Subject: 2nd quarter PGG EBIT
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked]
Date: Mon, 4 Jun 2001 16:45:00 -0700 (PDT)

The following is an update on PGG earnings for the 2nd quarter and our ability
increase our EBIT for PGG from our last current estimate of 58 million to at
least 62 million.  I talked with Kirk Steven's this afternoon and after
looking at our preliminary closing estimates for power cost for May, our June
current estimate of power cost, and the amount of overview (25 million) we had
targeted for the second quarter here is what we concluded based upon the
assumption that prices for June do not continue to degrade from current levels
like they have over the last month.

Current Estimate Provided to Enron for Q2                   58  million
Power Cost & O&M Improvement > Overview               10  million
Catchup on Enron Allocations                                     (  3) million
Total EBIT                                                                    
65  million

There are two sensitivities to this estimate that could lower this number by a
combined 6.5 million.  

First we understand that we may be allocated charges for the Tomas transaction
that ran through the PGG books last year.  We reserved 1.8 million last year
and we understand the total charges from GATX could be as much as $5.1
million.  We did not include anything in our targets or plan for additional
charges since this transaction was originated in Houston.  

Second we have incurred $3.2 million in costs associated with supply chain
software associated with the sale of PGE to Sierra.  We will have to write-off
these costs in the second quarter since the software would only have value in
a peoplesoft system environment.  We have had good discussions with Bob Butz
about Enron covering these costs with some of the money they received from
Sierra to terminate the transaction.  We will need to resolve this in the 2nd
quarter or take the write-off which would reduce our EBIT.

In addition, as we have communicated before with you, we still have an open
long power position in June and all of the third quarter for reliability
purposes which will continue to cause our earnings to be volatile.  Recently
power curves in the west have been trading down but we would expect them to
rise as the warm weather comes on and loads in California increase.  There
have been some structural changes in the California market that could tend to
dampen the price curves for this summer.  

We will continue to keep you informed on what changes we are seeing as we go
through June in terms of meeting the 2nd Quarter adjusted current estimate
EBIT numbers discussed above.  If you have any questions or would like to
discuss this further feel free to call me at 503-464-8982.