No these are on credit total return swaps.  As an ex-finance guy, I characterise as off-balance sheet, on credit, off footnote disclosure.  Chuck




Louise Kitchen@ECT
03/27/2001 12:06 PM
To:	Charles Ward/Corp/Enron@ENRON
cc:	 

Subject:	Re: QF projects summary   

When you say off the balance sheet - is it non recourse?




Charles Ward@ENRON
03/27/2001 08:19 AM
To:	Louise Kitchen/HOU/ECT@ECT
cc:	W David Duran/HOU/ECT@ECT, Garrick Hill/HOU/ECT@ECT, Mike Mazowita/Corp/Enron@Enron, Chip Schneider/NA/Enron 

Subject:	QF projects summary

All projects are owned in a TRS/FOE structure (Total Return Swap / Friend of Enron) as a result of our continued ownership in Portland General.

The two current East project companies are Motown and Cornhusker.

Motown consists of two 50% interests and has TRS of about $56 million and is on the balance sheet for about $2 million:

Michigan Power - 129 MW power plant fully contracted for power 20+ years and 14 remaining years of fixed cost gas.  The PPA is deep in the money versus cost to generate (even after the swapped gas in 2015).  Dynegy operates and is Managing General Partner ("MGP") and Operator.  Fair performance record on both at best.  Michigan is currently entering into QF stranded cost filings and the time is near to propose a restructuring.  We have waited for about 9 months as Doug Clifford (the origination on the purchase) had been attempting to purchase Dynegy's interest (they have too high a book value and are accrual based).

The proposed restructuring will take the form of an upfront payment in return for an option to provide power from the market.  This approach gives Consumer's (a BBB credit) much needed cash at a time when they are significantly underrecovering due to increased fuel costs and set fuel recovery rates. Consumer's ( like many other utilities) has a hard time seeing their exposure (purchased power cost certainty for the volume and term) and doesn't see any regulatory filing complications with their current stranded cost filings.

The amended PPA is a non-unit contingent power short which we fill long-term with a contract from the power desk.  The desk takes the obligation because Generation Investments provides a full backstop pricing through their ownership of the plant and the swapped gas (we either float past the swapped gas or contract for differences those years with the gas desk).  The PPA and desk contract are securitized in the capital markets for the term of the PPA at 1.05 DSCR and about 75 bps over Consumer's current corporate bonds.  The plant essentially becomes a $0 NPV machine and the power desk has significant optionality to call from the market rather than the plant for 20+ years.  During the term of the swapped gas, when the plant isn't called by the desk we can sell the gas into the market for a profit.

It is fairly easy to see the increased value.  The project is currently project financed at about 1.5 DSCR for about 14 years (lots of cash).  The desk has significant optionality and always a matched cost supply with the plant.  The plant gains efficiency due to revised O&M, insurance, reserves, etc. which are no longer required due to the removal of project financing.

Difficulties - Dynegy and Consumers.  Consumers can be rational.  Dynegy either must sell or play along.  Current operational/project management issues which Dynegy caused may make their interest available.

Ada - 29 MW plant fully contracted for power 20+ years.  Enron is the MGP.  GE operates for us.  50% owned by ConEd.  Fixed gas through 2008.  We would propose a restructuring at the same time as Michigan Power (this would leave Consumers with only one unrestructured PPA).  Currently revisiting buying ComEd's interest.

Cornhusker -  TRS of about $206 and about $24 on balance sheet.  A 100% interest in a single 250 MW plant in Texas.  Small Coop which is very litigious.  Plant has had some rather spectacular failures (I have pictures which make the engineers on our floor shudder which I would be glad to pass along) but the PPA only requires 60% availability before significantly in the money capacity payments are reduced (essentially an impossible to reach loss).  The failures have been equipmentmanufacturer related (Westinghouse 501F).  Carl Tricoli spent the first 7 months (upto February) trying to sell the project to the Coop.  We spent last month determining that the Coop will never buy the project (they just don't have the $ and we are a very expensive lender.  We're taking a last stab at a restructuring proposal in the coming month and upon appraisal of the Coop's intentions, we'll potentially enter the sell mode.  El Paso has indicated an interest in the project already as the ex-Citizen's employee's over there attempted to restructure some time ago.  If we sell the closing should be by 9/30/01.

Again, I apologize for the delay in getting you this info.  Call with questions.

Chuck









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