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Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 1 of 38

EXHIBIT C-12 .

Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 2 of 38
DEe 09 'en 15=35 FR a: EDlst is12 39 92 TO 351

P .1&'1:3II
.

Colida Edon Deopment Files

Fn:\lli James M. Deey, Syr
Da Novcm 26, 1997
Re ColioÜda Edn Develpmat Leered Le

Colite Edso Delot (CE) prse to cn in a lca iron tht wil
us th IlWcrp le acun mo ofF AS 13. Br Delautt Vicc Prden an I
have ha sc cI r~d: t: pc tron an he ba prvide th
followig iition which we have reed up in t'hing our coclus rega th
prse acunti:
. A memordw7hUlacllc Sl. Ducrtin. 1' me wrtt by
retavc of Co FiD Advi LP. CE's fial adso in ths
trtion wu prde to Be Nese of Ar ADcl. LL (M). AA wa
reue by Co to pne their opinon rcprini the approte acçountig
for th hyth tron
. lett daæd Nove 21, 1997 of AA Th lett deõc M's conclusions reiang Q
th 1rOD desbc ùi th Trtion Strct Deon. /

. Rc to quon Dug th cour of dision rccardi th tntlODS a

awbe of qucmaa we develop and rcsp wer prvicl by CE anor
Comee.

Tb doc Il atthe

lh 1\eita strtu is .. "lea-in" by .. Trot eslied by CE of an electr utity
aset &o i Dutch munl elecc utty (E. The Trut is a lC$ in th 1nlÌon
SimulCOlY, th Tru "lea out th lea as to a subsidi ofEZ. In ths
nni;on th Tr is a sulessor.

Accodiig for the "Head Le"

Th he lea in is a 44ye lea re one paym at çlosi an on payment at th
en ortl te oftbe la. PAS 13 rc tb. lcu be acte for as a capital1cae if
it me my on of the followi c:tti:

. Th lea trfer the asse to th lessee a.t the end of the leae tc;

CE 003768

PF005602

Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 3 of 38
DEe 09 '91 15:35 FR CO EDISC DE12 39 92 TO 351

P.11113

To th Coalidtc Ed Files
Pag 2
Novembe 26, 1997

. Th leae cotans a ba purche option

. Th lca te is 75% or ~tc oftl economic usfu

lie of th pr; and

. Th pret vaue of thc minimum lea payments is 90% or mor of the far value of

lca pr at the inception Dr th lc:.

the

We have been advied tht Deoitte &; Toue Valuatioi Sece ("D&;1) wi provide an
apsa of th fair vaue of the pr at th intion of th lea an an opÍDon u to th
ecc usfiliCe of th pr. We have .Iso bC adVì tht Co will
provide a c:cution ofth prt wlue of th mium lea payments (bth for the He
Lee an th sublea).

For pui of th memo, we have as tht th econo life ofth pr is les
tb 58-21 )' an tht di prt vaue of th DUum le pats (M'I) exc:s
9OAi orth fA vaue of1b pr. Thfor, th pr He I. lron me
at lea two reuien for clasfica by th Ti as a gpita ~ as and ob~n
the MU"S. Pfdcd lUçh vaue do not exce -
th fa woe orth~.
Accoudq fDr the SUblea

~ th amomt equa to the pr value of

Th sublea ha an inti t. 0(20 Yeawith a purha option at th end oftbt tc
Shuld th purlwc option Dot be c:is th Tit as subles ba a put tcew option
un which di subles would pa ret for 17 yea.

To dein th acoun1Î for th sulea th 1Ì is reD' to coder th SIe four
crU: as desbe abvc.Tb Tr Str Depton. pa 4, inte tht "it is
rçle to au ba on ao-cç fa mati above. di th m:t md
collai rccnts oued beow th th subles wil exe th purha opon"
its pure option is '"ly asum;'

If, as,of'th intion of
th th sulea mets th send critc pubu option. Also, we have be
th fa vaue ofthc

the lesscc th exer of

reuimets of

advi tht th ML', unde th 5Ublc will equal or exee 90% of
leaed prer. As a ret, th sublea mee bo th scdand fou c:teia ofFAS 13.
However. PAS 13, pahs 35 th 39, sp addition te for açço\Btig and
reg for sulc an sim tronl. We bave codeæ in pacular the

pagrh 39.b. Parph 39.b rcuis "iftb or (Hea Le) met
either cnæra ç or d but DOl crtea a or b of pagrh 7, th orgi1c iba, with one
exception clasify the no lea il eicc with the crte of paarh 7.e an 8 ony."
Th Head Le mets both er1a. ç ïm d. P..grh 39.b fuer prde "the one
extiOD ar wh the tini an ot cirumccS suunin th sulca ar such
as 10 suges tht the suleae wu cnta as 1f intc¡rl pa of th ovcr trtion in
wmch th origiles sees ony as an inteedar. In th ea th sublea shaJl be
clas tied acor to the critea of papaph 7.c an d. as well as the crtea of pargraph

CE 003769

PF005603

Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 4 of 38
DEe 09 'r; 15:36 FR ~ EDISG DE12 J' ~ IU ~l

r. 1.4: J.~

To th Colidte Ed Files

Page 3
Novebe 26, 1997

the orgi lesor at th inc;on of

8. In aplyi th aitc of 7.d th fa vaue of ch lw pr shl be the fa vaue to

th or lea" Wi have code wheer the
Tr faned by CEO me th defition of a "iteediary" ~ have conlud tht it
doc. Theror, th sublea ca be clafied eith aç to pairph 7.c or cl tht is,

the

the 15% of ceomic Hfe teorth 90 offai vaucoftb lea prope te If

sublea mee th fu condtions ofFAS 13 it will meet the reents for dit
fianein¡ lea trtment Th condon ar:

. The fa vaue of

the lea as is equa to the Trut's cost

. The tr ba no sipificat fù cots with re to th lea pr or th

t:etion th ar unown

. eollectibilty is iuly as

D&T will provide an ~iDon re~ tb fa vaue Of~pc whch wil indicaic th
th fa vaue will eq th co to th rut. Th Hea is trple net therfor th ar
no futu unwn cots. EZ is a mu citity with an "A" crt iatia. Acy,
th sublea may be accun for as a di ft.ftii,iz lea Uner FAS 13.
~

In ord for th dit fi lw to be açcountC for as "leved leae," F AS 13
provies th 6icr coadticm:

. The tron involve at leat th pa~ lesso. a lesee and a long-ta

crto

. The finanng prvided by th long-te crtor is non reur to th geer crit of

th les an is "substial;" an

. The IcsQ£'¡ net invetmen delin in the eay yea oítle lease md nses in 7

subuet vcu. I

The fit cotion ii me. Th lCS is EZ, the less is the CE Tnit and the long-te
cretor is pro to be ABN B8D Th th coti is al me Th Traon
Str Deption cota a sce wbb rc1lcç the rcui pa or declii net
invCStnt in the eay YCl orth ici an ineras inve in subseuet yea. With
ret to the send cotion describe abve. th AA let ai th Traon Stncti
Dec;ptian debe 1b '"ecur prsion of the pred tion." The lat th

the AA lcu, paic 4, debe how. frm an acwiti peve. th

pa;rhs or

propose troDS me 1h reur pron orthe sed crtera. to be acunted for
as a levered lea. We ag with tbsc colus, 8S tht th prop stnctu is
pu in place in th fi tron. til fmmg is. al substi as, acg to me
'''racton sui Desmon. it cx SO-i. of th fair valu of the prpert.

CE 003770

PF005604

Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 5 of 38
lEe æ 'en 15:36 FR CX EDI5t Il12 39 92 TO 3S1

P. 1311:3

To th Colidated Edon Files
Pae 4
Novembe 26, 1997

/U . result, the subleu quafies fit as i di fi leae and fuon: mee th
crite clafied as a levered lea UD FAS 13.

,. 7

DefiaidoD of. Le

We al codci th queson ofwbcth or
cover by F AS 13. Unde F AS 13, "i lea is defied u an agen coveying th ri¡ht to

not th prse trction is in fact a lea
us Pfpc, plat or eq (l aDor ~iale aset) usly for. stte peod of'
pr. If

Wne." We have beadvi tbith lessee. th Tru ha th ri to use the

th put rc option is cxc:ised by th TIU at the end of the put ren peod (i .e., year
31 oCtb sulea), th wilrc ICVC ye unde th ta oftb or be leae.
Duri ih peod tb Tru ha th ngh to us th pr an deve re or oth
TCvenue frm SQCh us Al at th en of th inti tc of th sublcu (yea 20) if neth
the purha option nor th pu rctw option is acsc. tb tb Tru ba th nght unde -
the Hea Le to us th pr and deve re or oth reves thfrm. As a ret.
we beev th pr trtion mcctl the defition of. "lea."

QUaltioDS

lbe abve colusOl are subjeç to th irtions bein execut in fon and subtace .
substal u describe abve md rept of the doaits pr by DcT an
Co rega fa ma~ iu economc usfulire. an tJìèihgan viIhle of
~'s, resy. Al, tI magemt retion le will cota TCrctatåon
cosistet with th inoron prvided above inlud th followig:

the pr

th pr

. Fair vaue of

. Ecnomic us lif of

. Pr va of minimum lea pa1Jts

. The abilty of

th 1r to "u" tb pr an thCRoi, trt the He Le an the

sublea as leas un F AS 13

...\llac\i 1M file

CE 003711

** TOTFt PA.

13 **

PF005605

Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 6 of 38

EXHIBIT C-13

Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 7 of 38

In ACM, the taxpayer entered into a near-simultaneous purchase and sale of debt
instruments. Taken together, the purchase and sale "had only nominal, incidental
effects on (the taxpayer's) net economic position." ACM åt 250, The taxpayer claimed
that despite the minimal net economic effect resulting from the application of the
installment sale rules to the sale. The court held that transactions that do not
"appreciably" affect a taxpayer's beneficial interest, except to reduce tax, are
devoid of substance and are not respected for tax purposes. ACM at 248. The court
denied the taxpayer the purported tax benefits of the transactron because the
transaction lacked any significant economic consequences other than th~ creation of
tax benefits.

Taxpayer's Position:

In a meeting with the taxpayer on March 5,2002, their position was that their position
is stated in the tax opinion letter written by Price Waterhouse on December 10,1997.

Here are some of their main positions:

1.) After examining the leveraged lease pricing printout from Cornerstone Financial

Advisors (advisor to Roca on this lilo transaction) they feel that they are in
compliance with Revenue Procedure 75-21, the safe harbor provisions of Proposed
Treasury Regulations 1.

467-3C¡(2) (i),

2.) After examining the appraisal report, they stated that the fair market value on

the plant on the closing date, and lease termination date was fairly stated, The
estimated useful life, residual value was fairly stated.

Conclusion;

Viewed as a whole, the objective facts of this Lilo transaction indicate that the
transaction lacks the potential for any significant economic consequences other than
the creation of tax benefits. I will describe the various reasons I have come to this
conclusion:

a.) The presence of a numer of defeasance arrangements during the life of the
transaction that are offsetting and circular in nature which eliminate any
significant economic consequences of the transaction, Some of theses are outlined
below:

1.) debt defeasance account, set up at inception of deal (12-15-97) to

pay the $ 80.8 million debt that Roca through the trustee (Wilmington
Trust) had used in the inception of the deal to finance the debt
portion of the $120.1 million prepayment.

2. L investor defeasance account, set up at inception of deal to enable

EZH to pay the fixed payment option at the end of the 20th year.

3.) lease collateral deposit, set up at the beginning of the put renewal
term to pay the non-recourse portion åf the Head Lease rents due at
end of the 44~ year .

4.) trustee treasury collateral deposit, set up at the beginning of the
put renewal term to pay the recourse portion of the Head Lease rent.

b.) There is an undisclosed subsidiary (Con Edison Leasing, Inc.) on the form
8S1, which was incorporated in Delaware' for the purpose of a single transaction, to
engage in an activity, cross border leasing which is out'side the corporation's core
business of supplying electricity, gas and steam in the New York metropolitan area. It
had no activity in prior years, but material. losses in the current and subsequent
years.

U800709

Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 8 of 38

EXHIBIT C-14

Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 9 of 38

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Case 1:06-cv-00305-MBH Document 21-6 Filed 04/03/2007 Page 10 of 38

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