Subject: Re: City of Lakeland ("Lakeland") Credit Reserve
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Fri, 20 Aug 1999 06:18:00 -0700 (PDT)

Christopher -- Re-sending this memo.  Received an error message, so not sure 
if first memo got through to you.  -- David

---------------------- Forwarded by David L Fairley/HOU/ECT on 08/20/99 01:14 
PM ---------------------------
   
	Enron Capital & Trade Resources Corp.
	
	From:  David L Fairley                           08/20/99 01:12 PM

To: Christopher Smith/HOU/ECT@ECT
cc:  
Subject: Re: City of Lakeland ("Lakeland") Credit Reserve  

Christopher -- It was my understanding that Structuring had responded to your 
questions early in the week.  Apparently, your requests were not satisfied, 
so we do need to get together.  Are there any other questions besides those 
from earlier?  Do you have the latest model from Structuring, contracts from 
Legal, and term sheet from Origination?  Please let me know what else you 
need. -- David

To: David L Fairley/HOU/ECT@ECT, Janet R Dietrich/HOU/ECT@ECT, Evan 
Betzer/HOU/ECT@ECT
cc: William S Bradford/HOU/ECT@ECT 
Subject: Re: City of Lakeland ("Lakeland") Credit Reserve  

David and Janet, I am re-sending this e-mail that outlines RAC's view of the 
transaction, follow-up needed through the drafting of the documentation and 
RAC's required involvement, and the credit reserve tied to the value based on 
the latest transaction value and structure RAC has seen.  The 
"Comments/Questions" section of the attached e-mail outlines RAC's open 
issues, however, we have provided the appropriate credit reserve based on the 
value that we understand will be marked-to-market.  As the deal evolves and 
the value tied to the transaction changes so will RAC's valuation and credit 
reserve.  It is very important that we are copied on the documentation 
supporting the transaction so that we can understand the intricacies of the 
deal as well as Enron's obligations and remedies.  I have advised Dan Hyvle 
of RAC's need to be copied on the documentation.  If someone else in legal is 
running with this transaction during Dan's absence please let me know.  

I have scheduled a meeting at 5:00 PM, in Bill Bradford's office to discuss 
the content of the attached e-mail and any changes in the valuation of the 
transaction.

Christopher
Manager, RAC Ext. 33565

   

	From:  Christopher Smith                           08/13/99 07:27 AM

To: David L Fairley/HOU/ECT@ECT, William S Bradford/HOU/ECT@ECT
cc: Evan Betzer/HOU/ECT@ECT, Janet R Dietrich/HOU/ECT@ECT 
Subject: City of Lakeland ("Lakeland") Credit Reserve

Dave and Bill, I wanted to touch base with both of you on the status of my 
analysis for the Lakeland transaction.  I have been working very closely with 
Evan Betzer (ext. 34399) of the Structuring group as it relates to: (i) the 
value of the transaction and the key assumptions thereof: (ii) valuing the 
transaction in accordance with ECT's proposal to Lakeland versus valuing the 
transaction as though ECT only holds 50% of the position with the other 50% 
held by Sonat; and (iii) pondering determining if the transportation "Max 
Rate" used to value a portion of ECT's transportation obligation to Lakeland 
is a fixed rate or a variable rate - the Structuring Group's model assumes 
that the Max Rate is fixed for the 15 year term, and the delta between the 
transport curve and the Max Rate multiplied by the associated transportation 
volumes is the primary source of value of the Lakeland transaction; and (iv) 
determining why we would not value all transport volumes in a like manner as 
(iii) above.  

Separately, a considerable portion of the value tied to this transaction is 
tied to an "Accelerated Payment" feature, i.e.: gas payments are made on the 
20th of the delivery month versus the standard payment date of 25th of the 
following month whereas transport payments are made on the 10th of the 
delivery month versus the standard payment date of the 25th of the following 
month.  I have not placed any value on this portion of the deal and thus no 
credit reserve has been assigned to this portion of the deal.

Valuation: I have valued the Lakeland transaction at approximately $3.4MM 
(in-line with the Structuring group's valuation for the like scenario) with 
an associated credit reserve of $237M.  This valuation is based on the 
following key assumptions.

ECT is the Seller and no obligations are assumed by Sonat - the purpose of 
this approach is to value the transaction in accordance with the term sheet 
in front of Lakeland.
Lakeland will pay ECT Index minus $0.06/MMBtu on approximately 157,232,934 
MMBtu (45%) of the Firm MaxDQ - plus $0.0168/MMBtu paid to the desk, and 
Index minus $0.09/MMBtu on 192,971,190 MMBtu (55%) of the Firm MaxDQ - plus 
$0.0142/MMBtu paid to the desk.  The total PV loss tied to this index minus 
sale, on the Firm MaxDQ, is approximately $17.4MM.  FYI, I have included this 
associated monthly loss to ECT as an annuity in the credit reserve valuation 
process.
Transport is valued using the "Transport" curve (mid-market price of 
$0.2177), provided in the Structuring group's model against an assumed Max 
Rate of $0.75/MMBtu on real volumes of 68,908,381 MMBtu.  Based on the 
aforementioned, the AA value of transport is approximately $20.8MM.

Comments/Questions:  
I need to obtain the appropriate forward volatilities for the transport 
curve.  I am temporarily using NYMEX vols.  
I need to better understand why we are assigning value to some of the 
transport and not all of ECT's transport obligation.  In that light, I need 
to clarify what ECT's remedies and obligations are, as it relates to the 
transport that is being assigned to ECT from Lakeland, in a Lakeland default 
scenario.  The same questions surround the additional firm transport that is 
being purchased by ECT to support Lakeland's remaining Firm MaxDQ gas volumes 
(approximately 124 Bcf).
Has an agreement with Sonat been drafted that affords them the opportunity to 
fulfil a portion of ECT's obligations under its proposal to Lakeland?  If so, 
this transaction may need to be valued separately and based on such 
agreement's respective terms.  
Lastly, based on both the Structuring group's model and my analysis it would 
appear that the value of the Lakeland transaction resides with the desk.  The 
Origination group's value is tied to the value associated with its share of 
the Accelerated Payment feature of the transaction which RAC has not included 
in its valuation.