A very senior attorney in Delhi (perhaps a retired Supreme Court justice?) 
has advised Enron that MERC has no jurisdiction over the PPA and cannot 
establish regulations on things like merit order dispatch, much less set the 
merit order dispatch.  A written legal opinion has been requested.  The 
thought of the Linklaters attorneys (both Sandeep Katwala and Chris Walker) 
and tentatively Wade is that the MERC may be DPC's worst enemy if it has 
jurisdiction over the renegotiated PPA (which it will) and must approve it; 
thus, it may be better to take the offensive and challenge its jurisdiction 
over merit order dispatch.    The strategy isn't fully formed yet, but I 
wonder about the wisdom of (i) taking on a regulator that could be in a 
position to approve a renegotiated PPA; and (ii) how a jurisdictional 
challenge to a regulator attempting to restructure squares with Enron's 
positions/reputation worldwide.  I'll be discussing this with all parties 
when I get back to work after New Year's and will let you know as this issue 
progresses.

Enron is as I speak seriously contemplating pulling the letters of credit.  
We've been told by the Chairman of MSEB that he has some money but he is not 
going to pay October's bill for DPC.  According to him, DPC was forced on 
MSEB by the Gov't of Maharashtra, so we should pursue our financial and legal 
remedies.  The Government of course will want to renegotiate in exchange for 
payment.  Here we go.


---------------------- Forwarded by Jane Wilson/ENRON_DEVELOPMENT on 
12/27/2000 07:54 PM ---------------------------


Mark Schroeder@ECT
12/27/2000 04:25 PM
To: Jane Wilson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Steven J Kean/NA/Enron@Enron 

Subject: Re: Merit order dispatch: what is the real problem  

Jane - thanks, good note.  mcs

Steve - FYI, just an overview of issues affecting Dabhol, and payment 
capability.   mcs



Jane Wilson@ENRON_DEVELOPMENT
27/12/2000 03:52
To: Sandeep Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mohan 
Gurunath/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Akshay 
Singh/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sandeep 
Katwala/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Paul 
Kraske/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sisir K 
Podder/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Rajesh 
Sivaraman/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mark Schroeder@ECT, Ashok 
Mehta/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, K 
Seethayya/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Mukesh 
Tyagi/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Robert 
Neustaedter/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Amr 
Ibrahim/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sanjay 
Bhatnagar/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 

Subject: Merit order dispatch: what is the real problem

While I am in touch over the rest of the week, I remain more or less on 
vacation with my family.  Upon return after New Year's, Akshay and I will 
look at the items in italics below.  Of course, we cannot do analysis out of 
the context of the model.  Perhaps if you sent Akshay and me the model that 
is being used to work the answers to Jim's questions (one model or two?), we 
can see what we're working with currently.  

Please note the following:

1. Merit Order Dispatch in the Next Rate Case.Attached below is what my team 
(Robert Neustaedter) has drafted for the rate case filing on merit order 
dispatch.  There is a mistake on page 5 regarding the percentage TOP that 
needs to pass outside merit order dispatch (it's 75% rather than 78%).  
Further, we've asked Ramu to "Indianize" the text before we pass it back to 
Mr Palumvar.  Merit order dispatch has not been clearly treated by the MERC 
(or any other Commission other than the Gujarat ERC), and this filing should 
serve as a foundation for this rate case (and others).   


2. Merit Order Dispatch "Cap".  The May 5, 2000, order treats two concepts as 
one: the least cost purchase policy that determines what power purchase costs 
are included in the rates for the rate case period is equated with merit 
order dispatch, which is  a day-to-day operational tool that determines 
actual purchases.  The rate case order of May 5, 2000, as written, did not 
"cap" the quantities.  What the rate case stated (and I am not quoting) was 
that quantities in addition to those authorized could be dispatched so long 
as the average realisation exceeded the cost.  I would also argue that the 
India obligation to serve customers provides additional grounds for further 
dispatch quantities.  The "catch" is in two places:  first, whether dispatch 
of DPC power meets the test (Shubh told me recently it did -- does this 
continue to hold true, Mohan?), and second, the recovery of the power 
purchase costs due to the variance (the difference between what is authorized 
in the order and what is actually dispatched.)
3. Recovery of Variance. According to Mr Podder, the Electricity Supply Act, 
1948, does not allow a carryover of these volumes from one rate case to the 
next.  (Typically, the variance is just included in the next rate case.  This 
practice actually provides a utility with an opportunity to overrecover costs 
for a period of time, which is why the goal of a rate case is normally to 
understate demand.  We have approached the MSEB  rate case, however, with a 
different perspective in an attempt to get the revenues up to allow more 
funds for MSEB to pay its bills.)  As provided in the Act, the variance must 
either be subsidised by the State or absorbed by the SEB.  This is a major 
financial problem for the SEBs and should be rectified by GOI.  Mr. Podder is 
writing down the accounting legal basis in Act, and I will forward that memo 
to you.
4. MSEB Representation regarding dispatch.MSEB clearly discusses its failure 
to dispatch more than 3044 MU with us in the rate case process.  Mr. Palumvar 
and Mr. Bakshi state that failure to dispatch additional quantities is simply 
a matter of budget.  The cost of 3044 MU is incuded in the rates, and the 
cost of additional volumes isn't.  Since there is no way for MSEB to collect 
the cost for additional volumes other than from the State, it is logically 
not dispatching additional volumes.
5. MERC Jurisdiction. Thus, I have a query: let's assume that the MERC does 
not have jurisdiction to determine least cost purchases or merit order 
dispatch or to determine a blend of the two.  I'm not sure how that will help 
MSEB to recover the full costs of its power purchases.
6. Logical Area of Focus. In my opinion, once Sandeep Katwala and team 
confirms our interpretation of the Act, the most beneficial course of action 
would be to work with the regulators/Government/anyone else to repair the 
cost recovery mechanism of the Act.  This helps DPC, this helps MSEB and 
will, in the end, help the country.

Might be worth considering. 
---------------------- Forwarded by Jane Wilson/ENRON_DEVELOPMENT on 
12/27/2000 08:23 AM ---------------------------


Sandeep Kohli
12/21/2000 01:41 AM
To: Mohan Gurunath/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Jane 
Wilson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 

Subject: Re: Dabhol question  

Mohan,

I have gone through your note, and agree with the concept.  

You do have to compare end-user tariff with costs till end-user, which will 
include T&D losses.
You have assumed 30% loss figures which is assuming little or no improvement 
(since this is the worst case scenario) 
Your assumptions on Rs. devaluation are also aggressive as they need to be 
for a pessimistic scenario
You have assumed that MSEB's average realization per unit in $ terms actually 
goes down due to Rs. devaluation

There are some areas where Jane can shed more light:
MSEB can increase its average realization, simply by limiting supply to agri. 
customers, and by not giving any new unmetered connections
The latter is something that has been decreed by MERC (Jane please correct me 
if I am wrong), while the former was the most likely cause for Bhave's exit
Jane - Can you (with Akshaya's help) take a crack at what the agricultural 
load and unmetered customers are likely to be in the years 2002 through 2004 
?  Similarly, what is the likely growth in the metered cutomer categories?
Also, if Dabhol were to be despatched to the load center at Mumbai (following 
Mohan's conclusion of 75% PLF on  2400 MW), and the plants close to 
Chandrapur were to despatch less, what would be the overall T&D loss picture 
?  
The question to answer here is what portion of the 30% is theft, and what is 
actual T&D loss.  My understanding is that betwen 16-18% is actual T&D loss 
due to the poor state of the network.  Further, we will have to ask the 
question whether the actual T&D loss is more due to distribution or due to 
transmission.  My gut feel is that it is due to distribution.
The next logical question to tackle then would be what you see as the 
improvement in distibution between now and 2004.  Jane - Can you take a crack 
at that ?

Mohan - My gut feel is that there will not be a 75% despatch on all three 
blocks.  I can envisage that type of despatch in Block B, but that will be 
the optimistic rather than the pessimistic scenario.  I do not see C being 
used more than 6-8 hours daily, and that too only in the peak season.  I had 
started the team working on a stack and peak and off-peak load curves.  We 
need to do more on that.

Bottom line is that we need much more detailed information on the T&D sector, 
on the pace of reform, and most importantly on merit order deptaching of the 
plants (building the stack of plants).  This was Jim's concern too when we 
met this morning, and we will need to develop a plan to move that forward 
further.

Regards,
Sandeep.



Mohan Gurunath
12/20/2000 09:35 PM
To: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Sandeep Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Jane 
Wilson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT 
Subject: Re: Dabhol question  

Attached is an analysis of Jim's question for your review/comments.



Regards
Mohan


To: Mohan Gurunath/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sandeep 
Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Jane 
Wilson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:  

Subject: Dabhol question

Can you 3 Amigos look into this and come back to me with a joint response for 
Jim? I would like an answer by Thursday's task force call, which is at 8:00 
am Houston time on Thursday.

Thanks.


---------------------- Forwarded by Wade Cline/ENRON_DEVELOPMENT on 
12/20/2000 04:59 PM ---------------------------


James A Hughes
12/20/2000 04:00 AM
To: Wade Cline/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:  

Subject: Dabhol question

Wade:

I am sure you guys are getting tired of questions.  However, here is one more.

I was thinking about how to determine our worst case.  While considering 
this, I came up with a question I couldn't answer:  What is our breakeven 
power price at the overall PLF we think would be achieved if MSEB used 
marginal economic cost dispatch.  If we determined that this price was at or 
above the realised tariff of MSEB, then we know ultimatley we will survive, 
the only question is how long it takes us to get our equity back.  If it is 
below, then the situation may be dire indeed.

Jim