will be two services agreements:
?    1) between EPE and Siemens Ltda for Brazilian sourced services, paid
in Reais at the rates in Siemens Price List 1725 (provided to you in
Cuiaba), converted to Reais using 2.7315 Real/US$ and
     ?  2) between EPE and Siemens AG for non-Brazilian sourced services,
        paid in US$.
     ?  These agreements will incorporate terms from the Siemens Selling
        Policies / Price Lists and the EPC Contract.
     ?  Late payments will incur interest at 14%

Advanced Payment
?    Property damage coverage advanced payments could be made at 100% of
estimated value
?  Advanced payment will not be made against BI coverage
?  Typical total time for advanced payment is about 30 days
?  Once IRB receives funds from London underwriters, typical payment time
   is about 5 or so days
?  Munich Re will require a Board Meeting to approve an advanced payment of
   the size being discussed.
?  If the parts costs are financed by third party, it will be quicker to
   get Munich Re payment. Could know funding date by 22 October

BI
?    London underwriters pay on lost revenue
?  IRB traditionally pays on turnover or lost net profit. S. Stromeyer and
   Crowford-Resin personnel will discuss with IRB to try to convince them
   to pay on lost revenues. A meeting is scheduled for 5 November.
?  IRB will not likely allow direct payment to third parties outside of
   Brazil.
?  A meeting is scheduled in Houston on Tuesday, 16 October to discuss BI
   estimate

Property Damage
?    Duties and taxes are included in coverage
?  FX transaction costs are not included in coverage
?  Legal and engineering support are covered only with prior approval of
   appropriate justification. Approval of legal is usually limited to
   subrogation issues.
?  A rough estimate of insurable costs was provided by EPE and discussed
   (the estimate was qualified by footnotes and by the discussion). The
   purpose of this estimate was to provide information to obtain advanced
   payment.  Total insurance portion of parts, expediting fee, repairs,
   services, taxes and less deductible was $23.3 MM. Total EPE portion was
   $6.3 MM. As discussed, it is possible that the insurable portion may
   increase pending analysis of additional components. We agreed that the
   amount to be used for advanced payment consideration for parts is $21.1
   MM (Parts Total less Repairs less Deductible).

Documentation
?    The following documents were provided to S. Stromeyer:
?    From Siemens:
?    SI/EE-2234, dated 08/30/01
     ?  SI/EE-2235, dated 09/03/01
     ?  SI/EE-2236, dated 09/05/01
     ?  SI/EE-2237, dated 09/05/01
     ?  SI/EE-2238, dated 09/11/01
     ?  SI/EE-2240, dated 09/19/01
     ?  SI/EE-2241, dated 09/21/01
     ?  SI/EE-2242, dated 09/25/01
     ?  SI/EE-2243, dated 09/25/01
     ?  SI/EE-2245, dated 09/28/01
     ?  SI/EE-2246, dated 10/02/01
?    From J. Guidry to Siemens:
?    09/07/01
     ?  09/10/01
     ?  09/19/01
     ?  09/23/01
     ?  09/26/01
?    Purchase Order from EPE to Siemens 09/13/01
   ? Letter from Dan Shultz to G. Hartmann  09/21/01

We are moving forward with preparations for returning GT11 to service,
based on these discussions. If you have any comments on this summary, let
me know as soon as possible.

Regards,

John