Re: NGX Litigation and Outside Counsel

Is this still an active case? If so, I'd like to get a status report. Who is
handling(inside and outside)

Richard B Sanders
01/21/2001 10:23 AM

To: Richard B Sanders/HOU/ECT@ECT
cc:
Subject: NGX Litigation and Outside Counsel

----- Forwarded by Richard B Sanders/HOU/ECT on 01/21/2001 10:27 AM -----

Peter Keohane
12/19/2000 10:09 PM

To: James Derrick/Corp/Enron@ENRON
cc: Mark E Haedicke/HOU/ECT@ECT, Richard B Sanders/HOU/ECT@ECT
Subject: NGX Litigation and Outside Counsel

Jim (and Richard) my apologies. In the pace of the year-end I forgot to
inform you of a piece of litigation commenced by Enron Canada. The
litigation is against NGX Canada Inc. and Canadian Enerdata, and their
shareholders, Westcoast Energy and OM Groupen for NGX, and Richard Zarzeczny
for Canadian Enerdata.

It is somewhat complicated. In brief, NGX operates an electronic natural gas
trading brokerage which suffered competitively after the onset of Enron
Online, and Enerdata publishes the only available and reliable natural gas
indices for our market. Traditionally the indices were based upon a
comprehensive survey of fixed-price physical gas transactions over the broad
market. Presumably to coerce business onto the NGX system, and with two
days' notice, NGX purchased the right to calculate the indices (as opposed to
Enerdata itself or the publication itself) and changed the methodology for
the indices to include only trades completed on NGX's system. The result is
the indices are, for contractual purposes, quite cleverly unchanged and
therefore still as described in hundreds of our trading contracts and
thousands of transactions, but in substance have been changed to represent
only NGX's segment of the market, which introduces unmanageable volatility
and unreliability, and is affected by other limitations such as the ability
to trade with NGX for a variety of reasons, including credit restrictions or
electronic failure. [ex. We have contracts to buy and sell Coke, somebody
bought the formula for Coke, changed it to Sprite, put the Sprite in the Coke
can, such that we are now forced to buy and sell Sprite under the auspices of
contracts to buy and sell Coke.]

In any event, no commercial alternative was viable, and we decided to
commence a law suit based upon interference with economic relations,
interference with contractual relations, breach of obligations of good faith,
civil conspiracy and passing off. All are viable claims but difficult to
prove. We have to get past simply being outsmarted. We have also decided
not to involve regulators or antitrust enforcement. The discovery process
will be key, and we hope to influence a commercial result that includes all
electronic trading systems, including Enron Online, into the indices. The
lawsuit is for injunctive relief (which will be particularly difficult) and
damages of C$100MM. We hope to garner industry support, but to date and as
usual, many parties agree with our position but are not willing to get
involved. Some competitors are also happy to segregate Enron Online from the
rest of the market.

In terms of counsel, we initially were going to use Robert Anderson of Blake
Cassels & Graydon, who we have used on many matters, but Blakes was
conflicted after the injunction papers were served. We had to find
replacement counsel on short notice and, with the recommendation of Blakes
but based primarily on my prior experiences, retained Clarke Hunter of
Macleod Dixon.

My apologies for not letting you know sooner. I had discussed the matter
with Mark before commencing the suit, and Mark asked me to drop you and
Richard a line, but I simply forgot. If you have any questions or concerns,
please call at 403.974.6923. If I don't hear from you, all the best for the
holidays.

Peter.