Westinghouse LD's for Gleason/Wheatland

Kevin, I am not sure that you will get credit from the buyer for the
increased MW's given well known industry issues with the 501F technology.
Further, any buyer will pay based upon 90 degree output which is the same in
any case (ie) increased output only helps when ambient temperatures are lower
than 90 degrees at site. Likely the buyer will run any spread option value
or multiple value based on 90 degree output.

I may be wrong but it is also my recollection that this is a warranty issue
rather than a true output issue (ie) we could increase the MW's at any time
but we would likely run into warranty issues with Westinghouse. Given that
the warranty expires in less than twelve months, what value do we really
get. Would it not be better to get the maximum amount of hard dollars out of
Westinghouse rather than an increase in output which will only be guaranteed
for a limited amount of time and likely will not be paid for by a buyer.

The thought process on the EECC side is for them to find overhead and cost
savings to fund their fee ($9.0M) rather than further increase to the capital
cost of the facilities. As well, given current accounting language, any fee
we pay will have to be expensed to current earnings rather than capitalized
so I would like to find ways for this to be self financing.

My knowledge on this one is rather cursory - can you guys work this out and
adjust tactics with EECC as necessary.

Regards
Delainey
---------------------- Forwarded by David W Delainey/HOU/ECT on 09/25/2000
10:02 AM ---------------------------

Enron North America Corp.

From: Kevin M Presto 09/25/2000 09:12 AM

To: David W Delainey/HOU/ECT@ECT
cc: Mike J Miller/HOU/ECT@ECT, Ben Jacoby/HOU/ECT@ECT, Mitch
Robinson/Corp/Enron@Enron, Don Miller/HOU/ECT@ECT
Subject: Westinghouse LD's for Gleason/Wheatland

Given the probable sale of these 2 facilities, I would like clarification on
the LD proceeds from Westinghouse. See questions/points below.

1) Izzo has claimed that you (Delainey) has agreed to pay EE&CC for
construction services in the form of Westinghouse LD payments. Is this
correct?
2) I am concerned that EE&CC will settle for cash payment from Westihnghouse
(Heat Rate & Schedule penalties) rather than increased output.
3) Given a sale at $450/kW, increased output is worth $5 million vs. the
$1-2 million we would collect for schedule and Heat Rate LD's.
4) My recommendation is to trade the HR and schedule shortfall for increased
output at Gleason to maximize total Enron profitability.

From ENA's perspective we should collect the schedule penalty at Wheatland
only and insist on the 12 MW additional output at Gleason. This combination
provides the best value to Enron.

If Izzo's form of payment for the construction jobs is Westinghouse LD's,
then he will be motivated to recieve cash payment. Please provide me the
necessary feedback to ensure that we do the right thing for Enron.

Thanks Dave.