Here is the email I told you about...I'll forward you a voice mail he left me 
on this subject and have him get in touch with you directly to get you a copy 
of the PPA and discuss the issue
----- Forwarded by Dan Lyons/HOU/ECT on 12/07/2000 01:39 PM -----

	Garrick Hill
	12/07/2000 10:29 AM
		 
		 To: Dan Lyons/HOU/ECT@ECT
		 cc: Douglas Clifford/Corp/Enron@ENRON, Charles Ward/Corp/Enron@ENRON, Dan 
Lyons/HOU/ECT@ECT, Mike Mazowita/Corp/Enron@Enron, John King/HOU/ECT@ECT
		 Subject: MPLP Capacity Charges

THE FOLLOWING INFORMATION HAS BEEN PREPARED AT THE REQUEST OF COUNSEL:

Per the voicemail I left you yesterday concerning the billing of capacity 
charges by Consumers for electric service provided by MPLP:

Background

MPLP went into service on October 1, 1995 and provides service under a PPA 
for a term that ends September 30, 2030.  Capacity charges are billed under 
Section 10(a) of the PPA, which references a schedule of capacity rates 
provided as Exhibit D.  Exhibit D:  (1) shows Consumers' avoided cost rates 
for 35 years and (2) converts these rates into the specific rates applied 
under Section 10(a).  Presumably, any QF that signed a contract with 
Consumers for a facility due to go on line in 1995 would be subject to 
payment under the same avoided cost rate schedule, although the way these 
rates were manipulated to achieve any particular agreement might vary from 
project to project (i.e., in the case of MPLP, the rates are "backloaded" 
over ten years before levelizing for the remaining term of the PPA).

Consumers', which "self-bills" under the PPA, began applying "Year 2" 
capacity rates under Exhibit D on January 1, 1996 and implemented subsequent 
increases on January 1 of 1997, 1998 and 1999.  January 1 rate increases were 
not anticipated by the partnership.  However, there is no definition for 
"contract year" under the PPA and Exhibit D shows rates by "Year" without 
specific reference to what constitutes a "Year" (i.e., "contract year" vs. 
"calendar year").  Based on Consumers' past actions, it would appear that 
their interpretation of the PPA has been that Schedule D sets rates that are 
effective in a particular calendar year.  (NOTE FROM A RATE GEEK:  This would 
generally jive with the manner in which the avoided cost rates are determined 
and scheduled.  That is, it's unlikely that Consumers ran a new avoided cost 
study each time it entered into a contract with a QF.  Rather, one could 
interpret Column (b) of Exhibit D to lay out the avoided cost rates in effect 
in calendar year 1995, 1996, etc.)  Further to this interpretation, Section 
10(a) also lays out the manner in which total capacity charges are adjusted 
"if for any calendar year, beginning with the second calendar year after the 
calendar year during which the Commercial Operation Date occurs..." the 
project fails to achieve a 60% "Contract Capacity Factor" (which is 
determined based on results for any calendar year).  Based on Consumers' 
action and this language, the partnership remained silent on the 
interpretation leading to the rate increase.

As a result of restructuring legislation passed in June 2000, Consumers now 
operates under a "fuel cap"; that is, its Power Service Cost Recovery (PSCR) 
rate is frozen.  Accordingly, whereas costs incurred under the PPA were 
previously a pass-through (i.e., via Consumers' PSCR and/or base rates), 
Consumers now has a strong incentive to minimize purchased power costs as any 
savings will, in theory, flow directly to shareholders.  

Issue

It should come as no surprise that Consumers' recently concluded that it has 
implemented capacity rate increases erroneously.  While no action has been 
taken to date, Consumers has indicated in the course of discussing the 
reverse tolling transaction for MPLP that it does not intend to implement a 
rate increase on January 1, 2001 but will defer the increase until October 1, 
2001.  There was no suggestion that Consumers would attempt to reconcile past 
capacity rate billing differences (i.e., "backbilling"), but we need to 
assume that they will go after this value as well.  

Three side notes on this issue:

To the extent rates were erroneously applied in the past, it would appear 
that these costs to Consumers would have been recovered from ratepayers; Mike 
Mazowita has indicated that he's seen regulatory filings that would support 
this point.  Accordingly, it would appear that Consumers would face some 
regulatory issues to the extent it considered "backbilling"; it's not clear 
yet how these would play out in light of the currently effective fuel cap.

We identified this issue during due diligence on MPLP and modeled capacity 
charges on a going forward basis in a manner that reflects a contract year 
interpretation that has capacity rates running from October 1 to September 
30.  Accordingly, we have minimal exposure on value but for the issue of 
backbilling, however...

We need to know what rates should be in effect January 1, 2001 in order to 
structure a reverse tolling transaction.  It goes without saying, but this is 
an untimely issue in the context of reverse tolling discussions with 
Consumers. 

Legal Questions

Do we have a valid claim that Consumers is required to implement a capacity 
rate increase on January 1, 2001?

Does Consumers have a claim to value lost (i.e., backbilling) as a result of 
the manner in which rate increases have been previously applied?

To the extent that Consumers does have a claim on backbilling, do we have a 
right to recovery from MCN as we were not the owner of the facility during 
most of the period of time during which rates may have been applied 
erroneously?

Do we have any claims against Dynegy as the MGP of the asset?  That is, did 
they have a fiduciary responsibility to (1) pursue/resolve the issue when it 
first came up or (2) reserve for future claims by Consumers based on a 
different (an potentially correct) interpretation of the contract?

Let me know when you'll be prepared to discuss this and I'll pull together 
the right group.

RH