Jordan,
I assume the memo I asked for is in hard copy on my desk.
Thanks
Delainey
---------------------- Forwarded by David W Delainey/HOU/ECT on 07/20/2000 
12:25 PM ---------------------------


Jordan Mintz
07/19/2000 12:46 PM
To: David W Delainey/HOU/ECT@ECT
cc:  
Subject: DQE -- Impact of Operating at Reduced Capacity: PRIVILEGED AND 
CONFIDENTIAL

Dave: A supplement to our memo to you regarding the Synfuel transaction......

Jordan
---------------------- Forwarded by Jordan Mintz/HOU/ECT on 07/19/2000 01:46 
PM ---------------------------


Kevin Liss@ENRON
07/19/2000 12:42 PM
To: George McClellan/HOU/ECT@ECT, Wayne Gresham/HOU/ECT@ECT, Daniel 
Reck/HOU/ECT@ECT, Raymond Bowen/HOU/ECT@ECT
cc: Brian Otis/NA/Enron@Enron, Jesus Melendrez/Corp/Enron@Enron, Tim 
Proffitt/HOU/ECT@ECT, Jordan Mintz/HOU/ECT@ECT 
Subject: DQE -- Impact of Operating at Reduced Capacity: PRIVILEGED AND 
CONFIDENTIAL

Our memorandum of today's date on the DQE facilities estimates a 65% to 70% 
likelihood of the facilities qualifying for section 29 tax credits, based on 
projected volumes of 225 tons per hour.

As we discussed a week ago, if we operate the facilities at a volume of 118 
per hour, (i.e., half-capacity), we believe we would alleviate the tax risk 
associated with the increase in capacity.  The question is, does that 
improvement in the odds with respect to that one issue improve the 
bottom-line odds on qualification at least with respect to the base volume of 
118 per hour from the 65% to 70% estimate that we specified in our memorandum?

We think it does, but we are not sure that there will be a material 
improvement.  We have passed that question on to our outside tax counsel, and 
will let you know his view.  

As we noted last week, there are several legal issues for which, while we 
think we have the better argument, there is no definitive legal precedent.  
Even pulling the capacity issue out of the equation --which is what we would 
be doing if we are only considering the 118 tons -- there are still several 
other balls in the air, and we would have to catch each and every one in 
order to have a tax-creditworthy facility.  When you look at each issue, 
separately, it seems possible to get comfortable as to each one, but when you 
consider that there are several such issues, and that we have to be "right" 
each and every time, you have to lower your overall odds.  Statistically 
speaking, if you are 80% comfortable as to each of 5 separate issues, then 
you would expect to hit on 4 out of 5, not on 5 out of 5, but we can't lose 
on any one issue and still qualify for credits. 

Obtaining a private letter ruling from the IRS as to these issues, which is 
our ultimate goal, would take these issues out of the air, so to speak, but 
that's not going to happen pre-close, and no matter what assurances we might 
get at a pre-ruling conference with the IRS, unless and until you actually 
get the ruling, there is an element of risk that you have to assume.  For 
that reason, the 90% probability number that I threw out at last week's 
meeting in response to a question about what our comfort level would be if we 
had a private letter ruling is really a red herring, because at decision 
time, there's not going to be a ruling in hand.  

As noted above, I will let you know what Bruce Lemons' view is, since he is 
the one who will be called upon to give an opinion. Hopefully, that will be 
later today.

Kevin Liss
x58601