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Enron Mail |
Peter:
I think your collective e-mails constitute the legal risk memo. What do you think the legal risk rating ought to be? Regards, Mark Peter Keohane 11/22/2000 10:28 AM To: Mark E Haedicke/HOU/ECT@ECT cc: John J Lavorato/Corp/Enron@Enron, Greg Johnston/CAL/ECT@ECT, Derek Davies/CAL/ECT@ECT, Rob Milnthorp/CAL/ECT@ECT Subject: Plan B Auction - Need for Approvals ? Mark, thanks for the voice mail. In terms of a risk memo, I agree that one should not be necessary as in many respects this can be characterized as normal course trading within position limits under a standardized Master Agreement and without an outlay of capital, but hopefully the following (together with my memo from last night - copy attached) suffices to the extent a risk memo is required. In terms of unusual risks: 1. We do not have any rights to collateral under the proposed Master. However, the counterparty is the Balancing Pool which is essentially Government of Alberta credit risk. Derek Davies is I believe dealing with Credit to resolve credit issues. In fact, I believe the Balancing Pool is taking significant risk as it is selling the power firm under a Master which does not match up to the interruptible nature of the PPAs it holds. 2. The Balancing Pool will be secured under the Master by a parental guarantee of Enron Corp. and has a somewhat discretionary right to call for collateral from us under the Master if there is a material change in Enron Corp.'s creditworthiness. 3. It is a requirement of the auction that we will have entered into back-to-back physical hedges for 70% of the volume we acquire, and we are currently working at putting those deals in place conditional on us bidding and being successful in the auction. Penalties can be imposed if 70% of the volume purchased is not properly hedged. 4. As we are dealing with the Government of Alberta, we always run the risk (as we are somewhat seeing now with respect to the Sundance PPA we acquired in the first auction) that they can change the auction rules, the market rules or the legislation in ways that are adverse to us. In terms of the auction rules, as with the first auction, they could be better drafted, but our fundamental concern will be to make sure that it is clear that if we post a bid deposit and do not bid that we get the deposit back, and to ensure that the rules are clear enough that we are comfortable that we are in complete control of whether or not we can comply with the rules. Peter. (Milly, sorry for not copying you on my first memo - see below.) ---------------------- Forwarded by Peter Keohane/CAL/ECT on 11/22/2000 08:52 AM --------------------------- Enron Capital & Trade Resources Canada Corp. From: Peter Keohane 11/21/2000 06:38 PM To: Mark E Haedicke/HOU/ECT@ECT cc: John J Lavorato/Corp/Enron@Enron, Derek Davies/CAL/ECT@ECT, Greg Johnston/CAL/ECT@ECT Subject: Plan B Auction - Need for Approvals ? Mark, as I have mentioned to you the Plan B Alberta Power Auction is scheduled for Nov 29/00, under which Enron Canada can purchase for one-year terms, in each of three successive years, up to approximately 300MW/year #1; 130MW/year #2; and 65MW/year #3, of the unsold PPA capacity that reverted back to the Balancing Pool of Alberta following the first auction last August. The bid qualification documentation needs to be in Friday and US Thanksgiving is Thursday/Friday. I wanted you to be aware of this, and determine from you if any corporate approvals need to be obtained. Firstly, Derek Davies/John Zufferli will only be bidding to the extent authorized by Lavo. Secondly, bid qualification commits us to the rules of the auction, the forms of documentation to govern both the auction and the purchase if we are successful, and requires a bid deposit (approximately C$6.5MM), but does not obligate us to bid and, provided we comply with the auction rules, the Bid Deposit will be returned after the auction. Thirdly, unlike the PPA auction the risks are much less significant in terms of volume and term. In terms of documentation, if we are the successful bidder, we will be buying power from the Balancing Pool under a physical Master, which seems to be a Canadianized version of the EEI Master and which, although not entirely to our liking, is generally satisfactory. Fourthly, the position will, I understand, be managed in the power trading book within approved position limits. Note: The nominal amounts owing (i.e. no up front payment is required) on an unhedged basis for the entire 300MWs in year #1 would be something like C$260MM, assuming a C$100/MW purchase price. Year #2 would be C$114MM and year #3 would be C$57MM. Given the nature of the transaction, the short time that we have with US Thanksgiving intervening, and numerous other demands, I do not believe that a DASH, Risk Memo and/or Board Approval is necessary, but please let me know. I will leave you a brief voice mail to follow-up. Peter.
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