Re: NJ Index plus

From a mark to market perspective, the fixed basis as it is defined in the MD and NJ Index products include deal costs which are not considered market related, thus MTM accounting rules do not apply. By defining the index as PJM plus $0.0[ ] per kWh, we effectively tie the deal cost to the index and mark the transactions accordingly. Please see my note previous note on this issue.

""EESI Energy Price" means the sum of the weighted average (weighted in accordance with the Account's hourly usage or the Utility rate class usage profile) of hourly Real Time Locational Marginal Price for the applicable Utility load zone as posted by the ISO plus $0.0[ ] per kWh."

All references to the fixed basis as a separate component of the EESI Energy Price should be removed from the contract language.

I have also changed the Contract Price language so that the incentive is given to the customer on his actual usage up to anticipated usage:

" For each Billing Cycle from the commencement of the Transaction Term through July 31, 2003, an amount equal to what the Utility Invoice would have been for such Account had you purchased the Account's Actual Usage from the Utility under the Prevailing Utility Tariff Rate, minus, $0.0[ ] per kWh of Actual Usage up to the Anticipated Usage. You will also be responsible for and pay, or reimburse us if we have paid, Special Utility Charges (to the extent not already included in the Prevailing Utility Tariff Rate) and Taxes."

Language that describes the customers "option" to enter a fixed price agreement with EES is also necessary:

To the extent a Fixed Energy Price has not already been agreed to, you may request that we provide a fixed price quote for energy to replace the EESI Energy Price (a Fixed Energy Price) by contacting us between 9:00 a.m. and 5:00 p.m., central time, of any Business Day requesting a quote for such Fixed Energy Price; Upon receipt of your request, we will notify you of the Fixed Energy Price, the length of time you have to either accept or reject the Fixed Energy Price and any additional credit terms or other contractual terms relative to such Fixed Energy Price. If you accept such Fixed Energy Price within the specified time, we will send to you for your execution a written confirmation or amendment to this Confirmation documenting any confirmed Fixed Energy Price, any additional credit terms and any other applicable modifications to this Confirmation. If such Fixed Energy Price is not confirmed by both you and us, the EESI Energy Price will remain unchanged.

The Mid Form contracts will be needed and should read similarly.

The answer to your question below is that the difference between the two is the "basis" and the energy component is a wash:

"IS THIS THE RIGHT DEFINITION OF SPOT ENERGY PRICE HOW IS IT DIFFERENT FROM THE INDEX PORTION OF THE EESI ENERGY PRICE; IS IT JUST THE BASIS AND THE ENERGY COMPONENT IS A WASH?"

"Spot Energy Price" means the weighted average (weighted in accordance with the Account's hourly usage or the Utility rate class usage profile) of hourly Real Time Locational Marginal Price for the applicable Utility load zone as posted by the ISO plus all non-Utility charges arising from uplifts, installed capacity, ancillary services, losses, congestion and other ISO charges or administrative fees incurred in connection with delivery of energy to the Delivery Point.

There is no need for Excess Usage Language in the contract, however, deficiency language will apply as follows:

There will be no additional charges for Excess or Deficiency Usage through July 31, 2003.

From August 1, 2003 through the end of the Transaction Term, there will be no additional charges for Excess Usage; however, for each kWh of Deficiency Usage at each Account for each month, you will pay us an amount equal to the 0.0[ ] per kWh multiplied by the Deficiency Usage.

Please contact me if you have further questions.

Jevaughn
5-3525

Enron Energy Services From: Mike D Smith 10/23/2001 07:21 PM

To: Jevaughn Sterling/HOU/EES@EES
cc: Berney C Aucoin/Enron@EnronXGate, Phil Layton/HOU/EES@EES, Liqun Pan/HOU/EES@EES, Richard Ring/HOU/EES@EES, Michele Raque/ENRON@enronXgate, Jim Brown/HOU/EES@EES, Nina Nguyen/HOU/EES@EES, Christopher Riley/HOU/EES@EES, James M Wood/HOU/EES@EES, Bob Hansen/HOU/EES@EES, Gillian Johnson/HOU/EES@EES, Sean A Holmes/HOU/EES@EES
Subject: Re: NJ Index plus

Why is this formulation of the EESI Energy Price any different than saying "plus the Fixed Basis" and then defining the Fixed Basis as a $/kWh amount? Isn't it exactly the same? We've written it the way it was before so it is easy to plug in the fixed basis number.

Why have you changed the calculations of excess and deficiency usage charges during the index period? Why have you used the reference to a Management Fee in the new language? Why are there no charges for Excess Usage during the index period--are you really giving them the fised basis position for unlimited usage?

Jevaughn Sterling
10/23/2001 05:29 PM
To: Berney C Aucoin/Enron@EnronXGate, Phil Layton/HOU/EES@EES, Liqun Pan/HOU/EES@EES, Richard Ring/HOU/EES@EES, Michele Raque/ENRON@enronXgate, Jim Brown/HOU/EES@EES, Nina Nguyen/HOU/EES@EES, Christopher Riley/HOU/EES@EES
cc: NJ Team, James M Wood/HOU/EES@EES, Mike D Smith/HOU/EES@EES, Bob Hansen/HOU/EES@EES, Gillian Johnson/HOU/EES@EES
Subject: NJ Index plus

Following today's discussions with the Transaction Accounting group to discuss fixed basis Mark to Market, Product Management has modified the definition of the EESI Energy Price.

The conclusion of the discussion with Transaction Accounting was that the Index product does in fact create a commodity position that the commodity desk can "choose" to manage. The "revenue" position that is created when the contract is signed with the customer will be settled based on the published PJM Zone LMP, nevertheless the commodity desk may choose to manage their "cost" otherwise. The proposed fixed basis will be treated as ONE with the index in determining the EESI Energy Price. This approach is very similar in nature to the definition of the "Plus" that is defined in the ENovative Lite Energy Service Agreement for Gas products.

Therefore, the EESI Energy Price will now read:

""EESI Energy Price" means the sum of the weighted average (weighted in accordance with the Account's hourly usage or the Utility rate class usage profile) of hourly Real Time Locational Marginal Price for the applicable Utility load zone as posted by the ISO plus $0.0[ ] per kWh."

Please see the attached transaction confirmation and comment on the new definition of the fixed basis. All references to the fixed basis ("Management Fee") as a separate component of the EESI Energy Price should be removed from the contract language.

Please provide your comments accordingly.

Thanks

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