
Date: Mon, 27 Nov 2000 05:03:00 -0800 (PST)
From: janice.moore@enron.com
To: janet.dietrich@enron.com, jeffery.ader@enron.com
Subject: Additoinal thoughts re Maine SOS transaction
Cc: george.wood@enron.com, john.llodra@enron.com, jim.meyn@enron.com,
pearce.hammond@enron.com, elizabeth.sager@enron.com
Bcc: george.wood@enron.com, john.llodra@enron.com, jim.meyn@enron.com,
pearce.hammond@enron.com, elizabeth.sager@enron.com

All:
I haven't heard from Woody yet, but I thought I'd chime in to add something
to John's excellent summary of the Maine SOS potential deal.

Perhaps the biggest legal risk is that Enron would be subjected to Maine
rules and regulations on SOS, which could be changed at any time.  During
phone conversations over the last 2 weeks, we explained to Maine PUC staff
that, in a wholesale contract, we usually do not retain this risk.  We
explained the clauses in the UI deal (anonymously, of course) that (1)
prohibit UI from advocating change that would adversely affect us and (2) if
such change occurs anyway, requires UI to negotiate w/ us to restore the
original economic bargain.  The staff indicated a willingness to have the PUC
issue its order awarding the SOS contract also say that the PUC would not
change the rules for the term of that award.  But we don't know how they
would do that (we might see a draft early this week), and that still doesn't
really remove the regulatory change risk  -- only a statute could do that,
and they don't appear to have much of an appetite for that.

On the damages issues, the contract w/ the T&D company gives Enron no comfort
at all.  The T&D company has virtually no liability to Enron, nor does anyone
else.  However, under SOS Rule 301, if Enron defaults, the Maine PUC will
order the T&D company how to handle finding replacement service and Enron
would be exposed to the full replacement costs, in spite of the cap on the
Enron Corp. guarantee.  Effectively, this means that Enron Corp.'s liability
is capped, but the Enron entity that provides the SOS can potentially be sued
by the Maine Attorney General for additional amounts needed to pay for the
additional costs -- or the PUC can approve a rate increase from customers.
(Sounds like this would be a political decision, eventually.)  The difference
between this exposure and how we usually handle this issue is that our
contract usually sets parameters on calculating replacement costs and
requires commercially reasonable behavior, standards for which are widely
accepted and ultimately interpreted by commercial arbitrators in a neutral
forum.  In the Maine situation, if we want to dispute the amounts claimed,
we'd have to argue about whether commercially reasonable behavior was even
required, and we'd be doing that in litigation in a Maine court facing the
Maine Attorney General.

Please let me know if you'd like any other info or wish to discuss further.
Regards,
Janice

EB3861
Assistant General Counsel, Enron North America Corp.
713-853-1794 (Fax:  713-646-4842)



