Subject: Cornhusker
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked]
Date: Wed, 4 Apr 2001 11:05:00 -0700 (PDT)

Hi Tom:

You may know this already, but Angela Davis in our legal group is now 
handling matters pertaining to Cornhusker instead of Dan Lyons.  She asked me 
to update you on where we are and send along two documents that need your 
review prior to them being sent to Brazos.

As you know, Chuck Ward and I have met w/Brazos on three occasions (twice in 
Waco in once by phone) since your meeting with them in Dallas on December 
21.  The purpose of those meetings was to further reinforce the point made by 
you and Carl Tricoli that, as equity sellers, PPE/ENA values the Cleburne 
asset based on its future cash flow with no discount for risks associated 
with litigation.

Five developments are of significance since the last time you and I spoke:

It became apparent to us during our meeting on March 16 that Brazos may have 
problems funding an acquisition at any price.  Specifically, Brazos is 
considering a number of capital projects aimed at securing long-term power 
commitments to fill short positions associated with the Southern arrangement 
rolling off in 2003.  Based on their experience w/the Cleburne, TX facility, 
Brazos appears to be committed to controlling their own destiny, and might 
find it much easier to fund marginal projects with an all-in cost (or 
collateral value) that is closer to market.

Primarily as a result of point 1, Brazos has asked us to look at the 
possibility of PPA restructuring vs. acquisition.

Also in conjunction with point 1, Brazos has been working with a number of 
potential energy suppliers to secure long-term power commitments.  It appears 
to us that they are preparing to sign some form of commitment next week.

Clifton Karnei sent a letter to Chuck Ward and Steve Tick on March 29 
outlining expectations for a conference call that took place yesterday.  The 
letter, which was actually received after the conference call, will be faxed 
to you this afternoon.  Attached is a draft response along with a 
presentation that outlines the manner in which the partnership could 
restructure the PPA.  Steve, while he has not seen the letter, is of the 
opinion that it's Brazos' turn to speak; we may not need the letter, but it 
reinforces a number of points and sets up a restructuring in such a way that 
we might like to send it along.   

We are giving a great deal of thought to the notion that a third party might 
be willing (and able) to pay considerably more for this asset than Brazos 
given its PPA, gas market conditions, and dispatch profile.  Specifically:

Southern (having realized the PPA has embedded in it an in-the-money call 
option on gas) has recently begun to "reverse toll" the plant by turning it 
back during off-peak hours when the net cost of replacement energy (i.e., the 
absolute price of market power less penalties paid under the PPA for heat 
rate degradation on energy taken from the plant plus gas market value) 
warrants economic dispatch.

This asset commands a control premium from anyone that might be engaged (or 
about to engage) in a long-term, full requirements contract with Brazos.

There are tax benefits associated with this asset that could be effectively 
monetized in a transfer of interests.

Obviously, we would face the same obstacles that Tenaska faced in selling the 
asset.

Please give me a call when you get a chance.

Regards,

Rick Hill