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Enron Mail |
Thanks for bringing me up to speed. My only comment on the letter is that
instead of saying that we are not "compelled" to accept a litigation discount, it would be more direct to say that we see no reason to take a litigation discount and further discussions premised on the risk of litigation will not be fruitful. I am not sure I fully understand some of the points in the presentation materials. If you want to discuss them, please call. (Although whether I understand them may not be the point.) <<< <Garrick.Hill@enron.com< 04/04/01 07:05PM <<< Hi Tom: You may know this already, but Angela Davis in our legal group is now handling matters pertaining to Cornhusker instead of Dan Lyons. She asked me to update you on where we are and send along two documents that need your review prior to them being sent to Brazos. As you know, Chuck Ward and I have met w/Brazos on three occasions (twice in Waco in once by phone) since your meeting with them in Dallas on December 21. The purpose of those meetings was to further reinforce the point made by you and Carl Tricoli that, as equity sellers, PPE/ENA values the Cleburne asset based on its future cash flow with no discount for risks associated with litigation. Five developments are of significance since the last time you and I spoke: It became apparent to us during our meeting on March 16 that Brazos may have problems funding an acquisition at any price. Specifically, Brazos is considering a number of capital projects aimed at securing long-term power commitments to fill short positions associated with the Southern arrangement rolling off in 2003. Based on their experience w/the Cleburne, TX facility, Brazos appears to be committed to controlling their own destiny, and might find it much easier to fund marginal projects with an all-in cost (or collateral value) that is closer to market. Primarily as a result of point 1, Brazos has asked us to look at the possibility of PPA restructuring vs. acquisition. Also in conjunction with point 1, Brazos has been working with a number of potential energy suppliers to secure long-term power commitments. It appears to us that they are preparing to sign some form of commitment next week. Clifton Karnei sent a letter to Chuck Ward and Steve Tick on March 29 outlining expectations for a conference call that took place yesterday. The letter, which was actually received after the conference call, will be faxed to you this afternoon. Attached is a draft response along with a presentation that outlines the manner in which the partnership could restructure the PPA. Steve, while he has not seen the letter, is of the opinion that it's Brazos' turn to speak; we may not need the letter, but it reinforces a number of points and sets up a restructuring in such a way that we might like to send it along. We are giving a great deal of thought to the notion that a third party might be willing (and able) to pay considerably more for this asset than Brazos given its PPA, gas market conditions, and dispatch profile. Specifically: Southern (having realized the PPA has embedded in it an in-the-money call option on gas) has recently begun to "reverse toll" the plant by turning it back during off-peak hours when the net cost of replacement energy (i.e., the absolute price of market power less penalties paid under the PPA for heat rate degradation on energy taken from the plant plus gas market value) warrants economic dispatch. This asset commands a control premium from anyone that might be engaged (or about to engage) in a long-term, full requirements contract with Brazos. There are tax benefits associated with this asset that could be effectively monetized in a transfer of interests. Obviously, we would face the same obstacles that Tenaska faced in selling the asset. Please give me a call when you get a chance. Regards, Rick Hill (See attached file: Letter to Brazos @ 06-Apr-01.doc)(See attached file: Rest Concept @ 3-Apr-01.ppt)
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