Message-ID: <6418573.1075845747313.JavaMail.evans@thyme> Date: Thu, 15 Jun 2000 07:17:00 -0700 (PDT) From: fred.mitro@enron.com To: c.cole@pecorp.com, ben.jacoby@enron.com Subject: Torrence Acquisition (South parcel) - GM recommendation Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Fred Mitro X-To: w.morrow@pecorp, c.cole@pecorp.com Laura Luce/HOU/EC, Ben Jacoby X-cc: X-bcc: X-Folder: \Kay_Mann_June2001_1\Notes Folders\Chicago X-Origin: MANN-K X-FileName: kmann.nsf Recommendations: As the General Manager of the PERC/Enron Joint Power Development Program, Enron hereby submits its recommendations to the Management Committee for their consideration regarding the pending Torrence south parcel land acquisition decision. After reviewing the relevant commercial, legal and environmental issues with the respective Project Managers and development personnel, Enron recommends that the following courses of action be undertaken: 1. PERC should notify Peoples Gas, Light & Coke (PGL) on 6/16/00 that PERC does not intend to assume the role of Buyer as provided for in the terms of the land purchase Agreement executed between PGL and Air Liquide on 4/11/2000. 2. Assuming that PGL assumes the role of Buyer under the terms of the land purchase Agreement executed between PGL and Air Liquide on 4/11/2000 and PGL proceeds to the scheduled 6/26/00 closing, PERC and Enron should continue their due diligence and development activities on the Torrence south parcel. Upon establishment of a proposed budget and schedule, these activities should be focused on achieving the goals of minimizing out-of-pocket development expenses and implementing prudent risk mitigation strategies on behalf of PERC and Enron. 3. Assuming that PGL assumes the role of Buyer under the terms of the land purchase Agreement executed between PGL and Air Liquide on 4/11/2000 and PGL plans to proceed to the scheduled 6/26/00 closing, PERC and PGL should immediately begin preparation of the documents necessary to achieve the ICC approval of any future transfer (sale,lease, or alternative structure) of the Torrence south parcel from PGL to Torrence Power LLC. Other Issues/Risks: 1. This recommendation is based upon the belief that although the Torrence south parcel does hold potential value to PERC and Enron as a project development site, the overall viability and risk/reward profile of the commercial opportunity has not yet been sufficiently finalized. The potential sources of value associated with this site are listed below: a. The site/project currently hold a priority position in the ComEd interconnection queue. b. The site (in combination with the Calumet project) captures the majority of available interconnection capability (500-600 MW) in the Calumet region of the ComEd system. This would force competing IPP projects (i.e. Wizvest) to bear the financial burden of ComEd system upgrade costs. c. The site (in combination with the Calumet project) represents an integral component of developing a commercial solution to the Mission Energy/ComEd 500 MW "in-city" regulatory obligation to the city of the Chicago. d. The site represents one of the unique in-city sites capable of supporting a power project from a zoning, fuel supply, and transmission perspective. The factors contributing to the recommendation for PERC and Enron not to proceed to closing on 6/26/00 are listed below: a. The existence of known environmental contamination and the liabilities associated with entering the chain of title on the Torrence south parcel. b. The indemnification language contained within the land purchase Agreement executed between PGL and Air Liquide on 4/11/2000. c. The incomplete status of the overall commercial development opportunity associated with the Torrence south parcel. d. PERC and Enron's desire to maintain the flexibility to minimize development costs while further developing the commercial development opportunity and associated value proposition prior to executing an ICC-approved land transfer from PGL to Torrence Power LLC. 2. It is PERC and Enron's understanding that PGL plans to proceed to the closing on 6/26/00 and assume the role of Buyer under the terms of the land purchase Agreement executed between PGL and Air Liquide on 4/11/2000. 3. The south parcel represents a potential power plant development project site upon which PERC and Enron will continue to conduct due diligence and development activities. The site is currently being evaluated as a candidate for a 6 x LM 6000 facility with either an '01 or '02 in-service date. 4. PERC and Enron have decided that it would not be prudent for either of their respective organizations to assume any form of environmental liability associated with the Torrence south parcel. PERC and Enron shall work to develop risk mitigation strategies including land options, environmental indemnifications, and other structures which protect their respective assets and the overall economic viability of a development project on the Torrence south parcel. 5. A potential risk associated with the above recommendations is that the time required to complete the ICC approval process necessary to transfer the Torrence south parcel from PGL to Torrence Power LLC. PERC development personnel have estimated that the ICC approval process could require up to 6 months (The transfer of the Calumet parcel was "fast-tracked" and took 3 months to achieve ICC approval). This risk could impact the viability of an '01 in-service date for a Torrence Power LLC development project. PERC and Enron will work to minimize the impact of this risk. 6. PERC and Enron shall work to develop a binding agreement which specifies an approval and cost-sharing mechanism for future development decisions on the Torrence south parcel. Such an agreement shall also specify a formula for the sharing of proceeds associated with the marketing/selldown strategy currently under development by PERC and Enron for all of the Chicago development projects. Feel free to contact me if you have any questions or wish to discuss the above recommendations and information. Fred Mitro General Manager