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Enron Mail |
I think we should restrict Peter's memo's to 50 words or less. Please
advise. Lavo. ---------------------- Forwarded by John J Lavorato/Corp/Enron on 06/22/2000 05:49 PM --------------------------- Enron Capital & Trade Resources Canada Corp. From: Peter Keohane @ ECT 06/22/2000 01:05 PM Sent by: Nella Cappelletto@ECT To: Derek Davies/CAL/ECT@ECT cc: John J Lavorato/Corp/Enron@Enron, Rob Milnthorp/CAL/ECT@ECT, Jeffrey T Hodge/HOU/ECT@ECT, Robert Hemstock/CAL/ECT@ECT, Mark Powell/CAL/ECT@ECT Subject: Alberta Power Purchase Arrangement Auction I have considered on a preliminary basis the potential use of a limited liability subsidiary of Enron Canada Corp. for the purposes of bidding on the PPAs. The issues and preliminary answers are in summary the following: 1. It is not clear that Alberta would permit qualification of another Enron Canada entity at this point. I believe that it would be more sellable if that Enron Canada entity was a replacement to Enron Canada as a Qualified Bidder, rather than an additional Qualified Bidder, and if that Enron Canada entity was similarly guaranteed by Enron Corp. I need to discuss this matter further with Rob Hemstock, Alberta and Charles River. 2. With respect to the Enron Corp. Guarantee, as mentioned, it is not free from doubt, but I believe that the Guarantee is only in respect of bidding on, and paying for a PPA and not for ongoing performance or payment obligations under the PPA. In other words, the Guarantee guarantees "Obligations" which relate to the bidding process and not to the PPAs themselves, although there is some wording which could be viewed as including in "Obligations" ongoing obligations with respect to the PPAs themselves. 3. With respect to limiting liability, such Enron Canada entity would limit exposure for a successfully acquired PPA to the contributed capital to such Enron Canada entity, assuming the Enron Corp. Guarantee would not extend past the bidding process as noted in paragraph 2 above, and subject to the common law relating to "piercing the corporate veil", which in essence means that the limited liability protection of a shareholder through a corporate entity can be looked through if the courts determine that the corporate entity was established merely for the purposes of avoiding liabilities properly attributable to the shareholder. Although this is a difficult test to prove given the intended purposes of corporate and other limited liability entities, it is best to establish the limited liability entity in such a way that it has the greatest appearance of an operating company (for example, a separate board of directors, separate management, separate employees, separate operating agreements and leases, etc.). As mentioned, however, it is all a matter of degree and generally speaking it is difficult to establish a case where the courts will allow the "corporate veil" protecting shareholders to be "pierced". 4. With respect to capturing tax losses incurred in the limited liability entity, if Enron Canada is the sole shareholder so that there is no change of control on a winding-up into Enron Canada, Enron Canada can avail of tax losses incurred in the Enron Canada entity through a winding-up. Obviously, however, this would mean that Enron Canada takes on the liabilities of the special purpose entity as a result of the winding-up, including the liabilities for any acquired PPA. Otherwise, the general rule is that the tax losses, if any, would be captured inside in the Enron Canada entity and would not be available to be used against Enron Canada's taxable income. 5. With respect to Project Stanley, there is really no established case authority directly on point, but the better view is that any sanction, if and when imposed on Enron Canada, would be imposed in a way that would prevent Enron Canada from indirectly avoiding the application of the sanction, such as by moving certain business operations into a special purpose entity. In other words, if Canada or Alberta were intent on suspending or affecting Enron Canada's abilities to transact through the PPAs or otherwise in the Alberta Power Pool, it is likely that the sanction would be imposed upon Enron Canada and its affiliated entities also transacting through the Power Pool. Based upon the preliminary answers, please let me know if you want a more detailed legal opinion to consider these issues further and whether Hemstock and I should be approaching the Government to qualify a special purpose entity. Regards, Peter
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