Case 1:06-cv-00305-MBH
Document 21-3
Filed 04/03/2007
Page 1 of 40
EXHIBIT A-I
Priviege Log by Con Edison In Response to United States' First Request for Production of Documents
Author(s)
Recipient( s)
Bates No.
Date
B. DePlautt
Description
Memorandum requesting legal
2
Page(s) Priviege
CE005823-24 PF005893-94
Nov. 18, 1997
P. Irin
advice and attchment
R. Ste1ben
Attorney-Client Communcation
Nov. 20, 1997
B. DePlautt
Memorandum
discussing statu of
2
CE003786-87 PF005618-19
H. Schoenblum
Attorney-Client Communcation
Shearan & Sterling
1ee;al opinion
Case 1:06-cv-00305-MBH
CEO 12095-1 02
Nov. 20, 1997
W. Flowers M. Apelt D. Keily
B. DePlautt
8
Memorandum providing legal advice
Attorney-Client Communcation
Attorney Work Product
CE004 706-07
Nov. 21, 1997
B. DePlautt
M. McCarey
J. Freilich
R. Stelben
Document 21-3
PF005647-48
Memoradum discussing, in par
communcations with Legal Deparent and
2
Attorney-Client Communcation
H. Schoenblum C. Muoio
B. DePlautt
with Sheaan &
Sterlin~
CE005825
Nov. 21, 1997
A. Scher
Memoradum
requesting legal advice
1
Attorney-Client Communcation
Filed 04/03/2007
CE008028
Nov.
21, 1997
B. DePlautt
A. Scher
Memoradum
1
Attorney-Client Communcation
requesting legal advice Memorandum conveying legal
1
CEO 12094
Nov. 21, 1997
B. DePlautt
M. McCarey
Attorney-Client Communcation
advice, attching
CE012095-102
Page 2 of 40
Privilege Log In Response to United States' First Request for Production of Documents
Dec. 4, 1997 Sterling
to the Files
CEOl1543-44
Sheaan &
Files
2
Interal memorandum
Attorney-Client Communcation
Attorney Work Product
CEOO7915
1
Dec. 11, 1997
Email regarding
P. Irin
M. McCarey
Attorney-Client Communcation Attorney-Client Communcation
Case 1:06-cv-00305-MBH
CEOO7915
Dec. 12, 1997
I
M. McCarey
B. DePlautt
CE007915
C. Muoio
Dec. 12, 1997 Dec. 14, 1997
W. Flowers
B. DePlautt
M. Apelt
Ms. Iandloli
M. McCarey
i
1
Document 21-3
CEOO7199
Attorney-Client Communcation Attorney-Client Communcation
Attorney Communication
16
request for legal advice Email regarding request for legal advice Email discussing legal advice Cover letter for internal Sheaan & Sterling memoradum discussion communcations with
Con Edison
CE003029-44
Con Edison
Dec. 15, 1997
B. Meesters
E. Magnn
Leasing
Legal Opinion with attachment
Attorney-Client Communication
CE003058-67
Dec. 15, 1997
T. Verhoeven
BOI Leasing
Filed 04/03/2007
Corp.
Con Edison
Legal Opinion with attachment
10
Attorney Work Product Attorney-Client Communication
Attorney Work Product
Leasine;
CE011957-63
Feb. 9, 1998
B. DePlautt B. DePlautt
M. McCarey
C. Muoio
Email discussing, in
par, leJ;al advice
7
PFOO7327-33
Feb. 11, 1998
Page 3 of 40
CE011954-56
M. McCarey
C. Muoio
Email discussing, in
par, lee;al advice
3
PFOO7324-26
Attorney-Client Communcation Attorney-Client Communcation
2
Priviege Log In Response to United States' First Request for Production of Documents
Feb. 13, 1998
CEOl1952-53
J. Freilich
C. Muoio
M. McCarey
2
PFOO7322-23
P. Kiel P. Irin
Feb. 18, 1998
1
Memorandum discussing, in par legal advice
Attorney-Client Communcation
CEOO3005
Feb. 18, 1998
W. Flowers
K. Burke B. DePlautt
Con Edison
CEOO3006-3015
Sheaan &
Sterling
Con Edison Leasine;
Development
Cover leter attaching le~al opinon Legal Opinion with attchment
10
Attorney-Client Communcation Attorney-Client Communcation
Attorney Work Product
Case 1:06-cv-00305-MBH
CEO 11965- 72
Undated
Internal Con
Interal Con
Edison
8
Document 21-3
PF004525-58
Edison
Memorandum discussing, in par, le~al advice
Attorney-Client Communcation
Filed 04/03/2007 Page 4 of 40
3
Case 1:06-cv-00305-MBH
Document 21-3
Filed 04/03/2007
Page 5 of 40
EXHIBIT A-2
Privilege Log by Con Edison In Response to United States' First Request for Production of Documents
- --- -~ 7
~ ~
--Description
Memorandum providing legal advice
2
Bates No,
Oct. 27, 1997
Date
A. Scher
Author(s)
Recipient( s)
P. O'Shea
Page(s) Privilege
Attorney-Client Communication
No Bates Number
CEOO5823-824
Nov. 18, 1997
B. DePlautt
2
P. Irin
Memorandum
requesting legal
advice from in-house
Case 1:06-cv-00305-MBH
PF005 893 -894
Attorney-Work Product Attorney-Client Communication
counel and
attacluent
Nov. 20, 1997
B. OePlautt
R. Stelben
Memorandum
discussing legal
CEOO3786-787 PF0056 I 8-619
2
H. Schoenblum M.J. McCartey
Attorney-Client Communication
J. Freilch
C. Muoio
Nov.
Document 21-3
CE004704-705
20, 1997
R. Stelben
B. DePlautt H. Schoenblum
advice from Shearan & Sterling and status of their opinion Memorandum
discussing legal
2
PFOO7852-853
Attorney-Client Communication
advice from Sheanan & Sterling
M.J. McCarey J. Freilch
C. Muoio
Nov. 20, 1997
CE012095-lOZ
Filed 04/03/2007
W. Flowers M. Apelt D. Keily
B. DePlautt
Memorandum providing legal advice
8
Attorney-Client Communication
Attorney Work
Prod uct
Page 6 of 40
Privilege Log by Con Edison In Response to United States' First Request for Production of Documents (as of December 13,2006)
B. DePlautt
8
Nov. 20, 1997
Attorney-Client
No Bates Number
W. Flowers M. Ape!t
Memorandum providing legal advice
Communcation
Attorney Work Product
CE004706-707
Nov, 21, 1997
B. DePlautt
J. Freilich R. Stelben
M. McCarney
H. Schoenblum C. Muoio
house counsel and
2
Case 1:06-cv-00305-MBH
PF005647 -648
Memorandum discussing request for legal advice from in-
Attorney-Client Communication
CEOO5825
Nov. 21, 1997
B. DePlautt
advi ce
A. Scher
legal advice recei ved from Sheanan & Sterling Memorandum
requesting legal
Document 21-3
i
Attorney-Client Communication
1
CEOO8028
Nov.
21, 1997
B. DePlautt
A. Scher
Memorandum
requesting legal
Attorney-Client Communication
advice
Nov. 25, 1997
CE016709-715
Edison
Internal Con
Internal Con
Memoradum
discussing legal
7
PFOO8614-8620
Edison
Attorney-Client Communcation
Filed 04/03/2007
CE016740-746
Nov. 25, 1997
Internal Con
Internal Con
advice recived from tax counsel Memorandum
7
PFOO8645-651
Edison
Edison
discussing legal advice received from
Attorney-Client Communication
Nov. 25, 1997
Internl Con
Edison
Internal Con
tax counsel Memorandum
Edison
discussing legal advice receved from
CE016747-753 PF008652-58
7
Attorney-Client Communication
tax counel
Page 7 of 40
2
Case 1:06-cv-00305-MBH
Document 21-3
Filed 04/03/2007
Page 8 of 40
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Privilege Log by Con Edison
In Response to United States' First Request for Production of Documents December 13,2006) (as of
CE016587
Dec. 12, 1997
B. DeP lautt
Email discussing legal
1
PFOO8570
M. McCarney C. Muoio
advice from Shearman & Sterling!
Cover letter for
1
Attorney-Client Communication
CE007199
M. Apelt
Dec. 14, 1997
W. Flowers Ms. landloli
interal Shearan &
Sterling memorandum regarding confidential
communications with Con Edison
Case 1:06-cv-00305-MBH
Attorney-Client Communication
Attorney Communication
16
CE003029-044
Dec. i 5, 1997
B. Meesters E. Magnin
Con Edison
Leasing
Legal Opinion with attachment
Attorney-Client Communication
Document 21-3
CEOO3058-067
Dec. 15, 1997
T. Veroeven
BO i Lesing Corp.
Con Edison
Legal Opinion with attachment
10
Attorney Work Product Attorney-Client Communication
Leasin~
Feb. 9, 1998
CEOl1957-963
B. DePlautt
C. Muoio
M, McCarey
M. McCarney
C. Muoio
7
Attorney Work Product Attorney-Client
Email discussing legal advice from tax
PFOO7327-333
Feb. 11, 1998
Communicaion
counsel
3
Filed 04/03/2007
CEO i 1954-956
B. DePlautt
Attorney-Client
PFOO7324-326
Email discussing legal advice from tax
Communicaion
counsel
Page 9 of 40
i Redactions at the end ofCE016587 through 16589 are for relevance. These emails reference unrelaied business dealings by employees of
Con Edison.
, 4
Privilege Log by Con Edison In Response to United States' First Request for Production of Documents
(as of December 13, 2006)
CEOI 1952-953
J. Freilich P. Kinkel
discussing legal
P. liin
Feb. 13, 1998
C. Muoio
2
M. McCarey
Memorandum
advice from tax counsel
1
Case 1:06-cv-00305-MBH
PF0073 22- 323
Attorney-Client Communication
CE003005
Feb. 18, 1998
Feb. 18, 1998
W. Flowers
K. Burke B. DePlautt
Con Edson Development
Con Edison
CEOO3006-015
Sheaan &
Sterling
Document 21-3
Cover letter attaching lee;al opinion Legal Opinion with attachment
10
Attorney-Client Communication Attorney-Client Communication
Leasing
Aug. 4, 1998
CEO
11 757-782
Internl Con
Internal Con
Edison
Edison
Power Point Presentation
discussing lega
26
Attorney Work Product Attorney-Client Communication
Filed 04/03/2007
CEOI 1965-972
Undated
Internal Con
advice from Sheannan & Sterling Memorandum
Edison
discussing legal
PF004525-558
Internal Con Edison
8
Attorney-Client Communcation
advice from tax
counel
Undated
Edison
CEO
1201
8-023
Interal Con
Internal Con
Memorandum
Edison
discussing legal
6
PF004350-355
Attorney-Client Communication
advice from tax counsel
Page 10 of 40
Case 1:06-cv-00305-MBH
Document 21-3
Filed 04/03/2007
Page 11 of 40
EXHIBIT A-3
2361396.1
Case 1:06-cv-00305-MBH
Document 21-3
Filed 04/03/2007
Page 12 of 40
TN THE UNITED STATES COURT OF FEDERAL CLAIMS
CONSOLJDA TED EDISON COMPANY OF NEW YORK, INC. & SUBSIDIARIES,
)
)
)
Plaintiff,
v.
)
) )
.,
Case No.: 06-305 T
Hol1_ Marian Blank Horn
THE UNITED STATES OF AMERICA,
Defendant.
) )
)
PLAINTIFF'S RESPONSES TO UNITED STATES' FIRST SET OF INTERROGATORIES
Pursuant to Rule of Court of Federal Claims ("RCFC") 33, Plaintiff, Consolidated Edison
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.
CHDBOI \367025.3 02-Noy-0609:40
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2. Can 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 Sct of Interrogatories to the extent
that the Interrogatories seek immaterial and/or irrelevant information. By providing answers or
producing documents, Can 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.
CHOBOI 1367025.3 02-Nov-0609:40
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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 of Interrogatories. 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 tàcts 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
detennine 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. Freilich was a member of the board of directors of Consolidated Edison
Development, Inc. ("Con Edison Development") and together with other board members was
CHDBOI 13610253 02-Nov-0609:40
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Page 15 of 40
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.
Me. 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 Me. 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 afthe facts known by each.
Andrew W. Scher
New York, Inc. 4 Irving Place New Yark, New York i 0003
Consolidated Edison Co. of
Phone: 212-460-6209
CHOROI 1367025_3 02-Nov.0609:40
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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 McCartney
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 memher 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 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. Except as otherwise stated below, Con Edison's most recent information
CHDBOI 1367025.3 02-Nov-0609:40
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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 Sitia 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 Liu of
Deloitte & Touche LLP
prepared a valuation of the RoCa3 Facility. Mr. Ellsworth's current address is:
Delaitte Financial Advisory Services 2 World financial Center
New York, NY 10281
(212) 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 O'Mahony Standard & Poor's
Garden House
16 Finsbury Circus EC2M 7BP London, England Phone: 440171 8263800
Mr. O'Mahony provided an evaluation of the credit of
South Holland Electric.
CHDBOI 1.367025.3 02-Nov-0609:40
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Aarnout M. Snouck Hurgronje
Credit Suisse Financial Products One Cabot Square E1440J
London, England Phone: 44 0 171 888 2000
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 60661
Phone: 312-627-6655
Mr. Harding performed insurance due diligence with respect to the RoCa3 Facility.
Hans Nieuwenheis and Peter van Kernebeek ofTauw Milieu bv provided a due diligence,
safety, and health report concerning the RoCa3 Facility.
William E. Flowers J.1. Stevenson II, Esq. Shearman & Sterling 599 Lexington Avenue 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
CHDBOI 13670253 02-Noy-0609:40
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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 15
P.O. Box 75088 1070 AB Amsterdam
The Netherlands
Phone: J 1 20574 i 200
Loeff Claeys Verbeke provided Con Edison with legal advice.
Thomas O. Verhoeven Oppenhoff & Rädler
7 I 2 Fif1h Avenue, 30th Floor
New York, New York 10019
Phone: 212-801-3410
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 docwnents 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 detìnition encompasses each and every
transaction Con Edison considered during 1996 through 199R. 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 possibility
that a particular transaction may produce a tax deduction or loss is a routine pait 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 all the business transactions Con Edison considered during i 996 through i 998 is not
relevant to the detemlination of the proper tax treatment of the Lease Transaction.
Subject to and without waiving its objections, Con Edison participated in a lease-in,
lease-out transaction with Nuon Gasnetwerken II B.V. (the "NUON Transaction") on May 18,
i 999. 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 3 i, i 999 through
and including December 3 i , 200 i.
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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 will 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
economic returns to each party. In particular, Con Edison negotiated the terms of the transaction
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 of
the
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 parties 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
f1uctuations in the value of the RoCa3 Facility arier the Sublease Basic Term and the Sublease
Renewal Term, if any. Con Edison took the following steps to partially mitigate this risk. First,
the parties negotiated a Sublease Renewal Option which allows Con Edison to extend the tenn 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 facility 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) will 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 will 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. Can Edison also partially mitigated these risks by conducting a due diligence review
of
the plant's operations.
Leeal Risk. Includinl! 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, the Sublease Purchase Option Price could exceed the fair market value of
the RoCa3 Faci lity. 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 lJS. 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 Ho\1and Electric is exposed to the risk that the other participants to
,. the Lease Transaction (including but not limited to the Lease Participants) wil not be able to
meet their obligations under the Operative Documents as they become due.
Hollandsche 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 co\1ateral.
INTERROGATORY NO, 5: State the basis for your contention that you expected a pre-tax
economic profit of at least $60 milion 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 tends (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 million 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 Sublease Purchase Option, and Con Edison
chooses to exercise its Sublease Renewal Option, Con Edison will receive a pre"iax protìt in
excess of $1 0 1 million, 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 12% for financial reporting purposes. Con Edison
reviewed the rules relating Lo leveraged lease accounting with Arthur Andersen.
The due diligence performed in reaching these conclusions included a review of the terms
of the Operative Oocuments, 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 Plaintiffs 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, Can Edison
requested, and the Public Service Commission granted, permission for Con Edison to make
investments in unregulated subsidiaries. Can Edison expected that the unregulated subsidiaries
would make protïtable investments, taking advantage of
Con Edison's expertise.
Can 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, Can
Edison Development contacted Cornerstone Fin.ancial 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 diligence 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 1 and have been provided as par of Plaintiffs Rule 26(a) disclosures or wil 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.
Can Edison \vill 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.
INTERROGA TORY 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
Plaintifts 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 stich 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
Con 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: Can 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
tenns 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 state 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
the State 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, Can Edison identifies Cornerstone Financial Advisors L.P.
as the outside consultant with which it communicated regarding the Lease Transaction. Can
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. i 5 as overbroad and unduly
burdensome. It is not possible for Can 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 will be disclosed in response to the United
States' First Request for Production.
INTERROGATORY NO, 16: State the basis for your decision to fom1 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
As to Objections:
~ t')~~
THOMAS C. DURHAM Mayer, Brown, Rowe & Maw LLP
71 South Wacker Drive
Chicago, Ilinois 60606
Telephone: (312) 70 i -7216
DAVID F. ABBOlT
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 Plaintiffs foregoing Responses to the
United States' First Set of Interrogatories are true and complete to the best of my knowledge.
'. r ~ ,l- .
.,' ",_.. . ..l~, ...¡.:..
. \ '1-
_...
Andrew Scher Assistant General Counsel
Consolidated Edison Company of
New York, Inc.
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CERTIFICATE OF SERVICE
I, 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 of Interrogatories 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 Fourth Street, N.W.
Washington, D_C. 20001
TH S C. D RHAM '
Chicago, Ilinois 60606
Telephone: (3 i 2) 70 i -72 i 6
Mayer, Brown, Rowe & Maw LLP 71 South Wacker Drive
~ e, )~ ~
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EXHIBIT A-4
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IN THE UNITED STATES COURT OF FEDERAL CLAIMS CONSOLIDATED EDISON COMPANY OF NEW YORK INC. & SUBSIDIARIES,
Plaintiff,
v.
)
)
) )
THE UNITED STATES OF AMERICA,
Defendant.
) ) ) ) ) )
Case No.: 06-305 T
Hon. Marian Blan Horn
PLAINTIFF'S RESPONSES TO UNITED STATES' FIRST REQUEST FOR PRODUCTION
Pursuant to Rule of Court of
Federal Claims ("RCFC") 34, Plaintiff, Consolidated
Edison Company of
New York, Inc. & Subsidiares ("Con Edison"), provides the
following response to the United States' First Request for Production, subject to the
objections and limitations specified.
Plaintiff is continuing to review the matters subject to this proceeding and
reseres the right to supplement and/or amend its responses as necessar,
GENERA OBJECTIONS
1. Con Edison objects to the United States' First Request for Production to
the extent that the Requests call for the production of documents that are subject to any
claim of privilege or protection or that were prepared in anticipation of litigation. This
includes, without limitation, the attorney-client privilege or the work-product protection.
The inadverent production by Con Edison of any document protected by the attorneyclient privilege, the work-product protection or any other privilege shall not constitute a
waiver of
the applicable privilege or protection as to that document or any other related
documents.
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2. Con Edison objects to the United States' First Request for Production to
the extent that the United States purorts to impose any requirement or discover
obligation other than or beyond those set fort in the RCFC or other applicable rules.
3. Con Edison objects to
the United States' First Request for Production to
the extent that the Requests call for documents already known to be in the United States'
possession.
4. Con Edison objects to the United States' First Request for Production to
the extent that the Requests seek immateral and/or irrelevant documents. By producing
documents, Con Edison does not concede that the documents produced are material and/or relevant to any claims or defenses, or even that such documents are reasonably
calculated to lead to the discovery of admissible evidence.
5. By producing documents in response to the United States' First Request
for Production, Con Edison does not waive any of its objections and expressly reserves
its right to object to the admissibilty of
the documents produced.
6. Con Edison objects to the United States' Definitions in its Firt Request
for Production to the extent that the Definitions define words to have something other
than their ordinar meaning or employ gramar, syntax and usage different from
ordinar English gramar, syntax and usage. Con Edison wil not speculate as to the
meaning of vague language within the First Request for Production and will assume that
the United States has wrtten the questions they intend to ask.
Con Edison hereby incorporates each of the foregoing General Objections into
each of
the following responses to the United States' First Request for Production, and
provides each response subject to and without waiving these General Objections.
2
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RESPONSES TO REQUEST FOR PRODUCTION OF DOCUMETNS
REQUEST NO. i: All documents identified, described, mentioned or referenced to in
your response to the Interrogatories sered concurrently herewith.
RESPONSE: Con Edison produces, to the extent not previously produced in its
Rule 26(a) disclosures and to the extent not privileged, the documents referenced in its
responses to Interrogatories No.1 through 16. These documents are bates stamped #
PF005521 through 7333.
With respect to Interrogatory No.2, subject to and without waiving its objections,
the following is a parial list of documents included in Plaintiffs Rule 26(a) disclosure
identifyng other lease-in, lease-out transactions considered by Plaintiff: Bates
## PF004250-87, 4288-4323, 4525-4558, 5504-07, and 6438-89.
With respect to Interrogatory No. 14, subject to and without waiving its
objections, Bates # PF004426-48 identifies some of the infrastrctue projects reviewed
by Con Edison. Con Edison Development, Inc. regularly reviewed infrastrctue projects
and a compilation of a complete list of such projects would be unduly burdensome.
Interrogatories 7 and 15 are overlapping, and the majority of
the documents
produced in response to Request for Production No. 1 are responsive to both
Interogatory 7 and 15. Bates # PF006492 though 7321 includes workpaper utilzed by
Deloitte & Touche in their appraisal.
REQUEST NO.2: All documents relied upon or reviewed by you in preparng your
responses to the Interrogatories sered concurrently herewith.
RESPONSE: To the extent that Request No.2 seeks the production of
documents which Con Edison reviewed but did not rely upon in responding to the United
3
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States' Interogatories No. 1 though 16, Con Edison objects to the Request as overbroad
and unduly burdensome, immaterial and irrelevant and not reasonably calculated to lead
to the discovery of admissible evidence. The fact that Con Edison did not rely upon a
paricular document indicates that the document was not relevant to its responses to the
Interrogatories, notwithstanding Con Edison's review of
that document in preparng its
responses.
(Remainder of Page Intentionally Blank)
4
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Subject to and without waiving its objection, Con Edison has produced all documents it
relied upon in preparng its responses to Interrogatories No. 1 through 16 in response to
Request No.1.
Dated: November 3,2006
Respectfully submitted by:
THOMAS C. DURHAM Attorney of Record Mayer, Brown, Rowe & Maw LLP 71 South Wacker Drive Chicago, Ilinois 60606
Telephone: (312) ?01-7216
By: ~(t~l,
NICOLE M. BIELA WS I Mayer, Brown, Rowe & Maw LLP 1909 K Street, N.W.
Washington, D.C. 20006-1101
Telephone: (202) 263-3452
DAVID F. ABBOTI Mayer, Brown, Rowe & Maw LLP 1675 Broadway New York, New York 10019-5820
Telephone: (212) 506-2642
5
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CERTIFICATE OF SERVICE
November, 2006, I
I, Nicole M. Bielawski, hereby cerify that on this 3rd day of
caused the foregoing Plaintiffs Responses to the Governent's First Request for
Production to be sered upon the United States of America by hand, to the following:
David N. Geier U.S. Deparent of Justice Tax Division, Room 7919
555 Fourh Street, N.W.
Washington, D.C. 20001
NICOLE M, BIELA SKI
BY:~~'
Telephone: (3 q) 7oi-721~ ./1
THOMAS C. DURHAM Attorney of Recrd Mayer, Brown, Rowe & Maw LLP 71 South Wacker Drive Chicago, Ilinois 60606
Mayer, Brown, Rowe & Maw LLP 1909 K Street, N.W.
Washington, D.C. 20006-1101
Telephone: (202) 263-3452
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