Message-ID: <26195264.1075859788835.JavaMail.evans@thyme>
Date: Tue, 6 Mar 2001 01:11:00 -0800 (PST)
From: greg.johnston@enron.com
To: mark.haedicke@enron.com, peter.keohane@enron.com
Subject: Update on Status of AMPS
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Gentlemen, please find below a description of the current status of the 
Advanced Mobile Power Systems, LLC project.   
 
AMPS

ENA obtained its 85% ownership interest in Advanced Mobile Power Systems LLC 
on January 26, by investing US$17 million in cash and assets.  The remaining 
15% is held by a company, Dispersed Power LLC, which is owned by the former 
principals of Power Systems Manufacturing LLC.  One of the major assets that 
ENA transferred into AMPS is a complete used mobile power generating system, 
like the one we propose to manufacture, which was acquired from PG&E and 
fixed up by PSM.  That unit was started up and run several times in January 
at Enron's site in New Albany for the purposes of testing the output, 
acoustics and emissions.  We have now commenced the process of marketing this 
test unit for resale and the plan is to have disposed of it by the end of 
April at the latest.  

AMPS has now been staffed with approximately 10 full-time employees, mostly 
on the engineering side, and Enron, through a services agreement, has agreed 
to provide certain services to AMPS for the first six months of its 
operation, with the primary services being legal and accounting.  I am 
coordinating the provision of, and for the most part providing, the legal 
services and will retain an outside law firm in Florida that can take over 
the legal work upon the expiry of the six month period.  Cle Dade at 
Bracewell & Patterson is assisting me in coming up with a short list of 
Florida law firms and then I will begin interviewing them.  As part of this 
services agreement, Enron is billing AMPS for my legal services at a rate of 
US$100 per hour.

Contracts have been executed with all equipment vendors to manufacture all of 
the various parts to assemble one beta unit, for the purposes of 
demonstrating that one of these units can be manufactured and meet the 
performance targets of approximately 20 MW output with 5 ppm NOx on gas 
fuel.  The beta unit will be completed around the end of July 2001 and will 
be capable of running on duel fuel and will be equipped with an exhaust 
silencer and selective catalytic reduction unit (SCR) kit to reduce noise and 
NOx/CO emissions.  In addition, Pratt has agreed to supply a Dry Low NOx unit 
for the generator to assist in the emissions reduction.  Manufacturing the 
beta unit with all these bells and whistles will allow us to test the maximum 
performance and then, based upon a customer's needs, we can manufacture units 
to meet those needs and adjust the price accordingly.  Our cost to 
manufacture the beta unit is approximately US$7.5 million and our intention 
is to sell it for approximately $9.5 million to $10.5 million, which, 
according to our preliminary market research, will make us competitive.  The 
price per unit will go down as we move into greater production numbers and we 
have confirmed through our review of the various vendors that all of them 
will be able to meet our ramped up production needs.  We estimate that it 
will take approximately 6 months from the date of purchase order to 
manufacture and assemble one unit and AMPS is currently looking for warehouse 
space that will allow it to assemble multiple units concurrently.  AMPS is 
gearing up to build 12 units in 2002 and 24 in 2003.

Each unit consists of two trailers, being an auxiliary trailer (housing the 
controls systems) and a power trailer (housing the turbine).  It takes 
approximately 3 days to set up and connect the unit to generate power from 
the time it hits the site.  Tear down is about the same length of time.

AMPS is currently hiring a sales/marketing person and conducting more 
thorough marketing due diligence.  Obviously, if we had been six months 
quicker we would be selling as many of these things as we could make into 
California, particularly with the ability to hit 5 ppm NOx.

We are currently negotiating a royalty and equity participation with Pratt & 
Whitney, the original manufacturer of the type of aero-derivative gas turbine 
that makes up part of the system, whereby they would obtain a 15% interest in 
AMPS and a royalty on unit sales in exchange for providing AMPS with the 
right to use and modify all prints and drawings relating to the generator and 
manufacture such generators based upon such drawings, together with an 
intellectual property indemnity relating to such use.

The board of AMPS consists of 3 Enron people, being Kyle, Michael Miller of 
Principal Investing and Bob Virgo of ENA.  There are also two people from 
Dispersed Power (formerly PSM people).  From my attendance at the initial 
board meeting, it appears relatively clear that this is a strong board, which 
should help in maintaining AMPS as a strong IPO candidate if the technology 
works out and the demand remains strong.  Every indication is that the 
technology is there.

If you need any more information, let me know.

Thanks
Greg