I think we should restrict Peter's memo's to 50 words or less.  Please 
advise.  Lavo.
---------------------- Forwarded by John J Lavorato/Corp/Enron on 06/22/2000 
05:49 PM ---------------------------
   
	Enron Capital & Trade Resources 
	Canada Corp. 
	
	From:  Peter Keohane @ ECT                           06/22/2000 01:05 PM
	

Sent by: Nella Cappelletto@ECT
To: Derek Davies/CAL/ECT@ECT
cc: John J Lavorato/Corp/Enron@Enron, Rob Milnthorp/CAL/ECT@ECT, Jeffrey T 
Hodge/HOU/ECT@ECT, Robert Hemstock/CAL/ECT@ECT, Mark Powell/CAL/ECT@ECT 

Subject: Alberta Power Purchase Arrangement Auction

I have considered on a preliminary basis the potential use of a limited 
liability subsidiary of Enron Canada Corp. for the purposes of bidding on the 
PPAs.  The issues and preliminary answers are in summary the following:

1. It is not clear that Alberta would permit qualification of another Enron 
Canada entity at this point.  I believe that it would be more sellable if 
that Enron Canada entity was a replacement to Enron Canada as a Qualified 
Bidder, rather than an additional Qualified Bidder, and if that Enron Canada 
entity was similarly guaranteed by Enron Corp.  I need to discuss this matter 
further with Rob Hemstock, Alberta and Charles River.

2. With respect to the Enron Corp. Guarantee, as mentioned, it is not free 
from doubt, but I believe that the Guarantee is only in respect of bidding 
on, and paying for a PPA and not for ongoing performance or payment 
obligations under the PPA.  In other words, the Guarantee guarantees 
"Obligations" which relate to the bidding process and not to the PPAs 
themselves, although there is some wording which could be viewed as including 
in "Obligations" ongoing obligations with respect to the PPAs themselves.

3. With respect to limiting liability, such Enron Canada entity would limit 
exposure for a successfully acquired PPA to the contributed capital to such 
Enron Canada entity, assuming the Enron Corp. Guarantee would not extend past 
the bidding process as noted in paragraph 2 above, and subject to the common 
law relating to "piercing the corporate veil", which in essence means that 
the limited liability protection of a shareholder through a corporate entity 
can be looked through if the courts determine that the corporate entity was 
established merely for the purposes of avoiding liabilities properly 
attributable to the shareholder.  Although this is a difficult test to prove 
given the intended purposes of corporate and other limited liability 
entities, it is best to establish the limited liability entity in such a way 
that it has the greatest appearance of an operating company (for example, a 
separate board of directors, separate management, separate employees, 
separate operating agreements and leases, etc.).  As mentioned, however, it 
is all a matter of degree and generally speaking it is difficult to establish 
a case where the courts will allow the "corporate veil" protecting 
shareholders to be "pierced".

4. With respect to capturing tax losses incurred in the limited liability 
entity, if Enron Canada is the sole shareholder so that there is no change of 
control on a winding-up into Enron Canada, Enron Canada can avail of tax 
losses incurred in the Enron Canada entity through a winding-up.  Obviously, 
however, this would mean that Enron Canada takes on the liabilities of the 
special purpose entity as a result of the winding-up, including the 
liabilities for any acquired PPA.  Otherwise, the general rule is that the 
tax losses, if any, would be captured inside in the Enron Canada entity and 
would not be available to be used against Enron Canada's taxable income.

5. With respect to Project Stanley, there is really no established case 
authority directly on point, but the better view is that any sanction, if and 
when imposed on Enron Canada, would be imposed in a way that would prevent 
Enron Canada from indirectly avoiding the application of the sanction, such 
as by moving certain business operations into a special purpose entity.  In 
other words, if Canada or Alberta were intent on suspending or affecting 
Enron Canada's abilities to transact through the PPAs or otherwise in the 
Alberta Power Pool, it is likely that the sanction would be imposed upon 
Enron Canada and its affiliated entities also transacting through the Power 
Pool.

Based upon the preliminary answers, please let me know if you want a more 
detailed legal opinion to consider these issues further and whether Hemstock 
and I should be approaching the Government to qualify a special purpose 
entity.

Regards, Peter