---------------------- Forwarded by Robert Quick/LON/ECT on 07/15/99 03:37 PM 
---------------------------


Nina Edmonds
07/15/99 03:06 PM
To: Robert Quick/LON/ECT@ECT
cc:  
Subject: Risk Memo - Coal Supply Master Agreement with Edison Mission


---------------------- Forwarded by Nina Edmonds/LON/ECT on 15/07/99 15:06 
---------------------------


Nina Edmonds
15/07/99 11:49
To: Mark E Haedicke/HOU/ECT, Julia Murray/HOU/ECT
cc: Mark Frevert/LON/ECT, Danny McCarty/LON/ECT, John Sherriff/LON/ECT, Rick 
Buy/HOU/ECT, Steve W Young/LON/ECT, Scott Sefton/LON/ECT, Michael R 
Brown/LON/ECT, George McClellan/HOU/ECT, Stuart Staley/LON/ECT, Alan B 
Aronowitz/HOU/ECT 
bcc: 
Subject: Risk Memo - Coal Supply Master Agreement with Edison Mission

This risk memo relates to the sale by Enron Capital & Trade Resources Ltd 
("ECTRL") of coal to a subsidiary of Edison Mission, Edison First Power 
Limited ("EFPL"). EFPL is in the process of acquiring from Powergen two power 
plants (Fiddlers Ferry and Ferrybridge) which are coal fired.   The 
anticipated financial closing of the acquisition is 19th July.

The sales to EFPL will be done under the basis of a master agreement ("the 
Master") subject to English law and LCIA arbitration.  This is based on our 
international coal sale and purchase master agreement, but has been the 
subject of significant negotiations between EFPL and Enron.   There is no 
obligation on either party to complete any actual transactions, but it is 
anticipated that all of EFPL's short-term coal requirements will be met by 
ECTRL under the Master.

The arrangement reflected in the Master and the confirmations give rise to 
the following legal risks:

(1) General

EFPL appears to be in the process of acquiring the power stations without 
thinking through the commercial and logistical constraints on the supply of 
coal  to the plants.  In effect EFPL is seeking to hedge with Enron their 
fuel supply, by requiring Enron to deliver coal to the power plants.  EFPL's 
situation has been made worse by virtue of the fact that they have negotiated 
a very unfavourable agreement with Powergen, which owns a terminal for bulk 
delivery of coal into the port of Liverpool ("LBT").  Fortunately there are 
separate confirmations for LBT deliveries, and the commercial people are 
aware that any LBT deliveries are fraught with legal, logistical and 
commercial risks.

(2) Compliance with all Laws

EFPL has tried to insist that ECTRL represents that it shall comply with all 
applicable laws, regulations, orders etc in any relevant jurisdictions.  
Bearing in mind that we could be sourcing coal from a number of different 
jurisdictions, such as Indonesia, Australia, South Africa, Poland etc., this 
would clearly be a significantly onerous provision, especially as should we 
be in breach of this representation could trigger an event of default under 
the Master.  The position at the moment is that we have proposed that this be 
diluted by our agreeing to use reasonable endeavours to comply, and our fall 
back position is that we would agree to use best endeavours subject to a 
proviso that we not be required to commit undue expenditure to so comply (the 
basic difference between reasonable and best endeavours under English law is 
a question of how much cash is spent).

(3) Sampling

The question of sampling and quality control is crucial in respect of EFPL's 
rejection rights under the Master. EFPL to date has insisted that 
sampling/quality control be determined effectively at the power plants.   
ECTRL has countered with sampling/quality control being determined at the 
port of loading (so that we are back to back with our purchase agreement and, 
if EFPL rejects, ECTRL can in turn reject and put the coal back onto the 
supplier).  If ECTRL agrees to EFPL's proposal, then ECTRL will be taking 
significant basis risk in that coal could be rejected at a point inland in 
the UK, which would leave ECTRL with possibly limited rights of recourse 
against its supplier and with significant quantities of coal which may have a 
low resale value at the delivery point in the UK.

(4) Force Majeure

In relation to LBT deliveries only, specific so-called force majeure 
provisions would apply (overriding the f.m. provisions in the Master) which 
would in effect mean that ECTRL would have little if no force majeure 
protection at all.  This goes back to the point that LBT deliveries carry 
significant risks.  

(5) Energy Levy

Negotiations are still continuing with regard to who should bear the risk of 
the climate change levy which is due to be imposed on coal in the near future.

The commercial leader of the transaction, Stuart Staley, has been full 
apprised of the above legal risks.

If you have any queries or comments, please do not hesitate to contact me in 
London on extension 7265.

Best regards.



Robert Quick