Dave and Chris:

I want to make you guys aware of the latest on the 501D5A. First, discussions 
with Montana Power are starting to progress quickly. They have proposed we 
sign a two week exclusivity agreement with them on the turbine, and have 
agreed to pay us $200k. Unlike the exclusive with NorthWestern, this 
agreement will not be binding as to ultimate purchase terms. It will simply 
provide that we don't talk to anybody else during the exclusivity period. The 
target price for a deal with Montana, which they have indicated is 
acceptable, is $29 million, less the continuing payment obligations to 
Westinghouse. If this deal is consummated at $29 million, the gross margin to 
Enron Corp should be approximately $1 million.

With this in mind, we have approached Westinghouse about resolving the 
dispute on the damaged generator. Because a replacement generator is on 
order, essentially the issue is who (as between Enron and Westinghouse) bears 
collection risk on the insurance claim associated with the generator. We have 
proposed that we split the risk, and specifically that Enron pay $1.5 million 
for the replacement generator, with insurance proceeds split 50-50 with 
Westinghouse up to the point of recovery of our $1.5 million. We would also 
waive our LD claim as part of this deal. In order to do the Montana Power 
deal, we need to resolve this generator claim.

Chris, Kay and I support this approach for a few reasons. First, it generates 
income for the company. Second, let's just say the handling of the claim by 
the former EECC was not stellar, and the contract provided for us to manage 
the insurance on the unit.  Third, while we may have a good claim for LDs 
under the turbine contract, we may have to move into litigation mode to 
collect them.

We of course want to solicit input from both of you before we proceed too far 
with either Montana or Westinghouse. Because of this, we have written the 
exclusivity agreement with Montana to provide that if we cannot deliver the 
generator, we will return the exclusivity payment. 

The last complication (as if we didn't have enough), is that the transfer 
price deal with CALME is not finalized. Louise has taken this on, and is 
talking to them to get the deal that Janet and I proposed earlier done (which 
essentially provides that CALME eat $2 million of carrying costs associated 
with the period during which they had responsibility for the turbine). Please 
see the e-mails from Louise below.

Please let us know if you are on board with our approach as regards Montana 
and Westinghouse, and I will then follow up with Louise on her discussions 
with CALME.

Thanks and regards,

Ben
---------------------- Forwarded by Ben Jacoby/HOU/ECT on 03/31/2001 08:16 AM 
---------------------------
   
	Enron North America Corp.
	
	From:  Ben F Jacoby                           03/28/2001 07:25 PM
	

Sent by: Ben Jacoby
To: Louise Kitchen/HOU/ECT@ECT
cc: W David Duran/HOU/ECT@ECT 
Subject: Re:  

Louise:

My responses:

1. The carrying costs have been capitalized, and under the accounting rules 
will continue to be capitalized through the last payment date under the 
turbine contract.

2. At this time, the turbine value is undetermined. While we have identified 
one potential counterparty (Montana Power), we do not have a signed deal. In 
addition, we are in the middle of a contract dispute with Westinghouse 
regarding the damaged generator. While we hope to resolve this dispute in the 
context of our exiting the turbine position, there exists the potential of 
this going into litigation.

3. Janet and I proposed the deal I discussed with you to CALME in December, 
but never got a formal response. I have put in several calls to Elio 
Tortolero at CALME, but have not heard from him for about a month. He advised 
me at that time that he would get me a counter proposal. My group has had de 
facto management responsibility for the unit since December.

4. This unit was initially an ENA unit, but was taken by CALME (David Haug) I 
believe in December '99 for projects they were considering. I am not aware of 
the terms of that transfer. 

FYI, I have attached a payment schedule for the turbine.

Please let me know if you have any other questions. Also, I have attached an 
updated site bank map which includes our Texas site which was inadvertently 
left off the previous e-mail.

Regards,

Ben





Louise Kitchen
03/28/2001 08:56 AM
To: Ben Jacoby/HOU/ECT@ECT
cc:  
Subject: 

This was the response from Jim - if you have all the answers already - please 
give me a ring - otherwise can you pull the answers together and then give me 
a ring.

Thanks

Louise


Louise:

I need to know two things: (1) Have the carrying costs been expensed through 
Jan. 1 and (2) Is there commercial value to the turbine?  If there is value 
to the turbine, then I really don't understand allocating costs to a business 
unit that doesn't own the turbine in order to create the illusion of a 
profitable transaction.  I also need to know on what basis and against what 
agreement CALME agreed to bear the carrying costs.  The project it supposedly 
related to has been dead for several years.

Jim