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Enron Mail |
Here is the last of the emails that I'd like you to review. I've sent an
earlier email that explains the context of these emails. I'm sure there is a way I could have pasted them altogether so that you wouldn't get separate one, but I haven't figured out how to do that. Thanks. ---------------------- Forwarded by Melanie Gray/HO/WGM/US on 01/30/2001 02:27 PM --------------------------- "McFarland, Mitch" <mmcfarland@lockeliddell.com< on 01/29/2001 09:01:08 PM cc: "Schumacher, Amy" <aschumacher@lockeliddell.com<, "Williams, Stacy" <SWilliams@lockeliddell.com< Subject: RE: Could this be Trust counsel's argument? What Tim describes is how PCA plead their case against El Paso, without the concession on direct bookouts. PCA will find support in the current version of the WSPP which provides for a termination payment based on a "mark to market" theory -- that is, whoever is ahead in the deal gets the proceeds of market over contract even if the other party has grounds to terminate. dmm -----Original Message----- From: Baird, Tim [mailto:tim.baird@troutmansanders.com] Sent: Monday, January 29, 2001 7:02 PM To: Billeck, Jason; Casher, Dick; Dweck, Jake; Fisher, Mark; Goldberg, Tom; Gray, Melanie; Greenswag, Douglas; Hedberg, Steven; Henzy, Eric; Jim Nolan; MacIntyre, Bruce; Martini, Deidre; McFarland, Mitch; Murphy, Rick; Oberdorfer, Dan; Stenglein, Mike; Steve Northup; Strasburger, John; Tim Baird; Trostle, Patrick; Turner, Paul; Zuch, Sharyn Subject: Could this be Trust counsel's argument? Troutman Sanders Mays & Valentine LLP ??????? ??????? ??????? ??????? ??????? Timothy S. Baird ??????? ??????? ??????? ??????? ??????? Phone:? (804)? 697-1227 ??????? ??????? ??????? ??????? ??????? Fax: (804) 697-1339 ??????? ??????? ??????? ??????? ??????? tim.baird@troutmansanders.com Joint Defense Privileged Communication Group - Paul Turner and I were discussing the following interpretation of the liquidated damages clause in PCA's confirmations, which we believe is likely going to be Trust counsel's argument in the mediation. The language of the liquidated damages provision (LD Provision), which I have simplified, is as follows: "Damages for Non-Performance (1) For this firm transaction, if the Buyer fails to schedule and/or to receive the Quantity, where such failure was not excused . . . by Seller, Buyer shall pay Seller (on the date payment would otherwise be due under this transaction) an amount for each MWh of such deficiency equaling the sum of: (i) [the contract price] minus (ii) [the market price]; provided however, if the amount determined in the preceding clause is negative, then the amount shall be equal to zero for purposes of calculating the deficiency payment. (2) For this firm transaction, if the Seller fails to schedule and/or to deliver the Quantity, where such failure was not excused . . . by Buyer, Seller shall pay Buyer (on the date payment would otherwise be due under this transaction) an amount for each MWh of such deficiency equaling the sum of: (i) [the market price] minus (ii) [the contract price]; provided however, if the amount determined in the preceding clause is negative, then the amount shall be equal to zero for purposes of calculating the deficiency payment. (3) [acknowledgement that these provisions are for liquidated damages and not a penalty] (4) [exclusive remedy provision]" To illustrate how I think that the Trust interprets this LD Provision, lets assume that PGET had a contract to sell power to PCA for delivery at Cinergy during July-August 1998 at a price of $50/MWH ("the Transaction").? Let's assume that, based on PCA's payment or delivery defaults, PGET terminates the Transaction and all other forward transactions with PCA in late June 1998.? Let's assume further that the market price for power at Cinergy was $100/MWH on the date of termination (without getting into whether you look to index price of forward price). The Trust will argue that PCA failed to schedule and/or receive power from PGET under the Transaction, and therefore PCA must make "the deficiency payment" to PGET under clause (1).? Under clause (1), however, this deficiency payment would be zero. The Trust will argue further that PGET also failed to schedule and/or deliver power to PCA under the Transaction, and therefore PGET must make "the deficiency payment" to PCA under clause (2).? Under clause (2), PGET would have to make a deficiency payment of $50 times the Quantity. The Trust will argue further that, under the express contractual language of the LD Provision, it doesn't matter whether PCA was able to actually perform under the Transaction.? The parties' intent in entering into an agreement containing the LD Provision was to require each party to pay "the deficiency amount" in the event that the Transaction is not performed.? The only situation where a party would NOT have to pay "the deficiency amount" is (a) in the event of force majeure, or (b) when the other party excuses performance.? PCA will argue that, regardless of whether it was in default or unable to perform, it did not excuse performance by PGET under the Transaction. The Trust will argue that this is the parties' express contract and sole remedy in the event of non-performance.? Therefore, the Trust will argue, it does not matter whether PCA was able to perform the contracts.? If a contract was not performed, then the damages are calculated under the LD Provision. The Trust will also argue that it does not matter whether PGET had a RIGHT to terminate the Transaction because of PCA's default.? It only matters that the contract was not performed. Moreover, I am confident that this interpretation of the LD provision is the basis for the "positive difference" damages calculation that Peter keeps referring to.? With regard to damages, I imagine that the Trust will argue that: (A) Under direct book-outs, performance is excused; therefore, you net the contract price of the two contracts. (B) Under all other transactions, you look solely at whether power was scheduled and/or delivered.? If not, then you calculate each party's liquidated damages, with respect to each and every transaction, under clauses (1) and (2) of the LD Provision. The advantage this line of argument is obvious: (1)? It is based on the express language of the confirmation statement that the Trust will contend was part of the contract; (2)? It is a simple response to the inability to perform argument; and (3)? It actually makes sense in the context of a commodities market. This is what we are going to hear from the Trust in their mediation submission. "'Baird, Tim'" <tim.baird@troutmansanders.com<; "Billeck, Jason" <jason.billeck@weil.com<; "Casher, Dick" <CasherRF@bingham.com<; "Dweck, Jake" <jdweck@sablaw.com<; "Fisher, Mark" <mfisher@schiffhardin.com<; "Goldberg, Tom" <tdgoldberg@dbh.com<; "Gray, Melanie" <melanie.gray@weil.com<; "Greenswag, Douglas" <douglas.greenswag@leonard.com<; "Hedberg, Steven" <HEDBS@PerkinsCoie.com<; "Henzy, Eric" <ehenzy@reidandriege.com<; "Jim Nolan" <JNolan@maysval.com<; "MacIntyre, Bruce" <macib@perkinscoie.com<; "Martini, Deidre" <d-martini@ibolaw.com<; "McFarland, Mitch" <mmcfarland@lockeliddell.com<; "Murphy, Rick" <RGMurphy@SABLAW.COM<; "Oberdorfer, Dan" <dan.oberdorfer@leonard.com<; "Stenglein, Mike" <mike.stenglein@weil.com<; "Steve Northup" <SNorthup@maysval.com<; "Strasburger, John" <john.strasburger@weil.com<; "Tim Baird" <TBaird@maysval.com<; "Trostle, Patrick" <TrostlPJ@bingham.com<; "Turner, Paul" <pturner@SABLAW.COM<; "Zuch, Sharyn" <SBZ@Wiggin.com< **********NOTE********** The information contained in this email message is intended only for use of the individual or entity named above. If the reader of this message is not the intended recipient, or the employee or agent responsible to deliver it to the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately notify us by telephone (713-546-5000), and destroy the original message. Thank you.
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