Message-ID: <9526138.1075851850280.JavaMail.evans@thyme>
Date: Mon, 22 Jan 2001 00:48:00 -0800 (PST)
From: brant.reves@enron.com
To: barry.tycholiz@enron.com, kim.ward@enron.com
Subject: El Paso credit terms
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FYI,

Someone requested I resend this language.


---------------------- Forwarded by Brant Reves/HOU/ECT on 01/22/2001 08:47=
=20
AM ---------------------------


Brant Reves
01/19/2001 02:17 PM
To: Kim Ward/HOU/ECT@ECT, Barry Tycholiz/NA/Enron@ENRON
cc: Edward Sacks/Corp/Enron@Enron, Tracy Ngo/PDX/ECT@ECT, Wendy=20
Conwell/NA/Enron@ENRON=20
Subject: El Paso credit terms

Kim/Barry,

Situation 1:
The following credit matrix could be included within Section 12 of the=20
Jan'02-Dec'03 transaction between ENA and El Paso Electric Company.

STANDARD & POOR'S RATING EVENT=09CREDIT LINE
BBB- or Above=09Open
BB+=09$10,000,000
BB=09$5,000,000
BB- or Below=09$0

Situation 2:
Without credit lines, the credit reserve for this deal would be $450,000.

In addition, the most recent S&P write-up is attached below.

brant


Research:
                                                                  Return to=
=20
Regular Format
  Summary: El Paso Electric Co.=20
  Publication Date:
              01-Aug-2000
  Analyst:
              Judith Waite, New York (1) 212-438-7677=20

 Credit Rating:
                                       BBB-/Stable/--

  Rationale


    Debt reduction, cost cutting, and increased sales have brought El Paso=
=20
Electric Co. back toward
    investment-grade benchmarks. The company has exceeded debt-reduction=20
targets and expects debt to be
    about 50% of total capital by 2002. If sales continue to grow at even=
=20
one-half the historical 3% to 4% per year,
    cash flow interest coverage should improve to 3.5 times by then. Still,=
=20
the ratings on El Paso Electric continue to
    reflect the company=01,s high leverage, dependence on nuclear power, hi=
gh=20
fixed costs, and high rates.=20

    The company borrowed heavily to fund its 15.8% interest in the Palo Ver=
de=20
nuclear plant, which supplies 50% of
    the utility=01,s power. The plant=01,s past operating problems and cont=
inued=20
structural problems add some risk to the
    company=01,s already weak financial profile. Most importantly, customer=
s in=20
the generally low-income service
    territory fought against rate increases needed to recover the nuclear=
=20
investment, helping to put El Paso Electric
    in bankruptcy. A settlement signed with Texas customers in 1995 allowed=
=20
the company to keep a $25 million
    rate increase implemented in 1994, permitted accelerated depreciation o=
f=20
generation and transmission assets,
    and froze rates until 2005 in exchange for extending the El Paso Electr=
ic=20
franchise.=20

    In 1998, the company agreed to reduce rates--mainly residential--in New=
=20
Mexico and Texas, bringing them
    more in line with Southwestern averages. By the time retail competition=
=20
comes to either state (2002), El Paso
    Electric will have a fairly competitive cost structure which should all=
ow=20
them to retain retail customers. By that
    time, El Paso Electric will have separated its assets into a regulated=
=20
transmission and distribution business
    and an unregulated electricity generation business, as required by New=
=20
Mexico and Texas law. Costs incurred
    to effect this change will be recovered in a competitive transition=20
charge. Stranded costs (accrued charges
    related to generating plant costs which would have been recovered in a=
=20
regulated market) will be recovered over
    a five-year transition period in New Mexico. In Texas, the rate=20
settlement allowed El Paso to recover those costs
    through accelerated depreciation over the 10-year period of the=20
settlement agreement.=20

    In the wholesale market, El Paso successfully renegotiated contracts wi=
th=20
the Comision Federal de
    Electricidad, the national utility of Mexico, to supply peaking capacit=
y=20
in the summer months of 2000 and 2001,
    and with the Rio Grande Electric Cooperative Inc. to supply power to tw=
o=20
Texas cities over a four-year period.
    Importantly, El Paso Electric also reached a settlement with the city o=
f=20
Las Cruces, N.M., ending a long dispute
    over that city=01,s threat to municipalize the electric distribution sy=
stem.=20
Las Cruces sales account for about 8% of
    total revenue.=20