UC/CSU

FYI.

Best,
Jeff
----- Forwarded by Jeff Dasovich/NA/Enron on 02/25/2001 03:33 PM -----

Tom Riley/Western Region/The Bentley Company@Exchange
Sent by: Michele Curtis/Western Region/The Bentley Company@Exchange
02/23/2001 08:12 PM

To: Marty Sunde/HOU/EES@EES, Dan Leff/HOU/EES@EES, Vicki Sharp/HOU/EES@EES,
Mike D Smith/HOU/EES@EES, Scott Gahn/HOU/EES@EES, Dennis
Benevides/HOU/EES@EES, Eric Melvin/HOU/EES@EES, Maureen Palmer/HOU/EES@EES,
Wanda Curry/HOU/EES@EES, wanda.curry/HOU/EES@EES, Evan Hughes/HOU/EES@EES,
msmith7043@houton.rr.com@SMTP@Exchange, Jeff Dasovich/NA/Enron@Enron, Tom
Riley/Western Region/The Bentley Company@Exchange
cc:
Subject: UC/CSU

Attorney/Client Privileged Information

Summary of our follow-on discussion with UC/CSU Friday afternoon (Tom/Dennis
from Enron):
1. UC/CSU's goal is to reach agreement on the interim solution by the end of
next week (Friday, 3/2)
2. UC/CSU would like draft language memorializing the structure contemplated
below by COB Monday, 2/26, and asked what our proposed form of agreement
would be (letter agreement, amendment). Their preference is the first and
expressed concern that if the draft had too many legal terms and/or was too
one-sided, that it would be unrealistic to expect approval by Friday. I have
since spoken to Mike and I will propose to UC/CSU that we get them a term
sheet on Monday for discussion, with the intent of wrapping the terms into a
letter agreement of a couple pages.
3. UC/CSU is considering underwriting the risk they would be absorbing
through the interim agreement.
4. It is both our expectations that during the interim period we would gain
some clarity on the legislative/regulatory landscape such that we could begin
working on a long-term solution.
5. If we don't reach a long-term solution, we would flip back to the terms
of the existing contract, and are back to the existing issues.
6. We reinforced the highly confidential nature of these discussions.
Commercial terms
? Intent is to offer an intermediate solution to mediate UC/CSU's concern of
potential long-term consequences (loss of direct access rights preventing
them from gaining financial benefits) due to status as a bundled utility
customer. Want time for landscape to solidify so we can agree on a long term
solution that would retain them as a direct access customer or a synthetic
version of that (i.e., they still receive the benefits).
? Enron would re-DASR accounts, assuming the following:
? UC/CSU assume liabilities from February 1, 2001 through end of term of
interim agreement, resulting from that action.
? Term to be 90 days, with the option to extend upon the mutual agreement of
both parties.
? Calculation methodology of the liability: Spot market price minus the
prevailing bundled utility rate plus load shaping costs (Dennis - please
provide the methodology. Also, what about A/R risk, treatment of
surcharges?).
? Exposure is calculated ex-post (i.e., we will not agree to an amount,
capped or fixed, at the outset). They want an estimation of the potential
exposure, so we need to make sure we have proper protection that does not
bind us to that estimation. (Alternatively, we can provide them this
estimation outside the agreement, with the same caveats).
? Agree during interim period to work together (good faith effort) to
mitigate the exposure of the liability.
? UC/CSU assumes risk that should we be barred from re-de-DASRing at the end
of the term (due to legislative, regulatory or other actions or
circumstances), UC/CSU would assume this exposure as well. They countered
with a suggestion for our consideration that such an occurrence be treated as
a force majure event with the affect of terminating the contract. (This
seems counter-intuitive to me to their desire to remain a direct access
customer - see concern below).
? This was not discussed, but term should include a provision for
confidentiality.
Concern:
It is somewhat disconcerting they have asked for and are considering this
proposal. They are absorbing our risk, which we shared to be a very large
number ($100M+ over the remaining contract term). They also did not want to
discuss their regulatory concerns, and enter into a discussion with Dasovich
regarding these. These points lead me to believe that perhaps they know
something we don't. Just a consideration for our call Saturday.
Tom

From: Tom Riley/Western Region/The Bentley Company@Exchange@Exchange on
02/23/2001 03:56 PM
To: Marty Sunde/HOU/EES@EES, Dan Leff/HOU/EES@EES, Vicki Sharp/HOU/EES@EES,
Mike D Smith/HOU/EES@EES, Scott Gahn/HOU/EES@EES, Eric Melvin/HOU/EES@EES,
Maureen Palmer/HOU/EES@EES, Wanda Curry/HOU/EES@EES, Evan Hughes/HOU/EES@EES,
Dennis Benevides/HOU/EES@EES
cc: Don Black/HOU/EES@EES, Neil Bresnan/HOU/EES@EES
Subject:

We had a cordial and outside the box discussion with UC/CSU today.

On the call, UC/CSU expressed a concern that in light of the uncertain and
rapidly evolving regulatory and legislative landscape, they do not feel it to
be prudent for them to consider our long-term proposed solutions. They were
intrigued by our offers and we will take them up at a later date. In the
meantime, they are proposing we price a short term deal. This will buy them
re-DASR status until the end of the current uncertain situation.

Proposed Structure:

Enron to temporarily Re-DASR UC/CSU accounts. UC/CSU liable for any
additional costs incurred by Enron as a result of that action. Such costs
may include, but not be limited to the following: account receivable risks,
difference between spot market price and utility bundled rate, exposure to
changes in calculation of PX credit applicable to direct access providers (as
compared to spot market purchase price), load shaping costs to follow
customer hourly load without availability of the PX.

Assumptions:

? Enron has sole option to return accounts to De-DASR status at end of term.
? UC/CSU assumes risk should this action be blocked by law, regulation, or
3rd party action.
? Enron retains right in contract to choose source of electricity supply for
duration of existing contract term.
? Enron will work with UC/CSU to mitigate liability exposure (i.e., consider
entering into purchase agreement with utilities, etc.).

Potential liability during term (notional): $_____ (60 day term); $____(90
day term)

Potential liability at end of term if Enron is unable to return accounts to
utility supply status at end of term due to potential legislative,
regulatory, or other action or circumstance (notional): $_____ (assuming 60
day term); $____(assuming 90 day term)

It is envisioned that during this short term period that the regulatory and
legislative landscape will become clearer, allowing both parties to better
understand their exposure through the term of the contract and beyond. Once
this clarity is achieved, it is agreed both parties will meet to discuss long
term solutions meeting the needs of both parties.

Please comment with concerns, ideas immediately as we will be back on the
phone with them shortly.

Thank you.

Tom