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Enron Mail |
Elizabeth: here is one of the old e-mails. I'll see if I can find the one
regarding the PECO/Great Bay marketing dispute. John "This e-mail, including attachments, contains information that is confidential and it may be protected by the attorney/client or other privileges. This e-mail, including attachments, constitutes non-public information intended to be conveyed only to the designated recipient(s). If you are not an intended recipient, please delete this e-mail, including attachments and notify me by return mail, e-mail or by phone at 212 424-8125. The unauthorized use, dissemination, distribution or reproduction of the e-mail, including attachments, is prohibited and may be unlawful. John Klauberg LeBoeuf, Lamb, Greene & MacRae, L.L.P. 212 424-8125 jklauber@llgm.com Content-Transfer-Encoding: quoted-printable Date: Mon, 21 Dec 1998 14:31:51 -0500 From: "JOHN G KLAUBERG" <JKLAUBER@LLGM.COM< To: esager2@ect.enron.com cc: stweed@ect.enron.com, MOLEARY@LLGM.COM Subject: Power Marketing Alliances MIME-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Disposition: inline Elizabeth: Following up on our conversations late last week, I reviewed the initial research undertaken by one of our junior associates dealing with the fiduciary duty issues in the context of a power marketing arrangement entered into by ECT to market the output of another party's ("Counterparty's) merchant power plants. My general thoughts are as follows: 1. Significance of Parties' Business and Economic Arrangements. As you know, the precise nature of the business and economic relationship between ECT and Counterparty likely will affect the legal analysis; thus, it will be necessary to keep a close on that issue as the negotiations proceed. It would appear that ECT generally would press for an agency relationship since the law is somewhat more favorable with respect to the ability to carve out areas where the agent does not owe a fiduciary duty to its principal. However, depending on the business and economic negotiations, there may ultimately be some risk that ECT could be deemed to be in a "partner" role vis-a-vis the Counterparty. We assume, for example, that ECT would possess the power to bind the Counterparty to power sales contracts with third parties (subject, most likely, to specified parameters), at least with respect to spot market type deals. (This likely will be the case even if the Counterparty has the right to terminate the agreement at anytime -- which termination effectively would be prospective in nature since any existing deals would continue to binding on Counterparty). The risk of deemed partner status probably will exist regardless of whether the governing agreement specifically provides that the arrangement is not intended to create a partnership. A further indicia of partner status would be if ECT's compensation is tied to net profits, particularly if ECT also shared in losses to some extent (e.g., perhaps in the nature of an overall "netting" or "tracking" account pursuant to which, for example, profits previously paid out to ECT would be recaptured with future losses (but never go below zero)). Another factor running in favor of partner status will be the length of the agreement; a longer agreement often suggests more of a partnership arrangement. 2. The Choice of Governing Law may be Significant. For example, in states that have adopted the Uniform Partnership Act ("UPA") (e.g., New York, Delaware, Pennsylvania), there is more of a concern that a court would impose a higher fiduciary duty standard on ECT. This result is less likely in states that have adopted the Revised Uniform Partnership Act ("RUPA") (20 states, including Texas, California and Montana), pursuant to which the parties can exclude specific categories of activities that are not subject to the partner's fiduciary duty obligation (if the carve outs are not manifestly unreasonable). Although ECT presumably will always take the position that it is not a partner of Counterparty, in analyzing these issues, ECT should try to apply those tougher standards to its relationship in the event a court ever determined that those standards should apply. The bottom line may be that the definitive agreements will need to specifically state that the parties recognize that ECT is in the business of buying and selling power and that it will be in competition with Counterparty, ECT is not obligated to bring Counterparty the best deals, Counterparty can terminate if it is dissatisfied, etc. It will be advisable to list specific activities where it is clear ECT and Counterparty may be in competition, rather than rely on a general waiver of fiduciary duties; the courts clearly do not like advance disclaimers of all fiduciary duties (particularly where, like here, the arrangement is likely to be an exclusive one). Where ECT will need to be particularly careful will be with respect to ensuring against the use of confidential information from the Counterparty and its facilities in its stand alone power trading operations. 3. Other Considerations. One additional consideration to keep in mind. The potential Counterparty you mentioned on the phone intends to project finance, on a nonrecourse or limited recourse basis, many of the plants it proposes to acquire. Like any merchant plant financing arrangement that is being put in place in today's "deregulating" power markets, the project lender will be very involved in any arrangement dealing with the marketing of the power from those plants since, obviously, that is the source of repayment for their loan. The lender(s) could drive, for example, such items as the governing law for the definitive agreements, the term of the agreement, etc. In addition, the lender will be very interested in any economic arrangement that could result in "performance" or similar types of bonuses being payable by the Counterparty to the agent, as well as any "clawback" of previously paid amounts in the event of subsequently incurred negative results. In one similar arrangement with which have been involved, the lender has been very active in the negotiations of a similar type of agreement. My guess is that undoubtedly will be the case in the situation you raised. Thus, ECT's commercial negotiators likely will be encountering multiple parties "on the other side." 4. PECO/Great Bay Dispute. I put on the fax to you again another copy of the previous summary I had put together on the PECO/Great Bay contract dispute for your quick reference. As we discussed, there are a number of provisions in that contract that ECT's originators would find of interest from a commercial perspective -- with the clear caveat that some of them obviously are what lead to the litigation. The allegations in the complaint clearly are, to some extent, of the fiduciary duty type (implied covenant of good faith and fair dealing). Interestingly, there is a lack of language in that agreement trying to carve out PECO's obligations to Great Bay with respect to PECO's own trading operations. I hope the foregoing is at least somewhat useful to you, although the "rules" in this area are fairly blurry. Please call me if you have any questions. John
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