pls print for my Tues. am mtg in Houston.  thanks df
---------------------- Forwarded by Drew Fossum/ET&S/Enron on 05/14/2000 
10:02 AM ---------------------------


Gail Tholen@ECT
05/12/2000 01:24 PM
To: John Allario/HOU/ECT@ECT
cc: Paul Bieniawski/Corp/Enron@ENRON, Jin Guo/HOU/ECT@ECT, Garry D 
Wilson/HOU/ECT@ECT, Davis Thames/HOU/ECT@ECT, Drew Fossum/ET&S/Enron@ENRON, 
Steve Van Hooser/HOU/ECT@ECT, Roger Ondreko/HOU/ECT@ECT 

Subject: Re: Enron Gas Storage Deal Structure Working Notes for LRC  


I just wanted to clarify a few points mentioned in this diagram:  

1.  The reason that gain recognition may be precluded under the equity sell 
down if Enron maintains a guarantee is because guarantees are considered 
"continuing involvement" under FAS 66 : Sale of Real Estate.  We would 
essentially own an interest in an asset which is considered real estate (per 
accounting rules). By maintaining a guarantee, Enron has not given up all of 
the risks and rewards of ownership and therefore true sale treatment would be 
precluded.

2.  The lease versus executory contract  debate is centered around the nature 
of the offtake agreement coupled with our involvement in the project.  
Involvement that requires us to take operational risk coupled with taking 
capacity leans toward a lease.  However, each deal is different and there 
isn't a bright line test for determining lease vs. executory; although, it 
certainly looks better if our offtake is minimal.  As well, LD language 
should not only be present but should be significant or market based.  In 
addition, the contract should not mention the storage facility, only that 
capacity will be provided.  Determining whether we are in a lease versus and 
executory contract is based on a preponderance of the evidence (more facts 
pointing toward executory contract versus lease).

3.  In the General Notes section, you mention the Trust being funded by all 
debt and contribution to the project being considered equity.  I'm unsure 
where this conclusion was reached.  This is not something I believe we fully 
discussed.  Whether of not it can be funded by all debt is something I will 
have to digest and get back to you about.   How much money is coming in 
through the investment trust?  From the diagram is looks like Enron ownership 
would be 30% instead of 12% if that piece is considered debt.  30% ownership 
does not necessarily lead to consolidation of Project Co. LLC.  

4.  Two more items of interest that we did not discuss are our Affiliate 
Rules and FAS 98 Sale Leaseback.  Under our affiliate rules, if the capacity 
contract is deemed an executory contract and qualifies for MTM Accounting, we 
can only mark the portion of the contract we do not own.  So long as we 
maintain a 12% interest, we could probably only MTM 88% of the contract.  
However, there is debate in this area depending on our level of "control".  
Affiliate rules normally cover greater than 20% ownership investments unless 
we exert significant influence.  I believe we will be in control of the 
structure.  This will require more discussion later.

-FAS 98 Sale Leaseback is not a good place to be but is something to keep in 
mind.  However, we can be proactive and work toward keeping ourselves out 
lease land and structure this as and executory contract.

Per my request, please allow me sometime to digest this structure and consult 
with my colleagues.  I will be in touch.


   
	
	
	From:  John Allario                           05/11/2000 06:54 PM
	

To: Paul Bieniawski/Corp/Enron@ENRON, Jin Guo/HOU/ECT@ECT, Garry D 
Wilson/HOU/ECT@ECT
cc: Gail Tholen/HOU/ECT@ECT, Davis Thames/HOU/ECT@ECT, Drew Fossom, Steve Van 
Hooser/HOU/ECT@ECT 
Subject: Enron Gas Storage Deal Structure Working Notes for LRC

Team

I have summarized in the margins of our DRAFT deal structure the "high level" 
issues that Gail Tholen, Jin and I discussed on Thursday.   These are 
preliminary guidelines and as our deal evolves and our partner's desires 
change, we will have to potentially address completely different accounting, 
regulatory and tax issues.     We hope to touch on some of the issues that 
this structure may raise from a Regulatory perspective with Drew Fossom when 
we meet next Tuesday at 10:00AM.  

Please comment and advise as you see fit.

Thanks

-John
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