Mike Mcdonald and Laird Dyer are looking at other creditworthy California shorts.  Some of munis (Roseville, Palo Alto) are trying to combine the long term purchase with a muni bond issue in order to prepay for the power.  The basic structure is that they borrow money from the tax-exempt market (6%), give the proceeds to the power supplier (who values the money at 7%++) and they effectively get cheaper power.   

We have done these deals in the past with nat gas.  Besides the margin on the commodity, we get cash in the door against an obligation to deliver.  Given our overall cash targets and CA length, I have made this a priority.  Mike Mcdonald has been selling the concept during the past six months. 

We are looking at submitting a notional offer later this week for Roseville (50MW-100MW, NP-15, 8-10 Years).  The big valuation question relates to ENA's bid for $.  Generally, we have paid over our cost of funds for this cash because it does not show up as debt.   In my discussions with Joe, he thinks our $ bid should be based on alternative markets for off-balance sheet cash, which might mean LIBOR plus 50-150 bp.   This sounds reasonable until I think of the fact that I am being charged 15% for balance sheet funds.  The bid/offer for balance sheet cash should not be 7%X15%.   

If I am using $100MM of balance sheet exposure and I can bring in $100MM of cash, shouldn't I be able to net out the difference?  

Any thoughts?

Regards,

Chris