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Case 1:06-cv-00305-MBH Document 29-2 Filed 05/02/2007 Page 1 of 38

No. 06-305 T

(Judge Marian Blank Horn)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC. & SUBSIDIARIES

v.

THE UNITED STATES,

Plaintiff

Defendant

DECLARATION OF JOSEPH A. SERGI

I, Joseph A. Sergi, pursuant to 28 US.c. § 1746, declare and state to the best of

my

knowledge as follows:

1. I am employed as a trial attorney with the United States Deparment of Justice, Tax

Division in Washington, D.C. I am assigned responsibility for representing the interests of

the

United States in the above-captioned case. I am responsible for and familiar with the documents

produced by Plaintiff during discovery in the above captioned matter. I make this declaration in

support of

the United States' Reply in Support of

Defendants Motion to Compel, Second

Motion to Compel and Motion for Issuance of Letters of Request.

Case 1:06-cv-00305-MBH Document 29-2 Filed 05/02/2007 Page 2 of 38

2. Attached hereto as Exhibit 1 is a true and correct copy of a document titled

"Leasing White Paper 11-25-97", produced in the course of discovery.

3. Attached hereto as Exhibit 2 is a true and accurate copy of the relevant excerpts

from a document entitled "PARTICIPATION AGREEMENT" dated as of

produced in the course of discovery.

December 15,2997,

4. Attached hereto as Exhibit 3 is a true and accurate copy of a document titled "Con

Edison Development, Inc. October 1998 Report to Board of Trustees," produced in the course of

discovery .

5. Attached hereto as Exhibit 4 is a true and correct copy of an email, dated April 12,

2007, addressed to Plaintiff s counseL.

6. Attached hereto as Exhibit 5 is a true and accurate copy of the relevant excerpt

from a presentation entitled "ConEdisonDevelopment" dated August 17, 1998, produced in the

course of discovery.

7. Attached hereto as Exhibit 6 is a true and accurate copy of a document titled

"Consolidated Edison Leasing, inc. 1998 Business Planing Meeting" dated Januar 21, 1998,

produced in the course of discovery.

I declare under penalty of perjury that the foregoing is true and correct.

Executed this 2nd day of

May, 2007 in Washington DC.

sf Joseph A. Sergi
JOSEPH A. SERGI
Trial Attorney, Tax Division
U.S. Deparment of Justice

- 2 -

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EXHIBIT 1

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""

v f.' -- ·

Leasing White Paper

11-25-97

I Executive Summary

r~

low risk and attractive return profile of leases. This paper describes sale-
leasebacks. identifies maior risks and benefits. and details a recommended
fT" One element of a diversified investment portfolio for Can Edison is the relatively
¡ investment.

~ aenerãianagement is seeking approval for the implementation of an
" ìne~program focusing on investments in sale-Ieasebacks and lease-
leasebacks of domestic and international energy and infrastructure related
facilities.

The initial focus of this initiative wil be to invest in transactions in conjunction
with experienced market participants, to concentrate on assets familar to Con
Edison and owned by utilties located in highly rated counties, to fully secure or
ameliorate dofeooo credit risks with U.S.Treasuly bonds and letters of credit and
to structure transactions in ways that wil allow for strong tax opinions from top
rated law firms.

Investments in these facilities wil be accounted for as leveraged leases under
FASB 13 the applicable accountina standards, which will allow for front loaded
eamings and the i~~eAls-anticipateef-l~erate after tax yields of
between 15% and 2~!:"~_er the life of the investm~

What is a sale-leaseback?

In its most basic for .. n e comma added a sale-leaseback is the- purchase of
an asset and the s uent leaseback of that asset to the seller under a long
term lease agreement. Under a so-called .Ieveraged lease" the investor uses
non-recourse debt to reduce the equity needed to purchase the asset, .
resulting in -eigher equity returns. Under a sale-leaseback the inv sto(s
(note. apostrophe added) return is derived from a combination of the exce
rental ¡l'come over debt service (the "free cash flow") and the tax benefis that
accrue to the investor from the depreciation deductions the investor takes on its
ll tax return.

ince the* inception of leveraaed leases in 1964.. tho lovor3god leasing m3rl~ot
has oontinuolly several types of lease arrangements have been developed-R
v3riotions on thic Basic theme to accommodate increasingly complex tax laws
and regulations. The latest of tRQSe variations--i the lease-leaseback
structures in whiçh an asset is leased (instead of purchased) and the leasehold

CE 016740

PF008645

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