Free Motion to Compel - District Court of Federal Claims - federal

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EXHIBIT A-I

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS
CONSOLIDA TED EDISON COMPANY OF NEW YORK, INC. & SUBSIDIARIES,
)

Plaintiff,
v.

) ) )
)

Case No.: 06-305 T

) )

Hon. Marian Blank Horn

THE UNITED STATES OF AMERICA,
Defendant.

) )
)

PLAINTIFF'S RESPONSES TO UNITED STATES' FIRST SET OF INTERROGATORIES
Federal Claims ("RCFC") 33, Plaintiff, Consolidated Edison

Pursuant to Rule of

Court of

Company of

New York, Inc. & Subsidiaries ("Con Edison"), provides the following responses to

the United States' First Set of Interrogatories, subject to the objections and limitations specified. Plaintiff is continuing to review the matters subject to this proceeding and reserves the
right to supplement and/or amend its responses as necessary.

GENERAL OBJECTIONS
1. Con Edison objects to the United States' First Set of Interrogatories to the extent

that the Interrogatories call for the disclosure of information that is subject to any claim of
privilege or protection

or that was prepared in anticipation of litigation. This includes without

limitation, the attorney-client privilege or the work-product protection. The inadvertent

disclosure by Con Edison of any information protected by the attorney-client privilege, the workproduct protection or any other privilege shall not constitute a waiver of the applicable privilege
or protection as to that information or any other related information.

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2. Con Edison objects to the United States' First Set of Interrogatories to the extent

that the United States purports to impose any requirement or discovery obligation other than or
beyond those set forth in the RCFC or other applicable rules.
3. Con Edison objects to the United States' First Set ofInterrogatories to the extent

that the Interrogatories call for information or documents already known to be in the United
States' possession.
4. Con Edison objects to the United States' First Set of Interrogatories to the extent

that the Interrogatories seek immaterial and/or irrelevant information. By providing answers or
producing documents, Con Edison does not concede that the information therein is material and/or relevant to any claims or defenses, or even that such information is reasonably calculated
to lead to the discovery of admissible evidence.
5. By providing answers or producing documents in response to the United States'

First Set of Interrogatories, Con Edison does not waive any of its objections and expressly

reserves its right to object to the admissibilty of the information therein.
6. Con Edison objects to the United States' Definitions in its First Set of

Interrogatories to the extent that the Definitions define words to have something other than their

ordinary meaning or employ grammar, syntax, and usage different from ordinary English
grammar, syntax, and usage. Con Edison wil not speculate as to the meaning of

vague language

within the First Set of Interrogatories and wil assume that the United States has written the
questions they intend to ask.
7. Con Edison objects to certain Interrogatories as overly broad, unduly burdensome,

and seeking infonnation that is neither relevant nor reasonably calculated to lead to the discovery

of admissible evidence. Such Interrogatories are specifically identified.

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Con Edison hereby incorporates each of the foregoing General Objections into each of

the following responses to the United States' First Set oflnterrogatories, and provides each
response subject to and without waiving these General Objections.

RESPONSES TO INTERROGATORIES
INTERROGATORY NO.1: Identify all individuals who have knowledge of

the Lease

Transaction, including each person's involvement in the promotion, recommendation, planning, approval, or implementation of any of the leases, and the nature and substance of the facts known
(or believed to be known) by each person.
RESPONSE: Con Edison objects to Interrogatory No. i as overbroad and unduly

burdensome. Con Edison is not aware of all individuals that have knowledge of the Lease

Transaction. The Lease Transaction involved multiple entities, and Con Edison cannot
determine all individuals at each entity who had knowledge regarding the Lease Transaction.

Further, Con Edison cannot determine all of its curent and former employees who had
knowledge of the Lease Transaction.

Con Edison also objects to the Interrogatory as immaterial and irrelevant. The fact that
an individual has knowledge of the Lease Transaction does not mean that the individual has
discoverable information regarding the transaction.

Con Edison identified the current employees of Con Edison whom Con Edison may rely
upon to support its claims and/or defenses in the instant proceeding in its Rule 26(a) disclosures.

Subject to and without waiving its objections, Con Edison now identifies the nature of each of
the identified individual's involvement and the general substance of

the facts known by each.

Ms. Freil ich was a member of the board of directors of Consolidated Edison

Development, Inc. ("Con Edison Development") and together with other board members was

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responsible for reviewing the decision to enter into the Lease Transaction. The facts known to

Ms. Freilich relate to her review of the transaction.

Mr. DePlautt was a Vice President of Con Edison Development and was responsible for
implementation of

the Lease Transaction, through advisors retained by Con Edison

Development. The facts known to Mr. DePlautt relate to the implementation and review of the
Lease Transaction.
Mr. Burke was a Vice President of Consolidated Edison Co. of

New York, Inc. and was

responsible for developing Consolidated Edison Co. of

New York, Inc.'s corporate goals for its

unregulated subsidiaries. The facts known to Mr. Burke relate to Con Edison's plans to operate
in a deregulated environment.

Mr. Muoio was President of Con Edison Development and was responsible for reviewing

the decision to enter into the Lease Transaction. The facts known to Mr. Muoio relate to his
review of the Lease Transaction.
Mr. Tai was a member of Consolidated Edison Co. of

New York, Inc.'s Corporate
Con Edison's business

Planning Department and has information relating to the deregulation of

and its entry into unegulated businesses.
Con Edison further identifies the following current employees of Con Edison who may have discoverable information regarding the Lease Transaction and the nature of each
individual's involvement and the general substance of

the facts known by each.

Andrew W. Scher
Consolidated Edison Co. of

New York, Inc. 4 Irving Place New York, New York i 0003
Phone: 212-460-6209

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Mr. Scher was the corporate secretary to Consolidated Edison Leasing, Inc. and provided

legal advice in connection with the Lease Transaction. The facts known to Mr. Scher include
legal advice provided to Con Edison, which is protected by the attorney-client privilege.

Mary Jane McCarney
Consolidated Edison Co. of New York, Inc.

4 Irving Place
New York, New York 10003

Phone: 2 i 2-460-6500

Ms. McCartney was a member of the board of directors of Con Edison Development and

together with other board members was responsible for reviewing the decision to enter into the
Lease Transaction. The facts known to Ms. McCartney relate to her review of

the Lease

Transaction.

Harry Morrison
Phone: 845-223-3289

Mr. Morrison is retired. He was responsible for inspecting the RoCa3 Facility on behalf
of Con Edison.

Peter Irwin
Consolidated Edison Co. of

New York, Inc.

4 Irving Place New York, New York 10003
Phone: 212-460-4757

Mr. Irwin was the corporate secretary of Con Edison Development. The facts known to
Mr. Irwin relate to the review of the Lease Transaction.

Con Edison also identifies the following individuals associated with unrelated entities,
retained as advisors by Can Edison, who may have discoverable information regarding the Lease
Transaction and the nature of each individual's involvement and the general substance of

the

facts known by each. Except as otherwise stated below, Con Edison's most recent infonnation

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concerning the addresses of the individuals below appears on their reports, which have been
included as part of Plaintiffs Rule 26(a) disclosure.

Robert Holtzman Crestview Capital Advisors Corporation 7946 Sitio Redondo, Suite 200 Carlsbad, California 92009
Phone: 760-944-9994

Con Edison retained Mr. Holtzman, through Cornerstone Financial Advisors L.P., to provide advice regarding leasing transactions in general and the structure, economics, and

implementation of the Lease Transaction. The facts known to Mr. Holtzman relate to the
structure, economics, and implementation of

the Lease Transaction.

Richard K. Ellsworth, George P. Renock, and Steven Liii of

Deloitte & Touche LLP

prepared a valuation of the RoCa3 Facility. Mr. Ellsworth's current address is:
Deloitte Financial Advisory Services 2 World Financial Center
New York, NY 10281

(2 i 2) 436-2067

Richard R. Radini, Vice President, Generation Services, and Gerald F. Foley, Luis C.

Gonzalez, and Anthony DeCristofaro of Duke Energy & Services provided an engineering
valuation of

the RoCa3 Facilty.

Aidan ü'Mahony Standard & Poor's
Garden House

16 Finsbury Circus EC2M 7BP London, England
Phone: 44 0 i 7 i 826 3800

Mr. ü'Mahony provided an evaluation of the credit of South Holland Electric.

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Aarnout M. Snouck Hurgronje Credit Suisse Financial Products One Cabot Square
E 14 40J

London, England

Phone: 440 171 8882000

Credit Suisse provided opinions regarding the commercially reasonable interest rate for certain of the interest bearing instruments included in the Operative Documents.
Andrew D. Harding
J&H Marsh & McLennan of

Ilinois, Inc.

500 West Monroe Street
Chicago, Ilinois 6066 t

Phone: 312-627-6655

Mr. Harding performed insurance due diligence with respect to the RoCa3 Facilty.
Hans Nieuwenheis and Peter van Kernebeek of

Tauw Milieu bv provided a due diligence,

safety, and health report concerning the RoCa3 Facility.

Wiliam E. Flowers J.1. Stevenson II, Esq. Shearman & Sterling
599 Lexington A venue

New York, New York 10022
Phone: 212-848-4000

Shearman & Sterling provided legal advice with respect to the Lease Transaction.
Mr. Flowers is no longer at Shearman & Sterling.
Ben Neuhausen

Arthur Andersen LLP 33 West Monroe Street

Chicago, Ilinois 60606
James M. Dewey Price Waterhouse LLP One Mony Plaza Syracuse, New York 13202

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Mr. Heuhausen and Mr. Dewey reviewed the accounting implications of

the Lease

Transaction.

Bart Meesters Ebel Magnin Loeff Claeys Verbeke Apollolan i 5 P.O. Box 75088 1070 AB Amsterdam The Netherlands
Phone: 31 20 57 41 200

LoeffClaeys Verbeke provided Con Edison with legal advice.
Thomas O. Verhoeven Oppenhoff & Rädler
7 I 2 Fifth A venue, 30th Floor

New York, New York 10019
Phone: 212-80 1-34 i 0

Oppenhoff & Rädler provided Con Edison with legal advice.

As for third parties not retained as advisors by Con Edison, the Defendant's letter of
October 13,2006 contains a list of

persons named in the Operative Documents and other relevant

documents. We expect that the persons named in that letter may have information regarding
their respective institution's role in the Lease Transaction, but since these persons are not employees or agents of Con Edison, Con Edison does not have complete information regarding
their knowledge of the facts.

INTERROGATORY NO.2: Identify all other LILO transactions or shelter transactions
presented to, considered, reviewed or analyzed by the Plaintiff in 1996, 1997 or 1998, and
identify all documents in connection with your consideration, review or analysis.
RESPONSE: Con Edison objects to Interrogatory No.2 as overbroad and unduly

burdensome. The United States defined "shelter transaction" as "any transaction... for which
the possibility of, or potential for, a tax deduction or tax loss was either analyzed (sic) reviewed,

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considered or discussed." See Definition E. This definition encompasses each and every
transaction Con Edison considered during 1996 through 1998. The United States fails to account
for the tàct that any corporation, including Con Edison, routinely reviews and considers the

possible federal, state, and local tax effects of all prospective transactions. Thus, the possibilty
that a particular transaction may produce a tax deduction or loss is a routine part of Con Edison's
business analyses. It would be a tremendous burden for Con Edison to identify and produce

documentation regarding each and every business transaction which the corporation or its
subsidiaries considered during the three-year period identified.

Con Edison further objects to Interrogatory No.2 as immaterial and irrelevant. A general
survey of allihe business transactions Con Edison considered during i 996 through 1998 is not
relevant to the detemiination of the proper tax treatment of the Lease Transaction.
Subject to and without waiving its objections, Con Edison participated in a lease-in,

lcase-out transaction with Nuon Gasnetwerken II B.V. (thc "NUON Transaction") on May 18,

1999. This was a leasing transaction involving multiple unrelated parties. It would be unduly
burdensome for Con Edison to produce all documents associated with its consideration, review,
and analysis of

the NUON Transaction, particularly since it has no effect on the tax years before

the court. Con Edison estimates that there are thousands of pages of documents regarding the
NUON Transaction.

Further, an analysis of the NUON Transaction is not relevant to the determination of the
proper tax treatment of

the Lease Transaction. In addition, Con Edison has already produced

extensive documentation of the NUON Transaction to the Internal Revenue Service in
connection with its audit of Con Edison for the taxable years ending December 31, 1999 through
and including December 3 i, 2001.

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To the extent not identified in Plaintiffs Rule 26(a) disclosure, other lease-in, lease-out

transactions considered by Con Edison wil be identified in documents produced in response to

the United States' First Request for Production. These transactions are not relevant to the
determination of the proper tax treatment of the Lease Transaction.

INTERROGATORY NO.3: Describe how the rent obligation and various option prices
described in paragraphs 63, 64,68 and 69 of

the Complaint were negotiated, calculated and

allocated.
RESPONSE: The terms of

the Lease Transaction were negotiated to optimize the
the transaction

economic returns to each party. In particular, Con Edison negotiated the terms of

to provide a yield for financial accounting purposes consistent with its investment objectives.
The parties' negotiations were constrained by factors such as the useful

life ofthe

property in question and the fair market value of

the leasehold interest acquired by Con Edison.

In negotiating the specific terms of

the transaction, the paries utilized computer software which

optimizes the economic return to each party, taking such constraints into account. The terms of the Lease Transaction were also constrained by the requirements of section
467 of the Internal Revenue Code. The allocations of rental income and deductions for tax

purposes were designed to comply with section 467.
INTERROGATORY NO.4: Describe the risks, if any, as you understand them, to each of

the

Lease Transaction Participants for engaging the Lease Transaction, and explain each and every step that was taken to reduce or mitigate those risks and your assessment or analysis of your true
exposure in the Lease Transaction.

RESPONSE: Con Edison notes that Interrogatory NO.4 requests that Con Edison
"(d)escribe the risks" to the Lease Transaction Participants as Con Edison understands such

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risks. Con Edison cannot be expected to provide a full account of the risks that each Lease
Participant considered nor the steps taken by each to mitigate those risks. This response is based
solely upon Con Edison's understanding and should be interpreted as such.

Subject to the above statement, Con Edison identifies the following risks which it encountered in the Lease Transaction:

Residual Value Risk. Con Edison is exposed to the risk (both positive and negative) of
fluctuations in the value of the RoCa3 Facility after the Sublease Basic Term and the Sublease

Renewal Term, if any. Con Edison took the following steps to partially mitigate ths risk. First,
the parties negotiated a Sublease Renewal Option which allows Con Edison to extend the term of

the Sublease. This Renewal Option, however, is for less than the term of the Lease so it does not
eliminate residual value risk.
Second, Con Edison undertook a due diligence review of

the RoCa3 Facility, its

_ management, and the Netherlands energy market in order to ensure, to the extent possible, that
the facilty was likely to maintain its value. As part of this review, Con Edison hired consultants
(identified in response to Interrogatory I) to review the plant and its operations. Con Edison's
own employees also inspected the plant.

Credit Risk. Con Edison is subject to the risk that the other participants to the Lease
Transaction (including but not limited to the Lease Participants as defined) wil be unable to
meet their obligations as they become due. In that event, Con Edison would also become subject
to the risk that it would not be able to satisfy its obligations owed to Hollandsche. As is customary in large financial transactions and in leveraged leasing transactions
specifically, Con Edison has obtained collateral to partially mitigate its exposure to credit risk.

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This collateral includes the Loan Deposit as set forth in the Sublease Deposit, Pledge, and
Repledge Agreement.

Default Risk. Con Edison is subject to the risk that South Holland Electric wil default
on its obligations under the Sublease. This risk is partially mitigated by Con Edison's remedies
under the Sublease, including but not limited to its ability to take possession of its interest in the
Facility.

Political Risk. Con Edison was subject to the risks of operating in a foreign country. In
order to partially mitigate this risk, Con Edison examined the political environment in the
Netherlands before making its investment.
Operational Risk. Con Edison's interest in the property is subject to the risk of

the

property's operation. Con Edison partially mitigated this risk by including provisions in the

Operative Documents regarding the maintenance, operations, and insurance regarding the

property. Con Edison also partially mitigated these risks by conducting a due diligence revicw
of

the plant's operations.

Leeal Risk. Includine Tax Risk. Con Edison mitigated these risks by seeking opinions
from qualified and reputable legal counseL.

Since the remaining Lease Participants are unrelated third paries, Con Edison is not able
to provide a complete assessment of the risks faced by each of these parties or the steps these

parties took to mitigate their respective risks. Without waiving its objection on this basis, Con
Edison identifies the following risks which are apparent on the face of the Operative Documents.

Default Risk. South Holland Electnc has incurred the risk that it would lose physical
possession of the RoCa3 Facility if it defaults on its obligations under the Sublease or if Con
Edison defaults on its obligations.

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Residual Value Risk. South Holland Electric has incurred the risk that, at the Sublease
Purchase Option date, tht: Sublease Purchase Option Price could exceed the fair market value of

the RoCa3 Facility. This fact presents both positive and negative risk, in the sense that South
Holland Electric can transfer physical possession of

the RoCa3 Facility to Con Edison for the

remaining portion of

the Lcase if

the RoCa3 Facility has declined in value.

Currency Risk. South Holland Electric's obligations under the Lease are required to be
paid in U.S. dollars. Since U.S. dollars are not South Holland Electric's functional currency,
South Holland Electric is exposed to the possibility that currency fluctuations will significantly

increase the cost of meeting its obligations. South Holland Electric has partially mitigated these
risks by entering into the Loan Deposit but is also subject to credit risk with respect to the holder
of the Loan Deposit.

Credit Risk. South Holland Electric is exposed to the risk that the other participants to
.,. the Lease Transaction (including but not limited to the Lease Participants) will not be able to

meet their obligations under the Operative Documents as they become due.

HoUandsche is also exposed to credit risk. As a result of being exposed to credit risk, the
risks faced by the other parties (including, but not limited to, default risk) also affect
Hollandsche. As is customary in financial transactions, Hollandsche partially mitigated this risk
by obtaining collateraL.

INTERROGATORY NO.5: State the basis for your contention that you expected a pre-tax
economic profit of at least $60 millon from the Lease Transaction and that the yield for
accounting and financial reporting purposes would be in excess of 12%, including in your

answer all due dilgence you performed prior to reaching these conclusions and identifying all
documents that supports (sic) or lends (sic) to support your contention.

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RESPONSE: The relevant provisions of

the Operative Documents provide that Con

Edison will receive a pre-tax profit in excess of $60 milion if South Holland Electric exercises
the Sublease Purchase Option. The relevant provisions of the Operative Documents also provide
that if South Holland Electric does not exercise the Sublea~e Purchase Option, and Con Edison

chooses to exercise its Sublease Renewal Option, Con Edison will receive a pre-tax profit in

excess of $l 0 I milion, not including any additional amounts it may receive after the end of the
Sublease Renewal Option term and before the expiration of

the Lease Term. These projections

assume that the parties comply with their obligations as set forth in the Operative Documents. Pursuant to the rules applicable to accounting for leveraged leases, the Lease Transaction

was expected to produce a yield in excess of i 2% for financial reporting purposes. Con Edison
reviewed the rules relating to leveraged lease accounting with Arthur Andersen.

The due diligence performed in reaching these conclusions included a review of the terms of the Operative Documents, reviews of pricing runs regarding accounting for the Lease
Transaction, and consultations with accountants.

The documents supporting Con Edison's position were produced as part of its Rule 26(a)
disclosures on September 25, 2006, and were also included in Defendant's Rule 26(a) disclosure.

Bates #US04788-4865 sets forth the calculations used by Con Edison for financial reporting

purposes, as well as the projections for the Sublease Renewal Option. Bates #US04866-4909
sets forth the calculations for the Sublease Purchase Option.

INTERROGATORY NO.6: Describe how the idea for the Lease Transaction came to the
attention of the Plaintiff, including the source of the idea, any presentations that were made to or
attended by Plaintiff or Plaintiff's representatives (including the names of individuals who were

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present), and the identify of any outside tax and or (sic) business advisors who consulted with
Plaintiff prior to entering into the Lease Transaction.

RESPONSE: As a result of the deregulation of its electric utility business, Con Edison
requested, and the Public Service Commission granted, permission for Con Edison to make

investments in unregulated subsidiaries. Con Edison expected that the unregulated subsidiaries
would make profitable investments, taking advantage of

Con Edison's expertise.

Con Edison Development developed a business plan to engage in the acquisition,
development, and management of infrastructure

on a world-wide basis. As part of this plan, Con

Edison Development contacted Cornerstone Financial Advisors L.P. to seek assistance in

locating, reviewing, and implementing leasing investments consistent with Con Edison

Development's business plan. After consultations with Cornerstone concerning the structure and
economics of leasing investments, Con Edison Development determined that an investment in

-.' the RoCa3 Facility would be consistent with its business plan.

Con Edison retained advisors to conduct due dilgence before engaging in the Lease

Transaction. These advisors are identified in the response to Interrogatory i.

INTERROGATORY NO.7: Identify any studies, analyses, forecasts, projections or other due
dilgence performed or prepared by any individual or entity in connection with the Lease
Transaction, including the individuals or entities that performed each study or analysis, and all
documents that mentions (sic), describes (sic) or evidences (sic) such study or analysis.

RESPONSE: The studies prepared by outside advisors are identified in response to

Interrogatory i and have been provided as par of Plaintiffs Rule 26(a) disclosures or will be
produced in response to the United States' First Request for Production, with the exception of
legal opinions which are being withheld pursuant to the attorney-client privilege.

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Con Edison also relied upon internal reports and memoranda, all of which have been
provided as part of Plaintiffs Rule 26 disclosure.

Con Edison will produce, to the extent not previously produced in its Rule 26(a)

disclosures and to the extent not privileged, the documents which mention, describe or evidence the aforementioned studies as part of its response to the United States' First Request for
Production.

INTERROGATORY NO.8: Describe how and why each Lease Transaction Participant was
selected.
RESPONSE: Con Edison selected South Holland Electric due to the quality of

the

RoCa3 Facility, the Facility's relationship to Con Edison Development's business plan, and Con
Edison's review of the operations of South Holland Electric and the Netherlands energy market. Wilmington Trust Company is a Delaware banking corporation which is in the business

- of providing the type of trust services required under the terms of the Operative Documents.
Hollandsche is a financial institution which is engaged in the business of providing

financial services and has experience in lending with respect to complex financial transactions
such as the Lease Transaction.

INTERROGATORY NO.9: Set forth with particularity the income and expenses generated to
date and projected into the future in connection with the Lease Transaction, including in your

response any items of income and expenses that you believe wil result from the exercise of the
lease renewal option, purchase option, or other options contained in the Lease Transaction and
provide any factual or other support you reviewed or relied upon in reaching your conclusions.

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RESPONSE: The requested information is set forth in the pricing runs produced in

Plaintiffs Rule 26(a) disclosure and was also included in Defendant's Rule 26(a) disclosure.
See response to Interrogatory NO.5.

INTERROGATORY NO. 10: For the years 1997 to the present, describe how Plaintiff
reported the Lease Transaction for financial, regulatory and tax accounting, including in your
answer the factual and legal basis for such treatment and a reconciliation you performed of

the

differences, if any.

RESPONSE: For financial accounting purposes, Con Edison reported the lease as a
leveraged lease pursuant to the provisions of Statement of Financial Accounting Standards
No.

13.

For tax purposes, Con Edison reported rental income, rental deductions, interest expense,

and amortization of transaction expense based upon the accrual method of accounting, taking

_ into account the relevant provisions of the Operative Documents and the provisions of section
467 of the Internal Revenue Code. The Lease Transaction is part of

eon Edison's unregulated

business, and therefore is generally not taken into account for regulatory purposes such as
ratemaking.

INTERROGATORY NO. 11: Identify any foreign or domestic laws or regulations, contracts,
agreements, or other restrictions that could possibly inhibit the exercise of any option contained
in the Lease Transaction.
RESPONSE: Con Edison is not aware of any foreign or domestic laws or regulations,

contracts, agreements, or other restrictions that could possibly inhibit the exercise of any option
contained in the Lease Transaction.

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INTERROGATORY NO. 12: If

Plaintiff

executed a tax indemnity agreement, set forth the

terms of each such agreement, explaining the reasons for entering the agreement.

RESPONSE: A copy of the Tax Indemnity Agreement was provided as part of
Plaintiffs Rule 26(a) disclosure. The Tax Indemnity Agreement was entered into to address the
matters set forth therein. Plaintiff objects to this Interrogatory to the extent it seeks legal advice
concerning the reasons for entering into the Tax Indemnity Agreement.

INTERROGATORY NO. 13: State the basis for your contention that, beginning in March
1993, the New York Public Service Commission took a number of steps to develop a competitive

electric industry in the stale of New York, setting forth all the steps and identify all documents upon which you relied in making this contention.
RESPONSE: The Public Service Commission's actions are a matter of

public record.

See. e.g., Energy Association of New York State v. Public Service Commission of/he Siale of

~ New York, 174 P.U.R. 4th 406, 653 N.Y.S.2d 502 (1996). Documents relating to the
deregulation of

Con Edison's electric utility business were provided by Con Edison in its Rule

26(a) disclosures.

INTERROGATORY NO. 14: Identify all outside consultants you communicated with to
locate potential international energy infrastructure investment opportunities (including energy

facilties), including in your response the opportunities that were presented to you and all
documents that you reviewed or were provided in connection therewith.
RESPONSE: Con Edison objects to Interrogatory No. 14 as overbroad and unduly

burdensome. Con Edison communicated with numerous outside consultants to locate potential international energy infrastructure investments. It would be unduly burdensome to request that
Con Edison produce all materials received from or provided to such consultants.

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Con Edison further objects to the Interrogatory as immaterial and irrelevant. Con
Edison's review of other international energy transactions is not relevant to the determination of
the proper tax treatment of the Lease Transaction.

Without waiving its objection, Con Edison identifies Cornerstone Financial Advisors L.P.

as the outside consultant with which it communicated regarding the Lease Transaction. Con
Edison also had an agreement with International Energy Partners related to investment
opportunities in infrastructure investments.

INTERROGATORY NO. 15: Identify all individuals and entities, including third parties and
employees, officers and members of the Board of Directors of Plaintiff, with whom you communicated about the Lease Transaction prior to entering into the transaction, setting forth the
contents of

the communications and identify the documents mentioning, discussing, referring to

or constituting the communications.
RESPONSE: Con Edison objects to Interrogatory No. 15 as overbroad and unduly

burdensome. It is not possible for Con Edison to identify all individuals with whom it
communicated or to set forth the contents of all such communications, many of which were of a

routine administrative nature. The Lease Transaction was a business transaction and, as such,

subject to normal business review procedures. Employees of unrelated entities were also
involved in reviewing the Lease Transaction.

Con Edison further objects to the Interrogatory as immaterial and irrelevant. The routine
business communications of Con Edison employees and the communications of third-parties of
which Con Edison was not aware are not relevant to a determination of

the proper tax treatment

of the Lease Transaction.

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Subject to and without waiving its objections, Con Edison states that it has disclosed

relevant individuals of whom it is aware in response to Interrogatory No.1. Subject to and
without waiving its objections, relevant documents wil be disclosed in response to the United
States' First Request for Production.

INTERROGATORY NO. 16: State the basis for your decision to form a trust to enter into the
Lease Transaction.

RESPONSE: The use of ownership trusts is a standard and customary practice in the
leveraged leasing industry. Con Edison objects on the grounds of attorney-client privilege to the
extent that this Interrogatory requests legal advice provided to Con Edison concerning the legal
reasons for forming a trust.

Dated: November 2, 2006

~t')~~
As to Objections:
THOMAS C. DURHAM Mayer, Brown, Rowe & Maw LLP 7 l South Wacker Drive Chicago, Ilinois 60606
Telephone: (312) 701-7216

DA VID F. ABBOTI Mayer, Brown, Rowe & Maw LLP 1675 Broadway New York, New York 10019-5820
Telephone: (212) 506-2642

NICOLE M. BIELAWSKI Mayer, Brown, Rowe & Maw LLP 1909 K Street, N.W.
Washington, D.C. 20006-1101

Telephone: (202) 263-3452

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DECLARATION
I, hereby declare, under penalties of perjury, that Plaintifts foregoing Responses to the
United States' First Set of Interrogatories are true and complete to the best of

my knowledge.

.. ~.. ~).
.. \, -... -

~ ,l.

Andrew Scher Assistant General Counsel
Consolidated Edison Company of

New York, Inc.

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CERTIFICATE OF SERVICE
1, Thomas C. Durham, hereby certify that on this 2nd day of

November, 2006, I caused

the foregoing Plaintiffs Responses to the United States's First Set ofInterrogatories to be served
upon the United States of America by electronic email and overnight delivery, to the tollowing:
David N. Geier U.S. Department of Justice Tax Division, Room 7919 555 Follrth Street, N.W.
Washington, D.C. 20001

TH S C. 0 RHAM '
Chicago, llinois 60606
Telephone: (3 I 2) 70 1-72 i 6

Mayer, Brown, Rowe & Maw LLP 7l South Wacker Drive

~ t-. A~

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EXHIBIT A-2

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

CONSOLIDATED EDISON COMPANY OF NEW YORK. INC. & SUBSIDIARIES,
Plaintiff,
v.

)

)
)

)

)
)

Case No.: 06-305 T

)

Hon. Maran Blan Horn

THE UNITED STATES OF AMERICA,
Defendant.

) )
)

PLAINTIFF'S FIT SUPPLEMENT TO RESPONSES TO

UNITED STATES' FIRST SET OF INERROGATORIES
Pursuant to Rule of Court of

Federal Claims ("RCFC") 33, Plaintiff, Consolidated

Edison Company of

New York, Inc. & Subsidiares ("Con Edison"), provides the

following supplement to its Responses to the United States' First Set of Interrogatories.

This supplement is provided subject to the general objections and limitations set fort in

Plaintiffs Responses to United States' First Set ofInterogatories.
Plaintiff is continuing to review the matters subject to this proceeding and

reseres the right to supplement and/or amend its responses as necessar.

FIRST SUPPLEMENTAL RESPONSE
REVISED INTERROGATORY NO.2: Identify all other LILO transactions or shelter
transactions presented to, considered, reviewed or analyzed by the Plaintiff in 1996, 1997

or 1998, and identify all documents in connection with your consideration, review or
analysis.

For the purse of Revised Interrogatory No.2, the ter "shelter transaction" has
been defined, pursuant to the United States' correspondence of

November 8, 2006, as

"cerain listed transactions" identified on the attachment to such correspondence.

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RESPONSE:
Con Edison objects to Intergatory No.2 as immaterial and irrelevant.
Information regarding other business transactions Con Edison considered during 1996
through 1998 is not relevant to the deternation of the proper tax treatment of the Lease

Transaction. Con Edison fuer objects to Interogatory No.2 as overly broad and
unduly burdensome. It is impossible for current representatives of Con Edison to cerify
under oath what transactions were "considered" or ''reviewed'' by any employee of

the

company approximately ten years ago.

Subject to and without waiving its objections, Con Edison has not paricipated in
any other shelter transaction, as defined by the United States' correspondence of
November 8, 2006, other than the NUON transaction previously identified in its response

to Interrogatory No.2.
Subject to and without waiving its objections, Con Edison limits the scope of
Interrogatory No.2 to tranactions substantively

evaluated and presented to the Board of

Trustees of

Con Edison (and Consolidated Edison, Inc. for 1998). Con Edison and

Consolidated Edison, Inc. did not substantively evaluate and present to the Board of
Trustees (or its equivalent at any subsidiar), durng i 996 through 1998, any shelter
transactions, as defined by the United States' correspondence of

November 8,2006, other

than cerain leasing transactions presented to Con Edison Development. Con Edison
Development has produced all available Board of Director Minutes for 1996 through

1998 which discuss such transactions. Con Edison wil supplement its response to
Interrogatory NO.2 if any additional transactions are identified.

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INTERROGATORY NO. 16: State the basis for your decision to form a trut to enter
into the Lease Transacton.

RESPONSE:
Con Edison incorporates its original response to Intergatory No. 16. Con
Edison fuer objects to Interrogatory No. 16 on the basis that it assumes the decision to
form a trst was Con Edison's decision. As stated in the original response to
Interrogatory No. 16, the use of ownership trusts is stadard and customar in leveraged
leases. Furterore, while Con Edison has no specific knowledge of South Holland

Electrc's reasons, if any, for preferng an ownership trst, Con Edison understands that
lessees often prefer this strctue.

Dated: December 13, 2006
Respectfully submitted by:

THOMAS C. DURHAM Attorney of Record Mayer, Brown, Rowe & Maw LLP 71 South Wacker Drive Chicago, llinois 60606
Telephone: (312) 701-72 I 6

NICOLE M. BIELAWSKI 1909 K Street, N.W. Washington, D.C. 20006-1101 Telephone: (202) 263-3452

By:-ld~M.&1~.

DAVID F. ABBOTT Mayer, Brown, Rowe & Maw LLP 1675 Broadway New York, New York 10019-5820
Telephone: (212) 506-2642

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DECLARATION
1, hereby declare, under penalties of

perjury, that Plaintiffs foregoing First

Supplement to Responses to the United States' First Set of Interrogatories is true and
complete to the best of my knowledge.

Andre Scher

(l~i

Assistant General Counsel Consolidated Edison Company of New York, Inc.

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CERTIFICATE OF SERVICE
I, Nicole M. Bielawski, hereby cerify that on this 13lh day of December, 2006, I

caused the foregoing Plaintiffs First Supplement to Respnses to the United States' First

Set of Interogatories to be sered upon the United States of Amerca by courer, to the
following:

David N. Geier U.S. Deparent of Justice Tax Division, Room 7919
555 Fourh Street, N.W.
Washington, D.C. 20001

~ 1'. ßut14'
NICOLE M. BIELAWSKI Mayer, Brown, Rowe & Maw LLP 1909 K Street, N.W.
Washington, D.C. 20006-1101

Telephone: (202) 263-3452