Wes, attached is the explanation for the Allegheny tax reserve.  I do not know why it was increased when it was.  It was my understanding that the reserve had been quantified by Matt Gockerman in my group and requested some time ago and that Don and the commercial leads were aware of this.  This may be coming across as an increase when in reality it is simply properly booking currently that which was previously expected (said differently, without the disposition we would have spread the tax over time and with the disposition it became necessary to accelerate it as reflected in the tax reserve).  As always, I have asked that only the absolutely necessary amount be reserved.  Please call me at ext. 30938 to further discuss this matter.  Best regards.  Steve.

 -----Original Message-----
From: 	Douglas, Stephen H.  
Sent:	Monday, April 30, 2001 8:32 PM
To:	Kitchen, Louise
Subject:	RE: Tax reserve on Allegheny Peakers

The reserve referred to relates to Sales and Use tax ("Sales/Use tax") liability related to the purchase and use by the Peaker project companies of various equipment (i.e., turbines in Illinois and transformers in Tennessee and Indiana) used to construct the Peaker facilities in Illinois, Indiana and Tennessee.  Enron bears this tax obligation under the Sales Agreement pursuant to which we sold the Peakers to Allegheny (effectively, this tax liability is a "pre-acquisition date" tax liability that we, as the seller, are responsible for).  Typically, the equipment used to construct the Peakers would be assessed Sales/Use tax when purchased by the Project company that built the respective Peaker and that tax would effectively be passed on to the buyer in a sale such as that to Allegheny.  The EWS Tax Department structured the acquisition of the respective equipment to either avoid the Sales/Use tax or to spread the cost of such tax over time (for example, a sales-leaseback strategy was employed in Illinois to spread the cost of the Sales/Use tax over many years as lease payments are made rather than pay it up front).  Ultimately, we benefitted from this since we did not use as much cash in constructing the Peakers and earned more from the disposition of the Peakers than we otherwise would have since the counterparty would have (and we believe did in the specific case of Allegheny) modelled the cost of the Peakers as including the full current payment of such Sales/Use tax.  That said, we have requested that a portion of the disposition proceeds from the sale of the Peakers be reserved until the applicable statute of limitations related to the types of strategies that were employed to achieve the above described results expires since there is risk that our position could be challenged and, if challenged, there is a risk that we would not prevail.  Matt is out until May 8 (he is a recent father of a baby girl) but upon his return is available with me to discuss this matter with whomever you would like.  Matt has worked closely with Don and others in the Generation Asset group and has assured me that the suggested reserve is a sound (not overly conservative nor liberal) position.  Best regards.  Steve.

 -----Original Message-----
From: 	Kitchen, Louise  
Sent:	Monday, April 30, 2001 3:18 PM
To:	Matthew F Gockerman/HOU/ECT@ENRON
Cc:	Stephen H Douglas/HOU/ECT@ENRON; Don Miller/HOU/ECT@ENRON
Subject:	Tax reserve on Allegheny Peakers

I notice that our gain has substantially decreased due to a tax reserve increase of $5m.  Why has this been added and why so recently?

Regards

Louise