Message-ID: <25948091.1075844536534.JavaMail.evans@thyme>
Date: Fri, 14 Jan 2000 08:42:00 -0800 (PST)
From: sara.shackleton@enron.com
To: carol.clair@enron.com, shari.stack@enron.com
Subject: Municipals (including municipal utilities and other regulated
 entities) vs. investor owned utilities ("IOUs")
Cc: mark.taylor@enron.com
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I am trying to distinguish these two types of entities both practically (what 
are we able to negotiate) and legally (what do we really need in our 
Schedule).  I am also interested in your experiences in dealing with these 
parties.

 ENA's form of "municipal" Schedule ("the ENA Schedule") was essentially 
taken from the 1992 ISDA U.S. Municipal Counterparty Schedule ("the ISDA 
Schedule").  In addition to other provisions, the ISDA Schedule (1) adds reps 
designed to avoid "an Orange County" type meltdown and (2) incorporates the 
concept of "Incipient Illegality" (which occurs before the Termination Event 
of  Illegality).  The "Incipient Illegality" concept is used  in Section 
2(a)(iii) (obligations) as well as the Section 3 (reps) of the ISDA 
Schedule:   the concept is added to the Section 3(b) rep ("..absence of Event 
of Default, Potential Event of Default, Incipient Illegality...), and for 
purposes of notifying the other party of its occurrence.  Interestingly 
enough, the ENA Schedule does not include the Section 3(b) rep change.  I 
think we need to add this change to ENA's Schedule.

With respect to IOUs, we need to clarify our position on "Regulatory 
Development" (which is actually a watered-down "Incipient Illegality" 
concept).  If such an event occurs, ENA should be advised of the event 
(Notice).  But, does ENA really want the ability to terminate trades at 
mid-market ("Additional Termination Event") or simply to have this event 
included as part of a Section 3(b) rep such that the occurrence of the event 
merely triggers an Event of Default at ENA's side of the curve (for breach of 
the Section 3(b) rep)? 

I have found that negotiating with IOUs for the "Notice" provision can be 
difficult.  Extracting the Additional Termination Event is tough.  Arguing 
for a Section 3(b) change may be easier (and would mirror the municipal 
format).  I think ENA really needs the ability to decide when to halt trading 
with a counterparty experiencing a Regulatory Development (which we may only 
learn about through notice from the counterparty).  Thus, I recommend that 
for IOUs, we add a notice provision and Section 3(b) rep change incorporating 
our latest definition of "Regulatory Development."  But we really have to 
negotiate for this protection.  Otherwise, why bother to include this 
additional language?

What do you think?