Subject: Re: Forward Index Position
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked]
Date: Tue, 28 Nov 2000 23:26:00 -0800 (PST)

I appreciate the succinct summary and lead time and we will get our thoughts 
to you on Friday.----cgy

To: Monica Lande/PDX/ECT@ECT, Robert Badeer/HOU/ECT@ECT, Christian 
Yoder/HOU/ECT@ECT
cc: John J Lavorato/Corp/Enron 
Subject: Forward Index Position

We potentially have a huge exposure associated with forward index sales in 
California.  If the FERC implements a "soft cap" then the index that they 
post will not exceed this "soft cap" even if the PX (for PX markets) or the 
ISO (for the ex post market) buys a material quantity of energy above the 
"soft cap" price.  The FERC is likely to implement either a $100 or $150 
"soft cap."  Let's say the FERC implements a $100 "soft cap."  It is likely 
that there would be 20,000 MW of demand at that price and perhaps 5,000 MW of 
supply (I made these numbers up).  I am not sure how the PX would allocate 
its scarce supply -- a logical way would be pro rata which means that each 
buyer would be awarded 25% of its bid.  So let's say we were short 100 MW of 
index and went to buy it back from the PX each day.  We would have to submit 
bids for 400 MW in hopes of getting 100 MW.  Eventually buyers would bid for 
many multiples of their load, driving demand up while supply remains fixed 
thus lowering the percentage that each buyer receives.  To fix this problem, 
the PX could limit the amount that you could bid for in their market based on 
how much load you serve.  EES might argue that they can bid since it is their 
load.  Long story short -- their are lots of ways for this to explode into a 
big problem for us and only a few ways for things to turn out fine.

Here's what I'd like to do.  First, I would like to get a download of all 
Index Forward deals currently on the books for delivery starting in January 
of 2001.  I want to see all important deal attributes in a spreadsheet.  I 
think that the result of this process will be that we are short up to a 
couple of hundred MW of index power in California over the next two years.  
Bob Badeer will lead that effort.  Then, I need to understand what our legal 
position is with respect to the FERC, ISO, and PX redefining the index.  Do 
our contracts give us an out if the index materially changes in a way so that 
it no longer reflects a competitive market clearing price where supply and 
demand balance?  Christian Yoder should be the point person on that effort.  
Thanks for your help on this matter.  I will be out of the office on 
Wednesday, Thursday, and most of Friday.  I would like some answers to this, 
to the extent that anwers are knowable on the legal side, by Friday.