-----Original Message-----
From: 	Godfrey, Jay  
Sent:	Wednesday, September 19, 2001 2:23 PM
To:	Mitchell, David; Deffner, Joseph
Cc:	Lindholm, Tod A.; Payne, Michael; Lamb, John
Subject:	IM I/IM II PPA TerminationPayments.


Gents

Attached please find a copy of the IM I PPA with San Antonio together with a short note from Joh Lamb regarding Termination.


 

I look forward to our discussion at the top of the hour.

Regards,

JFG

---------------------- Forwarded by Jay Godfrey/EWC/Enron on 09/19/2001 12:17 PM ---------------------------

 
John Lamb
09/19/2001 11:43 AM
To:	Jay Godfrey/EWC/Enron@ENRON
cc:	 
Subject:	IM I/IM II PPA TerminationPayments.

Jay:  the IM I and IM II PPAs have different, but consistent, approaches to the calculation of damages in the event that a party defaults under the agreement.  The differences arise because the IM I agreement is based on more typical PPAs between a independent power generator and a utility power purchaser.  On the other hand, the IM II deal is a combination of such a PPA with a number of terms that more commonly foundin in power agreements between a power marketer and a buyer.   Consistent with most PPAs with utilities, the IM I agreement does not specify the method for calculating actual damages that a nondefaulting party may incur in the event of a default by the other party.  That methodology is left up to general contract law, which is that the nondefaulting party receives actual damages in an amount that would put them in the economic position that they would have been if the defaulting party would have performed its obligations.  This is basic contract law.  The IM II agreement spells out in detail the damage calculation, which is referred to as a "termination payment", in the agreement.  I understand that this approach is typical of power marketing contracts.  However, the mechanics are basically the same as if you went by basic contract law, other than the fact that the seller is entitled to certain consequental damages as well as actual damages resulting from a breach by the buyer.  In the end,the nondefaulting party, through the payment of the termination fee is being placed in the same economic position as if the defaulting party had performed its obligations.  Let me know if you want further clarification on this point.

Regards

John




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