----- Forwarded by Elizabeth Sager/HOU/ECT on 07/13/2000 04:23 PM -----

	Tim Belden
	07/13/2000 02:32 PM
		
		 To: Elizabeth Sager/HOU/ECT@ECT
		 cc: Kevin M Presto/HOU/ECT@ECT
		 Subject: Re: Index Transactions

Calling brokers to find out what prices would have been is an impossible 
task.  I agree with your assessment.  Unfortunately, caps are not disruptions 
but have become a normal course of business.


From: Elizabeth Sager on 07/13/2000 01:41 PM CDT
To: Kevin M Presto/HOU/ECT@ECT, Tim Belden/HOU/ECT@ECT
cc:  
Subject: Index Transactions

EPMI is entering into more and more transactions that are settled against a 
floating, published index price.  Our physical contract does not currently 
provide for what happens if the published source is not available or is 
otherwise materially changed. Under ISDA for financial trading,  this is 
addressed as a Market Disruption Event (MDE).  Under ENA's standard contract 
for financial trading, there is included as a MDE "the imposition of trading 
limits on the range within which the price of the commodity may fluctuate".  
What this may mean is that if a cap is imposed on power prices, then in lieu 
of using the capped price to determine the floating price, you would be 
required (under ISDA) to eventually get brokers to determine what the price 
would have been without the cap.

I want to add language to our physical contracts that addresses material 
changes/disappearance of the published prices that would mirror the financial 
trading terms and doubt whether we would want to make the imposition of a cap 
on power prices a MDE.  If you treat the imposition of a cap (say in CA of 
prices to $500 or in NEPOOL to $1,000) as a MDE, then we would be required to 
secure quotes as to what the price would have been without the cap each time 
that a pricing date trades at the cap level.   This only seems fraught with 
litigation risk to me.  Alternatively, if caps are not deemed a MDE, then you 
would always settle against the published prices, even if they are 
"artificially" determined after the trade was entered into.  While caps are 
not appealing, I think it would be better to not have the imposition of caps 
be considered a MDE.  I have spoken with the financial trading group and they 
will follow our lead on this.  So, depending upon what you both think, we 
will make sure that financial and physical power are treated the same on this 
issue.  

Thanks for your thoughts.