----- Forwarded by Elizabeth Sager/HOU/ECT on 03/15/2001 04:44 PM -----

	"JOHN G KLAUBERG" <JKLAUBER@LLGM.COM>
	03/15/2001 10:20 AM
		 
		 To: cyoder@ect.enron.com, Elizabeth.Sager@enron.com
		 cc: chris.calger@enron.com, pboylston@stoel.com
		 Subject: Call with Pirog


** PRIVATE **

Set forth is a brief summary of my call with John Pirog last night.  Overall, 
I felt we made a lot of progress.  At the end of the call, Pirog said that 
prior to the call he was uncertain whether a deal was possible, but at the 
end he said that he thought we could probably work through a number of the 
issues and he said he was going to send some sample language for our 
consideration on a few of the points.  We said that we would be begin to 
modify our draft as well to reflect some of the concepts we spoke about and 
that we could then "compare notes."  He said that CDWR viewed the Enron 
Contract as an important one and he said he would be back to us fairly 
quickly.

Material Regulatory Change Provision.  Pirog said CDWR would be willing to 
accept such a provision if it were limited to an event that adversely affects 
CDWR's ability to perform under the contract, most particularly its ability 
to pay for power.  (Such an event likely would be a CA legislature or 
regulatory generated change).  Pirog said he thought that CDWR would agree to 
a termination payment if this occurred, although they may not want the MRC to 
be characterized as a "default" (which should not be a problem from our 
standpoint).   CDWR would not be willing to protect EPMI for a change (e.g., 
in law) that materially affects EPMI's business, but does not adversely 
affect CDWR's ability to make payments to EPMI.  (For example, a new CA law 
that requires sellers into CA to turn over all their books and records to the 
CPUC).  Further, as we anticipated, he said CDWR was not willing to be on the 
hook for a termination payment for an event outside its control, such as a 
FERC change or Federal Legislation that adversely affects us.  However, he 
did say that CDWR might entertain a "no LD walk right" for EPMI if such a 
change adversely affected it.  My sense is that ultimately Pirog/CDWR will 
back track on that since such a change could occur when our contract is 
heavily in the money to CDWR and this would allow us an out without paying 
LDs.

Early Walk Provision.  He reiterated that CDWR would not extend the Option.  
With respect to the early walk away right that has been offered, it was 
discussed that this could be structured in such a way that EPMI could walk 
from the deal (without receiving or paying a Termination Payment) up until a 
date certain (September 1 and September 30 were mentioned by me as 
possibilities, although Pirog said that other suppliers had a shorter window) 
(our request is based on the gloomy news that has been eminating from the CA 
Treasurer's office about the bond issue), provided that if the bonds were 
issued earlier than that, the walk away right would terminate; that is, EPMI 
would not be free to walk if CDWR was able to issue bonds with an investment 
grade rating prior to the Drop Dead Date.

Termination Payment Due Date.   Pirog said CDWR cannot shorten it from 180 
days.  He said all other suppliers have lived with that.  Pirog is 
sympathetic to our concerns, but said that the "bond guys" are already 
nervous about only having 180 days (if they had to issue bonds to pay the 
LDs).

Suspension of Delivery.  Emphasizing our concern with the 180 days, I 
requested that CDWR provide some flexibility on our right to suspend 
perfromance in the event of an event of default and, perhaps some other 
events, such as a bond downgrade.  Pirog said he thought CDWR could work with 
us on that.

Downgrade not a Default.  CDWR was not willing to have a bond downgrade an 
event of default.  However, he said CDWR would be willing to consider having 
a Downgrade Event a "no LD walk right" for EPMI and perhaps an event 
justifying EPMI in suspending deliveries.  In other words, a Downgrade Event 
would be treated like an Event of Default, but no termination payment would 
be owed and EPMI would have the flexibility to suspend performance.  Pirog 
also discussed adding a covenant that CDWR would attempt to secure a Credit 
Rating with respect to the claims paying ability of the Fund in the event 
that no bonds were issued.  That is, if no Bonds were outstanding and the 
Fund did not have an investment grade rating, we could terminate, but without 
LDs.

Cross Defaults.  This clearly is one of CDWR's hot buttons, and we will not 
be able to get this is my sense.  However, when asked about the idea of a 
Cross Default Out w/out a termination payment, he stated that he would like 
to discuss that further with CDWR.

LD Calculation Methodology.  Pirog said it was very unlikely CDWR would 
accept our proposed language.  He said they are striving for consistency 
among contracts and said their proposal is viewed as more "objective."  My 
sense is that we will need to get comfortable with it in general.

Arbitration.  In general, Pirog did not have a problem, except for the 
following: a desire to limit it to contractual claims only (i.e., no tort 
actions, extra-contractual disputes, etc. would be subject to it).  Also, 
holding hearings in New York City was not well received, and a request was 
made that all three arbitrators be neutral.  I would think that the situs 
issue will be a big one for Richard Sanders in light of the political 
environment if a dispute were to arise.  My general sense, however, is that 
this is not a "deal breaker" for CDWR.

Assignment.  In general, he understood the nature of our changes on this 
issue and said they were reasonable although he caveated that on this issue 
as well they are looking  for some consistency.  We were again asked if 
assignment back to the IOUs would be acceptable, even though he knew what our 
reaction would be.  Pirog offered to provide us sample language, which we 
said we would look at.  We stated that conceptually this would be a difficult 
sell in light of the environment.  He did not elaborate on how stringent the 
assignment standards are in the other deals.

New Govt Charge Pass Throughs.  A pass through of some governmental charges 
was considered to be okay, but he said our proposed language was too broad.  
Pirog offered to provide some examples of acceptable language on this.  He di 
agre, howeve, that if for example, CA imposed an excess profits tax, that it 
was fair for us to be protected from that.

Legal Opinions.  Pirog did not think that a legal opinion from Hawkins would 
be forthcoming, although he did say that he would look into whether or not 
they would be providing one on the bonds.  Also, he said it was a possibility 
that the California Attorney General would issue the opinion on the bonds, so 
we might possibly ask for that in lieu of an opinion from Hawkins.  
Realistically, it likely will be very difficult to get this before we have to 
extend the option; perhaps, we can put in a covenant on CDWR to get us that 
before our walk right expires.

Additional CDWR Covenants.  Pirog stated that the additional covenants we 
have requested are conceptually okay with him, but need to be discussed 
internally with CDWR.

Pro Rata "Spread" Amortization.  Pirog had not reviewed the idea of 
amortizing the Credit Amount over the four year term, and said that he would 
run it by CDWR.

CDWR Information.  Pirog said he would follow up with CDWR on how often it 
plans to give suppliers financial information.  He was resisting our request 
for monthly information, although I pointed out that we really only wanted 
information that frequently in the beginning of the transaction as things 
start to fall into place.

Let me know when you wish to follow up.

John


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John Klauberg
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
212 424-8125
jklauber@llgm.com