Message-ID: <6798504.1075861018165.JavaMail.evans@thyme>
Date: Fri, 11 May 2001 18:29:00 -0700 (PDT)
From: gail.brownfeld@enron.com
To: gmarkel@brobeck.com
Subject: RE: Sempra Litigation/Conversation with Michael Goldstein
Cc: richard.sanders@enron.com, george.mcclellan@enron.com
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=09I spoke with George today about whether Enron would be amenable to discu=
ssing settlement with Sempra and putting the facilities to work on a "going=
 forward" basis while continuing the fight over past breaches. George said =
that we would be interested but this interest was subject to the following =
general caveats: (1) We would like the facilities moved to one of the sites=
 we are currently trying to get permitted which would be more convenient fo=
r us, and (2) we want to renegotiate certain portions of the contracts to r=
eflect today's market situation. For example, the current risk apportionmen=
t and price would have to be modified.
=09With that in mind, do you have any thoughts about the most effective way=
 to facilitate these discussions?  The last settlement effort was pretty us=
eless and I think we should try to avoid having Holmes and Gittomer sitting=
 opposite from George and Wayne with Goldstein and I in the background look=
ing for cover. What do you think about a mediation or otherwise getting a t=
hird party involved? In the alternative, would it be a good idea to involve=
 you and Mel?=20
=09On a slightly related note, I agree that we probably need to get a mitig=
ation letter out but I don't necessarily want to send the one we had been d=
iscussing.  Perhaps something that makes clear that they have a continuing =
duty to mitigate and then discusses getting together to try to resolve thin=
gs?  Can you take a shot at it and get back to me? Thanks in advance.
=09
From: =09Brownfeld, Gail =20
Sent:=09Tuesday, May 08, 2001 11:32 AM
To:=09Mcclellan, George; Gregory A. Markel (E-mail); Mcgowan, Kevin; Reck, =
Daniel; Arnold, Matthew; Gresham, Wayne
Cc:=09Sanders, Richard
Subject:=09Sempra Litigation/Conversation with Michael Goldstein

=09Michael Goldstein called this morning to discuss the way forward in ligh=
t of the Rev. Proc. and its recent amendment.  After apologizing for being =
tardy in returning my calls, he explained that, in his opinion, the tax adv=
ice that we received evidences a fundamental misunderstanding of the situat=
ion.  First, he stated that he has been advised that the Rev. Proc. does no=
t apply retroactively and that although it requires a new PLR to make chang=
es going forward, it will have no impact on activities which occurred prior=
 to its issuance and, therefore, has no impact on whether synfuel created b=
efore the Rev. Proc. qualifies for the tax credit.
=09He also noted that, to determine the capacity issue, one needs to look a=
t what could have been produced by the facilities as of the "in- service" d=
ate. This level of capacity is the benchmark for what can be produced. Acco=
rding to Goldstein, the level of production at Somerset was well below the =
capacity on the "in-service" date and, therefore, their proposed modificati=
ons to the facilities would not have increased the capacity in any way inco=
nsistent with the intent of the Rev. Proc.  When asked what he believed to =
be the rated capacity of the facilities on their "in-service" date, Michael=
 didn't know.  He has agreed to find this number and get back to me.
=09After I explained my understanding of the effect of the Rev. Proc., Mich=
ael kindly suggested that we consider talking to Price Monford (sp?) at VE =
who he considers to be one of the inner circle of tax experts familiar with=
 Section 29 and the discussions with the Service and the Treasury Departmen=
t about it.  I told him that we had consulted with our own experts and I di=
dn't know if this fellow was one of them.  He said that he had not talked t=
o Price and had no idea what he would advise.
=09Goldstein stated on several occasions that he thought the Rev. Proc. wou=
ld serve as a great facilitator to get the parties talking again in order t=
o mitigate damages.  He stated further that he was actually looking forward=
 to teeing up the remaining machine at Pier IX and, even, moving the second=
 machine back to Virginia.  When asked what was happening with the machine =
at Pier IX, he indicated that it remains idle because they can't get a sour=
ce of coal for it. I told Goldstein that I would visit with the "Coal Guys"=
 about whether there was a way that we could continue to work together in l=
ight of everything that has happened.  He said that he didn't think this wa=
s going to be a problem since once things were up and running, there wouldn=
't be much occasion for the parties to have sufficient contact to yield a p=
roblem.  I suggested that if there was a way forward, we needed to make sur=
e the parties were on the same page about the Production Test, coal size, e=
tc. and even suggested a modified dispute resolution process should issues =
arise during the course of performance. I think that Sempra is amenable to =
an trying to reach an agreement going forward but I expect that absent a me=
diation or something extraordinary, we will end up fighting about November =
through the date of any deal going forward. Please note that I made clear t=
hat I had no idea whether Enron wanted to have anything to do with Sempra o=
n this deal outside the courthouse but that I would inquire.  I told him my=
 personal view was that, no matter how strong we felt our case was, I would=
 always listen to a settlement plan if they had one.
=09Finally, I told him I'd get with you guys and call him later today or to=
morrow so that he'd know whether it was worth having any additional discuss=
ions. Please give me call when you get a chance.  It might be a good idea t=
o set up a call later this afternoon if you are available.
=09