This should provide you with some background on the Dutch problem.  If you 
have any questions, please call.

 Thanks, Jeff
---------------------- Forwarded by Jeffrey T Hodge/HOU/ECT on 01/18/2000 
11:24 AM ---------------------------


Mark Elliott
01/18/2000 06:09 AM
To: Tjepco.vanVoorstVader@cliffordchance.com
cc: ed.patton@cliffordchance.com, Joe Gold/LON/ECT@ECT, Roy 
Poyntz/LON/ECT@ECT, Ross Sankey/LON/ECT@ECT, Teun Van Biert/LON/ECT@ECT, Dirk 
Van Vuuren/LON/ECT@ECT, Stephen Asplin/LON/ECT@ECT, Andreas 
Lorenz/LON/ECT@ECT, Reuben Maltby/LON/ECT@ECT, Michael R Brown/LON/ECT@ECT, 
Jeffrey T Hodge/HOU/ECT@ECT, Mark Schroeder/LON/ECT@ECT 
Subject: URGENT - Dutch txn - Year 2000 - Issues to work up into a legal 
strategy: STRICTLY PRIVATE & CONFIDENTIAL - ATTORNEY - CLIENT PRIVILEDGE

Tjepco,

Herewith the various issues relating to Dutch transmission for the Year 2000 
upon which we need your, and your colleagues', advice with respect to framing 
an entire coordinated legal strategy for Enron so as to apply the maximum, 
effective, legal pressure on the various parties and to effect a resolution 
to such issues as quickly as possible; the longer the current situation 
persists the more money Enron will lose.

Please note the following when planning our legal strategy:

- Enron Capital & Trade Resources Limited ("ECTRL") (an English incorporated 
company) is our company which has entered into physical electricty sales 
contracts to supply certain Dutch Distribution Companies. The physical supply 
contracts are governed by Dutch law and are subject either to ICC arbitration 
in either Paris, Rotterdam or the Hague or the NAI in Rotterdam or the Hague 
(dependant upon the counterparty). 

- ECTRL is also a Participant on the APX.

- Enron Capital & Trade Resources International Corp. ("ECTRIC") (a company 
incorporated  in Delaware, U.S.) is the Enron entity which, as principal, 
enters into financial swaps, arranged through Enron Europe Finance & Trading 
Limted ("EEFT") (an English incorporated company which is regulated by the 
SFA),  with, among others,  Dutch Distribution companies.   The swap 
contracts have all been dicumented on a "Deemed" ISDA basis (representative 
confirms have already been sent to you on this aspect).
    
1. Query: What actions  do we have against TennetT re allocation of capacity 
by TenneT for Yr 2000 in November 1999?

Allocation of capacity by TenneT to SEP (first step in allocation which 
defined market quota)

Misapplication of rest of capacity (i.e. 800 MW) by TenneT to other Market 
parties (e.g., Enron) : allocation favoured incumbents based on market share

General unreasonable behaviour / lack of good faith of TenneT
Misleading market with early rules; addition of extra unfounded rules post 19 
Nov (in reasonable knowledge that market parties had already acted on earlier 
information from TenneT).
1,2 Jan 2000 : closing Dutch market to imports (query whether this was also 
for the UCTE system support activities; suspect not) in an unreasonable 
fashion ie changed procedures when it had no need so to do.  The normal 
procedures whereby TenneT curtailed in the event of a problem on the day 
would have been sufficient to maintain system stability.
Disingenous allocation of 2300 MW in off-peak capacity (night) at the same 
time as indicating to the market that no more than 1000 or 1200 MW was 
expected by TenneT to be available for use due to Sep's plant despatch 
regime.  Reasonable action would have been to allocate no more than the 1000 
MW to Sep and the market on a term basis with any additional capacity 
available on a given day treated as (uncertain) spot capacity and allocated 
to the APX.
Lack of checking and/or other disingenuity re' failure properly to check Sep 
take or pay obligations.
Lack of transparency of information eg French grid problems result in cut of 
300 MW available to APX.  No assistance from TenneT either to provide 
guidance as to the real extent or duration of the problem or to take 
reasonable steps to mitigate the problem by eg co-operating with market 
parties aiming to put in place offsetting transit arrangements to alleviate 
the congestion.

PLEASE NOTE THAT THIS IS ALREADY SUBJECT TO AN EXISTING NMA COMPLAINT 
COMMENCED THROUGH LOEFF CLAEYS IN DEC 1999.

Query as a first stage: what injunctive and/or other relief can we bring 
against TenneT for unlawful allocation to Sep re' non take or pay element?  
(In our view, this would provide some immediate commercial relief to Enron) 

Evidence:  Herkstroter report (implied), 1999 despatch regime (implied), 
general market "consensus", electricity plans?, DTE consultation paper on 
transmission (reference to virtual power plants), EZ/DTE advice which limited 
reservation to take or pay (hence only needed if some parts were non take or 
pay).  Current despatch levels on term deals (imply Sep taking 1500 MW).  
Query method of putting all of this in evidence, discovery etc. 

Resolution required: 
Deny Sep right to use TenneT capacity for non-take or pay elements (nb 
relevant take or pay is energy component ie obligation to import at border cf 
take or pay on "virtual" capacity)
Release capacity to APX in accordance with existing "use it or lose it" 
principle or TenneT to allocate to term market under "weekly" contract 
category established by DTE.
Damages against TenneT

2. Query:  Actions against SEP

 Unlawful speculative reservation or other unlawful reservation of capacity 
by SEP (e.g. re non take-or-pay elements).    

 Unlawful retention and / or unlawful application of capacity by SEP once 
granted capacity by TenneT (blocking of essential facilities, i.e., 
generation, to  other parties)

 Plant despatch : see below re' collusive behaviour.

 Protocol : Sep refusing to contemplate changes to superpeak charges (which 
in no way bear reasonable relation to supply/demand or electricity  
production costs).

Query : availability to Enron of injunctive and/or other relief against Sep 
for (a) unlawful application and retention (eg query damages action against 
Sep) and /or (b) nature plant despatch and / or (c) conduct re Protocol. 

Evidence : Herkstroter report (implied), 1999 despatch regime (implied), 
general market "consensus", electricity plans?, DTE consultation paper on 
transmission (reference to virtual power plants), EZ/DTE advice which limited 
reservation to take or pay (hence only needed if some parts were non take or 
pay).  Current despatch levels on term deals (imply Sep taking 1500 MW).  Sep 
newspaper quotes (intent to use 1500 MW day and night) - intended block on 
capacity and refusal to contemplate change to superpeak pricing.  Query 
method of putting all of this in evidence, discovery etc. 

3. Query: Actions against the APX

 For failing to enforce the APX Rules on ensuring firm cross-border capacity 
pre-bid

 - Query: availability (and speed) of injunction under Dutch law against APX

 - Query: ability of Enron to claim damages against APX for losses suffered 
owing to failure of APX to enforce its Rules.

Note failure of APX to enforce its Rules causes losses both to:

(a) ECTRL on its physical sales onto APX from Germany (and Belgium) by virtue 
of other parties preventing legitimate level of sales by ECTRL by breaching 
APX rules Art 12.1 etc.
   
(b)  ECTRL on its physical supply contracts (as prices on the APX are 
artificially higher than contracted supply price);
plus

(c)  ECTRIC on swaps - ECTRIC shorted APX floating price to certain APX 
Participants whom we believe are now manipulating the APX, causing 
artificially high prices, hence securing more profit out of the swaps.
      

4. Query: Actions against APX Participants for manipulating the APX DAM 
causing losses to Enron

Note manipulation of APX DAM by certain Participants causes losses both to:

(a) ECTRL on its physical sales onto APX from Germany (and Belgium) by virtue 
of others parties preventing legitimate level of sales by ECTRL by breaching 
APX rules Art 12.1 etc. 

(b) ECTRL on its physical supply contracts (as prices on the APX are 
artificially higher than contracted supply price); plus

(c) ECTRIC on swaps - ECTRIC shorted APX floating price to certain APX 
Participants whom we believe are now manipulating the APX, causing 
artificially high prices, hence securing more profit out of the swaps.

(Note - Check: Ability of Dutch counterparties to swaps to speculate rather 
than hedge by way of OTC Derivatives and any good faith/integrity issues re' 
parties use of speculative cf hedging swaps combined with deliberate and 
systematic market manipulation by swap counterparts).
 
Query:  what action can we take against APX Participants (i) to prevent them 
further manipulating APX and (ii) claiming our losses against them on both 
ECTRL's physical supply contracts and ECTRIC's swaps?       

 In particular: 

 - Query:  availability of injunction against APX Participants to prevent 
them from manipulating APX DAM

 - Query:  availability of legitimate non-performance by ECTRIC of swaps and 
legitimate non-performance of physical supply contracts by ECTRL (or   
reliance on liability caps) 

 - Query:  availability of pre-emptive damages or other forms of action(s) 
against swap counterparties
 
 - Query: best jurisdiction (esp. re swaps - English, Dutch US)?

 - Note:  need to obtain from a strategic perspective best jurisdiction(s) 
and best course and causes of action on a pre-emptivebasis as far as possible 
- to avoid claims of forum shopping and bring maximum pressure; plus advice 
needed on whether we should take pre-emptive action or to defend and / or 
counterclaim if we get sued if we do not perform on swaps or physical 
contracts.
 
 - Query:  standard and nature of evidence we need to prove manipulation + 
query availability of discovery re such conduct in the various pertinent 
jurisdictions.  

5. Query:  Actions available to Enron against Parties for collusive behaviour

Supply market actions

Deliberate and systematic attempts by certain parties (predominantly large 
Dutch distcos) to deny new entrants ability to access capacity/energy at 
reaonable prices by virtue of a) withholding capacity within NL ie Protocol 
and b) breaching APX rules (gaming) in such a fashion as to block legitimate 
access for those parties with foreign txn to sell legitimate volumes on APX 
consistent with APX rules.   Effect of withholding capacity from market 
compounded by (collusive) actions to manipulate APX prices by strategic 
bidding.

 - Protocol: Collusive behaviour suspected by Dutch Distcos re locking 
parties out of re-contracting and use of Protocol to disadvantage of new  
market entrants (e.g., see EnergieNed letter: ?? now in public domain + note 
transcript of Wed 12.1.00 Arnhem Court case on Protocol re intent of parties 
to  keep market short) 

 - APX
  - Art 25.3 APX DAM Regs - collusion by certain APX Participants suspected 
re rigging APX prices

  - Art 12.1 APX DAM Regs - collusion suspected by certain APX Participants 
re failing to ensure that parties have firm cross-border capacity prior to   
making bids on to APX   

Sep/TenneT

- Import allocation : collusion to fudge take or pay issue?
- Plant despatch by Sep : collusion to ensure that Sep can despatch plants in 
such a fashion as to minimise possible imports?

Note : burden and standard of proof of collusive behaviour and ability and 
means to obtain discovery of such behaviour.  Some evidence exists from ENECO 
court case (transcript of Arnhem case public?) plus EnergieNed letter pls 
taped APX participants meeting of 10 Jan 2000 (public or accessible to Enron 
as participant?).


Kind regards

Mark