FYI.
---------------------- Forwarded by Kay Mann/Corp/Enron on 06/13/2000 08:52 
AM ---------------------------


"Boyd J. Springer" <Boyd_J._Springer@jonesday.com> on 06/12/2000 07:23:44 PM
To: dtucker@bracepatt.com, cdade@bracepatt.com, Kay.Mann@enron.com
cc:  

Subject: Agency Agreement





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Here are my comments re Peoples' mark-up:
                                         1. Sects. 1.1, 1.11, 10.2, and
15.1(f). The combined effect of the proposed changes to these sections is
to significantly broaden the terminantion right in the event that
governmental action related to the agreement is modified in a manner
unacceptable to either party. As changed the unacceptable approval can come
at any time during the term of the agreement, and need not  involve
approval  "required" for the agreement to remain effective. Peoples did not
propose to include language from the comparable NIGAS Hub Agreement which
refers to adverse "rate approval". However, Peoples' intent may be to
obtain a termination remedy in the event of an adverse rate-making decision
re the treatment of Hub revenues. In any event, the meaning of a
termination right triggered if a government approval (not necessarily
required for the agreement to remain in effect) is modified "in any manner
which is unacceptable" is, at best, unclear. We should try to stay with the
original language (or, perhaps, limit expansion of the termination right to
circumstances when a "required" approval is revoked.) While the broadened
termination right proposed by Peoples is available to either party, I
wouldn't think it likely that MEH would wish to terminate as a result of a
modified regualtory decision not required for continuation of the agency
arrangement.
2. Sects. 1.6, 7.1. 2.2, 2.10 (comments re cumulative net revenue
definition) As modified, MEH is charged with the duty to market Hub
Serivces, which includes Extended Hub Serivces (Def'n. 1.17). However, the
proposed Adminisatrative Service Fee (7.1) is only payable during the term
of the Agreement. MEH, therefore, is required by the Agreement to market
extended Hub Services, but receives no compensation (after termination of
the Agreement) for doing so. Also, Peoples proposes to add provision (C)
eliminating refund amounts from the definition of Cumulative Net Revenue.
Apparently in conjuction with this, Peoples proposes to delete the last
sentence of 1.6 which requires a retroactive adjustment of cumulative net
revenue in the event of a refund. Peoples also has bracketed 7.3,
apparently intending to exclude it. I suppose this is fine from MEH's
perspective. The effect of these changes is to deduct only amounts actually
refunded from the revenue base for the administrative fee, and not require
a retroactive adjustment. This could benefit MEH if the agreement
terminates before a refund is required. No retroactive adjustment would be
needed.
3. Sect. 1.9, 2.5. Peoples proposes to delete the requirement that it make
nominating or scheduling changes on interstate pipelines for receipt or
delivery of gas needed for hub transactions or delivery of gas at a
secondary point for displacement delivery. Northern Illinois Gas Co. did
agree to these provision in the contract with its Hub Agent. I do not know
the value of these commitments to MEH from a business standpoint.
                         4. Sect. 1.13. Peoples proposes that the GTC be
defined to included changes made by Peoples in its sole discretion.
Peoples, however, is not free to change the GTC as it sees fit. FERC may
elect to allow changes proposed by Peoples to become effective, but Peoples
can, at most, "propose" changes in its sole discretion. How about: "the
effective general Terms and Conditions of the Operating Statament as may be
modified from time to time." Sect. 6.1 gives Peoples a right to propose
changes to the GTC, so there is no need to cover that here.
                              5. Sect. 1.17. The GTC does not indicate that
Parking and Loaning Service must be interruptible. I will review this
further.                      6. Sect. 2.2. Peoples has modified the
language giving it responsibility to ensure compliance with the GTC to
assign this obligation to both parties. The intent was to comply with
requirements of FERC orders indicating that an agent need not be
certificated as a "natural gas company", if there is another entity with
clear responponsibilty to ensure compliance with the Natural Gas Act and
FERC regulations. I suggest we stay with the origianl language indicating
that Peoples, the certificate holder, has the responsibility to ensure
compliance with regulatory requirements.
          7. Sect. 2.4b The thrid sentence is confusing in light of the
sending sentence indicating that MEH must consent to a change in
information re firm capacity. Perhaps "in its sole discretion" can be
delted and the last word of the third sentence changed to "appropriate".
                              8. Sect. 2.5. New Item 3 of the list of
grounds for refusal should be deleted. The GTC (Sect. 8.2) specifies the
grounds on which Hub Serivce can be denied. The Agency Agreement should not
add to this. Also, the GTC expressly requires that firm serivce provided
under the Operating Statement and firm serivce under peoples' Illiniois
tariffs have equal scheduling priority.
                                   9. Sect. 2.10. This Section places the
risk of non-payment on MEH, unless Peoples conducts the credit check. This
is how risk was allocated in the NIGAS Hub Agreement. That agreement,
however, provided for a 50/50 split of Hub revenue. As proposed by Peoples,
MEH would receive only an agency fee and lesser percentage of revenue. With
the changed allocation of revenue, a changed allocation of non-payment risk
also may be appropriate. Normally, the this risk should follow
responsibility for accepting the transaction. At a minimum, non-payment
risk should be assigned to Peoples if (i) it performs the credit check; or
(ii) requires MEH to accept a Hub customer which MEH has rejected based on
a credit analysis conducted under the GTC (Sect. 8.2).
     10. Sect. 3.3. The required refunds could be large relative to the
administrative fee. The revised language requires MEH to finance refunds
for ten business days. Should there be an interest component?
                                                        11. Sect. 3.4. This
Section suggests that MEH will receive a fee for Extended Hub Services. I'm
don't see how this occurs under the revised language.   12. Sect. 3.5.
Peoples proposes to delete the language requiring best efforts to minimize
imbalances. Compliance filings due this summer under FERC Order 637 are
expected to offer incentives related to avoidance of imbalances and Peoples
should attempt to use these procedures. We should discuss this with them on
Wed.
                    13. Sect. 5.1. Peoples has modified the warranties to
indicate consistency of the Agency Agreement with "material" contractcs and
Judgments or Laws not expected to have a material adverse effect. Is it
suffucuent to have minor contract violations and inconsistency with some
Laws/Judgments?               14. Sect. 7.1 The NIGAS Hub Agreement did not
have a flat fee component.
15. Sect. 10.1. Because the Governmental Approval must be acceptable to
both Peoples and MEH, People should not have "sole" authority to prepare
and file all applications.
                                         16. Sect. 10.2. See comments above
re Governmental Approval. Also, I don't think there is a need for the word
"expressly" in the first sentence.            17. Sect. 11.1. Should the
Section require consent for transfer by operation of law if we wish to have
this requirement in the event that the Hub facilities are sold?

          18. Sect. 15.1 (a). If this type of provision is going to be
included, should there at least be an initial period (say a year) to get
started which doesn't trigger a termination right? The NIGAS Agreement had
a section along these lines.
          19. Sect. 15.1 (f). See comments above re Governmental Approval.
                                                   20. Former 15.1 (f) now
deleted. This provided that the Agency Agreement could be terminated is MEH
is dissolved. This seems necessary to me.          21. 15.1 (g) Peoples
wishes to have sole discretion to change its Facilities or the GTC, but
proposes to limit MEH's termination right in the event that such a change
impairs the HUB's marketability. It seems reasonably to allow MEH to
terminate if it believes that HUB marketability is impaired, without a need
to demonstrate reasonableness.
                                         22. Sect. 17.1 I don't understand
why Peoples wishes to require confidentiality for the compensation
sections. The Illinois Commission Staff and interested parties would have
access to this information under a protective agreement. This would
unnecessarily complicate the approval process and I don't know what there
is to gain from secrecy. These provisions were part of the public record in
the NIGAS approval case.                                     That's all.
Let's discuss tomorrow.