FYI.
---------------------- Forwarded by Christi L Nicolay/HOU/ECT on 04/04/2001 
01:20 PM ---------------------------


Tom Chapman
04/04/2001 01:15 PM
To: Christi L Nicolay/HOU/ECT@ECT
cc:  

Subject: Re: PA wholesale vs. retail prices  

The short answer is yes.  Both Duquesne and GPU have divested their 
generation assets, and both have already suffered problems with their POLR 
service.  

The implicit reason for the GPU-First Energy merger is that GPU has lost 
hundreds of millions over the last two years (and promises to do so 
indefinitely without help) providing POLR service.  First Energy can offer 
both hedging help, but generation in off-peak times (only off-peak because of 
system congestion in PJM).  Enron has an opportunity here to do some good 
things.  However, from a credit perspective, we should be aware that GPU is 
in a risky position.

Duquesne divested of their generation selling their assets to 
Orion/Constellation.  In turn, Duquesne contracted with Orion to provide 
energy to meet their load.  As part of this contract, Duquesne did two things 
that are questionable from a business perspective.  When turning over their 
assets to Orion, they also transferred the FTRs to Orion.  Thus, Duquesne's 
load no longer holds the FTRs making it difficult to hedge transmission 
risk.  Second, Duquesne did not contract for capacity.  For this reason, they 
are having problems joing an RTO because they have no capacity resources, and 
Orion is holding them hostage over this issue--expecting a large capcity 
payment.  Without some rectification, Duquesne is in conflict with both PJM's 
rules and PJM West's proposed rules.

For this reason, there is an opportunity in this effort.

Tom Chapman