---------------------- Forwarded by Kay Mann/Corp/Enron on 05/24/2001 11:57 
AM ---------------------------
From: Reagan Rorschach/ENRON@enronXgate on 05/24/2001 11:38 AM
To: Kay Mann/Corp/Enron@Enron
cc:  

Subject: FW: Open items for MDEA


 -----Original Message-----
From:  Fairley, David  
Sent: Thursday, May 24, 2001 11:15 AM
To: Rorschach, Reagan
Subject: RE: Open items for MDEA



 -----Original Message-----
From:  Mann, Kay  
Sent: Wednesday, May 23, 2001 5:06 PM
To: Rorschach, Reagan; Kroll, Heather; Fairley, David; May, Tom
Subject: Open items for MDEA

[Fairley, David]  


Here are issues which I'm unclear about, all of which impact the drafting of 
the agreement:


How are we setting the heat rate?  Do we have the GADS (?)?  Is it a daily 
average, weekly average?  Flat rate? Adjusted? If so, how often?
[Fairley, David]  
Each utility is obligated to provide the heat rate information to use in the 
appropriate Exhibit and the Stack Model.  As conditions change the utilities 
must update this info.  We are tracking heat rates based on actual fuel 
usage.  Services and Orig agreed yesterday to add language that requires a 
quarterly review of heat rate data to determine if the assumptions being used 
are satisfactiry -- it can never be exact, but it should be accurate within a 
band of acceptability.  No GADS.  Heat rates will be adjusted in the model as 
often as necessary to account for significant changes such as hotter ambient 
temps..

Are we comfortable that there are no permit restrictions?
[Fairley, David]  
Yes, their units are too small.  We have discussed this with the customer, 
and with our internal air permit guys.
[Rorschach, Reagan]  They have Title V permits, and they are faxing them to 
us today.  They have no run hour limitations on gas, however, they are 
limited on oil.  Will need to get that summary to Kay as soon as possible.


We have determined that we won't deal with fuel oil, right?
[Fairley, David]  
We won't buy and sell fuel oil.  We may dispatch on oil at start-up, or we 
may switch to oil and sell the gas if profitable, which constitutes a Product 
transaction with the resulting profit split.
[Rorschach, Reagan]  We need to state that MDEA and Cities are responsible 
for maintaining fuel oil supplies.

We aren't making money on gas, right?
[Fairley, David]  
We make money on gas two ways.  The first is outside the contract, and is 
basicly any internal profit on re-sale of gas to the Cities.  The second way 
we can make money on gas is when the gas trade is in the form of a Product 
trade, and those procedures apply.

Do we have a defn of costs that we like yet, and if so, how does it fit in to 
the picture?
[Fairley, David]  
Yes, will send separately.

Is there an up-to-date set of exhibits?  
[Fairley, David]  
The Marketing Strategy, the Trading and Risk Policy, and the Description of 
Asset Management have been upated.  The other Exhibits have not been 
modified.  The Marketing Strategy and Trading & Risk Policy have been 
discussed at length with MDEA (MDEA commercial, not legal), and their 
comments/questions incorporated.
  
 

It would help if theh commercial part of the team could send me the 
following, in words and/or formulae:

The defn and method of establishing the bogey (target production cost) 
formula can be an exhibit, which would be great for the commercial team to 
work on.  
[Fairley, David]  
Thought we had this covered in the definitions and obligations of the 
parties.  Will look at it again.  Conceptually, MDEA, Services Group, and 
Orig are in full agreement, so we need to make sure that the contract 
language is clear enough.
[Rorschach, Reagan]  See attached exhibit detailing the calc with an example.

 Are we determined how we should deal with imbalances (part of cost of 
power)? 
[Fairley, David]  
There are three considerations on this: (1) who wears imbalance exposure?, 
(2) who manages imbalances (hourly type activity), and (3) who pays for 
imbalances?  Imbalances are billed by Entergy directly to MDEA under their 
Network Services Agreement.  EPMI's hourly desk manages the load/resource 
items hourly, but MDEA has the exposure (physical and price) to imbalances.  
Weather/load changes, and fluctuations in supply create hourly imbalances 
(they happen, they are uncontrollable, and we fix them) which EPMI's hourly 
desk manages as part of the imbalance service described in the definitions 
and obligations of the parties.  A different section in the contract states 
that MDEA wears the exposure.

 How are we setting the bogey?    Formula?   [Fairley, David]  The bogey is 
set when the load projection and stack models are run each day.  Both parties 
participate by providing certain necessary info and discussing results and 
planning the day's activities.  
[Rorschach, Reagan]  Records of bogey decisions will be archieved

Subject to audit?  [Fairley, David]    Yes, but they would be auditing 
something that is jointly derived each day.  Frankly, they would like to have 
less involvement; ie, they trust us to do it all, but we are requiring them 
to participate and buy in every day.  

Two bogeys or one (gas and oil)?
[Fairley, David]  
One bogey for power.  Gas is an input for determining the bogey.
[Rorschach, Reagan]  Bogey set day-ahead.

What is defn of profit?  I think I have the general idea, but a sentence or 
two would be helpful as a reality check.  
[Fairley, David]  
This is in the pricing calc's.  Should we have a definition?

What costs are included on the buy and sell side [Fairley, David]  see cost 
definition being provided separately.
 



Re stack model: a sentence or two describing what it is and how it is used. 
[Fairley, David]    See definition in my mark-up's to the main agreement. 

Updated exhibit on facilities, contracted resources, operating limits. 
[Fairley, David]   Services and Orig are reviewing these, but other than what 
was mentioned above, probably no changes unless you see a specific area that 
is a problem. 

What information does MDEA need for us to provide in order to split 
costs/profits?  Are we clear that Cities buy gas, MDEA buys/sells power?
[Rorschach, Reagan]  I will be getting exhibits of the reporting both daily 
and monthly.  We need to make sure to limit our info providing 
responsibilities to those reports.

It would be great if I could get one set of answers to these 
questions/issues, which has commercial buy in all around.

Thanks,

Kay
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