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

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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