As context to Christian's e-mail, here is an update on BPA's financial 
condition:

BPA's Announcement:
1.  Yesterday, BPA informed the Northwest that it would be unable to meet 
both its fish and its power obligations because of a lack of water.  As you 
may know, the Pacific Northwest is having a 100-year drought.  It has rained 
more in Los Angeles in the past few weeks than it has all year in Portland.
2.  BPA said yesterday that it would be calling a "state of emergency" early 
next week because it would no longer be able to meet its obligations under 
the Endangered Species Act.  The ESA requires BPA to (1) "spill" a portion of 
its water, instead of running it through the turbines, and (2) to withhold 
some water from release in its reservoirs so that the water could aid in 
pushing the salmon out to the ocean.  
3.  Under this state of emergency, BPA plans to produce power instead of 
meeting its ESA obligations.
4.  Indian Tribes, environmental groups, and other salmon interests will most 
likely attempt to enjoin this action in federal district court here in 
Portland.

The Financial Picture:

1.   BPA has $700 million in cash reserves.
2.  If BPA continues to meet load, ignores fish obligations, and goes to 
market to buy its short position, it will spend $800 million by 
Sept.---leaving it $100 million in debt and forcing it to raise rates by 
300%.  (This is the best case scenario, financially.)
3.  If BPA is forced to meet its salmon obligations, and is therefore 
required to buy most or all of its energy at market, it will spend $2.2 
billion by Sept.---leaving it $1.5 billion in debt.
4.  This could force BPA to miss its Treasury payment, which is considered 
the third rail for federal power marketing agencies ("PMAs") like BPA,WAPA, 
and TVA.  Missing the treasury payment would fuel the movement to privatize 
BPA and sell the power at market rates, instead of at cost (currently about 
$20/MWh).   With the new administration, the risk of a take-over of BPA is 
perceived to be higher than ever.

Is BPA Overreacting?

No.  Based on information from the fundamentals group and the traders, BPA 
may be underestimating its real exposure this summer.

Steve
  
  ---------------------- Forwarded by Steve C Hall/PDX/ECT on 03/08/2001 
09:01 AM ---------------------------

Christian Yoder

03/08/2001 07:38 AM
To: Steve C Hall/PDX/ECT@ECT, pgboylston@stoel.com
cc: Tracy Ngo/PDX/ECT@ECT, Elizabeth Sager/HOU/ECT@ECT, Richard B 
Sanders/HOU/ECT@ECT, Mark E Haedicke/HOU/ECT@ECT 

Subject: BPA: anatomy of payment mechanism

Whereas in the California phase of the western power crisis, we had to deal 
with the emergence of a new governmental agency, CDWR, and figure out whether 
or not and how it might pay us,  in the next, northwest phase, where we will 
probably have to deal with the disintegration, or at least misbehavior,  of a 
powerful federal rogue agency, BPA, one issue that will invariably arise is 
payment default by BPA.  As we have blithely sailed along with BPA up until 
now, we often say to ourselves,  "Oh, when you contract with BPA, you are 
backed by the good faith and credit of the United States of America."  I 
would like you both to put your heads together and decide who at your firm 
can give us a memo addressing BPA's payment mechanisms from a legal, 
statutory perspective.  It bothers me to hear things like;  "they only have 
$700 million in their warchest,"  or "if they can't make their Treasury 
payment they are toast."  What do these kinds of remarks mean to us legally?  
Are we contracting with the surplus bloated   Treasury of the United States 
of America or are we going to have a rude surprise and find out that we are 
contracting with one of these discrete funds that can run out of cash and be 
held hostage by warring politicians?   We need a concise legal analysis of 
this point very soon. ----cgy