Message-ID: <18811084.1075845828111.JavaMail.evans@thyme> Date: Sat, 31 Mar 2001 02:33:00 -0800 (PST) From: ben.jacoby@enron.com To: w.duran@enron.com, christopher.calger@enron.com Subject: Re: Westinghouse 501D5A Cc: kay.mann@enron.com, chris.booth@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: kay.mann@enron.com, chris.booth@enron.com X-From: Ben Jacoby X-To: W David Duran, Christopher F Calger X-cc: Kay Mann, Chris Booth X-bcc: X-Folder: \Kay_Mann_June2001_2\Notes Folders\Discussion threads X-Origin: MANN-K X-FileName: kmann.nsf Dave and Chris: I want to make you guys aware of the latest on the 501D5A. First, discussions with Montana Power are starting to progress quickly. They have proposed we sign a two week exclusivity agreement with them on the turbine, and have agreed to pay us $200k. Unlike the exclusive with NorthWestern, this agreement will not be binding as to ultimate purchase terms. It will simply provide that we don't talk to anybody else during the exclusivity period. The target price for a deal with Montana, which they have indicated is acceptable, is $29 million, less the continuing payment obligations to Westinghouse. If this deal is consummated at $29 million, the gross margin to Enron Corp should be approximately $1 million. With this in mind, we have approached Westinghouse about resolving the dispute on the damaged generator. Because a replacement generator is on order, essentially the issue is who (as between Enron and Westinghouse) bears collection risk on the insurance claim associated with the generator. We have proposed that we split the risk, and specifically that Enron pay $1.5 million for the replacement generator, with insurance proceeds split 50-50 with Westinghouse up to the point of recovery of our $1.5 million. We would also waive our LD claim as part of this deal. In order to do the Montana Power deal, we need to resolve this generator claim. Chris, Kay and I support this approach for a few reasons. First, it generates income for the company. Second, let's just say the handling of the claim by the former EECC was not stellar, and the contract provided for us to manage the insurance on the unit. Third, while we may have a good claim for LDs under the turbine contract, we may have to move into litigation mode to collect them. We of course want to solicit input from both of you before we proceed too far with either Montana or Westinghouse. Because of this, we have written the exclusivity agreement with Montana to provide that if we cannot deliver the generator, we will return the exclusivity payment. The last complication (as if we didn't have enough), is that the transfer price deal with CALME is not finalized. Louise has taken this on, and is talking to them to get the deal that Janet and I proposed earlier done (which essentially provides that CALME eat $2 million of carrying costs associated with the period during which they had responsibility for the turbine). Please see the e-mails from Louise below. Please let us know if you are on board with our approach as regards Montana and Westinghouse, and I will then follow up with Louise on her discussions with CALME. Thanks and regards, Ben ---------------------- Forwarded by Ben Jacoby/HOU/ECT on 03/31/2001 08:16 AM --------------------------- Enron North America Corp. From: Ben F Jacoby 03/28/2001 07:25 PM Sent by: Ben Jacoby To: Louise Kitchen/HOU/ECT@ECT cc: W David Duran/HOU/ECT@ECT Subject: Re: Louise: My responses: 1. The carrying costs have been capitalized, and under the accounting rules will continue to be capitalized through the last payment date under the turbine contract. 2. At this time, the turbine value is undetermined. While we have identified one potential counterparty (Montana Power), we do not have a signed deal. In addition, we are in the middle of a contract dispute with Westinghouse regarding the damaged generator. While we hope to resolve this dispute in the context of our exiting the turbine position, there exists the potential of this going into litigation. 3. Janet and I proposed the deal I discussed with you to CALME in December, but never got a formal response. I have put in several calls to Elio Tortolero at CALME, but have not heard from him for about a month. He advised me at that time that he would get me a counter proposal. My group has had de facto management responsibility for the unit since December. 4. This unit was initially an ENA unit, but was taken by CALME (David Haug) I believe in December '99 for projects they were considering. I am not aware of the terms of that transfer. FYI, I have attached a payment schedule for the turbine. Please let me know if you have any other questions. Also, I have attached an updated site bank map which includes our Texas site which was inadvertently left off the previous e-mail. Regards, Ben Louise Kitchen 03/28/2001 08:56 AM To: Ben Jacoby/HOU/ECT@ECT cc: Subject: This was the response from Jim - if you have all the answers already - please give me a ring - otherwise can you pull the answers together and then give me a ring. Thanks Louise Louise: I need to know two things: (1) Have the carrying costs been expensed through Jan. 1 and (2) Is there commercial value to the turbine? If there is value to the turbine, then I really don't understand allocating costs to a business unit that doesn't own the turbine in order to create the illusion of a profitable transaction. I also need to know on what basis and against what agreement CALME agreed to bear the carrying costs. The project it supposedly related to has been dead for several years. Jim