Dave,

Per my voicemail.  Please give me a call on this.

Mike
---------------------- Forwarded by Mike McConnell/HOU/ECT on 08/08/2000 
09:04 AM ---------------------------


Daniel Reck
08/07/2000 06:34 PM
To: Mike McConnell/HOU/ECT@ECT, Jeffrey A Shankman/HOU/ECT@ECT
cc: George McClellan/HOU/ECT@ECT 
Subject: draft

Mike and Jeff:

Attached is a copy of the Pacificorp presentation from last week.  To 
reiterate, the key commercial risk issues are:

1)  Tax--Jordan Mintz has a high degree of confidence regarding the 
qualifications of the Pacificorp machines.  Thorough due dilligence will be 
required to investigate the representations made in the private letter ruling 
applications.

2)  Syndication--Joe Deffner and Tim Proffitt are working to find 
monetizers.  Ideally, the monetizers would close when we do.  Realistically, 
we have to assume that we will bridge the deal and wear equity risk until we 
can shed our ownership.  Pacificorp has expressed an interest in staying in 
as 25% owner, which should reduce the bridge risk, since we can show the 
former owner staying in the game.

3)  Operations--The risk of operations will lie with the holders of the 
equity.  Post-syndication, the new owners can contract directly with an 
operator.  For tax purposes the owner needs to have some risk.  We will guide 
the monetizers to this risk.  If we have to indemnify them in this area, we 
will need to better understand the available insurance products.
4)  Marketing--This is the risk the coal desk is trying to acquire.  The desk 
believes that the coal/synfuel spread risk will decrease dramatically over 
the next 12-18 months.  We have put $6.00/ton into the model, and the desk 
will buy $3.00/ton today for seven years.  The current market is anywhere 
from $1.00-3.00/ton.  We have also developed a list of strong sites that are 
looking for machines, three of which we control, either through options or 
marketing agreements.

The economics of the deal are compelling.  We put out $100mm to Pacificorp as 
an equity bridge (maybe less if they stay in as 25% owner).  We collect 
$30-50mm in commodity spread origination, and another $30-50mm in equity 
origination.

Commercially, the deal makes sense, and I am confident that we can structure 
around the risks.  The decision we need from senior management is whether 
this is a game we want to play.  The machines fit into the letter of the 
law.  Big companies (AIG, Florida Progress, Detroit Edison, etc.) have joined 
in the reindeer games.  We can put on the position we want by bridging this 
deal.

On the flip side, people have heartburn over "spirit of the law" issues and 
those are questions that senior management has to decide.   We have a chance 
to move on these machines, but need to make up our mind by the end of this 
week whether to put resources on it.  We can back out later (our commitment 
so far is non-binding), but we can't get back in.

Please let me know your thoughts.

Regards,

Dan