-----Original Message-----
From: firstcall.notes@tfn.com [mailto:firstcall.notes@tfn.com]
Sent: Thursday, October 25, 2001 1:32 PM
To: Koenig, Mark
Subject: Power & Natural Gas: Houston Hysteria Causing Wholesale
Heartburn


                          FIRST CALL RESEARCH NETWORK

09:43am EST 25-Oct-01  (Chris Ellinghaus 212-373-4234) CPN MIR NRG ENE DYN
Power & Natural Gas: Houston Hysteria Causing Wholesale Heartburn

                       The Williams Capital Group
                           Power & Natural Gas
                      Chris Ellinghaus (212)373-4234
             Houston Hysteria Causing Wholesale Heartburn
                            October 25, 2001
********************************************************************************

Balance sheet issues at Enron (ENE, $16.41, NR) have triggered investor concerns
regarding non-payment of receivables held by trading counter-parties like
Calpine, Dynegy, Mirant, and NRG.

We do not believe any trading counter party to Enron has a daily value-at-risk
(VAR) of more than $100 million and most company risk management controls are
considerably more restrictive.

We estimate that the majority of trading counter parties have exposure of
roughly one month of receivables to Enron which we believe would be in the low
hundreds of millions of dollars range at worst.

********************************************************************************

The market is concerned that potential cash flow issues at Enron could spread to
other wholesale energy marketers and IPPs.  Concerns have surfaced that trading
counter-parties might restrict Enron's trading access or require additional
credit to support its wholesale energy trading business.  Unsubstantiated rumors
suggest that some counter-parties may have cut off Enron's credit.  The concern
is that a potential liquidity crunch at Enron could ultimately lead to
non-payment of receivables held by trading counter-parties like Calpine, Dynegy,
Mirant or NRG.  While we agree that, in the event of a worst case outcome, some
of the uncertainties related to Enron's financing needs could have credit
implications for its trading partners, in our opinion a multitude of negative
events would have to occur before Enron's receivables might be deemed
uncollectible.

Counter-party risk is largely limited to trade receivables and not open market
positions.  We know of no industry counter-parties to Enron that have a daily
value-at-risk (VAR) of more than $100 million and most risk management controls
are considerably less.  Enron represents a relatively small proportion of each
counter-parties' daily VAR due to concentration controls.  Therefore, daily VAR
related to Enron should be limited.  The greater potential credit risk lies
within the trade receivables each counter-party might have with Enron.  Trading
receivables are typically collected within 30-35 days of the trade date.  We
believe few counter-parties would have materially more than a single month's
worth of trading exposure to Enron at any given time.  We believe that most
counter-parties would have at most a couple of hundred million dollars of
receivable exposure to Enron per month.  We would expect few of Enron's trading
partners' businesses to be seriously jeopardized as a result of a potential
Enron default.

Yesterday, the stocks of some of Enron's chief counter-parties fell
precipitously.   Dynegy fell the most, declining $5.45 or almost 13%.  Dynegy
clearly is a large counter-party to Enron's trading desk, but we doubt that the
magnitude of Dynegy's receivables risk to Enron is remotely equal to the $1.8
billion of market capitalization that Dynegy lost yesterday.  Mirant's stock
price fell $1.53 or 5.3%, reflecting a decline in market capitalization of over
$500 million.  We believe that the energy marketers as a whole have more
exposure to Enron's trading desk than the IPPs.  Calpine and NRG are
significantly smaller counter-parties to Enron than the larger energy marketers.
Calpine disclosed in its second quarter 10-Q that it transacted over $300
million in the first half of 2001 with Enron.  Assuming that Calpine's
receivable exposure was equally distributed monthly and currently running at a
similar rate, Calpine's receivable exposure to Enron would equal only about $50
million.  Calpine's market value dropped over $600 million yesterday.  None of
the counter-parties we spoke to over the last couple of days would disclose
their current receivables exposure to Enron.  In our opinion, the uncertainty of
the amounts in question have contributed to an over-reaction by the market to
the potential risks involved.

********************************************************************************

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