Water:
We have reached agreement with Kern Water Bank on a detailed term sheet for the Backup Water Supply.  Azurix has assisted in the process, but will not be part of the definitive agreement.  Kern Water Bank says that we can have the definitive agreement done this month - we think it might take longer because they are slow.  

Calpine Negotiations:

- Big Issue - The condition precedent to closing related to the water agreement: We want to attach the Kern Water Bank term sheet and say that the definitive agreement must be materially similar to the term sheet - Calpine will want it to be precise.

- Big Issue - Natural Gas Transport: We need Calpine to commit to taking the transport regardless of what credit support Kern requires for the assignment.   Tycholiz is working with Kern to nail that down.  Kern's original credit proposal was that they wanted a $40MM letter of credit to backstop the transport.  

- Purchase Price Adjustment - 0 - $10MM based on water bank deal (minimum gain to Enron of $30MM plus upside).

- Upside  - Provision in the purchase and sale agreement that allows ENA to pursue a contract with DWR and if the price of the contract is greater than $56/MWh and the implied spark spread from a bona fide gas offer is greater than 11,400 (based on Rockies plus transport), then ENA gets $0.50 per Mwh.  This could be worth $10MM +++

- Minor Stuff - Transition Agreement - how we work together and share risk after signing and before closing - development continues, Calpine needs to work with GE, Site Owner, CEC, etc.
 
- Timing - Expect to sign on March 13 and close as soon as the Water Bank deal is done, but no later than April 30, 2001.


Natural Gas Transport:

- March 15 we must commit to Kern expansion capacity for the project.  This is very hairy: Without the transport, the project can not get gas.  The transport without the project is a big potential liability ($40MM+).   We are looking at 100,000/Day for 15 years.  Tycholiz is working on this to try to limit the liability by having the project put up a L/C - I dont think Kern will accept it.  I recommend we commit to the transport with a clear put to Calpine concurrent with closing the project sale.  If for some reason the project sale to Calpine does not close, we will have a permitted CA project with equipment and gas supply.  If we wanted to break up the project assets, we would have to remarket the capacity for a potential significant loss.

Approvals:

- There are two DASHes that are circulating - (i) Divestiture and (ii) for ongoing development costs and commitment to Kern.  Divestiture DASH gives us authority to sell to Calpine.  The second DASH seeks approval for additional development $ and the Kern Transport.  RAC is still debating over the form of this DASH.  The Daily VAR estimate on the transport is $5MM and with a 45 Day liquidation period, the VAR is $34MM.   

Enron Board of Directors:
The second DASH requires approval by the executive committee of the ENE Board, which is scheduled to meet by conference call on Monday, March 12.  The three-page presentation for that meeting is due to Rebecca Carter on Friday.