Elizabeth & Janice:

I put on the fax to you two articles from today's WSJ that I thought you 
would have some interest in if you have not seen the Journal today.

1.  I am assuming that the ENA Credit folks are all over the issues 
pertaining to the effect of the high wholesale prices on IOU counterparties 
that do not have the ability to pass on such higher costs to their retail 
customers, in most cases because the IOU distribution companies are subject 
to a rate freeze under their deregulation laws or, in some other cases, 
because they no longer have "power purchase" or fuel adjustment type adders 
in their tariffs to be able to pass through such added expenses, but I 
thought I would just pass this article along since it is clear that the 
rating agencies are going to start scrutinizing these situations very 
closely.  As you well know, this issue has been highly publicized in the CA 
situation, where I believe PG&E and SoCalEd have incurred "losses" on the 
difference between their wholesale power purchases and the amount they are 
allowed to sell that power for at retail.  That amount has been reported to 
be over $7B which if the situation continues as it is going will likely wipe 
out a substantial (if not all) of the companies' shareholder equity.  Of 
interest is that the CA utilities have not yet taken these "losses" for 
financial statement purposes since they are holding out the hope of a rate 
recovery, a fact that the capital markets are starting to focus on.  From our 
standpoint, as you know, this is not just a CA problem.  Similar, though not 
as dramatic wholesale power spike, problems exist in other parts of the 
country--for example, in New England because of the increase in gas prices 
(and in the Northwest).  Thus, as we are contracting with various IOU 
counterparties (even the straightforward T&D companies (i.e., those without 
generation) that traditionally were looked at as very safe from a credit 
perspective, we will need to be mindful (and perhaps get up to speed) on the 
state regulatory rules applicable to the recovery of wholesale power purchase 
prices by the those utilities, particularly since those counterparties could 
be adversely affected by deals other than ours.

2.  The second article discusses Constellation's contract to purchase of the 
Nine Mile 1 and 2 nuclear interests from some of the co-owners of those 
plants.  You will note that there also is a 10-year buy-back PPA between 
Constellation and the selling IOUs.  We will obtain a copy of the PPAs to see 
if there is anything of particular interest vis-a-vis the questions I spoke 
about the other day with Janice--but my guess is that, since the buyers are 
IOUs, the PPAs will look more like the Pilgrim, Clinton and Oyster Creek PPAs 
that Janice and I spoke about that are fairly "stripped down" and don't 
reflect many of the provisions we typically would want.  I'll follow up with 
Janice on this.

John

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John Klauberg
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
212 424-8125
jklauber@llgm.com