----- Forwarded by Elizabeth Sager/HOU/ECT on 04/23/2001 10:49 AM -----

	"JOHN KLAUBERG" <JKLAUBER@LLGM.COM>
	04/22/2001 07:59 PM
		 
		 To: Elizabeth.Sager@enron.com
		 cc: "BENNETT YOUNG" <BYOUNG@LLGM.COM>, "CARL EKLUND" <CEKLUND@LLGM.COM>, 
"JAMES HUEMOELLER" <JLHUEMOE@LLGM.COM>
		 Subject: Draft PG&E Letter



PRIVILEGED AND CONFIDENTIAL: ATTORNEY WORK PRODUCT

Elizabeth:

Attached is draft of the termination payment letter with a few suggested 
changes, but nothing major.  I tried to include a blackline, but it seemed to 
get corrupted so I don't know if it will be of much use to you. A few notes:

(1)  I did not have the various contracts with me when I reviewed this, but I 
have asked Jim if he could make sure I did not make any inaccurate statements 
as well as input the few contract section references that are open and the 
information on the Canadian termination.  (However, I was not sure whether 
you wanted Peter Keohane to input the relevant information on the Canadian 
side.).

(2)  In light of PG&E's letter to us, I thought we may want to make some 
short statements about the affiliate set off rights under the Bankruptcy Code 
in the termination letter.

(3)  I modified some of the language on the CalPX liabilities.  I didn't have 
my exposure sheet with me, but I thought I recall that we were both owed 
money from the CalPX  and that we had some risk on the chargeback liability 
depending on how FERC ultimately comes out on the issue.  As you know, the 
FERC decision about 3 weeks ago prohibited the CalPX from proceeding with the 
chargeback "under these circumstances" or some type of language like this, 
but it seemed to have punted the final resolution of the issue until at least 
the commandeered contract valuation issue had been resolved--thus, although 
perhaps not likely, it seemed to me at the time that FERC gave itself an 
opening to reconsider the chargeback issue after the valuation determination 
had been made.

(4)  While I bracketed the language, I thought we may want to affirmatively 
and briefly set forth the business reason why EPMI is holding the direct 
access claim to at least give them something to think about.  As we have 
discussed, PG&E's likely reaction will be that we are using unsupportable 
self help to not pay them anything on the termination of the 3 power 
confirmations by claiming a set off for the negative CTCs.  To the extent we 
can articulate a short business rationale for EPMI having that claim, it may 
at least make them pause as to whether our business rationale arguably could 
prevail.

(5)  We note in the letter certain claims we have against PG&E that we are 
not setting off--e.g., the ISDA termination payment.  We also reference the 
claims held by EPMI through the CalPX, even though we are not "terminating" 
any "contracts" in that respect.  I assume that we do not want to reference 
in the letter the claims held by Portland General which "route" through the 
CalPX and the ISO, even though we are not claiming rights of offset for 
those.  PG&E will be put on notice of those when we put in Portland's claims 
as part of our proof of claim with the bankruptcy court.

 I'll plan on getting together with you to review this tomorrow afternoon.  
Lastly, I have not read the decision yet, but I saw that the DC Circuit 
upheld FERC in all respects in the PCA case so since our contracts do not 
have to be on file, they can be terminated without waiting for the 60 day 
period to expire.  That should reduce another potential challenge to the 
power contract termination.

Thanks.

John



John Klauberg
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
212 424-8125
jklauber@llgm.com


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