Message-ID: <5399772.1075840491969.JavaMail.evans@thyme> Date: Tue, 18 Jun 2002 06:15:04 -0700 (PDT) From: robin.barbe@enron.com To: chris.germany@enron.com Subject: FW: Ponderosa Pine Energy Partners, Ltd ("PPEP") Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Barbe, Robin X-To: Germany, Chris X-cc: X-bcc: X-Folder: \ExMerge - Germany, Chris\Bankrupt\Cleburne/Lone Star X-Origin: GERMANY-C X-FileName: chris germany 6-25-02.pst -----Original Message----- From: =09Hill, Garrick =20 Sent:=09Monday, June 17, 2002 5:51 PM To:=09McMichael Jr., Ed Cc:=09Bills, Lisa; Lyons, Dan; Ward, Charles; Barbe, Robin Subject:=09Ponderosa Pine Energy Partners, Ltd ("PPEP") After I learned that Robin was preparing a summary to bring you up to speed= with where we are gas-wise w/PPEP, I offered to draft something that might= help put us all on the same page and allow her to work on other things imp= ortant to your group. PPEP owns a 263 MW plant located in Cleburne, TX. The plant has three gas-= related agreements that require daily management: (1) a gas transportation= agreement w/Lone Star, (2) a gas supply agreement w/Apache (which is being= managed by Cinergy), and (3) a gas supply agreement w/Williams. Prior to = June 30, 2000, these agreements were administered under a service agreement= between PPEP (f/k/a Tenaska IV Texas Partners, Ltd., or "TIVTP") and Tenas= ka Gas Co. Under that agreement, Tenaska Gas Co. ("TGC") provided scheduli= ng services, reconciled gas activity to invoices, and bought and sold gas o= n behalf of TIVTP. As consideration for services provided, TGC received a = per unit fee that (if the agreement were still in effect) would have amount= ed to approximately $0.0513/Dth in 2002. That fee is prevalent in the PPA = as it relates to Brazos' gas purchase options and electric pricing after 20= 06, the year the gas supply agreements expire. The TGC gas agreement was terminated on June 30, 2000 at which time Pondero= sa Pine Energy, LLC ("PPE"), a wholly-owned subsidiary of Delta Power Co., = LLC ("DPC"), acquired all of the entities that own general partnership inte= rests (90%) in TIVTP (whose name changed to PPEP one year later). Just pri= or to PPE's acquisition, ENA acquired the only limited partnership interest= (10%) from LG&E. In conjunction with PPE's acquisition, ENA entered into = two service agreements with PPE: (1) a Consulting Services Agreement, unde= r which either party receives cost plus 5% for services rendered (there has= been no business conducted under this agreement, and (2) a Corporate Servi= ces Agreement, under which ENA is entitled to receive cost plus 5% for acco= unting, tax, finance, legal, and HR services it provides to PPE. PPE's purchase agreement provided for a transition of gas services to ENA o= ver 90 days. In conjunction with the transition, ENA and PPE developed (bu= t never executed) a gas agency agreement under which the ENA Texas Desk pro= vided services similar to those provided under the TGC gas service agreemen= t. Per Weil, course of performance is sufficient to consider that agreemen= t binding as a "verbal arrangement". Under that verbal arrangement, the EN= A Texas Desk received a fee of $0.0400/Dth in 2001; by our calculations, th= at fee has increased to $0.0406/Dth in 2002. PPE is current through Novemb= er 2001 on the payment of these fees. In addition to the status of the PPE-ENA gas agency agreement, two issues w= ere raised to a consciousness level shortly after the filing of our petitio= n =20 In what appears to be related to the sale of HPL to AEP, payments that were= made by PPEP to ENA for further payment to Lone Star between April and Nov= ember 2001 were never remitted by ENA to Lone Star. In order to prevent th= e Lone Star agreement from going into default, PPEP was forced to pay Lone = Star directly (effectively causing PPEP to "double pay" its transportation = costs for the period). =20 Revenue that was received by ENA for the resale of gas on behalf of PPEP (i= .e., due to an electric production schedule that didn't utilize full contra= ct entitlements) for the month of November was never remitted to PPEP. Taken together, these two items create a $1.3 MM claim against ENA by PPEP.= Additionally, we learned shortly after the bankruptcy that the electric p= roduction schedule had lead to the development of a large imbalance on the = Lone Star pipeline. Given ENA's limited capability to transact on physical= gas (and Lone Star's physical limitations), it has been difficult to work = off this imbalance. However, the fact that the plant is generally short ga= s in summer production months (i.e., the plant utilizes approximately 48,00= 0 Dth/d at full production vs. its 45,000 Dth daily contract entitlements),= the imbalance should start to reverse this summer. It's my understanding = that the facility has fairly liberal balancing provisions w/Lone Star. An invoice for gas agency services since the filing of the bankruptcy was p= resented to PPE today. Based on conversations that I had w/DPC earlier thi= s year, we suspect (due to the limited capacity in which ENA can perform an= d the claim described above) that PPE will decline to pay the invoice. ENA= , at DPC's request, developed an RFP to solicit bids for a new gas agency s= ervice provider earlier this year. While we have received no indications t= hat the RFP has been issued, it is my understanding that DPC has had conver= sations with one or more parties that may be willing to provide gas agency = services. While not crucial to ENA's decision-making, we have no way of kn= owing how these conversations have progressed or if DPC is presently in a p= osition to assume the role of gas portfolio manager. =20 However, this is deal falls into the "SPE category" by virtue of a total re= turn swap between ENE and KBC bank, which loaned PPE 97% of the total funds= needed to acquire the entities that own general partnership interests in P= PEP. The total return swap was entered into contemporaneously with PPE's a= cquisition in June 2000. The total return swap agreement appears to be in = default; ENE has not performed under that agreement since the bankruptcy fi= ling. Likewise, the KBC-PPE loan agreement also appears to be in default. = We are aware that DPC attempted to put its equity interests in PPE back to= KBC in December under the loan agreement, and that its exercise lead to th= e filing of a lawsuit by KBC. We are also aware that KBC and DPC are in di= scussions concerning a resolution of their differences and a possible restr= ucturing of the investment, but we have not (to date) been party to those d= iscussions. Lisa Bills is responsible for the total return swap and bank t= he bank relationship on this deal. She is presently developing a strategy = document for dealing with this investment (which appears to the deal team t= o be a net liability due to the current market for power plant investments = and the relationship with Brazos). =20 Because the SPE status (and outright ownership of the limited partnership i= nterest), we intend to continue in our collective service roles (i.e., rely= ing on DPC for authorization of our decisions) until such time that the str= ategy can be advanced through the approval process. Lisa views DPC's reac= tion to the gas agency service fee invoice to be a key part of this process= . I hope this helps...please let me know if you need more.