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Enron Mail |
Todd and Louise,
=20 With respect to No. 1 below, I will check with Mike Curry to get his view o= n "contract intent". =20 With respect to No. 2 and No. 3, the answer is absolutely "NO" as they are = material changes to the contract that have significant value issues. Sinc= e I personally requested these changes to the original contract (in the neg= otiation process), I know what the contract intent was and continues to be. =20 If AEP is still the equity buyer, they have complete control over the "grid= curtailment" and associated termination risk in item No. 2 since they are = the transmission owning utility in the region. =20 The total EPMI PPA (as of 9/17 COB) value is currently $18.5 million. My e= stimate for PPA value erosion for amendments No. 2 and No. 3 is $8-10 milli= on. Obviously, the $ erosion value is somewhat subjective, however, the t= ransmission risk/grid curtailment risk on this project is significant and t= he termination event for grid curtailment is essential to mitigate what cou= ld be substantial downside for EPMI. The reason I had Mike ensure this pr= ovision was in the current PPA was to shift some of that risk back to Enron= Wind and now Enron Wind is trying to push it to the project lenders (who a= lso don't want the risk). =20 =20 -----Original Message-----=20 From: Lindholm, Tod A.=20 Sent: Mon 9/17/2001 5:54 PM=20 To: Presto, Kevin M.; Curry, Mike; Lamb, John; Payne, Michael=20 Cc: Murphy, Harlan; Kitchen, Louise=20 Subject: RE: Amendment to IM II PPA =20 Kevin, =20 EWC requires three clarifications to the PPA in order to get the project fi= nanced and sold. All previously requested amendments proposed by the equit= y purchaser have been dropped, and EWC will take the resulting pricing redu= ction. =20 I want to make sure you understand how minor these three clarifications are= . These clarifications conform to the original deal and are NOT changes t= o the deal. =20 1. Banking Provisions. EWC and EPMI agreed that energy and renewable en= ergy credits ("RECS") produced by the Indian Mesa II wind generating facili= ty in any year in excess of the annual minimum quantity would, on a cumulat= ive basis, offset any deficiencies of energy and RECS in subsequent years. = Section 4.04 of the agreement does not clearly provide the cumulative carry= over mechanism which was contemplated by the parties. (This section origina= lly provided for the carryover, but in an effort to simplify the language, = the aggregate carryover concept was clouded.) Both the project lenders and= the proposed equity purchaser have required that the point be clarified. = There has never been a disagreement between EPMI and EWC on the intention o= f the carryover banking provisions. EPMI's most recent refusal to make this= clarification now appears to be a change in the original deal 2. Grid Curtailment EWC and EPMI drafted the contract with specific pro= visions relating to termination resulting from grid curtailment, Section 5= .04 . There is an ambiguity in that grid curtailment could also be covere= d under the termination provision relating to force majeure under Section= 5.02. This inconsistency is the problem. Neither EWC nor EPMI were to p= ay damages to the other party in the event of grid curtailment. The propos= ed equity purchasers have requested that the force majeure provisions of t= he PPA be clarified to make it clear that extended grid curtailment would = not give rise to termination payments. This clarification is consistent wi= th the original intent of the parties and is not a change to the deal. 3. EPMI Credit Support. EPMI's obligations under the PPA are guaranteed = by Enron. The Indian Mesa II PPA permits EPMI to assign the PPA to certain= affiliates without consent of the seller. Any assignment by EPMI would n= ot relieve it of its duties and obligations under the contract, and the Enr= on guarantee would remain in place. However, the project lenders have requ= ired clarification that the Enron guarantee would either explicitly remain = in place or that the assignee would have a credit quality at least as good = as Enron Corp's credit quality. The project lender's have also requested t= hat the termination payment provisions be clarified to provide that any sub= stitute PPA used to calculate a termination payment would also need to be w= ith a party that had a credit quality similar to Enron Corp's, since that i= s the credit that is supporting the Indian Mesa II PPA. This will not affe= ct the value of the contract to a third party since Enron bears this obliga= tion unless released by the project. Under the dispute resolution provisions of the PPA we could certainly pursu= e declaratory relief under arbitration. Our sense is that this does nothin= g but ensure delay. From an Enron perspective: The sale of the equity and the financing of the non-recourse debt on t= he Indian Mesa II project is currently at a standstill due to issues surrou= nding the ambiguities in the PPA While the debt financing for the Indian Mesa I project is in place (d= ifferent offtaker) the proposed equity sale to AEP is linked to the sale of= the Indian Mesa II project. If Enron cannot move forward with the financing of the project within = the next month, Enron will likely end up with approximately $153M less cash= at year end than it counted on in its plan, in addition to any decrease in= planned earnings The after-tax return to Enron in a "hold" situation is 0%, due to Enron= being in the Alternative Minimum Tax position, i.e. it cannot use the tax = benefits. It was clear in the discussions with the City of San Antonio that these cla= rifications would have had no affect on value. =20 Tod -----Original Message----- From: Presto, Kevin M.=20 Sent: Saturday, September 15, 2001 2:41 PM To: Curry, Mike; Lamb, John; Payne, Michael; Lindholm, Tod A. Cc: Murphy, Harlan; Kitchen, Louise Subject: RE: Amendment to IM II PPA I would like to make the message even more clear. EPMI will not be making = any changes, amendments, clarifications, interpretations, etc. to the curre= nt Indian Mesa II PPA. Therefore, any proposed purchaser of the Indian Me= sa facility must evaluate the contract based on their own legal and commerc= ial interpretation. =20 I don't think it is productive to spend any more time on this discussion. = We will continue provide Enron Wind with the PPA value on a daily basis su= ch that total shareholder value is maximized for any proposed wind transact= ion (sale of company and/or sale of IM project). =20 Please feel free to call me to discuss (713-853-5035) -----Original Message-----=20 From: Curry, Mike=20 Sent: Fri 9/14/2001 3:11 PM=20 To: Lamb, John; Payne, Michael; Lindholm, Tod A.=20 Cc: Presto, Kevin M.; Murphy, Harlan=20 Subject: RE: Amendment to IM II PPA We are not interested in these changes to the PPA. These changes will weak= en the language in the contract for us (i.e. improve it for AEP that is pro= bably why they are asking for the "clarifications"). I will be out next we= ek on vacation so please address any further concerns in my absence to Kevi= n Presto. Regards, - Mike -----Original Message-----=20 From: Lamb, John =20 Sent: Friday, September 14, 2001 10:28 AM=20 To: Curry, Mike=20 Cc: Lindholm, Tod A.; Payne, Michael; Godfrey, Jay=20 Subject: Amendment to IM II PPA=20 Mike: Attached is our proposed amendment to the Indian Mesa II PPA. It de= als with the banking clarification (section 4.04 amendments), grid curtailm= ent clarification (section 5.02 amendments), guaranty clarifications reques= ted by the lenders (section 5.05 and 9.03 amendments), and the ERCOT amend= ment (section 3.04 amendments) that we have discussed. Please note that th= e ERCOT restriction would permit international sales, such as to Mexico, bu= t would otherwise restrict EPMI's sales of energy from the wind facility to= other locations within ERCOT. In the preparation of this draft, we used t= he same amendment that was previously sent to you by e-mail on 8/22/01. Th= at e-mail had a redline with it to show the changes to the banking provisio= ns. Please let us know whether this draft is acceptable or whether you hav= e any questions or comments on the amendment. Thanks Regards=20 John=20 << File: PPA First Amendment_09.14.01.doc <<=20
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