FYI
----- Forwarded by Dan Lyons/HOU/ECT on 03/23/2001 10:53 AM -----

	Garrick Hill
	03/21/2001 06:17 PM
		 
		 To: Charles Ward/Corp/Enron@ENRON, Dan Lyons/HOU/ECT@ECT
		 cc: Christopher Coffman/Corp/Enron@Enron, Dan Lyons/HOU/ECT@ECT
		 Subject: Steve Tick's Restructuring Proposal

Steve Tick's PPA restructuring proposal (which we now refer to as the "ten 
points of light") is generally as follows:

The partnership agrees to amend the interest rate adjustment to capacity 
charges, which effectively lowers capacity revenue by virtue of a lower 
$/kW-mo. charge.  Per Steve, the modified adjustment should take into account 
plant capacity, use of the term vs. construction loan amount and a 1.00 vs. 
1.25 coverage ratio.  Steve also advocates that the loan balance be reduced 
for the development fee collected by Tenaska at close; I wouldn't go there, 
as Steve has told me on a number of occasions that Brazos doesn't know about 
this fee.

The partnership agrees to change how the capacity rate is applied (he 
advocates charging the new capacity rate on 240 MW and charging 50% of the 
new capacity rate on the next 23 MW), which effectively lowers capacity 
revenue by virtue of fewer billing determinants.

Steve's view is that items 1 and 2 need to amount to at least $3.5 MM in 
savings to Brazos per year; more is better, >$5.0 MM is a slam dunk

The effects of items 1 and 2 are mitigated by (a) collecting a higher 
capacity rate for some period of time after 2019 and (2) adjusting energy 
rates through 2006 to recapture marginal energy losses.  Steve's advice on 
these point is that we shouldn't be pigs.  As I think you know, our exposure 
on point (b) is greatest when the plant runs at higher levels of capacity, 
which causes us to consume more than 45,000 Dth/day without adequate 
compensation through the PPA.

Brazos purchases the development site for $x (he likes to use $15 MM, which I 
think is a stretch).  Steve understands that we have a $7.5 MM termination 
payment obligation back to the original Tenaska IV partners to the extent we 
wish to convey the development assets, but believes Tenaska, Inc. would be 
willing to assume all or a portion of this commitment in exchange for an 
agreement w/Brazos that totally eliminates its officers' liability on fraud.  
Steve appears to believe this risk is real, or he wouldn't make such a big 
deal out of it.  He points to the use of the 1.25 coverage assumption in the 
interest rate adjustment as clear evidence that Brazos made decisions based 
on an assumption that the Tenaska partners would earn only a reasonable 
risk-adjusted return on this project.  Even Merrill Lynch, Brazos' financial 
advisor, bought off on this provision of the agreement.  Steve is willing to 
go to bat with both Brazos and Tenaska on this point to see this to 
resolution.  To the extent he's successful and we receive, for example, $10 
MM for the development assets, this would be an immediate offset to the 
capacity payment reductions set out under items 1 and 2.

The partnership converts the facility to EWG and, per Steve, shares the 
benefits with Brazos.  My view is that this could just as easily be done by 
adjusting the heat rates used for tolling purposes (i.e., after 2006 and, to 
the extent applied in the energy pricing used to address his item 3, through 
2006).

The partnership removes distilled water equipment and sells it in the 
market.  Steve thinks proceeds realized from the sale should be (a) shared 
(up to 100%) with Brazos or (b) used to purchase replacement blades that 
could be installed during the May outage to prevent summer downtime 
(obviously, timing is a key issue here).

Brazos is granted the right to further reduce its contract payment 
obligations in ways that are similar to its Apache demand charge buy-out.  
This is a Steve Tick soap-box item; he uses it as an opportunity to remind 
Brazos that other value has been created during the facilitation process.

Steve speaks to project-level debt restructuring, and suggests that Brazos be 
granted the right to affect this restructuring within parameters that are set 
by the partnership.  I don't know what to do with this, but to say that I 
believe there is value to restructuring debt at the project-level with 
existing lenders in a way that leaves existing swaps in place.  Inasmuch as 
we have always planned to take on structurally subordinated debt obligations, 
there is borrowing capacity at the project level.  Since we would need to go 
to the banks for consents on any of the PPA/structural changes advocated by 
Steve, it would appear to make sense to tackle debt restructuring on the same 
pass.  The banks would love a solution that puts the disputes to rest and 
should be willing to both consent and lend against the cash flow of the 
restructured project.  CoBank, who has $70 MM of the project debt (which 
amortizes beginning in 2012), is one of the banks in the total return swap 
with KBC by virtue of syndication.

Steve also advocates what he refers to as "equitable adjustments".  In 
effect, he would establish a market index against which the all-in PPA price 
could be compared, and would have Brazos pay a premium over it's PPA price to 
the extent the market price floats above the PPA price.  I think this is an 
interesting concept, but we can't count on value here.  More importantly, I'm 
not aware of a transparent enough price to make this work in ERCOT.

Finally, Steve advocates turning management of the project over to Brazos in 
return for a "hell or high water" commitment on capacity payments.

Steve's view is that the "hell or high water" commitment, together with the 
settlement itself, makes PPE's partnership interests more marketable.  I'm 
not sure we agree with his view of the risks relative to the overall 
liquidity of our interests.  However, we need to recognize that he's working 
with substantially more information than we are at this point from the 
perspective of what he knows about Brazos' side of the case.

My reaction is that there are things we can work with in Steve's proposal.  
Chris and I are looking at the pricing/cost offset details more closely, and 
should have something to discuss shortly.

Dan, sorry I missed you yesterday.  Let me know when you'd like to place the 
call to Tom Moore to update him on the current activity.  Also, do you have a 
sense yet for who we'll be working with on this internally?

Happy Trails...

Rick