SENT ON BEHALF OF PETER KEOHANE:

FYI
---------------------- Forwarded by Sharon Crawford/CAL/ECT on 05/29/2001 
11:52 AM ---------------------------
   
	Enron Capital & Trade Resources 
	Canada Corp. 
	
	From:  Peter Keohane                           05/14/2001 09:33 AM
	

To: ferickson@cal.stikeman.com
cc: Chris Gaffney/TOR/ECT@ECT 
Subject: Derivatives Regulation

Fred, its been a while - how are you?  

I would like to talk to you regarding a summary of the applicability (and 
more accurately non-applicability) of certain regulatory requirements to our 
energy intermediation business.

In particular, I have in mind the Natural Gas Marketing Act (Alberta), 
Securities Act (Alberta), Securities Act  (British Columbia), Securities Act 
(Ontario), and Commodity Futures Act (Ontario).

As you know, we are involved in Canada, primarily in Alberta, Ontario and BC, 
in physically and financially-settled commodities trading and origination, 
primarily for gas and electricity, and providing risk management and 
commodity portfolio advice to various counterparties.

It would be useful to have an analysis, both for internal purposes and to 
share with third parties, confirming the applicability of these regulatory 
requirements to our business.

We currently operate in these areas under the following understandings:

Natural Gas Marketing Act (Alberta) - the Act applies to "netback" 
arrangements applicable to gas aggregation where there is no specified price 
agreed to between the producer and the shipper, and is therefore largely not 
applicable to our business

Securities Act (Alberta) - we are a Qualified Party by virtue of the 
"commercial user" exemption and our counterparties are similarly or otherwise 
exempt, and in any event we obtain a rep to that effect from  our 
counterparties

Securities Act (BC) - similarly, we and our counterparties are Qualified 
Parties and we obtain a rep to that effect (note:  the Qualified Party 
exemption in BC extends only to the registration and prospectus requirements, 
but we otherwise take the "risk" as there is not much we can do to comply 
with the other operative provisions of the Act, which I am not sure even make 
sense in the context of our business)

Securities Act (Ontario) - the proposed amendments have not been enacted and, 
hopefully, if and when they are, we will be able to rely on similar 
exemptions or exclusions

Commodity Futures Act (Ontario) - the Act only applies to exchange traded 
forward contracts or options (whether or not exchange traded) on exchange 
traded forward contracts (or "commodity futures contracts" and "commodity 
futures options"), and not to trading on a spot basis or over-the-counter 
(note:  although we believe there is a technical argument that electricity is 
not a "commodity" under the Act, unless the IMO will be classed as a 
"commodity futures exchange", which we assume it will not (both by its 
purpose and creation and the fact that it is a spot market), and as there is 
no other exchange of which we are aware, either proposed or operative, in 
Ontario for forward gas or power contracts, we understand the Act as not 
being applicable to our business)

What is not so clear to us, particularly with respect to the Securities Acts, 
is how these statutes apply not when we are trading as principal for our own 
account (where we understand the exemptions to apply), but where we are 
providing portfolio positioning or risk management advice to counterparties.  
Do the exemptions apply in this case, or are there some "advisor" or "dealer" 
registration or compliance requirements in these circumstances?  I also 
believe there are registration requirements for advising under the Commodity 
Futures Act (Ontario), but again these would apply to "commodity futures 
contracts" and "commodity futures options" in which we don't deal. 

Fred, I guess, in summary, what we would like is an executive summary-type 
memo (not a formal "legal memorandum") which can be shown to commercial 
employees and counterparts which addresses these issues and hopefully 
confirms our approach to date.  I would also like to know if there are 
regulatory requirements that we have missed.  I am not concerned with 
"operational regulations" (such as under the Electric Utilities Act 
(Alberta), Gas Utilities Act (Alberta), Electric Utilities Act (Alberta), 
Fair Trade Practices Act (Alberta), Electricity Act (Ontario), Electricity 
Competition Act (Ontario) and Ontario Energy Board Act (Ontario)) but 
regulation of our commodity trading, origination and risk management advisory 
business.

After you have had a chance to digest this, can you please have your 
assistant call Sharon @ 974.6726 so we can schedule a time that Chris Gaffney 
(my colleague in Toronto) and I can discuss this with you.

Peter.