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>





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