Re: PG & E Credit Assurance

I have reviewed your various emails and will get back to Paul shortly. DF

From: Paul Cherry 01/24/2001 04:45 PM

To: Drew Fossum/ET&S/Enron@ENRON
cc: Jerry Peters/NPNG/Enron@ENRON, Rod Hayslett/FGT/Enron@ENRON

Subject: Re: PG & E Credit Assurance

Drew,

In regard to Jerry's questions, could you provide your opinion.

Many Thanks.

---------------------- Forwarded by Paul Cherry/GPGFIN/Enron on 01/24/2001
02:42 PM ---------------------------

Jerry Peters
01/24/2001 04:38 PM
To: Paul Cherry/GPGFIN/Enron@ENRON
cc: Rod Hayslett/FGT/Enron@ENRON

Subject: Re: PG & E Credit Assurance

What about the risk that a bankruptcy trustee could pull the escrow account
back into the general creditors' estate? Is that any greater than the risk a
prepayment would be required to be returned?

I think we do need to review this with Stan and/or Danny (as well as someone
else in Enron that's managing the bigger picture on PGE credit risk.)

Rod Hayslett

01/24/2001 01:54 PM
To: Paul Cherry/GPGFIN/Enron@ENRON
cc: Jerry Peters/NPNG/Enron@ENRON

Subject: Re: PG & E Credit Assurance

I guess I would argue then he hasn't secured the future business, since it is
not fully prepaid. We could raise the amount to cover the days exposed
and be in a better position.

From: Paul Cherry 01/24/2001 11:22 AM

To: Jerry Peters/NPNG/Enron@ENRON, Rod Hayslett/FGT/Enron@ENRON
cc:

Subject: PG & E Credit Assurance

I have spoken with Chris Chung of the PG & E Risk management group in regard
to the necessary credit assurances TW would require. Chris stated he could
not provide a letter of credit but would consider a prepayment. He also
indicated that through his business group he heard as a rumor that we would
accept a one month valuation. To continue the discussion, I told Chris a
decision as to the amount would have to be authorized by my management and
my proposal as to how the prepayment would work , is PG & E would wire the
agreed prepayment to us to secure the February business, then make payment
for the January transportation on the due date in February and then make the
prepayment on a monthly basis with a true up to the actual invoice. Chris
countered with PG & E posting a Security Deposit in an Escrow account to
secure the future transactions. The issue I have with this arrangement is
that theoretically if PG & E defaults on payment on the due date, we have
approximately forty days exposure and more until we can suspend service which
could be an additional thirty days.

Please review and advise your comments and/or direction.

Also, should we review our proposal with other Senior Management before
responding.

Regards.