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Enron Mail |
Tim,
The short answer to your question is: "sort of." Let me explain. The perfect tax clause would say: if there is ever a tax, you (meaning the other guy) will always pay it and we will pay nothing. Obviously a contract containing this kind of clause will not be signed by anyone. So, a further, compromise type step is to say: ok, if there is ever a future tax, and it is materially painful, and we can't work out a way of dealing with it among ourselves, then we will terminate the contract and split the termination payment for mark to market exposure 50-50. A clause containing this kind of language has been used in the past, but it is not part of the EEI or WSPP, for example, and one cannot say it is widely in effect in our agreements. What the standard power contracts end up doing is compromising. They dodge the issue and I am not sure that a perfect bilateral contract could do any better. They basically say that if there is ever a tax, either existing or future, the Seller will pay it if it falls on the transaction before the Delivery Point, and the Buyer will pay it if it falls on the transaction at and after the Delivery Point. The poor innocent Delivery Point is forced to be the arbitrary fulcrum upon which tax allocation must precariously teeter. What the standard language forces us to do is anxiously hope that in every transaction we ever do that we will be on the side of the Delivery Point that will save us from the tax. The other guy is in exactly the same boat. When a price cap is actually imposed, whether it be called a price cap by the FERC or called windfall profits tax by California, there are two fundamental legal questions: 1. Should we keep doing business at all? 2. Do our contracts protect us from the tax in respect of our existing business? The Legal group (Elizabeth, Steve and me, keeping contact with Mark Haedicke) are working through an analysis of this situation and are trying to get the Tax Department's input which is very important and which we must ultimately be guided by. My suggestion to you at this point is that we should not just plunge ahead doing long term deals in California, but should pause and make sure we have thought this thing out very carefully. We will try to help as much with this big issue as soon as we can. ----cgy -----Original Message----- From: Belden, Tim Sent: Thursday, May 10, 2001 7:07 AM To: Christian Yoder/HOU/ECT@ECT Subject: FW: City of Palo Alto - credit reserve do our contracts have any standard language referring to the allocation of future tax burdens. specifically, if california implemented a gross receipts tax whereby any revenue that we receive in excess of $60.00/MWh would be subject to a 50 percent tax. -----Original Message----- From: Ngo, Tracy Sent: Wednesday, May 09, 2001 10:02 AM To: Hardy, Trey; Chang, Fang; Law, Samantha; Dunton, Heather Cc: Rosman, Stewart; Badeer, Robert; Belden, Tim; Buy, Rick; Bradford, William S.; Rohauer, Tanya; Sacks, Edward; Conwell, Wendy; Radous, Paul Subject: City of Palo Alto - credit reserve Please note the following addition to the domestic credit reserve for May 2001: CP: City of Palo Alto Enron Entity: EPMI Deal #: 605356.1 Deal Specifics: EPMI Sale Term: 6/1/2001 thru 1/31/2005 Delivery Point: NP-15 (Firm CAISO Energy) Volume: 25MW, 7X24; 804,600 nominal MWh) Price: $95.00 Trader/Mid-Marketer: Bob Badeer/Stewart Rosman Credit Reserve Amount: $185,000 (one hundred eighty-five thousand USD) RAC: Deal confirmed under new EEI Master Power Purchase and Sale Agreement w/margin rights. Please let me know if you have any questions to the above. Regards, Tracy Ngo 503-464-8755
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