Re: draft

Dan,

Thanks for the email and quick response. I am in the process of discussing
this with various people. A couple of observations that have become clear
and I want to pass them on to you. Overall, the size of the transaction is
not going to fly. If we brought in other players and significantly reduced
our exposure and the other players validated the technology and overall play,
it would increase the odds that we are interested in this type of deal. Rick
Buy stated firmly that Jeff will not be interested in taking this type of
deal to the board especially with what just happened with Ecogas and Kafus.

I called George last night and touched on these topics but they have been
reconfirmed this morning. I understand that the deal is very active and
needs to move forward now, but I think we should inform Pacificorp that we
will not take the entire deal. Last night George stated that he may not want
to tell them that and I agreed. But upon reflection, I think that needs to
be re-addressed. The original deal size is DOA and if I really believe that,
then not passing that information could hurt us in getting any size deal
potentially closed with these guys. Also having them assist in bringing
others to the table might be beneficial.

I'll keep you informed as i move forward and learn more.

Mike

Daniel Reck
08/07/2000 06:34 PM
To: Mike McConnell/HOU/ECT@ECT, Jeffrey A Shankman/HOU/ECT@ECT
cc: George McClellan/HOU/ECT@ECT
Subject: draft

Mike and Jeff:

Attached is a copy of the Pacificorp presentation from last week. To
reiterate, the key commercial risk issues are:

1) Tax--Jordan Mintz has a high degree of confidence regarding the
qualifications of the Pacificorp machines. Thorough due dilligence will be
required to investigate the representations made in the private letter ruling
applications.

2) Syndication--Joe Deffner and Tim Proffitt are working to find
monetizers. Ideally, the monetizers would close when we do. Realistically,
we have to assume that we will bridge the deal and wear equity risk until we
can shed our ownership. Pacificorp has expressed an interest in staying in
as 25% owner, which should reduce the bridge risk, since we can show the
former owner staying in the game.

3) Operations--The risk of operations will lie with the holders of the
equity. Post-syndication, the new owners can contract directly with an
operator. For tax purposes the owner needs to have some risk. We will guide
the monetizers to this risk. If we have to indemnify them in this area, we
will need to better understand the available insurance products.
4) Marketing--This is the risk the coal desk is trying to acquire. The desk
believes that the coal/synfuel spread risk will decrease dramatically over
the next 12-18 months. We have put $6.00/ton into the model, and the desk
will buy $3.00/ton today for seven years. The current market is anywhere
from $1.00-3.00/ton. We have also developed a list of strong sites that are
looking for machines, three of which we control, either through options or
marketing agreements.

The economics of the deal are compelling. We put out $100mm to Pacificorp as
an equity bridge (maybe less if they stay in as 25% owner). We collect
$30-50mm in commodity spread origination, and another $30-50mm in equity
origination.

Commercially, the deal makes sense, and I am confident that we can structure
around the risks. The decision we need from senior management is whether
this is a game we want to play. The machines fit into the letter of the
law. Big companies (AIG, Florida Progress, Detroit Edison, etc.) have joined
in the reindeer games. We can put on the position we want by bridging this
deal.

On the flip side, people have heartburn over "spirit of the law" issues and
those are questions that senior management has to decide. We have a chance
to move on these machines, but need to make up our mind by the end of this
week whether to put resources on it. We can back out later (our commitment
so far is non-binding), but we can't get back in.

Please let me know your thoughts.

Regards,

Dan