Message-ID: <26253118.1075840816248.JavaMail.evans@thyme>
Date: Mon, 17 Sep 2001 19:04:21 -0700 (PDT)
From: m..presto@enron.com
To: a..lindholm@enron.com, mike.curry@enron.com, john.lamb@enron.com, 
	michael.payne@enron.com
Subject: RE: Amendment to IM II PPA
Cc: harlan.murphy@enron.com, louise.kitchen@enron.com
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X-From: Presto, Kevin M. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=KPRESTO>
X-To: Lindholm, Tod A. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=TLINDHO>, Curry, Mike </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Mcurry>, Lamb, John </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Notesaddr/cn=baf11594-d7ca8ed4-86256689-74781e>, Payne, Michael </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Notesaddr/cn=b4e7a1a4-cae83c15-862567b7-52cc8e>
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Todd and Louise,
=20
With respect to No. 1 below, I will check with Mike Curry to get his view o=
n "contract intent".
=20
With respect to No. 2 and No. 3, the answer is absolutely "NO" as they are =
material changes to the contract that have significant value issues.   Sinc=
e I personally requested these changes to the original contract (in the neg=
otiation process), I know what the contract intent was and continues to be.
=20
If AEP is still the equity buyer, they have complete control over the "grid=
 curtailment" and associated termination risk in item No. 2 since they are =
the transmission owning utility in the region.
=20
The total EPMI PPA (as of 9/17 COB) value is currently $18.5 million.  My e=
stimate for PPA value erosion for amendments No. 2 and No. 3 is $8-10 milli=
on.   Obviously, the $ erosion value is somewhat subjective, however, the t=
ransmission risk/grid curtailment risk on this project is significant and t=
he termination event for grid curtailment is essential to mitigate what cou=
ld be substantial downside for EPMI.   The reason I had Mike ensure this pr=
ovision was in the current PPA was to shift some of that risk back to Enron=
 Wind and now Enron Wind is trying to push it to the project lenders (who a=
lso don't want the risk).
=20
=20

-----Original Message-----=20
From: Lindholm, Tod A.=20
Sent: Mon 9/17/2001 5:54 PM=20
To: Presto, Kevin M.; Curry, Mike; Lamb, John; Payne, Michael=20
Cc: Murphy, Harlan; Kitchen, Louise=20
Subject: RE: Amendment to IM II PPA


 =20

 Kevin,  =20

EWC requires three clarifications to the PPA in order to get the project fi=
nanced and sold.  All previously requested amendments proposed by the equit=
y purchaser have been dropped, and EWC will take the resulting pricing redu=
ction. =20

I want to make sure you understand how minor these three clarifications are=
.   These clarifications conform to the original deal and are NOT changes t=
o the deal. =20

 1.  Banking Provisions.   EWC and EPMI agreed that energy and renewable en=
ergy credits ("RECS") produced by the Indian Mesa II wind generating facili=
ty in any year in excess of the annual minimum quantity would, on a cumulat=
ive basis, offset any deficiencies of energy and RECS in subsequent years. =
Section 4.04 of the agreement does not clearly provide the cumulative carry=
over mechanism which was contemplated by the parties. (This section origina=
lly provided for the carryover, but in an effort to simplify the language, =
the aggregate carryover concept was clouded.)  Both the project lenders and=
 the proposed equity purchaser have required that the point be clarified.  =
There has never been a disagreement between EPMI and EWC on the intention o=
f the carryover banking provisions. EPMI's most recent refusal to make this=
 clarification now appears to be a change in the original deal

 2.  Grid Curtailment EWC and EPMI  drafted the contract  with specific pro=
visions relating to  termination resulting from grid curtailment, Section 5=
.04  .  There is an ambiguity in that grid curtailment could also be covere=
d  under the termination provision relating  to force majeure under Section=
 5.02.  This  inconsistency is the problem.  Neither EWC nor EPMI were to p=
ay damages to the other party in the event of grid curtailment.  The propos=
ed equity purchasers have requested that the force majeure provisions of  t=
he PPA  be clarified to make it clear that extended grid curtailment would =
not give rise to termination payments.  This clarification is consistent wi=
th the original intent of the parties and is not a change to the deal.

 3.  EPMI Credit Support.  EPMI's obligations under the PPA are guaranteed =
by Enron.  The Indian Mesa II PPA permits EPMI to assign the PPA to certain=
 affiliates without consent of the seller.   Any assignment by EPMI would n=
ot relieve it of its duties and obligations under the contract, and the Enr=
on guarantee would remain in place.  However, the project lenders have requ=
ired clarification that the Enron guarantee would either explicitly remain =
in place or that the assignee would have a credit quality at least as good =
as Enron Corp's credit quality.  The project lender's have also requested t=
hat the termination payment provisions be clarified to provide that any sub=
stitute PPA used to calculate a termination payment would also need to be w=
ith a party that had a credit quality similar to Enron Corp's, since that i=
s the credit that is supporting the Indian Mesa II PPA.  This will not affe=
ct the value of the contract to a third party since Enron bears this obliga=
tion unless released by the project.

Under the dispute resolution provisions of the PPA we could certainly pursu=
e declaratory relief under arbitration.  Our sense is that this does nothin=
g but ensure delay.

 From an Enron perspective:

     The sale of the equity and the financing of the non-recourse debt on t=
he Indian Mesa II project is currently at a standstill due to issues surrou=
nding the ambiguities in the PPA

      While the debt financing for the Indian Mesa I project is in place (d=
ifferent offtaker) the proposed equity sale to AEP is linked to the sale of=
 the Indian Mesa II project.

     If Enron cannot move forward with the financing of the project within =
the next month, Enron will likely end up with approximately $153M less cash=
 at year end than it counted on in its plan, in addition to any decrease in=
 planned earnings

    The after-tax return to Enron in a "hold" situation is 0%, due to Enron=
 being in the Alternative Minimum Tax position, i.e. it cannot use the tax =
benefits.

It was clear in the discussions with the City of San Antonio that these cla=
rifications would have had no affect on value.  =20

Tod

-----Original Message-----
From: Presto, Kevin M.=20
Sent: Saturday, September 15, 2001 2:41 PM
To: Curry, Mike; Lamb, John; Payne, Michael; Lindholm, Tod A.
Cc: Murphy, Harlan; Kitchen, Louise
Subject: RE: Amendment to IM II PPA


I would like to make the message even more clear.  EPMI will not be making =
any changes, amendments, clarifications, interpretations, etc. to the curre=
nt Indian Mesa II PPA.   Therefore, any proposed purchaser of the Indian Me=
sa facility must evaluate the contract based on their own legal and commerc=
ial interpretation.
=20
I don't think it is productive to spend any more time on this discussion.  =
 We will continue provide Enron Wind with the PPA value on a daily basis su=
ch that total shareholder value is maximized for any proposed wind transact=
ion (sale of company and/or sale of IM project).
=20
Please feel free to call me to discuss (713-853-5035)

-----Original Message-----=20
From: Curry, Mike=20
Sent: Fri 9/14/2001 3:11 PM=20
To: Lamb, John; Payne, Michael; Lindholm, Tod A.=20
Cc: Presto, Kevin M.; Murphy, Harlan=20
Subject: RE: Amendment to IM II PPA



We are not interested in these changes to the PPA.  These changes will weak=
en the language in the contract for us (i.e. improve it for AEP that is pro=
bably why they are asking for the "clarifications").  I will be out next we=
ek on vacation so please address any further concerns in my absence to Kevi=
n Presto.  Regards, - Mike

 -----Original Message-----=20
From:   Lamb, John =20
Sent:   Friday, September 14, 2001 10:28 AM=20
To:     Curry, Mike=20
Cc:     Lindholm, Tod A.; Payne, Michael; Godfrey, Jay=20
Subject:        Amendment to IM II PPA=20

Mike:  Attached is our proposed amendment to the Indian Mesa II PPA.  It de=
als with the banking clarification (section 4.04 amendments), grid curtailm=
ent clarification (section 5.02 amendments), guaranty clarifications reques=
ted by the lenders (section 5.05 and 9.03 amendments), and the  ERCOT amend=
ment (section 3.04 amendments) that we have discussed.  Please note that th=
e ERCOT restriction would permit international sales, such as to Mexico, bu=
t would otherwise restrict EPMI's sales of energy from the wind facility to=
 other locations within ERCOT.  In the preparation of this draft, we used t=
he same amendment that was previously sent to you by e-mail on 8/22/01.  Th=
at e-mail had a redline with it to show the changes to the banking provisio=
ns.  Please let us know whether this draft is acceptable or whether you hav=
e any questions or comments on the amendment.  Thanks

Regards=20

John=20

 << File: PPA First Amendment_09.14.01.doc >>=20
 