To All:

As a follow up to Mark's e-mail, I want to update you all on the position I 
am taking with Coastal Merchant (formerly Engage Energy US LP) as well.  Per 
the ISDA in place between ENA and Coastal Merchant, we have been margining 
them to cover there current exposure.  We are currently holding cash in 
addition to the unsecured credit line as stated in the ISDA.  Coastal does 
not want to post cash but would rather increase the guaranty to cover the 
Financial exposure.  At this time, I have told them we can not incur any 
increases in their guaranty because they are still securing Engage Energy 
Canada exposure through their physical guaranty.  Coastal has since notified 
Engage Energy and Westcoast of this issue, and have requested that Engage 
work with our legal groups to finalize the guaranty issues.  

As I understand it from Mark's e-mail below, Engage is unwilling to work with 
us to negotiate a satisfactory guaranty and physical contract.  I have made 
Coastal aware that we can not increase these guaranty's until some resolution 
has come about with Engage Canada, and we will continue to margin them for 
cash as needed.

Russell




   
	
	
	From:  Mark Powell                           12/21/2000 10:57 AM
	

To: Jonathan McKay/CAL/ECT@ECT, Russell Diamond/HOU/ECT@ECT
cc: William S Bradford/HOU/ECT@ECT, Mark E Haedicke/HOU/ECT@ECT, Peter 
Keohane/CAL/ECT@ECT, Mary Cook/HOU/ECT@ECT, Dan J Hyvl/HOU/ECT@ECT 
Subject: Engage Energy Canada, L.P.

Hey Russell and Jon,

As you are aware, we have been trying to get Engage Energy Canada, L.P. 
("Engage") to execute an updated master physical firm gas purchase and sale 
agreement (an "Amended Physical Master") over the last two and a half years 
with no success.  Until this week, we had received no comments from Engage 
with respect to our suggested amendments (despite sending four distinct forms 
of amendments starting in August, 1998).

The matter came to a head in June of this year when the Credit department 
wanted to call for collateral from Engage.  The existing (1994) agreement 
does not provide for this right.  As a result, we have been pressing this 
counterparty to execute the Amended Physical Master.  However, the 
counterparty has delayed providing comments repeatedly.  Through Russell's 
diligence, the general counsel of Engage gave me another call on Tuesday and 
(finally) provided some comments on the agreement.  In addition to a few 
minor nits, the general counsel has informed me that he will not provide 
comments on the "credit related" provisions of the Amended Physical Master.  

He has told me that Engage requires that we put in place 
credit/collateral/netting agreements which contemplate:
a.  physical transactions (gas and power);
b.  financial transactions (gas and power);
c. all Enron entities which transact with Engage and Engage Energy America 
Corp. (i.e. ECC, ENA, EPMI and any other entity) (as a result, the agreements 
would have to contemplate US/Canada distinctions as well).

Such counsel refuses to proceed in any other manner at this time.  Further, 
he has expressly told me that he will not go to Westcoast Energy Inc. to 
provide a  guarantee which is specific to the Amended Physical Master.

In order to comply with Engage's demands (i.e. preparing a master netting 
agreement, a master credit/collateral agreement and a mechanism by which we 
would be able to monitor exposure across all parties and products) I believe 
will be a fairly large undertaking (considering the emerging nature of the 
physical power market, the complexities involved and the general lack of 
response we have experienced with Engage over the last 2.5 years).  However, 
I understand that we have undertaken such a task on occasion in the past 
(albeit, without additional concept of power trading) with respect to 
particularly important trading partners.

Frankly, I am concerned that Engage's position (although, theoretically a 
good concept) is just another stalling technique.  Nevertheless, I will leave 
the decision as to the manner to proceed with Engage to you.   

Please give me a call to discuss this matter when you get the chance ((403) 
974-6708).

Thanks,

Mark Powell.