per my vm

At the request of Liz Sager, I am attaching our language with respect our
transfer:

----- Forwarded by Tana Jones/HOU/ECT on 03/15/01 05:56 PM -----

Elizabeth Sager
03/15/01 04:44 PM

To: Tana Jones/HOU/ECT@ECT
cc:
Subject: per my vm

----- Forwarded by Elizabeth Sager/HOU/ECT on 03/15/2001 04:44 PM -----

"JOHN G KLAUBERG" <JKLAUBER@LLGM.COM<
03/15/2001 10:20 AM

To: cyoder@ect.enron.com, Elizabeth.Sager@enron.com
cc: chris.calger@enron.com, pboylston@stoel.com
Subject: Call with Pirog

** PRIVATE **

Set forth is a brief summary of my call with John Pirog last night. Overall,
I felt we made a lot of progress. At the end of the call, Pirog said that
prior to the call he was uncertain whether a deal was possible, but at the
end he said that he thought we could probably work through a number of the
issues and he said he was going to send some sample language for our
consideration on a few of the points. We said that we would be begin to
modify our draft as well to reflect some of the concepts we spoke about and
that we could then "compare notes." He said that CDWR viewed the Enron
Contract as an important one and he said he would be back to us fairly
quickly.

Material Regulatory Change Provision. Pirog said CDWR would be willing to
accept such a provision if it were limited to an event that adversely affects
CDWR's ability to perform under the contract, most particularly its ability
to pay for power. (Such an event likely would be a CA legislature or
regulatory generated change). Pirog said he thought that CDWR would agree to
a termination payment if this occurred, although they may not want the MRC to
be characterized as a "default" (which should not be a problem from our
standpoint). CDWR would not be willing to protect EPMI for a change (e.g.,
in law) that materially affects EPMI's business, but does not adversely
affect CDWR's ability to make payments to EPMI. (For example, a new CA law
that requires sellers into CA to turn over all their books and records to the
CPUC). Further, as we anticipated, he said CDWR was not willing to be on the
hook for a termination payment for an event outside its control, such as a
FERC change or Federal Legislation that adversely affects us. However, he
did say that CDWR might entertain a "no LD walk right" for EPMI if such a
change adversely affected it. My sense is that ultimately Pirog/CDWR will
back track on that since such a change could occur when our contract is
heavily in the money to CDWR and this would allow us an out without paying
LDs.

Early Walk Provision. He reiterated that CDWR would not extend the Option.
With respect to the early walk away right that has been offered, it was
discussed that this could be structured in such a way that EPMI could walk
from the deal (without receiving or paying a Termination Payment) up until a
date certain (September 1 and September 30 were mentioned by me as
possibilities, although Pirog said that other suppliers had a shorter window)
(our request is based on the gloomy news that has been eminating from the CA
Treasurer's office about the bond issue), provided that if the bonds were
issued earlier than that, the walk away right would terminate; that is, EPMI
would not be free to walk if CDWR was able to issue bonds with an investment
grade rating prior to the Drop Dead Date.

Termination Payment Due Date. Pirog said CDWR cannot shorten it from 180
days. He said all other suppliers have lived with that. Pirog is
sympathetic to our concerns, but said that the "bond guys" are already
nervous about only having 180 days (if they had to issue bonds to pay the
LDs).

Suspension of Delivery. Emphasizing our concern with the 180 days, I
requested that CDWR provide some flexibility on our right to suspend
perfromance in the event of an event of default and, perhaps some other
events, such as a bond downgrade. Pirog said he thought CDWR could work with
us on that.

Downgrade not a Default. CDWR was not willing to have a bond downgrade an
event of default. However, he said CDWR would be willing to consider having
a Downgrade Event a "no LD walk right" for EPMI and perhaps an event
justifying EPMI in suspending deliveries. In other words, a Downgrade Event
would be treated like an Event of Default, but no termination payment would
be owed and EPMI would have the flexibility to suspend performance. Pirog
also discussed adding a covenant that CDWR would attempt to secure a Credit
Rating with respect to the claims paying ability of the Fund in the event
that no bonds were issued. That is, if no Bonds were outstanding and the
Fund did not have an investment grade rating, we could terminate, but without
LDs.

Cross Defaults. This clearly is one of CDWR's hot buttons, and we will not
be able to get this is my sense. However, when asked about the idea of a
Cross Default Out w/out a termination payment, he stated that he would like
to discuss that further with CDWR.

LD Calculation Methodology. Pirog said it was very unlikely CDWR would
accept our proposed language. He said they are striving for consistency
among contracts and said their proposal is viewed as more "objective." My
sense is that we will need to get comfortable with it in general.

Arbitration. In general, Pirog did not have a problem, except for the
following: a desire to limit it to contractual claims only (i.e., no tort
actions, extra-contractual disputes, etc. would be subject to it). Also,
holding hearings in New York City was not well received, and a request was
made that all three arbitrators be neutral. I would think that the situs
issue will be a big one for Richard Sanders in light of the political
environment if a dispute were to arise. My general sense, however, is that
this is not a "deal breaker" for CDWR.

Assignment. In general, he understood the nature of our changes on this
issue and said they were reasonable although he caveated that on this issue
as well they are looking for some consistency. We were again asked if
assignment back to the IOUs would be acceptable, even though he knew what our
reaction would be. Pirog offered to provide us sample language, which we
said we would look at. We stated that conceptually this would be a difficult
sell in light of the environment. He did not elaborate on how stringent the
assignment standards are in the other deals.

New Govt Charge Pass Throughs. A pass through of some governmental charges
was considered to be okay, but he said our proposed language was too broad.
Pirog offered to provide some examples of acceptable language on this. He di
agre, howeve, that if for example, CA imposed an excess profits tax, that it
was fair for us to be protected from that.

Legal Opinions. Pirog did not think that a legal opinion from Hawkins would
be forthcoming, although he did say that he would look into whether or not
they would be providing one on the bonds. Also, he said it was a possibility
that the California Attorney General would issue the opinion on the bonds, so
we might possibly ask for that in lieu of an opinion from Hawkins.
Realistically, it likely will be very difficult to get this before we have to
extend the option; perhaps, we can put in a covenant on CDWR to get us that
before our walk right expires.

Additional CDWR Covenants. Pirog stated that the additional covenants we
have requested are conceptually okay with him, but need to be discussed
internally with CDWR.

Pro Rata "Spread" Amortization. Pirog had not reviewed the idea of
amortizing the Credit Amount over the four year term, and said that he would
run it by CDWR.

CDWR Information. Pirog said he would follow up with CDWR on how often it
plans to give suppliers financial information. He was resisting our request
for monthly information, although I pointed out that we really only wanted
information that frequently in the beginning of the transaction as things
start to fall into place.

Let me know when you wish to follow up.

John

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John Klauberg
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
212 424-8125
jklauber@llgm.com