Message-ID: <9854905.1075840815831.JavaMail.evans@thyme>
Date: Thu, 20 Sep 2001 12:26:52 -0700 (PDT)
From: joseph.deffner@enron.com
To: louise.kitchen@enron.com
Subject: RE: Amendment to IM II PPA
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X-From: Deffner, Joseph </O=ENRON/OU=NA/CN=RECIPIENTS/CN=JDEFFNE>
X-To: Kitchen, Louise </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Lkitchen>
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Just a clarification:
=20
The DASH requires that Enron Corp provide additional security behind its gu=
aranty of EPMI's obligations (capped at $100mm) to India Mesa 2 in the even=
t Enron Corp's senior unsecured rating drops below investment grade. My pos=
ition to EWC was that given there is no cause for alarm (or better said, av=
ailable remedy) from the creditor/equity side whether our credit is BBB+ or=
BBB-, why should it matter that we assign to an entity that is BBB-. Tod a=
greed to that this morning after his discussion with Jay. I will verify wit=
h Jay and John that the lenders are omfortable with that provision.
=20
-----Original Message-----
From: Kitchen, Louise=20
Sent: Thursday, September 20, 2001 1:42 PM
To: Deffner, Joseph
Subject: FW: Amendment to IM II PPA
=20
-----Original Message-----
From: Kitchen, Louise=20
Sent: Thursday, September 20, 2001 1:30 PM
To: Lindholm, Tod A.; Presto, Kevin M.; Curry, Mike; Lamb, John; Payne, Mic=
hael
Cc: Murphy, Harlan
Subject: RE: Amendment to IM II PPA
I spoke to Mike and he had stated that he is in agreement with you on the B=
anking Provisions and their original intent. We also agree that if we assi=
gn the PPA to an affiliate the Enron Corp guarantee will follow.
=20
So you have two remaining points to address which can be managed outside of=
EPMI. =20
=20
(i) The right to assign to a BBB- or above. Joe has read the DASH whic=
h also indicates a BBB- assignment provision. I think this is something th=
at the lenders should be able to price for you.
(ii) The curtailment issue which is a buyer / AEP issue which should be=
solved by them managing this risk through curtailment credits or some othe=
r means through their portfolio as mentioned by Tod in our meeting.
=20
We obviously can price these if necessary as indicated by Kevin in his prev=
ious note to ensure you are making the right decision. The contract is wor=
th around $11mm today.
=20
Joe has been working with the finance guys on Indian Mesa II and should be =
able to offer some assistance, but unless the economics state we should cha=
nge the EPMI contract as the pricing from the lenders and AEP is greater th=
an Kevin's I think we are done.
=20
Let me know if not.=20
=20
Louise
-----Original Message-----
From: Lindholm, Tod A.=20
Sent: Monday, September 17, 2001 5:54 PM
To: Presto, Kevin M.; Curry, Mike; Lamb, John; Payne, Michael
Cc: Murphy, Harlan; Kitchen, Louise
Subject: RE: Amendment to IM II PPA
=20
Kevin, <?xml:namespace prefix =3D o ns =3D "urn:schemas-microsoft-com:of=
fice:office" />
EWC requires three clarifications to the PPA in order to get the project fi=
nanced and sold. All previously requested amendments proposed by the equit=
y purchaser have been dropped, and EWC will take the resulting pricing redu=
ction. =20
I want to make sure you understand how minor these three clarifications are=
. These clarifications conform to the original deal and are NOT changes t=
o the deal. =20
1. Banking Provisions. EWC and EPMI agreed that energy and renewable en=
ergy credits ("RECS") produced by the Indian Mesa II wind generating facili=
ty in any year in excess of the annual minimum quantity would, on a cumulat=
ive basis, offset any deficiencies of energy and RECS in subsequent years. =
Section 4.04 of the agreement does not clearly provide the cumulative carry=
over mechanism which was contemplated by the parties. (This section origina=
lly provided for the carryover, but in an effort to simplify the language, =
the aggregate carryover concept was clouded.) Both the project lenders and=
the proposed equity purchaser have required that the point be clarified. =
There has never been a disagreement between EPMI and EWC on the intention o=
f the carryover banking provisions. EPMI's most recent refusal to make this=
clarification now appears to be a change in the original deal
2. Grid Curtailment EWC and EPMI drafted the contract with specific pro=
visions relating to termination resulting from grid curtailment, Section 5=
.04 . There is an ambiguity in that grid curtailment could also be covere=
d under the termination provision relating to force majeure under Section=
5.02. This inconsistency is the problem. Neither EWC nor EPMI were to p=
ay damages to the other party in the event of grid curtailment. The propos=
ed equity purchasers have requested that the force majeure provisions of t=
he PPA be clarified to make it clear that extended grid curtailment would =
not give rise to termination payments. This clarification is consistent wi=
th the original intent of the parties and is not a change to the deal.
3. EPMI Credit Support. EPMI's obligations under the PPA are guaranteed =
by Enron. The Indian Mesa II PPA permits EPMI to assign the PPA to certain=
affiliates without consent of the seller. Any assignment by EPMI would n=
ot relieve it of its duties and obligations under the contract, and the Enr=
on guarantee would remain in place. However, the project lenders have requ=
ired clarification that the Enron guarantee would either explicitly remain =
in place or that the assignee would have a credit quality at least as good =
as Enron Corp's credit quality. The project lender's have also requested t=
hat the termination payment provisions be clarified to provide that any sub=
stitute PPA used to calculate a termination payment would also need to be w=
ith a party that had a credit quality similar to Enron Corp's, since that i=
s the credit that is supporting the Indian Mesa II PPA. This will not affe=
ct the value of the contract to a third party since Enron bears this obliga=
tion unless released by the project.
Under the dispute resolution provisions of the PPA we could certainly pursu=
e declaratory relief under arbitration. Our sense is that this does nothin=
g but ensure delay.
From an Enron perspective:
? The sale of the equity and the financing of the non-recourse debt on =
the Indian Mesa II project is currently at a standstill due to issues surro=
unding the ambiguities in the PPA
? While the debt financing for the Indian Mesa I project is in place (=
different offtaker) the proposed equity sale to AEP is linked to the sale o=
f the Indian Mesa II project.
? If Enron cannot move forward with the financing of the project within=
the next month, Enron will likely end up with approximately $153M less cas=
h at year end than it counted on in its plan, in addition to any decrease i=
n planned earnings
? The after-tax return to Enron in a "hold" situation is 0%, due to Enro=
n being in the Alternative Minimum Tax position, i.e. it cannot use the tax=
benefits.
It was clear in the discussions with the City of San Antonio that these cla=
rifications would have had no affect on value. =20
Tod
-----Original Message-----
From: Presto, Kevin M.=20
Sent: Saturday, September 15, 2001 2:41 PM
To: Curry, Mike; Lamb, John; Payne, Michael; Lindholm, Tod A.
Cc: Murphy, Harlan; Kitchen, Louise
Subject: RE: Amendment to IM II PPA
I would like to make the message even more clear. EPMI will not be making =
any changes, amendments, clarifications, interpretations, etc. to the curre=
nt Indian Mesa II PPA. Therefore, any proposed purchaser of the Indian Me=
sa facility must evaluate the contract based on their own legal and commerc=
ial interpretation.
=20
I don't think it is productive to spend any more time on this discussion. =
We will continue provide Enron Wind with the PPA value on a daily basis su=
ch that total shareholder value is maximized for any proposed wind transact=
ion (sale of company and/or sale of IM project).
=20
Please feel free to call me to discuss (713-853-5035)
-----Original Message-----=20
From: Curry, Mike=20
Sent: Fri 9/14/2001 3:11 PM=20
To: Lamb, John; Payne, Michael; Lindholm, Tod A.=20
Cc: Presto, Kevin M.; Murphy, Harlan=20
Subject: RE: Amendment to IM II PPA
We are not interested in these changes to the PPA. These changes will weak=
en the language in the contract for us (i.e. improve it for AEP that is pro=
bably why they are asking for the "clarifications"). I will be out next we=
ek on vacation so please address any further concerns in my absence to Kevi=
n Presto. Regards, - Mike
-----Original Message-----=20
From: Lamb, John =20
Sent: Friday, September 14, 2001 10:28 AM=20
To: Curry, Mike=20
Cc: Lindholm, Tod A.; Payne, Michael; Godfrey, Jay=20
Subject: Amendment to IM II PPA=20
Mike: Attached is our proposed amendment to the Indian Mesa II PPA. It de=
als with the banking clarification (section 4.04 amendments), grid curtailm=
ent clarification (section 5.02 amendments), guaranty clarifications reques=
ted by the lenders (section 5.05 and 9.03 amendments), and the ERCOT amend=
ment (section 3.04 amendments) that we have discussed. Please note that th=
e ERCOT restriction would permit international sales, such as to Mexico, bu=
t would otherwise restrict EPMI's sales of energy from the wind facility to=
other locations within ERCOT. In the preparation of this draft, we used t=
he same amendment that was previously sent to you by e-mail on 8/22/01. Th=
at e-mail had a redline with it to show the changes to the banking provisio=
ns. Please let us know whether this draft is acceptable or whether you hav=
e any questions or comments on the amendment. Thanks
Regards=20
John=20
<< File: PPA First Amendment_09.14.01.doc >>=20