-----Original Message-----
From: 	Massey II, John  
Sent:	Wednesday, November 07, 2001 1:25 PM
To:	Mcgowan, Kevin; Woods, Trevor
Subject:	FW: Methanol Plant Credits and Allowances


Kevin -

This is a deal that I want to do - We have been working on this for a while and think the deal brings significant upside opportunity for Enron. The deal would involve buying the below mentioned credits and involve spending around $2 million - Any thoughts?

John



 -----Original Message-----
From: 	Woods, Trevor  
Sent:	Wednesday, November 07, 2001 1:08 PM
To:	Massey II, John
Subject:	Methanol Plant Credits and Allowances

Massey,

I had another meeting with Jim Prentice at EOTT regarding the VOC credits and NOx allowances in HGA (see the charts below for the volumes) generated by the shutdown of the facility.  I think he's comfortable with transacting with EGM.  He's now aware that EGM is responsible for all of the environmental responsibilities with the MTBE plant.  Under the MTBE sale agreement EGM must provide capital for technology enhancements or allowances to ensure that all TNRCC emissions requirements are met through 2005.  With this in mind they are no longer interested in holding onto the Methanol plants allowances to get the MTBE plant into compliance.  Keep in mind that we would have the option of taking the NOx as ERCs or allowances.   There have been no transactions for the NOx allowances but our models lead me conclude there will be more value in allowances than ERCs and I recommend we take them as allowances.  

Volumes: 
NOx ERCs (tons)	
86	

Year	NOx Allowances 	
2002	2531	
2003	2531	
2004	1815	
2005	1064	
2006	689	
2007	212	
2008+	76	

VOC ERCs (tons)	
594	

The two structures we've discussed are as follows:

Option A:               Purchase of NOx and VOC
Price:	                  Should be between $2mm and $2.5mm
Allowance Seller:  EOTT 
Allowance Buyer:  EGM Emissions 

Option B:               VOC Purchase with NOx revenue share
Term: 		      Until allowances are exhausted
VOC Price:	      $750,000  
NOx Revenue Share:     70% EGM and 30% EOTT 

Jim is willing to be flexible and look at either transaction.  If we have a strong desire one way or the other I believe he'll allow us to choose the terms.  With that in mind, I'd prefer Option A.  The revenue share makes the deal far more complicated long term and could limit our earning potential over the long haul. 

In our current environment can we spend the cash?  This is a good deal and one that, if possible, I strongly recommend we do.  

Let me know the answer so I can get the process rolling with Jim.   

Trev