Subject: TECO
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked]
Date: Fri, 17 Mar 2000 01:57:00 -0800 (PST)

Please send me an excel spreadsheet which depicts the value that you see 
associated with the heat rate spread option.  I want to make sure that I 
understand exactly how you propose valuing the transaction and how this value 
would be booked.  As such, please provide the following detail:

Will we be valuing/booking a series of monthly call options or a series of 
daily call options?
What power curve are we valuing the deal against - PJM East or West Hub?
Please send me the current fuel curve that you are converting to $/MWh to 
value the deal?
What volatilities are you using to value the options - monthly volatilities 
or intra-day volatilities or a blend of the two (if blending please show me 
what formula you using to blend the two vols)?
What expiration date are you using, i.e.: for monthly call options the 15th 
of the relevant month, and for daily options?
What correlation are you assuming, 15% flat for twenty years?
Are you deducting all operating expenses from the value of the option?
Are you using the "SPRDOPT" Exotic Options function to value the option?
Are you using the $/MWh VOM dollar amount as your strike?
Has Don provided the fixed payment stream?  This stream should be covering 
both P&I and not just principal.

Yvan, and Ben, please provide answers to these question via written 
correspondence so that their is limited probability of misunderstanding.  
Thank you both very much for your time and help thus far.  Furthermore, I 
would like to reiterate that RAC's goal, prior to quoting any credit reserve, 
is to be 100% confident that: (i) the methodology that is being employed is 
consistent among the internal groups; and (ii) the inherent value of the 
price risk management contracts matches.  This enables RAC to manage the 
associated risk during the life of the transaction both effectively and 
appropriately.

Regards,

Christopher