============= Page 1 of 142 ============= Enron Transaction Approval Board of Directors Meeting: TODAY'S DATE: May 2, 2000 April 21, 2000 Tab No. Region/ Business Investment Class Date Approved Transaction Name Transaction Size Approval Authority* Net Amount M-1 EBS Conforming 17-Apr-00 Avid II (1) $ 5,000,000 ENE-OOC $ 5,000,000 M-2 EE&CC Conforming 07-Mar-00 EECC Genesis- Power/GE Turbines $ 72,580,000 ENE-CEO/COO $ 72,580,000 M-3 EE&CC Conforming 17-Mar-00 Extension of Demar Liquidity $ 18,100,000 ENE-OOC $ 18,100,000 M-4 ENA Conforming 14-Feb-00 Linden Six $ 48,040,000 ENE-CEO/COO $ 24,020,000 M-5 ENA Conforming 19-Mar-00 Mariner Energy LLC $ 31,000,000 ENE-CEO/COO $ 31,000,000 M-6 ENA Conforming 22-Dec-99 Mission Coal Financing $ 24,300,000 ENE-OOC $ 24,300,000 M-7 ENA Conforming 31-Jan-00 Motown (including addendum) $ 57,500,000 ENE-CEO/COO $ 12,500,000 M-8 Europe Conforming 10-Feb-00 Octagon $ 18,400,000 ENE-OOC $ 18,400,000 M-9 Europe Conforming 25-Feb-00 OPET $ 10,035,000 ENE-OOC $ 10,035,000 M-10 ENA Nonconforming 28-Mar-00 OS Integration Holdings Limited $ 11,200,000 ENE-CEO/COO $ 11,200,000 M-11 ENA Conforming 08-Mar-00 Project Buffalo (2) $ 1,520,000 ENE-OOC $ 1,520,000 M-12 ENA Conforming 23-Mar-00 Sapphire/Independent (3) $ 2,919,000 ENE-OOC $ 2,919,000 M-13 ENA Conforming 12-Apr-00 Whiskey $ 16,400,000 ENE-OOC $ 16,400,000 Total Funded Capital Approved: $ 316,994,000 $ 247,974,000 Commodity Tab No. Region/ Business Investment Class Date Approved Transaction Name Transaction Size Approval Authority* Net Amount M-14 Europe Conforming 19-Feb-00 CEZ $ 6,900,000 ENE-OOC $ 6,900,000 M-15 EES Conforming 07-Feb-00 Zeppelin $ 37,100,000 ENE-CEO/COO $ 37,100,000 Total Commodities $ 44,000,000 $ 44,000,000 Divestitures Tab No. Region/ Business Investment Class Date Approved Transaction Name Transaction Size Approval Authority* Net Amount M-16 ENA Conforming 09-Feb-00 Calder $ 10,800,000 ENE-OOC $ 6,480,000 M-17 ENA Conforming 17-Feb-00 First World Divestiture $ 129,100,000 ENE-CEO/COO $ 129,100,000 M-18 ENA Conforming 07-Feb-00 Hubble $ 11,400,000 ENE-OOC $ 5,700,000 M-19 ENA Conforming 10-Feb-00 Merlin $ 324,200,000 ENE-CEO/COO $ 242,800,000 Total Commodities $ 475,500,000 $ 384,080,000 Approved under authority granted at the August 1999 Board meeting. Included for information purposes only. (1) Total Exposure after this transaction is $10.0 MM. (2) Total Exposure after this transaction is $21.6 MM. 044020'71 (3) Total Exposure after this transaction is $7.6 MM. ECO ant Transactions =XH003-01385 ============= Page 2 of 142 ============= M-1 E0004402072 EXH003-01386 ============= Page 3 of 142 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Avici II Date DASH Completed: April 6, 2000 Counterparty: Avici Systems Inc. RAC Analyst: David Crews Business Unit: EBS Investment Type: Equity Business Unit Originator: Steven Sheldon Capital Funding Source(s): Balance Sheet OPublic Private Expected Closing Date: April 14,2000 OMerchant Strategic Expected Funding Date: April 14,2000 !]Conforming ONonconforming Board Approval: DPending OReceived ODenied IN/A RAC Recommendation: [EProceed with Transaction OReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment $5.0 million EXPOSURE SUMMARY This transaction: $5.0 million Total Avici $10.0 million Total Fund $460 million The total fund exposure is the amount invested in the EBS Venture Capital Fund to date. DEAL DESCRIPTION Enron would make an additional minority investment of $5 million in Avici. On September 30,1999, Enron invested $5 million in Avici at $8.35/share. Avici is allowing early purchasers of its equipment to acquire additional equity at $15.00/share. Williams and AT&T are expected to buy equity in this round. This new investment would give the company a post money valuation of $750 million. Avici Systems Inc. is a private company involved in developing and producing terabit routers. Terabit routers are the next generation of router technology. Avici currently has a product that has several technical advantages (speed, scalability, and interoperability) over its competitors. TRANSACTION SOURCES AND USES OF FUNDS Sources Third Party Equity $35,000,000 Enron Equity $5,000,000 Total $40,000,000 Uses General Corporate Purposes $40,000,000 $40,000,000 RETURN SUMMARY Enron would invest alongside existing and new investors, Williams (confid.) and Bowman, at a valuation approximately twice the valuation of Enron's initial investment. This increase in value is supported by discussions that the company has had with investment banks (Morgan Stanley and CSFB) about pricing for their IPO and estimated trading ranges. The bankers' view for pricing is $1.2 to $1.5 billion with an estimated trading range of $3.2 to $4.8 billion. Bowman Capital will lead the round with an investment of $10 to $20 million to become a new financial investor in the company. This investment supports the market pricing of this round. The current venture capital round would value the company at $750 million post-money. Comparable companies, similar product and the same or earlier stage of development, have been sold in June 1999 (Nexabit for $900 million, Netcore for $575 million). Another company, Juniper, went public last June at $5.5 billion and has a market cap of approximately $34 billion. CASH FLOW SUMMARY No cash flows are expected until Exit. -11 E0004402073 =XH003-01387 ============= Page 4 of 142 ============= TRANSACTION UPSIDES/OPTIONALITY In addition to the large potential returns, Enron hopes to benefit by better understanding the technology involved and its potential use in the Enron network. EXIT STRATEGY Avici is in the process of choosing an investment bank between Morgan Stanley and CS First Boston. Both have strong reputations in internet/equipment IPOs. The company's anticipated target date is July, 2000. If this date slips into August, the IPO may be delayed until the fall. Enron will be subject to an additional lockup of up to six months post-IPO. RISK MATRIX (Maximum 5) DESCRIPTION MITIGATION/COMMENTS Competition Large companies (Cisco, Nortel, Lucent) with manufacturing abilities, strong marketing arms, and multiple products have historically dominated the router business. Avici has a better technical product than other providers of routers but does not currently have these other strengths to make a strong ongoing business. While Juniper Communications has been incredibly successful in turning one product into a company, its sustainability has not been proven. Avici will face difficult competition from larger entities with broader product lines if it remains an independent company. Avici management understands the market and is willing to consider selling out to a larger telecom infrastructure company but is currently building the additional capabilities necessary to compete as an independent company. Internet Growth The company's success depends on the continued exponential growth of the internet. To sustain this growth, the infrastructure of the internet will require high-speed routers, such as this company provides. Company Growth The company has projected revenues of $2.5 million for 1999 with $70 million anticipated for 2000, with approximately 100% annual growth for the next several years. This growth is based on an extensive marketing, sales, and manufacturing operation, which is in the process of being put in place. Cisco Relationship Enron currently has a strategic relationship with, and buys its current routers from, Cisco. This investment, through the Venture Capital Fund, is not seen by the commercial groups to be unmanageable. E0004402074 (''\TPMP\r)ASH Avir.0finnI d- Page 2 EXH003-01388 ============= Page 5 of 142 ============= KEY SUCCESS FACTORS NA Poor Fair Good VGood Excellent Core Business X Strategic Fit X Upside Potential X Management X Risk Mitigation X OTHER RAC COMMENTS: 1) Nortel was an early initial investor in Avici and currently owns approximately 18% of the company. With their acquisition of Bay Networks, a potential competitor with Avici, Nortel has resigned from the Board but will maintain their equity stake. 2) As part of the initial equity purchase, Enron has the right to participate in a Technology Advisory Committee for the next three years. This will provide additional opportunities to learn about this part of the industry. APPROVALS Commercial Mgmt. Regional Mgmt. Name Kevin Garland Signature Date 7-6c Legal Accounting RAC Management Enron Capital Management ENE Management Joe Hirko/ Ken Rice/Kevin Hannon Kristina Mordaunt Tod Lindholm Rick Buy/ David Gorte Andy Fastow/Jeff McMahon Jeff Skilling .4 //3/00 EOO04402075 (:\TFTAP\T1ACF1 A"jrj7fin91.d' Page 3 EXH003-01389 ============= Page 6 of 142 ============= ENRON RISK ASSESSMENT AND CONTROL ECI PORTFOLIO CHECKLIST DEAL NAME: Avici II RAC Analyst: David Crews Counterparty: Avici Systems, Inc. Investment Type: Equity Business Unit: Enron Broadband Services Business Unit Originator: Kevin Garland BUSINESS NA Poor Fair Good VGood Excellent Management Experience - High Growth X - Management Experience - Knowledge X - Size of Market X Value Proposition X Business Model X Assets X 1) Management Experience - High Growth Comments: The management of this company has not built a company before and not one with the projected growth of this company. Management has built a strong technical product that is relied on to drive the growth. 2) Management Experience - Knowledge Comments: Avici is an engineering focused company. They have developed a strong technical product. Of the company employees 110 out of 140 are engineers. 3) Size of Market Comments: Routers form a significant part of the internet backbone hardware. Router growth will increase at the same speed as use of the internet. The current infrastructure is based on slower routers than Avici's product and is not expected to be able to support the increase in internet traffic. The market for terabit routers is estimated to be $1.5 billion per year by 2003 by Ryan Hankin Kent, an industry consulting firm 4) Value Proposition Comments: Gross margins for these routers are expected to be 60% which is consistent with CSFB estimates for Juniper. The anticipated growth in demand is approximately 100% per year after 2000 which should prevent margins from collapsing in the near term 5) Business Model Comments: The scalability of Avici's routers allow a network to be scaled easily based on traffic, in a simpler manner, and at a reduced cost. Avici uses a base unit with modules. As demand increases, additional modules are added. By the time a new base unit needs to be added, the Avici router can handle 8 to 10 times the initial demand 6) Assets Comments:. The company has completed some testing and is currently finishing its testing with other carriers. The product's technical design and current state of development are expected to hold significant value to an established telecommunications hardware company PORTFOLIO Market Cost Public % Time to IPO Time to Exit Content Origination (3) 12 million 12 million 0% 2" /4 Q 2000 2" 02001 Hosting Facilitators 3 million 3 million 0% 2" Q 2000 4 Q 2000 Network Hardware 2 13 million 13 million 0% 2" Q 2000 4 Q 2000 Software 3 million 3 million 0% 4 2000 2" Q 2001 Infrastructure to .5 million t ' 6 million 0% 3` Q 2000 1st Q 2001 Services million '1,0 million 0% 2"_'__Q_200 Total C:1TEA4P'DASH_Avici2 final.doc $million $6 million E0004402076 Page 5 =XH003-01390 ============= Page 7 of 142 ============= M-2 EO004402077 rvi inn4 114404 ============= Page 8 of 142 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: EECC Genesis Power/GE Turbines Date DASH Completed: 3/21/00 Counterparty: GE Capital Corp. RAC Analyst: Josephine Lin Business Unit: Enron Engineering & Construction Co. Investment Type: Equity Business Unit Originator: Dick Westfahl Capital Funding Source(s): Balance Sheet OPublic []Private Expected Closing Date: 03/15/00 []Merchant 0Strategic Expected Funding Date: 04/15/00 !Conforming ONonconforming Board Approval: []Pending OReceived ODenied ON/A RAC Recommendation: ElProceed with Transaction OReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Enron Engineering and Construction Company, Inc. ("EECC") requests approval to make payments towards the purchase of four 7FA turbines and two 185 MW STG Steam turbines from General Electric Company, Inc. ("GE"). The total purchase price for the turbines is $190.26 million; however, initial approval is being sought for EECC to make the installment payments payable to GE for the period of February 2000 through November 2000. Prior to November.2000, if EECC has not sold the turbines to GenPower, LLC ("Genpower"), EECC will seek approval to make the remaining payments to GE. The approval request is based on the maximum capital at risk in November 2000 whereby GenPower does not purchase the turbines from, EECC and EECC cannot utilize the turbines in a project of its own, EECC elects to cancel the turbine purchase resulting in GE's assessment of a termination penalty of $72.58 million; the expected amount of capital at risk is considerly lower than this maximum amount (approximately $19.5 million). The turbines are earmarked for use in two U.S. merchant power projects being developed by GenPower. In the unlikely event that GenPower is unable to timely arrange adequate project financing for the power plants, an EECC subsidiary orWestdeutsche Landesbank ("West LB"), through an off-balance sheet structure, will receive title for these turbines via an assignment approved by GE. EECC has a high level of confidence that if GenPower cannot arrange satisfactory project financing for these projects, the 7FA turbines can be utilized in one of the many third party power construction projects being pursued by EECC and its affiliate at this time given the turbines advantageous delivery schedule in the third quarter of 2001. Capital Commitment $72.58 million * EXPOSURE SUMMARY ($000,000's) This Transaction 72.58 Remaining Pmt. Obligation to GE 117.68 Power Island 9FA Turbines 313.00 , 7FA & Steam Turbine 90.00 Total EECC Turbine Exposure 593.26 Total Enron Affiliate Turbine Exposure 570.00 Grand Total Enron Turbine Exposure $1,163.26 ** * In addition, certain ENE guarantees will be required to support the off-balance sheet financing of the turbines. **Refer to Exhibit I for detail on Enron's long turbine position. DEAL DESCRIPTION EECC proposes to purchase four 7FA turbines and two 185 MW Steam Turbines (the "Equipment") to fulfill its expected demand for turbines to be utilized in a project to be constructed by an EECC affiliate. The EECC affiliate expects to construct two merchant plant projects in Dell, Arkansas and McAdams, Mississippi (the "Projects") being developed by GenPower. GenPower currently owns the rights to the delivery slots (July through October, 2001) for these turbines via its Turbine Purchase Agreement with GE; GenPower's first installment payment under the agreement was due in February, 2000. However, GenPower has not closed on the project financing for the merchant power plants and therefore does not have the ability to make the payments to GE under their contract. As such, GenPower, GE and EECC have negotiated to assign GenPower's purchase rights to these turbines to EECC or an EECC designee (West LB). Refer to Exhibit II for EECC's Termination Payment Schedule for the turbines. As compensation for agreeing to purchase the turbines from GE and committing to GenPower to utilize the turbines in the company's Arkansas and Mississippi projects if financing is arranged by October 31, 2000, EECC's affiliate, National Energy Production Corporation ("NEPCO"), will obtain the exclusive right to negotiate with GenPower for turnkey EPC contracts for the projects through May 31, 2000. The total construction value of the two projects is estimated to be in the range of $425 million to $450 million. NEPCO anticipates negotiating a Lump Sum contract price on an open book basis at cost, plus 1% ECO04402078 EXH003-01392 ============= Page 9 of 142 ============= RAC Deal Approval Sheet Deal Name: EECC Genesis Power/ GE Turbines contingency plus a 6% fee, resulting in an imbedded EPC profit in the range of $24 million to $30 million. The deterministic IRR for EECC's expected scenario where NEPCO obtains both EPC contracts with the expected margins is 186%. If NEPCO and GenPower cannot reach agreement on the terms of the EPC contract by the end of May 2000, GenPower may pursue negotiations with other third party contractors. In this scenario, EECC may, at its sole discretion, cease to make payments for the steam turbines only at this point. Upon the earlier of October 31, 2000 or upon achievement of financial close of the project financing utilizing a third party EPC contractor other than NEPCO, GenPower may purchase the rights to the turbines from EECC for a price equal to all deposits and progress payments made by EECC to GE to date plus interest on such payments accruing at a rate of 10% per annum plus one million dollars per turbine. The deterministic IRR for this scenario is 97%. If, after October 31, 2000, GenPower has (i) not achieved financial closure and (ii) provided to NEPCO an effective Notice to Proceed under executed EPC contracts for the projects, or executed mutually acceptable EPC contractss for other GenPower sites under development, EECC has the right to utilize the turbines at its sole discretion. Assuming EECC or its affiliate contracts for a project that can utilize the gas turbines reasonably within the same time frame as the GenPower projects, the deterministic IRR for this scenario is 110%.; This assumes the steam turbines are cancelled in June 2000, resulting in a $6.2 million termination payment to GE. In the event GenPower does not reach financial close on these projects by October 31, 2000, NEPCO/EECC are confident that the "F" class turbines can be placed in one of five other projects for which EPC contracts are being negotiated (refer to Exhibit III for details on these projects). The strong demand for "F" class turbines is expected to exceed market availability until third quarter, 2003. As such, the availability of these turbines in the third quarter of 2001 makes them valuable assets to EECC; owning the rights to the turbines is expected to give rise to opportunities to participate in other domestic and international projects if the turbines are not used in the GenPower projects. This particular "F" model is in high demand presently, due to its low Nitrogen Oxide ("NOx") emission capabilities. It is a multi-use gas turbine that can be used in peaking or combined cycle mode and can be retrofitted for various special purpose applications and is comparable with various steam turbine sizes. Other parties approaching GE today, in particular for the "7F" class turbines can expect to wait until the second quarter of 2003 for delivery of equipment. The total purchase price of these assets is proposed to be funded through an off-balance sheet arrangement with West LB, one of Enron's tier one lenders. By having West LB purchase these assets, the debt associated with these assets, subject to the concurrence of Arthur Andersen, will not be recorded on Enron's balance sheet. The West LB arrangement will grant Enron a continuous fixed price purchase option for these assets. Certain guarantees from Enron Corp. to West LB are integral elements of this structure and the approval of these Enron guarantees are requested as part of this DASH. The financing structure, if obtained, will maintain maximum accounting flexibility, minimize the funding cost while keeping the turbines secured through a parent guarantee for the purchase price provided by Enron. TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Enron Balance Sheet $72.58 Capital Expenditure $72.58 Total $72.58 $72.58 RETURN SUMMARY (Based on the full turbine cost of $190.26 million) PV @ Cumulative Return Components: Capital IRR % Price ($000s) Cash Outflows ($262,977) N/A Fees N/A EPC Contract CF* $228,914 81.82% Turbine CF* $57,228 20.45% Total NPV $23,166 102.27% Capital Price Components Risk free rate (%): 6.30% Country Premium (%): 0.00% Equity Premium (%): 5.02% Project/Liquidity Premium (%): 8.68% RAC CAPITAL PRICE: 20.00 % *The return summary is based on RAC estimates of probabilistic outcomes on four different scenarios. Page 2 E0004402079 =XH003-01393 ============= Page 10 of 142 ============= RAC Deal Approval Sheet Deal Name: EECC Genesis Power/ GE Turbines 45 0% IRR Distribution . 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% P5 cted 0.0% e o o o a O V M 1.J' V V 01 °O U1 N CT V' V 7 V M ~O M O M M M 00 r M 00 v) N .. b ' N 7 I1 G N TRANSACTION UPSIDES/OPTIONALITY - GenPower has delivery slot options for an additional three identical 7FA/ 185 MW STG turbine packages. The first slot is March 2002, the second slot is March 2003, and the third slot is March 2004. Completing this transaction allows Enron an opportunity to negotiate deals similar to the above, or negotiate the assignment of these turbines outright to Enron which could be used as a marketing lever for EECC /NEPCO third party projects or Enron developed projects. EXIT STRATEGY (Merchant investments only) In the event the proposed projects do not transpire, EECC intends to use the Equipment for other anticipated projects such as the NESCO, SUMAS or COGENTRIX projects. Refer to Exhibit III for the project details. RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Long position in 60 HZ Turbine Market GenPower is actively negotiating with Credit Suisse First Boston (North/South America) ("CSFB") on the terms for the interim construction financing for Risk that GenPower does not achieve financial three plants (McAdams, Dell EW Frankfurt). CSFB participated in closure on projects and Enron retains ownership of the similar financing of a 540 MW plant developed by GenPower turbines. and GE in 1998. GenPower also has a draft Tolling Agreement with Coral Energy,LLC, a subsidiary of Royal Dutch Shell, to provide the fuel and market the power from the three plants. Although GenPower anticipates financial close to take place in June 2000, it would appear this is an aggressive time frame given the early stage of negotiations for the construction financing and key project agreements. As such, there is a moderately high risk that the projects will not be financed and EECC will have to utilize the turbines in one of its own construction projects. Enron's construction businesses are confident that the gas turbines can be deployed on a future construction project as these turbines are a common size used on many North American and South American power projects. These turbines could probably be utilized on one of several projects that NEPCO is bidding or negotiating such as the NESCO, SUMAS or COGENTRIX projects. However, placing the steam turbines will be more difficult than placing the gas turbines since they are used only on combined cycle projects. Page 3 E0004402080 =XH003-01394 ============= Page 11 of 142 ============= RAC Deal Approval Sheet Deal Name: EECC Genesis Power/ GE Turbines Potential Termination Payments on Steam It is expected that the terms and conditions for these acquisitions of Turbines turbines will be consistent with other recent acquisitions from GE. EECC will have the right to cancel the turbine contract based on a cancellation cost payment schedule. Cancellation costs escalate monthly during the 25-month construction schedule. Termination charges payable to GE for the period of February through November 2000 equal 31% ($59.4 million) of the total contract value assuming the steam turbines are cancelled in June 2000. The termination payment in June 2000 for the steam turbines is $6.2 million increasing to $19.5 million in November 2000. The total termination payments in November 2000 for all turbines is $72.58 million. If the termination notice for the steam turbines is not given until after October 31, 2000, the final date that GenPower can elect to purchase the turbines from EECC, this $19.5 million termination penalty would apply. The existing Letter of Intent between EECC and GenPower does not specifically address GenPower's obligation to reimburse EECC for termination charges paid to GE in conjunction with these turbines. As a condition of proceeding with this transaction, EECC will require GenPower to agree to amend the Letter of Intent to obligate GenPower to pay such charges. Even with these amendments, EECC will only have recourse against GenPower for these termination fees if GenPower elects to pay the contractual "Assignment Purchase Price" for the turbines prior to October 31, 2000 included in which will be reimbursement of any termination charges EECC has incurred. If GenPower is not successful in arranging financing, EECC will have to offset any termination charges incurred against future EPC profits from other projects. Financing risk It is EECC's intent to pursue an off balance sheet financing structure with West LB for the turbine purchase. Arthur Andersen ("AA"), Enron's independent accountants, must review the structure and concur with the off balance sheet treatment of the turbine financing. If AA cannot complete their review within the proposed three week closing timeframe and GE will not agree to extend the closing date, or if AA does not concur with the off- balance sheet treatment for the turbine financing, the turbines will have to be financed on Enron's balance sheet. Tthe fully funded obligation will total $190.26 million; it should be noted, however, that upon a sale of the turbines to GenPower or another third party, both the turbines and the related debt will move off Enron's balance sheet. Assignment It is expected that the terms and conditions for these acquisitions of Risk that EECC will not be able to use the turbines turbines, including transfer and assignment rights, will be if the current projects do not close. consistent with other recent acquisitions from GE. EECC will negotiate with GE to use the turbines on other Enron projects and to resell the turbines to another user in the event that Enron is unable to utilize the turbines in a project. EECC will require the right to assign the warranties to any projects that Enron owns or builds. E0004402081 Page 4 =XH003-01395 ============= Page 12 of 142 ============= RAC Deal Approval Sheet KEY SUCCESS FACTORS Deal Name: EECC Genesis Power/ GE Turbines NA Poor Excellent Core Business X Strategic Fit X Upside Potential X Management N/A Risk Mitigation X OTHER RAC COMMENTS: RAC Underwriting recommends approval of EECC's request to purchase the gas turbines and increase Enron Corp.'s long position in turbines. This recommendation is based on the high demand in the market for the "F" class turbines with availability in this advantageous delivery timeframe of the second and third quarters of 2001. However, the two 185 MW STG steam turbines are not in high demand; EECC's downside risk is that GenPower and EECC cannot reach agreement on the EPC contract negotiations giving rise to GenPower's right to negotiate with third party contractors. EECC's first available opportunity to cancel the steam turbines, at it's sole discretion, will be June 2000 potentially resulting in the payout of a termination payment of $6.2 million to GE and EECC may have reason to not terminate these steam turbines until final negotiations with GenPower have concluded on or before October 31, 2000, potentially increasing this payment to $19.5 million. EECC is actively negotiating with GE to reduce or eliminate the termination charges in the first five months of the turbine purchase contract but there is no guaranty the termination fees will be reduced. EECC will not have recourse against GenPower for the termination payments paid to GE in the scenario where GenPower cannot arrange financing by October 31, 2000 and EECC must obtain another EPC project to utilize the gas turbines. In this scenario, the termination payment will negatively impact EECC's return on the EPC contracted project in which the gas turbines are placed. However, EECC and its affiliate NEPCO are confident that an EPC project with an equivalent or greater profit margin than the proposed EPC contract with GenPower is attainable assuming one or more of the EPC projects being negotiated (Exhibit III) reaches closure as projected. It should be noted that while the expected return on this transaction considerably exceeds the capital price, this transaction (i) adds to Enron's long turbine position, albeit with largely with highly desireable 7FA gas turbines (but also with less desirable steam turbines), (ii) the range of expected returns on this investment is broad, with a significant percentage of negative IRR results as well as 100%+ IRR outcomes, and (iii) there is a greater probability than in other turbine purchases that this acquisition will be financed on Enron's balance sheet. APPROVALS Regional Mgmt. Legal RAC Management c4 fpm F„vt Enron ENE Management ENE Management Larry Izzo Name John Schwartzenburg Rick Buy / David Gorte Andy Fastow / Jeff McMahon Jeffrey Skilling Jeff Skilling/Joe Sutton b 7!,nom fr 9 t ~~ - vtilik F Date (j /`14rth 3,p~7.f E0004402082 Page 5 XH003-01396 ============= Page 13 of 142 ============= RAC Deal Approval Sheet Deal Name: EECC Genesis Power/ GE Turbines Global Finance Summary (addendum to DASH) Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): N/A 3. Financing terms and pricing: Amount ($000) $72.583 -0- -0- $72.583 Q Market Q Above Market 0 Below Market 0 Market 0 Above Market 0 Below Market Describe (if necessary): Initial pricing discussion with West LB indicated that they would proceed with the Genesis turbine transaction using the same pricing as the previous deals since we are now working on the financing structure to reduce West LB's holdings under the various turbine projects: Rate: Libor + 62.5 bps - Enron's 364 day funded revolver price plus 7.5 bps Upfront Fee: $50,000 inclusive of legal However, this pricing has not been approved by West LB's senior management. On the Brazil turbine financing still under negotiations, the upfront fee is approximately $200,000. 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): Enron parent guaranty to West LB. 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: N/A 6c. Likely Syndication Market: C -QA- Car) k a Ss r i ~-VuA cc9'43 TIJ~S~-U~ 6d. Is this a JEDI 2 "Qualified Investment"? Global Finance Representative: X Unrestricted 0 Legally Restricted X Recourse X None 0 Partial Q Practically 0 No Recourse 0 All / 0 Industry/Strategic Partner 0 Direct Private Equity 0 Capital Markets Q JEDI 1 0 JEDI 2 0 Enserco * LJM 1 or 2 Q Condor X Other: Banks 0 Margaux -~Uj Q Yes E0004402083 Page 7 X No EXH003-01397 ============= Page 14 of 142 ============= RAC Deal Approval Sheet Deal Name: EECC Genesis Power/ GE Turbines TABLE OF EXHIBITS EXHIBIT 1 Enron's Long Turbine Position EXHIBIT II Turbine Termination Payment Schedule EXHIBIT III Potential EPC Projects EOO04402084 Page 6 wJ EXH003-01398 ============= Page 15 of 142 ============= I! L EXHIBIT I ENRON'S LONG TURBINE POSITION m C) C) C) -p C) N O Qo Cn Confidential I March 2000 5:15 pm F.Kenye-6207 Item Turbine (Scope/ Cycle) Delivery Date(s) Total MW ISO Total Capex Commitment $MM Possible Project Site ENA 1 1 X West 501 D5A Simple Cycle _ May 30, 2000 122 $24 ENA - Electrocities, N. Carolina (Remove from "long" list soon when Electrocities confirmed 2 24 X GE LM6000 July2000 thru April 2001 1,164 $335 Qty 2 - ENA/Electrocities Qty 1 - ENA/Las Vegas Co-Gen Qty 18 - ENA Other Qty 3 - ESA Possibly r3 1 _X GE 7FA Simple Cycle (Cogen Tech Machine) Aug 2000 156 $35 ENA - East Cost Power - Linden 6 Confirm GE Re-Structuring Enron Partial Owner 4 1 X GE 7FA Simple Cycle (Cogen Tech Machine) Aug-Sept 2000 156 $35 ENA -Mid West (Peoples) - One of the three orig Cogen Tech Machines - 5 1 X GE 7FA Combined Cycle (CogenTech Machine; STG not ordered yet) Oct 2000 171 $31 ENA - Vitro 6 2 X Used ABB11N1 Simple Cycle Avail Now 166 $26 - Enron Canada Sarnia Peaker Proj Sarnia DASH was in process 7 2_X Used GEC Fr 6B Avail Now 60 13 Available - - - 1,995 $499 - - - -- CALME 8 97 Pwr Barges (Philip GE Fr 68) Avail Now 270 .___.$72 APACHI - Lagos _ EECC _ 9 2 X GE 7FA Comb Cycle (plus one steam turbine; old Naco machines) Qty 1 - Aug 2001 Qty 1 - Sept 2001 STG - Sept 2001 480 __ $90 - ENA - Several Florida Projects - NESCO 10 1 X Siemens V94.2 + 1 Toshiba STG + HRSG 50 hz application Nov 2001 240 $64 Croatia - Siemens (et all) released - Initial DASH (wl cancellation risk signed) EEL has t 11 3 X 9FA STAG Power Islands Combined Cycle 50 hz application Qty 1 - Oct 2001 Qty 1 - Nov 2001 Qty 1 - Dec 2001 780 EEL - Spain Arcos (Remv from "long" list when firm) ___I249 _ 1,500 $402 Total (Long 3.765 $973 Page 1 GenPower-DASH-Exhibits EXH003-01399 ============= Page 16 of 142 ============= EXHIBIT II (A) EECC Termination Schedules McAdams Site Cumulative Month Termination GT I GT 1 $$S GT2 GT 2 $$$ Stm I Stm 1 $$$ $$$ Feb-00 Signed LOC 7.50% $2,760,281 7.50% $2,760,281 7.50% $1,614,189 $7,134,750 Feb-00 8.77% $3,227,688 8.77% $3,227,688 8.77% $1,887,525 $8,342,901 Mar-00 10.40% $3,827,589 10.40% $3,827,589 10.40% $2,238,342 $9,893,520 Apr-00 10.80% $3,974,804 10.80% $3,974,804 10.80% $2,324,432 $10,274,040 May-00 11.10% $4,085,215 11.10% $4,085,215 11.10% $2,389,000 $10,559,430 Jun-00 14.80% $5,446,954 14.80% $5,446,954 14.80% $3,185,333 $14,079,240 Jul-00 20.00% $7,360,748 20.00% $7,360,748 20.00% $4,304,504 $19,026,000 Aug-00 30.00% $11,041,122 30.00% $11,041,122 24.00% $5,165,405 $27,247,649 Sep-00 32.00% $11,777,197 32.00% $11,777,197 29.00% $6,241,531 $29,795,924 Oct-00 34.00% $12,513,272 34.00% $12,513,272 40.00% $8,609,008 $33,635,551 Nov-00 36.00% $13,249,346 36.00% $13,249,346 51.00% $10,976,485 $37,475,178 Dec-00 38.00% $13,985,421 40.00% $14,721,496 59.00% $12,698,287 $41,405,204 Jan-01 40.00% $14,721,496 40.00% $14,721,496 70.00% $15,065,764 $44,508,756 Feb-01 40.00% $14,721,496 40.00% $14,721,496 80.00% $17,218,016 $46,661,008 Mar-01 40.00% $14,721,496 40.00% $14,721,496 83.00% $17,863,692 $47,306,684 Apr-01 40.00% $14,721,496 40.00% $14,721,496 87.00% $18,724,592 $48,167,584 May-01 40.00% $14,721,496 40.00% $14,721,496 93.00% $20,015,944 $49,458,936 Jun-01 40.00% $14,721,496 40.00% $14,721,496 95.00% $20,446,394 $49,889,386 Jul-01 Gas 1 Shipment 100.00% $36,803,740 40.00% $14,721,496 98.00% $21,092,070 $72,617,306 Aug-01 Gas 2 / Steam Shipment 100.00% $36,803,740 100.00% $36,803,740 100.00% $21,522,520 $95,130,000 Sep-01 30 Days After Shipment 100.00% $36,803,740 100.00% $36,803,740 100.00% $21,522,520 $95,130,000 m C) 0 0 .p .p 0 N 0 Cu 0) EXH003-01400 ============= Page 17 of 142 ============= EXHIBIT 11 (B) EECC Termination Schedules Dell Site Cumulative Month Termination GT I GT 1 $$$ GT2 GT 2 SS$ Stm I Stm I $$$ $$$ Feb-00 Signed LOC 7.50% $2,760,281 7.50% $2,760,281 7.50% $1,614,189 $7,134,750 Feb-00 8.77% $3,227,688 8.77% $3,227,688 8.77% $1,887,525 $8,342,901 Mar-00 10.40% $3,827,589 10.40% $3,827,589 10.40% $2,238,342 $9,893,520 Apr-00 10.80% $3,974,804 10.80% $3,974,804 10.80% $2,324,432 $10,274,040 May-00 11.10% $4,085,215 11.10% $4,085,215 11.10% $2,389,000 $10,559,430 Jun-00 14.80% $5,446,954 14.80% $5,446,954 14.80% $3,185,333 $14,079,240 Jul-00 20.00% $7,360,748 20.00% $7,360,748 20.00% $4,304,504 $19,026,000 Aug-00 30.00% $11,041,122 30.00% $11,041,122 24.00% $5,165,405 $27,247,649 Sep-00 32.00% $11,777,197 32.00% $11,777,197 29.00% $6,241,531 $29,795,924 Oct-00 34.00% $12,513,272 34.00% $12,513,272 36.00% $7,748,107 $32,774,650 Nov-00 36.00% $13,249,346 36.00% $13,249,346 40.00% $8,609,008 $35,107,701 Dec-00 38.00% $13,985,421 40.00% $14,721,496 51.00% $10,976,485 $39,683,402 Jan-01 40.00% $14,721,496 40.00% $14,721,496 59.00% $12,698,287 $42,141,279 Feb-01 40.00% $14,721,496 40.00% $14,721,496 70.00% $15,065,764 $44,508,756 Mar-01 40.00% $14,721,496 40.00% $14,721,496 80.00% $17,218,016 $46,661,008 Apr-01 40.00% $14,721,496 40.00% $14,721,496 83.00% $17,863,692 $47,306,684 May-01 40.00% $14,721,496 40.00% $14,721,496 87.00% $18,724,592 $48,167,584 Jun-01 40.00% $14,721,496 40.00% $14,721,496 93.00% $20,015,944 $49,458,936 Jul-01 40.00% $14,721,496 40.00% $14,721,496 95.00% $20,446,394 $49,889,386 Aug-01 40.00% $14,721,496 40.00% $14,721,496 98.00% $21,092,070 $50,535,062 Sep-01 GT 1 - STM Shipment 100.00% $36,803,740 40.00% $14,721,496 100.00% $21,522,520 $73,047,756 Oct-01 GT 2 Shipment 100.00% $36,803,740 100.00% $36,803,740 100.00% $21,522.520 $95,130,000 Nov-01 30 Days After Shipment 100.00% $36,803,740 100.00% $36,803,740 100.00% $21,522,520 $95,130,000 m C) 0 0 -p 0 N 0 170 V =XH003-01401 ============= Page 18 of 142 ============= EXHIBIT III Potential NEPCO uses fo r GE 7FA Tu rbines #of #of _ Gas Steam Construction Turbine Delivery_ Project Description Turbines Turbines MW Contract Value Profit Start _ Completion Date Status NESCO, Frederickson, WA 2 1 500 250,000,000 15,000,000 May-001 Jul-02 Aug-01 NEPCO awarded project pending turbine availability. - NESCO, Goldendale, 'NA 1 1 250 98,000,000 _ 8,000,000 Jun-01 Aug-03 Sep-02 Project underdevelopment. Gas agreement in place. Permitting in place. -- -"-- - Co entrix, Southhaven 3 3 800 320,000,000 18,000,000 , Apr-00 Jun-02 Mar-01 NEPCO to negotiate project on ar exclusive basis. -^ ogentrix, Sterlington 3 3 800 320,000,000 18,000,000 Sep-00 Oct-02 Aug-01 NEPCO negotiate project on an exclusive basis. den, Burne , CA 2 1 500 260,000,000 15,000,000 Se -00 Oct-02 , Oct-01 RFP due in March, 2000 m n 0 0 -p -p 0 N 0 OD 00 EXH003-01402 ============= Page 19 of 142 ============= M-3 E0004402089 EXH003-01403 ============= Page 20 of 142 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Extension of Demar Liquidity Date DASH Completed: 3/17/00 Agreement RAC Analyst: N/A Counterparty: Demar Instaladora y Constructora, SA Investment Type:. Debt Business Unit: Enron Engineering & Construction Co. Capital Funding Source(s): Balance Sheet Business Unit Originator: J. Martin Expected Closing Date: 1/3 1/00 ]Public OPrivate Expected Funding Date: 1/31/00 ]Merchant OStrategic Board Approval: DPending OReceived DDenied EIN/A l lConforming ONonconforming RAC Recommendation: OProceed with Transaction Returns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED (In 000's) Enron Engineering & Construction Company ("EECC") requests approval to extend the maturity date and modify the monthly maximum available facility amounts on an existing revolving line of credit being provided to Demar Instaladore Constructora S.A. De C.V. ('.`Demar"). The loan modifications are needed as a result of valid weather delays which prevented Demar's timely completion of certain construction milestones under the EPC 4 contract with Pemex. Upon full completion of each milestone, Pemex remits milestone payments, EECC's primary source of repayment for the loan, to an escrow account controlled by EECC. As compensation to EECC for the loan amendments, Demar will pledge the construction revenues from a contract with Solar Turbine totaling $12 million. J Capital Commitment $ 18,100* * As of 1/24/00, EECC has advances outstanding of $12.5 million to Demar for expenses incurred on EPC 4. EECC has also advanced $4.6 million to Demar for expenses on EPC 43/50 which is performing. For cross-collateralization purposes, the two facilities have been amalgamated into one commitment with two tranches; repayment schedules and interest rates are unique to each tranche. EXPOSURE SUMMARY (In 000's) This transaction: $ 18,100 Total $ 18,100 Total Contracts $18,100 DEAL DESCRIPTION Enron Engineering & Construction Company ("EECC") seeks to extend the maturity date and modify the reducing maximum available facility amounts on an revolving line of credit provided to Demar, a Mexican construction company with an E- Rating of 10 (B-). The current maximum facility amount is $18.1million. As security for the line of credit, Demar assigned the proceeds from the company's ongoing construction contracts with Petroleos Exploration Y Production ("PEP"), a wholly owned subsidiary of Petroleos Mexicanos ("Pemex") rated BB/ Bal by Standard & Poor's and Moody's, respectively, to perform the engineering, procurement and fabrication services for four Pemex offshore and onshore hookup projects , 'EPC 4", "Atasta", "Cuidad", ("Demar 1") and "CA-AC-4 Offshore Hookup ("Demar 2"). The original liquidity agreement incorporated the Demar 1 projects. It was later amended to incorporate the Demar 2 project in order to cross collaterize the security between all of the projects. As such, distinct interest rate and separate set of dates and amounts associated with the maximum available facility amount for the Demar 2 project. EECC will not amend any terms related to the Demar 2, as it is on schedule. However, weather conditions have caused rough seas which have delayed work on the EPC-4 barge by two months since this agreement was extended in October 1999 due to similar problems. The period of delay will likely increase further as the Gulf of Mexico waters continue to be very rough. These weather delays are beyond Demar's control. As a result of these delays, Demar's progress payments from PEP have further slipped the forecasted time table and therefore the company will not be able to pay down the outstanding principal, accrued interest, and a $5 million service fee, in accordance with the reducing facility caps. Interest accrues on facility advances at a rate of 10% fixed per annum. All progress payments from PEP flow through an Enron controlled Mexican bank account and are applied against the credit facility or disbursed to Demar at EECC's discretion. E0004402090 KHO03-01404 ============= Page 21 of 142 ============= RAC Deal Approval Sheet Deal Name: Extension of Demar Liquidity Agreement (1) EECC is requesting approval to amend the maximum facility amounts on the outstanding principal as follows: CURRENT REVISED REVISED (DEMAR 2) (DEMAR 1) (DEMAR 1) COMBINED EFFECTIVE DATE FACILITY AMT. FACILITY AMOUNT FACILITY AMOUNT FACILITY AMOUNT* 11/30/99 $ 4.6mill. $17.5mill. $17.5mill. $22.lmill. 12/23/99 $ 4.6mill. $13.5mill $13.5mill. $18.1mill. 01/30/00 $ 4.6mill. $ 3.5mill. $13.5mill. $18.lmill. 02/28/00 $ 3.Omill $-0-mill. $12.5mill $15.5mill. 03/30/00 $ 2.Omill $-0- $ 11.Omill $13.0mill. 04/30/00 $ 1.Omill $-0- $ 7.Omill $ 8.Omill 05/30/00 $-0- $-0- $ 3.Omill $ 3.Omill 06/30/00 $-0- $-0- $-0- $-0- * These caps are limited to the lesser of 75% of (remaining revenues - loans for outstanding fees - outstanding interest) or the maximum facility amount specified. No further advances under the credit facility will be allowed after 4/30/00. The outstanding principal balance will be reduced as payments are received from PEP. PEP f nal progress payments may lag behind the project work completion date (4/18/00) by as much as 45 to 60 days. All payments are expected to be received by the facility maturity date, 7/31/00. (2) EECC will maintain its security position with respect to all proceeds being remitted by PEP for the four contracts assigned to it as collateral. EECC will apply funds received in the escrow account in accordance with the required loan repayment schedule and disburse cash to Demar only for project related expenses. PEP proceeds received in the escrow account after 5/30/2000 will be applied as received against the outstanding principal under the credit facility. Also, no further escrow disbursements will be made to Demar after 4/30/2000 until all amounts owed EECC are paid including accrued interest and the $5.0 million in fees associated with the Demar 1 deal which will be accounted for as a principal advance under the amended loan agreements. (3) Interest will accrue on Demar 1 & 2 advances on the credit facility at a 10% p.a. fixed rate., and 90 day libor +5%, respectively. (4) Advances from Enron to pay its $5 million fee on Demar 1, will trigger a default interest rate of 15% if not paid by 7/31/00. Interest and fees are paid current related to the Demar 2. (5) The revised maturity date will be 7/31/00. TRANSACTION SOURCES AND USES OF FUNDS ($000s) Sources Uses Enron Balance Sheet $18,100 Working Capital Advances $18,100 Total $18,100 Total $18,100 TRANSACTION DISCUSSION The status of the three PEP contracts assigned to EECC as collateral and the Solar Turbine contract is as follows: Project Name Start Date Contractual Completion Date Projected Completion Date EPC 4 10/22/97 4/18/00 4/18/00 Atasta 6/29/98 9/26/99 Completed Cuidad 6/29/98 6/27/00 6/27/00 CA-AC-4 Offshore Hookup 10/21/99 4/18/00 4/18/00 Solar Turbine (new collateral) 02/01/00 02/01/01 02/01/01 Demar has filed for an extension of the EPC 4 contract through May IS`. The turnkey project manager (Bechtel) has already approved previous change orders requests extending the contractual completion date through March 19`h and is reviewing the additional extension request. However these extensions must be approved by PEP. PEP typically does not sign the final Page 2 E0004402091 :XH003-01405 ============= Page 22 of 142 ============= RAC Deal Approval Sheet Deal Name: Extension of Demar Liquidity Agreement change order until completion of the job. EECC project management agrees that Demar has a valid claim and anticipates Pemex will ultimately approve the time extensions. Assuming completion of the scheduled work, Demar expects to incur additional scheduled expenses totaling $12 million on the projects and receive progress payments totaling $40 million from PEP. EPC 4 and CA-AC-4 Offshore Hookup, which are the source projects for $25 mill and $12 mill respectively, are 94% and 54% complete respectively. The net project proceeds of $27 million will be used to service Demar's obligations to EECC of approximately $24 million with the residual amounts flowing back to Demar post EECC facility maturity date. Pemex has a Standard & Poor's senior unsecured debt rating of "BB" which is also Standard & Poor's sovereign rating for Mexico. The Moody's Investors Services' senior unsecured debt rating for Pemex is "Bal" (one notch better than the S&P rating) and the sovereign rating is "Bal". RISK MATRIX (Maximum 5) DESCRIPTION MITIGATION/COMMENTS The risk the projects becomes profit neutral or Demar is contractually liable for liquidated damages ("LD's") of $15,000 per unprofitable for Demar if PEP assesses each day late under the EPC 4 contract.. Demar has filed for an extension of Liquidated Damages against Demar for failing the EPC 4 contract through May .1,2000 The turnkey project manager to reach the contract scheduled completion dates (Bechtel) has already approved previous change orders requests extending the for the projects. contractual completion date through March 19,2000 and is reviewing the additional extension requests. However these extensions must be approved by PEP to be enforcable. PEP typically does not sign the final change order until completion of the job. EECC project management agrees that Demar has a valid claim and anticipates Pemex will ultimately approve the time extensions. The fact remains EECC's primary source of repayment, the contract revenues from PEP, may ultimately prove to be insufficient to repay Demar's full indebtedness to EECC if PEP does not approve the change orders and, as a consequence, LDs are assessed against Demar and netted against PEP's contract payment obligation under the EPC 4 contract. To partially mitigate this risk, EECC has obtained additional collateral coverage in the form of the assignment of proceeds ($12 million) from Demar's contract with Solar Turbine. E0004402092 Page 3 XH003-01406 ============= Page 23 of 142 ============= RAC Deal Approval Sheet Deal Name: Extension of Demar Liquidity Agreement Payment default risk in the event that Demar Demar has successfully completed 32 construction contracts for Pemex in the defaults on the PEP contracts past 10 years and is currently performing satisfactorily on these three contracts according to EECC who has spoken directly with PEP on this issue. EECC project management is providing consultation services to Demar and is working closely with the company to insure work progression remains on schedule going forward. However, EECC does not have a legal mechanism for stepping into Demar's shoes in the PEP contracts if Demar were to default on the contracts. The PEP contracts would likely be re-bid to other contractors to complete the work. PEP is only obligated to pay for actual work completed in full. Demar's successful performance of these contracts is critical to EECC's ability to receive full repayment for the Demar obligations in light of Demar's limited capacity to pay the obligations otherwise. EECC will control all payments remitted by PEP on the projects thus minimizing the chance for Demar to divert the- proceeds to other uses. Additionally, Demar has pledged assets (a barge, houses) to EECC as additional collateral for the credit facility. Although EECC estimates the value of the assets is in excess of $10 million, RAC assigns no value to the assets given the lack of valid recent independent appraisals for the collateral and given Enron Legal assessment of the difficulty associated with filing and perfecting a lien against property in Mexico. Foreign Currency Risk Demar's obligations to EECC are denominated in dollars. Approximately 65% ($90mill.) of the total PEP contract revenues payable to Demar are denominated in dollars. Demar is able to increase the peso billings based upon increases in Mexican inflationary indexes. Actualization is standard in Pemex contracts to protect Mexican contractors against inflation. However, this mechanism does not protect the contractor in a scenario where the peso is devaluing at a faster rate than inflation is increasing. Given the short remaining term of the PEP contracts and the state of economic affairs in Mexico, the probability of extreme peso devaluation during the next 6 months is considered moderate at this time. Credit Risk of PEP The EPC 4 project is part of PEP's overall Cantarell project which is financed principally by the US Export / Import Bank, EXIM Bank of Japan and EXIM Bank of France. KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit X " Upside Potential X Management X Risk Mitigation X OTHER RAC COMMENTS: RAC recommends approval of the Demar credit facility amendments based on the resulting improvement in EECC's collateral position. EECC will obtain the assignment of proceeds from Demar's contract with Solar Turbine, which is projected to generate $12 million in revenues over the next twelve months. E0004402093 Page 4 :XH003-01407 ============= Page 24 of 142 ============= RAC Deal Approval Sheet Deal Name: Extension of Demar Liquidity Agreement APPROVALS Regional Mgmt. EECC Legal RAC Management Enron Global Finance ENE Management Name Larry Izzo John Schwartzenburg /Not 1 Dave Gorte Andy Fastow/Jeff McMahon Jeffrey Skilling / Joe Sutton " n ure Date 3/i*a 00 TV j *T TO j~ St f F,wt vvt ApA OA4 F bj$1V. s.&j 3 EOO04402094 Page 5 =-XH003-01408 ============= Page 25 of 142 ============= Demar I Extension 2/00 RAC Deal Approval Sheet INTERNAL EECC APPR&A me: Extension of Demar Liquidity Agreement NAME TITLE SIGNATURE DATE Eddie Clay VP Project Management Q- Support Jerry V Project Martin Execution Dick Westfahl Sr.VP Business Development Keith Marlow VP Finance CHECK THOSE THAT APPLY 0 17 0 E0004402095 Page 6 XH003-01409 ============= Page 26 of 142 ============= Global Finance Summary (addendum to DASH) 1. Transaction Summary Amount ($000) Total Deal/Project Capital Commitment $18,500 Less: Financings -0- Less: Syndications -0- Net Enron Investment $18,500 2. Investment terms and pricing: 0 Market 0 Above Market 0 Below Market Describe (if necessary): N/A 3. Financing terms and pricing: 0 Market 0 Above Market . Ur- elow Market* Describe (if necessary): * EE&CC originally believed that the pricing was above market due to a $5.OMM fee to be received as part of this financing. However, as we originally stated, this fee is not received until the construction contract is completed, payment is received from Pemex, there has been no extreme peso devaluation, and our loan has been repaid. Additionally, because there have been construction delays, and Pemex could raise performance issues, it is now likely that there will not be monies left over to pay this fee. Therefore, additional Enron capital would be required to pay up-front fees to the market if we attempted a syndication. 4. Legal or practical liquidity restrictions: 0 Unrestricted 0 Legally Restricted Ca/practically Restricted Describe (if necessary): Limitations on Mexican debt liquidity, especially at this debt rating (E-Rating of 10 (B-)),; and under these adverse circumstances. 5. Any recourse to Enron (other than investment): 0 Recourse o Recourse Describe (if any): 6a. Business unit intent to syndicate: d "None 0 Partial C! All Describe (if necessary): 6b. Intended Enron hold period: To maturity ( 07/31/00, previously 04/30/00). 6c. Likely Syndication Market: 0 Industry/Strategic Partner 0 Direct Private Equity 0 Capital Markets 0 JEDI 1 0 JEDI 2 0 Enserco 0 LJM 1 or 2 0 Condor 0 Other:. 0 Margaux 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes lo Global Finance Representative: _.3 __ Sign Name (Printed) Date E0004402096 XHO03-01410 ============= Page 27 of 142 ============= M-4 E0004402097 =XH 003-01411 ============= Page 28 of 142 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Linden Six Date DASH Completed: 02/09/00 Counterparty: East Coast Power RAC Analyst: M. Eichman, J. Soo, E. Pedersen Business Unit: Enron North America Investment Type: Equity Business Unit Originator: Richard A. Lydecker Capital Funding Source(s): JEDI II/Balance Sheet OPublic MPrivate Expected Closing Date: February 2000 MMerchant E3 Strategic Expected Funding Date: May 2000 Conforming CNonconforming Board Approval: DPending Received DDenied ONIA RAC Recommendation: ©Proceed with Transaction DReturns below Capital Price DDo not Proceed APPROVAL AMOUNT REQUESTED Enron North America ("ENA"), through JEDI II's interest in East Coast Power ("ECP") requests approval to build, own and operate an additional 160 MW gas turbine adjacent to the existing facilities at Linden, New Jersey Total Project Cost $94,200 JEDI II (51% ownership in ECP) $48,040* *Initial funding of the transaction will be from ECP's working capital facility. Permanent financing is contingent on a re-capitalization agreement between ECP and General Electric Capital Corp. ("GECC"). Once the agreement with TOSCO is signed for Linden Six, ECP will have 65 days to reach agreement with GECC or back out of the transaction. During this 65-day period, $2.2 million in progress payments associated with the HRSG and transformers for Linden Six will be made by ECP. If ECP does not reach a tentative agreement with GECC on a re-capitalization, ECP can terminate the Linden Six transaction. TOSCO will then reimburse ECP for the $2.2 million in expenditures through a $1.1 million payment at termination and through increased steam sale purchases for the remaining amount over the subsequent year. If the re-capitalization with GECC does proceed, ENA expects to finance approximately 60% off-balance sheet through the re-capitalization, which is expected to occur in the second quarter. EXPOSURE SUMMARY JEDI II owns a 51% stake in ECP. Enron's indirect ownership in ECP is 25.5%. Enron Exposure (Linden Six costs) $24,021 Existing exposure (ECP equity) $163,497 E0004402098 DEAL DESCRIPTION ECP proposes to expand the existing facilities at the Bayway Refinery (`BR") in Linden, New Jersey with an additional 160 MW power generation facility. The Linden 6 expansion includes building and installing a dual fuel GE 7FA gas turbine with a HRSG and an interconnect to the Pennsylvania-New Jersey-Maryland grid ("RIM"). The expansion will become part of ECP's Linden generating facilities, which provide electricity to Consolidated Edison. Linden Six will sell the majority of its generating capacity to BR through a 17-year Energy Service Agreement ("ESA"). ECP will enter into an Engineering Procurement and Construction contract ("EPC") with NEPCO for the construction of Linden Six. The primary value drivers in this deal will be the contractual cash flows received from BR, improvements to existing plant efficiencies, and merchant sales revenue. Any excess generating capacity will be dispatched and sold into PJM when market prices permit (about 30 MW in summer months based on monthly dispatch model). The strategic benefits of this transaction are to: (i) Protect the QF status at existing plant, which would be jeopardized if TOSCO developed its own project/steam supply. A loss of QF status would decrease Con Ed revenues by 10% (about $25-30 million per year) and adversely impact the PPA restructuring with Con Ed; (ii) Expansion of site, which gives ENA the option to develop a merchant plant to sell into New York City and/or to develop other project (TES & Gray Water) (iii) Enhance the overall value of ECP (iv) Enhance the relationship with BR. JEDI II purchased a 100% equity stake in ECP for $80 million on February 4, 1999 as part of the $1.6 billion asset acquisition from Cogen Technologies. As part of the purchase consideration, Enron contributed approximately 7.6 million shares of common stock to ECP in exchange for a $250 million subordinated note. In April, ECP successfully placed $850 million in senior notes in the open market to refinance the acquisition debt. Simultaneously, $62 million of subordinated notes were retired. In August, JEDI II sold a 49% equity interest to an affiliate of El Paso Power Services for $133 million plus up to an additional $17 million in contingent payments. ENA's current net equity interest in ECP is 25.5% This project would be a significant component of larger planned expansion at the Linden facility, funding for which requires the re-capitalization of East Coast Power. Under the terms of the re-capitalization GECC's Limited Partner interest at the project level would be exchanged for an equity interest at the East Coast Power (Holding Company) level. Under the proposed structure GECC would infuse an additional $166 Million into East Coast Power. East Coast Power would concurrently raise an additional $630 Million in debt in the capital markets. The capital from these two sources would be,used to pay down plant level debt at (Camden & Linden), fund the Linden Six Project, and pay any associated transaction costs. =XH003-01412 ============= Page 29 of 142 ============= RAC-Deal Approval Sheet TRANSACTION SOURCES AND USES OF FUNDS Sources Enron Equityy (JEDI II) $19,217 Total $19,217 Uses Capital Expenditure $19,217 $19,217 RETURN SUMMARY PV @ Cumulative Return Components: Capital Price IRR Cash Outflows $62,696 - Fees $0 - Intermed. Cash Flows $28,418 % Terminal Value $41,243 20.81% Total NPV $6,965 20.81% E-Rating Capital Price Components Risk free rate (%): 6.57% Equity/Credit premium (%): 1.85% Country Premium (%): % Transaction-Specific (%): 3.58% RAC CAPITAL PRICE: 12.00% % IRR Distribution 8.0 7.0 6.0% e 5.0% 4.0% 3.0% P95 2.0% 1.0% 0% 0. 0 0 0 0 o a e o 0 0 0 N O 00 ~ D M Q /1 a~ P1 O I- O It C N O 00 N M I~ .N. O h N N N 7 M 00 M N C` -tt Relative upside ratio 0.868 E0004402099 H:1East Coast Power\ESA Dash\DASH Linden6 020900.doc Page 2 EXH003-01413 ============= Page 30 of 142 ============= RAC -Deal Approval Sheet CASH FLOW SUMMARY Cash FlowSummary $60,000 $40,000 $20,000 $(20,000) $(40,000) $(60,000) $(90,000) O O ® Terminal Value rmnm Ongoing Fees Outflows -~- Cumulative P95 -- Cumulative P5 Egected curruLative cast flows Average Life =2.3 years N M U') ti O O CV M U7 N- W O N C') It) r. OR O O O O G O r T T r r r fV CV N CV CV N t~7 Years TRANSACTION UPSIDES/OPTIONALITY • The deal team estimates that the associated subsidized land lease payments have a present value of $2.5 MM. The land may be used for three other projects to be developed in the medium term: 1. Linden Seven - at a development cost of $83.7 Million - is a 160 MW merchant facility that would have the ability to sell power into the volatile New York City market. 2. Thermal Energy Storage - at a total cost of $28.3 Million - would give the base plant up to an additional 70 MW of merchant capacity in the summer. 3. Gray Water - an on-site water treatment facility, will have a total cost of $11.6 Million. • The structuring desk estimated extrinsic option value on the available merchant capacity of at least $10 MM, which was not modeled in the base case. EXIT STRATEGY (Merchant investments only) The current exit strategy assumes that the East Coast Power will be liquidated in January 2003 (the model and all return numbers reflect this assumption). This project would be part of the bundled sale of the Linden facility. E0004402100 H:\East Coast Power\ESA Dash\DASH Linden6 020900.doc Page 3 EXH003-01414 ============= Page 31 of 142 ============= RAC•Deal Approval Sheet RISK MATRIX (Maximum 5 DESCRIPTION MITIGATION/COMMENTS Off-take risk RAC's review of Tosco suggests that the credit quality sufficiently mitigates Risk of default or non-payment by payment performance risk associated with the expansion. Tosco Tosco Corporation (rated 5 on the Enron scale and BBB by S&P), will provide a parent payment guarantee for the Bayway Refinery (`BR"). Under conditions of Tosco default, ECP will sell its total power supply (160 MW) on a merchant basis. Tosco has owned BR since 1993 when it was bought from Exxon. ECP has had no payment problems during the 13 months it has operated the generating facilities at Linden. Tosco is the largest independent refiner in the US and controls 6.5% of the US refining capacity. Tosco's strong market position, consistent operating results and interest coverage supports its investment grade credit rating. Conversely, volatile refining margins and increased debt levels offset some of the credit strength. Construction risk The Linden Six expansion will be constructed under an EPC with NEPCO, an Risk of construction delays or cost Enron affiliate. overruns. According to the Energy Service Agreement ("ESA") between ECP and Tosco, any construction cost in excess or below the amount outlined in the construction contract will be shared jointly between ECP and Tosco. ECP will be penalized by $18,000 / day for delays in excess of 15 days but less than 76 days from the project completion date (July 1, 2001). Delays in excess of 76 days will be fined with a lump sum of $1.08 MM and 36,000 / day. Conversely, ECP will receive similar compensation for early completion. Operating Risk Tosco will compensate ECP through capacity payments. In turn, ECP will Risk that ECP will not meet the provide an availability guarantee of 92% for up to the full capacity of the standards set out in the model and in the plant. RAC review of the deterministic case suggests that a 2% move (below construction contract. 92%) would reduce the IRR by 20 bp. Contractually, Tosco has a call on the entire load at Linden Six (160 MW). Current production at BR plus planned expansions demand about 120 MW; however, over time, the total demand at BR may increase and approach 160 MW thus reducing merchant revenues. The model assumes that capacity is available for merchant sale in excess of the average projected load for Tosco of 138 MW in Summer & 131 MW in Winter. Currently Tosco's peak load is closer to 120 MW per annum. The 134.5 MW estimate reflects load from proposed projects. Price risk A fall in the average annual demand by BR will increase the price exposure Risk of exposure to electricity and gas ECP is taking when dispatching into the spot market. Enron structuring desk prices provided the dispatch model assumptions. The deterministic model assumes that Tosco's annual average load is 134.5 MW. This estimate was provided by Tosco and includes demand for projects that will come on line between today and July 1, 2001. Under circumstances where Tosco's demand falls below 90MW, Tosco will compensate ECP for any losses incurred from third party sales. H:\East Coast Power\ESA Dash\DASH Linden6 020900.doc E0004402101 Page 4 J =XH003-01415 ============= Page 32 of 142 ============= ,t;-lieai ADvrovat meet Terminal Value The merchant value was determined based on input from internal sources and Risk of mis-pricing terminal value of market-based comps with regard to valuation of the asset after the PPA facility after 2017. expires. Three different values were obtained and used as probabilistic parameters in the RAROC model: 1. Salvage value of the equipment and residual value of land lease, buildings, etc. was estimated by EE&CC and ECP to be approximately $92/kW ($14.7 million) in nominal dollars (2000 base). 2. Sale of three comparable projects yielded a range of $275 - $347/kW. Comps varied considerably from Linden Six with respect to heat rate and size. An expected deterministic price of $302/kW was used in the model with a triangular distribution. All values were adjusted for inflation. Terminal value accounts for 10.2% of present value of the expected cash flows. The value was derived from current market estimates, and the future value of the turbines (at the end of the PPA in 2017) is highly uncertain. KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit X Upside Potential X Management N/A Risk Mitigation X r Ato ra1nS le /.: 1i.c- Go ,}hc~ O1 ~- Overcl~ EGP ~q~ejh+.cr+1 Or. a sh"gr~4l~„Ta 6c5i~~ o-r E0004402102 H:\East Coast Power\ESA Dash\DASH -Linden6 02O9OO.doc Page 5 =XH003-01416 ============= Page 33 of 142 ============= RAC Deal Approval Sheet OTHER RAC COMMENTS: Terminal value accounts for 10.2% of present value of the expected cash flows. The value was derived from current market estimates, and the future value of the turbines (at the end of the PPA in 2017) is highly uncertain. Funding of this transaction will initially be from ECP working capital, but Linden Six is contingent upon a successful re- capitalization of ECP, which is still uncertain. E0004402103 H:1East Coast Power\ESA Dash\DASH Linden6 020900.doc Page 6 EXH003-01417 ============= Page 34 of 142 ============= RAC Deal Approval Sheet APPROVALS Regional Management ENA Management ENA Structuring Legal RAC Management Enron Capital Management ENE Management Name Richard A. Lydecker Cliff Baxter / Greg Whalley Jeff Donahue Mark Haedicke Rick Buy / David Gorte Andy Fastow / Jeff McMahon Joe Sutton / Jeffrey Skilling a re Date _ a q eG Lei -X LA E0004402104 H:\Fast Coast Power\ESA Dash\DASH Linden6 020900.doe _a Page 7 =XH003-01418 ============= Page 35 of 142 ============= RAC Deal Approval Sheet Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: O Market Describe (if necessary): Amount ($000) $0 -0- -0- $0 0 Above Market 0 Below Market 3 Financing terms and pricino: O Market 0 Above Market 0 Below Market Describe (if necessary): 4. Legal or practical liquidity restrictions: 0 Unrestricted 0 Legally Restricted 0 Practically Restricted Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: 6d. Is this a JEDI 2 "Qualified Investment"? Global Finance Representative: 0 Recourse 0 No Recourse 0 None 0 Partial 0 All 0 Industry/Strategic Partner 0 Direct Private Equity 0 Capital Markets 0 JEDI 1 0 JEDI 2 0 Enserco O LJM 1 or 2 O Condor 0 Other: O Margaux O Yes O No Signature Name (Printed) Date E0004402105 H:\East Coast Power\ESA Dash\DASH Linden6 020900.doc Page 8 EXH003-01419 ============= Page 36 of 142 ============= PRIVILEGED AND CONFIDENTIAL *49 TO: Mark Haedicke DATE: February 10, 1999 Julia H. Murray CC: Cliff Baxter Greg Whalley Richard Lydecker Robert Licato Brad Alford Christine Lee Gary Keevill Dave Delainey Dave Duran Rick Buy Sheila Tweed FROM: Bob Carter SUBJECT: Linden Cogeneration Facility Expansion - Legal Risk Memo Description of Transaction East Coast Power L.L.C. ("ECP") and Tosco Refining L.P. ("Tosco"), a subsidiary of Tosco Corporation, will enter into an Energy Services Agreement ("ESA") under which ECP will cause to be constructed, own and operate an approximately 180 MW cogeneration facility (the "New Facility") to be located on part of the site (the "Existing Plant Site") of the existing power generation facility (the "Existing Facility") owned and operated by Cogen Technologies Linden Venture, L.P. ("Linden Venture"), an ECP majority-owned subsidiary, in Linden, New Jersey. Currently, all of the electricity generated from the Existing Facility is sold to Consolidated Edison Company of New York, Inc. under a long term power purchase agreement. Bayway Refining Company ("BRC" ), an affiliate of Tosco, purchases steam from the Existing Facility under a long term steam purchase agreement (the "Steam Agreement"). Under the ESA, Tosco will agree to purchase its electricity requirements for its Bayway Refinery (the "Bayway Refinery") that are available to be supplied from the Facility, subject to the right of Tosco to purchase electricity from third parties under certain stated conditions. The New Facility will be interconnected to the pool transmission facilities of PJM (the "PJM System"). The interconnection facilities between the New Facility, the Bayway Refinery and the PJM System (the "Interconnection Facilities") will be constructed and owned by BRC on land leased by BRC to ECP. As part of the consideration for the ESA, Tosco and ECP will cause BRC and Linden Venture to amend the Steam Agreement so as to increase the minimum required steam take by BRC when both the Existing Facility and the New Facility are operating and capable of producing steam. Previously, the Steam Agreement did not include a \\enehouThouston\common\Legal'J3CARTER\East Coast Power\Tosco\Risk Memo - Tosco ESA2.doc E0004402106 LLJ =XH003-01420 ============= Page 37 of 142 ============= {ISK Memo - I osCO t AL. aoc --o- - i minimum steam take requirement sufficient to maintain the Existing Facility's QF status. We previously accepted this risk because the current combined steam needs of BRC and Infineum (another purchaser of steam from the Existing Facility) far exceed the minimum steam sales needed to maintain QF status. However, BRC has a right under the ground lease for the Existing Facility to construct, or have constructed by a party other Linden Venture, an on-site generation facility which could supply the majority of the steam requirements of BRC and Infineum, in which case the QF status of the Existing Facility would be jeopardized. The ESA and the amendment to the Steam Agreement removes this risk. In connection with the ESA, BRC and ECP will enter into four ground leases (the "Ground Leases") providing sites for the Interconnection Facilities and the following projects contemplated by ECP: an additional generation facility ("Linden 7"), a new water purification facility that will allow both the Existing Facility and the New Facility to obtain cooling water from an alternate source (the "Greywater Project"), and a thermal energy storage facility to cool intake air, and thus improve the efficiency, of the Existing Facility, the New Facility and Linden 7 (the "TES Proiect") Legal Risks and Mitigants The major risks associated with the transaction are as follows: 1. Litigation Risk-Lack of Clear Measuring/Performance Standards. Throughout the ESA, material contract provisions rely on estimates (determination of costs of back-up energy), and set performance or measurement standards based on "equitable allocation" (allocation of back-up demand charges and costs to Infineum if Infineum purchases electricity from the New Facility)," recognition of "incremental economies of scale and efficiencies" (fixed and variable O&M costs), obligations to "not unfairly disadvantage" (arrangements for back-up energy), "maximize mutual benefits" (decisions to sell excess capacity and energy in the event of lower interim nominations by Tosco) and similar phraseology. In addition, Tosco has the right to approve the construction contractor, the construction contract, change orders, the annual budget and similar matters. Lack of clear performance and measurement standards and the number of approval rights create numerous areas of potential dispute and higher litigation risks. Comments/Mitigants. The ESA contains a disclaimer of any representations or warranties to Tosco as to actual costs, prices and potential merchant revenues and losses. Also, in disputes related to the reasonableness of costs and expenses incurred by ECP, the ESA has shifted burden of proof to Tosco regardless of whether litigation or arbitration is instituted by ECP or Tosco. 2. GE/Lender Consent. The Linden Venture partnership agreement and the project loan documents for the Existing Plant prohibit Linden Venture from entering into the ESA, the amendment to the Steam Agreement or the Ground Leases without GE and lender consent. Based on past experience with this lender group, it was and is the belief of the ECP/Enron working group that the size and complexity of the ESA transaction would preclude obtaining lender consent within the time required to meet Tosco's requirements for the in-service date of the New Facility and without onerous conditions. As an alternative, ECP is working with GE on a proposal to recapitalize ECP (the "Recapitalization'), part of which would involve taking out the Linden Venture project lenders. In order to stay on schedule for the in-service date and to get to closure on the negotiations with Tosco, ECP will sign the ESA and the Ground Leases (ECP is not subject to any lender or other consent requirements), such agreements to be assigned to Linden Venture upon completion of the Recapitalization. In the interim, ECP will incur approximately $2.5 Million in costs to its EPC contractor for preliminary work for the New Facility. If ECP does not obtain the necessary commitments or assurances from GE that the Recapitalization will occur, ECP would have to abandon the project or risk delays in achieving the in-service date as a result of the time necessary to obtain project lender consent, which would result in substantial liquidated damages under the ESA. \'enehou\houston\eommon\Legal\BCARTER\East Coast Power\Tosco\Risk Memo . Tosco ESA2 doc E0004402107 Ta EXH003-01421 ============= Page 38 of 142 ============= Comments/Mitigants. ECP has the option, without cause and in its sole discretion, to terminate the ESA within sixty-five days of its execution. If ECP terminates the ESA within this sixty-five day period, Tosco will reimburse ECP for the (a) entire $2.5 Million in EPC contractor costs, or (b) $1.25 Million of the EPC contractor costs and an estimated $1.5 Million in additional steam sales (pursuant to a Reimbursement Agreement), depending on whether BRC obtains lien releases from its mortgagor relating to the sites for the Ground Leases. 3. Mortgage Encumbering Ground Lease Sites. BRC has encumbered the sites to be covered by the Ground Leases with a $150 Million mortgage. The Ground Lease for the Interconnection Facilities is essential to the New Facility. If the liens are not released, the Ground Leases are subordinate to the mortgage and can be terminated by foreclosure of the mortgage. Comments/Mitigants. If BRC fails to deliver releases from the mortgage within fifty-five days of execution of the ESA, ECP may terminate the ESA and Tosco will be obligated to reimburse ECP for all of the $2.5 Million in ECP contractor costs that ECP will incur. ECP will have no liability for rents under the Ground Leases unless the lien releases are delivered. 4. Reduction of Tosco's Obligation to Purchase Its Electricity Requirements From ECP/Shut Down of Bavwav Refinery. Under the ESA, subject to certain conditions Tosco may take its electricity requirements from sources other than the New Facility and may shut down the Bayway Refinery. In each instance, Tosco must continue to pay all fixed charges and ECP has the right to make merchant sales in such events. However, if demand for merchant power is insufficient to operate the New Facility at a level of output that is economically feasible or not permitted by ECP's emissions permit (which currently would not allow the New Facility to operate at an output less than 90MW), Tosco has no obligation to compensate ECP for lost revenues from merchants sales. Comments/Mitigants. In any of those events, Tosco must continue to pay the full amount of all fixed charges (after the commercial operations date, fixed charges are payable in all events, including a force majeure in which ECP is the affected party), except in the event of ECP's default under the ESA. Tosco will be obligated to share a portion of the savings in the case of item (b) above and pay to ECP all costs incurred by ECP if ECP is required to shut down the New Facility. Further, for the duration of the stranded cost recovery period in New Jersey, electricity from purchasers from third party marketers or new generation constructed on the Bayway Refinery would bear stranded cost charges, while the new Facility will grandfathered, thus sheilding Tosco form stranded cost charges on electricity purchases from the New Facility. 5. Construction Cost Overruns. Payments for ECP's cost of construction are determined by a "Fixed Facility Charge Component," based on a pro forma analysis of such costs that is an exhibit to the ESA, recoverable in monthly payments over the life of the ESA. Subject to certain limited number of exceptions, ECP bears one-half of the risk of construction cost overruns. Comments/Mitigants. There are no contractual mitigants to the risk of not recovering all cost overruns. However, ECP retains one-half of the benefit of completing the New Facility below budget, in which case the Fixed Facility Charge Component is reduced by only one-half of the cost savings. The risk of most construction cost overruns can be passed to the EPC contractor. There are no contractual mitigants for cost overruns not due to EPC contractor performance and not borne by Tosco. 6. Penalties for Delay in In-Service Date. If the actual in-service date is between 15 and 76 days after the scheduled in-service date, penalties are $18,000 per day. If the actual in-service date is more than 76 days after the scheduled in-service date, penalties are $1,080,000 plus $36,000 per day. At any time, ECP may cut off further accumulation of delay payments by terminating the ESA and paying $13,140,000 in addition to the delay penalties accrued as of the date of termination. \\enehou\houston\common\Legal\BCARTER\East Coast Power\Tosco\Risk Memo - Tosco ESA2.doc E0004402108 =XH003-01422 ============= Page 39 of 142 ============= Comments/Mitigants. ECP receives comparable incentive payments if the actual in-service date occurs earlier than the scheduled in-service date. However, there are no ESA contractual mitigants to the exposure to delay penalties. Any delay caused by the EPC contractor can be passed to the EPC contractor. 7. Back-Up Energy Costs/Availability. ECP bears the cost of all back-up energy costs if the New Facility is less than 92% available. In addition, ECP bears the cost of back-up energy during any force majeure period for which the cause is an event that occurs within the site of the Existing Facility and/or the New Facility that is an insurable loss. Comments/Mitigants. Availability is determined on rolling average, the measuring period starting at 12 months and increasing to a six-year rolling average. This mitigates the effect of relatively short-term outages. Tosco bears all reservation charges for back-up energy and all back-up energy charges if the New Facility is 92-100% available during the applicable measuring period. Tosco also bears all back-up energy cost in certain enumerated events, such as a failure of Tosco to perform certain duties, interim increases in Tosco's load, and periods in which the New Facility is "deemed available" as a result of shutdown of the New Facility due to Tosco's election to purchase from third parties. 8. Tosco Fuel Purchases. ECP may not enter into any agreement to purchase fuel for a term greater than 6 months. Tosco has the right on 30 days' notice to take over the purchase of all fuel for the Facility. Comments/Mitigants. Tosco must purchase the fuel for its own account and risk, may not require ECP to break any then-existing fuel supply agreements entered into by ECP, must indemnify ECP for any costs or losses as a result of Tosco's vendors' failure to deliver fuel, and generally bears the risk of higher fuel costs if it does not properly manage fuel purchases since fuel cost is a pass-thorough. However, there is no contractual mitigant for the potential loss of merchant revenues to ECP if Tosco mismanages fuel purchases. 9. Regulatory. The ESA requires ECP to maintain the New Facility as a QF, so long as Tosco purchases enough steam for that purpose (aside from PUHCA-related issues, general QF status entitles Tosco to preferential rights to, and rates for, back-up energy). If QF status is no longer necessary from ECP's and Enron's standpoint due to changes in federal and state regulation, the ESA would require ECP to maintain QF status solely for Tosco's benefit under the ESA. Comments/Mitiaants. ECP is no longer required to maintain QF status when (a) it is no longer necessary for ECP to perform its obligations under the ESA and (b) loss of QF status has no material affect on Tosco that can not be compensated by the payment of money (the additional cost of back-up energy). If restructuring of the Con Ed contract for the Existing Facility results in a need to no longer maintain the Existing Facility as a QF, ECP will be able to maintain the QF status of the New Facility stand-alone, so the ability to do the restructuring of Con Ed contract for the Existing Facility should be unaffected by the requirement to keep QF status for the New Facility. 10. Interconnection Facilities. ECP will lease the site for the Interconnection Facilities but Tosco will have sole responsibility for construction, operation and maintenance of the Interconnection Facilities. Comments/Mitigants. If Tosco fails to properly construct the Interconnection Facilities, the in-service date will be delayed but ECP may demonstrate that the New Facility is capable of commercial operation, in which case Tosco must commence payment of fixed charges although the in-service date has not occurred. If Tosco fails to properly maintain the interconnection facilities, ECP may take over the operation and maintenance of the interconnection facilities. However, there is no contractual mitigant or compensation to ECP for the loss of merchant revenues if Tosco fails to property construct, operate or maintain the Interconnection Facilities. 11. Assi¢nability. In the event of any assignment of the ESA, by ECP or Linden Venture, ECP would \\enehou\houston\common\Legal\BCARTER\East Coast Power\Tosco\Risk Memo . Tosco ESA2.doc E0004402109 :XH003-01423 ============= Page 40 of 142 ============= remain liable for ESA obligations unless there is a guarantor of the assignee's obligations having a net worth of $2 Billion, although ECP's current net worth is approximately $76 Million. Assignment of any of the Ground Leases is not permitted unless a guarantor having a net worth of $250 Million. This may restrict ECP's ability to sell the Linden assets or interests in the Linden assets. Comments/MitiRants. ECP should be able to cause such an asset transfer to occur by stripping out other assets and causing a sale of Linden Venture or ECP. 12. Environmental. Each of the sites covered by the Ground. Leases is subject to an Administrative Consent Order ("ACO") between Exxon, Tosco's predecessor in title, and the New Jersey Department of Environmental Protection ("NJDEP"), calling for remediation of environmental remediation of the property by Exxon. Exxon tightly controls any right to conduct environmental audits of the property and ECP has been unable to conduct environmental audits. BRC indemnifies ECP for all costs and liabilities for pre-existing environmental conditions, except for up to $500,000 per site that may be incurred as additional cost for removal and/or treatment of contaminated soil in the construction process, although ECP can ultimately recover such costs by adjustment to the fixed charges under the ESA. However, ECP is responsible to indemnify BRC for any contamination of the sites by ECP after closing. The lack of an environmental audit by ECP does not allow ECP to establish a "baseline" measurement of contamination existing at the time of closing and creates difficulty of proof as to whether any contamination was pre-existing or caused by ECP. Comments/Miticants. Exxon is required to periodically test the property and provide results to BRC, so a "baseline" may be established at a time fairly close to the closing date. Constructing the new projects on concrete pads, careful manifesting of disposal of hazardous materials and other customary environmental compliance measures will also mitigate this risk. \\enehou\houston\common\L.egal\BCARTER\East Coast Power\Tosco\Risk Memo - Tosco ESA2.doe E0004402i.,n XH003-01424 ============= Page 41 of 142 ============= Global Finance Summary (addendum to DASH). 1. Transaction Summary Linden 6 will be a 160MW gas-fired expansion of the existing Linden facilities owned by ECP. Energy will be sold to TOSCO under a 17 yr. ESA. Initial funding of the transaction will be from ECP's working capital facility. Permanent financing is contingent on a re-capitalization agreement between ECP and General Electric Capital Corp. ("GECC"). Once the agreement with TOSCO is signed for Linden 6, ECP has 65 days to reach agreement with GECC or back out of the transaction. During this 65 day period, $2.1MM in progress payments associated with the HRSG and transformers for Linden 6 will be made by ECP. If ECP does not reach a tenative agreement with GECC on a recapitalization, ECP can terminate the Linden 6 transaction and TOSCO will reimburse ECP for the $2.1 MM in expenditures through a $1.1 MM payment at termination and through increased steam sale purchases for the remaining amount. Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 65 Dav Period 94,200 0 94,200 0 Permanent Financing 94,200 56,520- 37,680 0 (* Linden 6 can Support financing of approx. 60% based on DSC ratios at ECP. With the recapitalization, GECC will contribute equity and additional debt at ECP will be raised, restructuring debt at the project company levels, so there will be no debt explicitly tied to Linden 6. Restructuring at ECP is expected to occur in the 2nd quarter.) 2. Investment terms and pricing: / `Market 0 Above Market 0 Below Market Describe (if necessary): arket 0 Above Market 0 Below Market 3. Financing terms and pricing: AM Describe (if necessary) : nrestricted0 Legally Restricted 0 Practically Restricted 4. Legal or practical liquidity restrictions: 4\U Describe (if necessary) : 5. Any recourse to Enron (other than investment): 0 Recourse X No Recourse Describe (if any): 6a. Business unit intent to syndicate: 0 None 0 Partial X All Describe (if necessary): JEDI II owns 51% of ECP; El Paso owns the remaining 49%. 6b. Intended Enron hold period: 6c. Likely Syndication Market: 0 Industry/Strategic Partner 0 Direct Private Equity 0 Capital Markets 0 JEDI I X'JEDI 2 (51% - $48.04MM) 0 Enserco Z, 1,JM I or 2 C Condor Other: El Paso 0 Margaux (49% - $46.16MM) 6d. Is this a JEDI 2 "Qualified Investment"? )C Yes 0 No 7~Lt.;u, , R r i a^ 2.f Y( 2 12, oco Global Finance Representative: Signature Name (Printed) w ate EOO04402111 XH003-01425 ============= Page 42 of 142 ============= KINK ASSESSMEN 1 ANI) LU1r I IWL DEAL APPROVAL SHEET DEAL NAME: N/A Date DASH Completed 03/17/2000 Counterparty: Mariner Energy LLC. RAC Analyst: William McKone Business Unit: CTG Investment Type: Debt Business Unit Originator: Brad Dunn Capital Funding Source(s): Balance Sheet DPublic Private Expected Closing Date: 03/20/00 )]Merchant DStrategic Expected Funding Date: 03/21/00 t]Conforming DNonconforming Board Approval: DPending Received DDenied ON/A RAC Recommendation: ®Proceed with Transaction DReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Incremental Funding - $31 MM, Extension of Current Loans - $80 MM EXPOSURE SUMMARY Existing Exposure: $198 MM This transaction: $31 MM Total $229 MM DEAL DESCRIPTION ENA proposes to purchase $111 MM of Sr. Unsecured Notes ("Notes") from Mariner Energy LLC. The Notes will have a term of three years and an interest rate of 15%. In addition ENA will receive 600,000 5-year, detachable warrants that strike at $.01 per share. ENA will receive another 300,000 warrants under the same terms and conditions if the Notes are not repaid after one year. The notes must be repaid with the proceeds of any new equity issued by Mariner. Mariner will not be permitted to incur additional indebtedness, must maintain an EBITDAX to interest expense ratio of 1.65x, and an EBITDAX to fixed charge ratio of 1.25x. ECT Securities LP will earn a 1% structuring fee. The proceeds will used to repay the existing ENA credit facilities and fund a portion of the approved 2000 capital budget. ENA currently has a $50 Mlvi convertible credit facility with Mariner Energy LLC. This facility has a maturity of 4/30/00, a coupon of LIBOR+450, accrued interest of approximately $4.7MM, and a convert price of $175 per share. ENA also has a $25 MM revolving credit facility with Mariner Energy Inc. This facility matures on 4/30/00 and bears interest at LIBOR+250. Iguana currently owns a participation right in both of these facilities. Approximat ly $30 MM will be re-invested under the 2000 capital budget. The 2000 capital budget is $70 MM before asset dispositions. It consists of $40MM for development projects, $20MM for appraisal drilling and $10 MM for exploration. The deal team feels that these projects have excellent risk/reward characteristics and if successful, should increase Mariner's equity value by more than $50 MM. TRANSACTION SOURCES AND USES OF FUNDS Sources Enron Balance Sheet $31 MM MEI Senior Credit $25 MM Facility MEI Credit Facility $54 MM Total Sources $110 MM Uses Mariner LLC Sr. Unsecured $110 MM Notes Total Uses $110 MM RETURN SUMMARY PV @ Cumulative Capital Price IRR Return Components: Cash Outflows N/A N/A Fees N/A N/A Intermed. Cash Flows N/A N/A Terminal Value N/A N/A Total NPV N/A N/A I Capital Price Components Risk free rate (%): 6.66% Equity/Credit premium (%): 11.88% Country Premium (%): Transaction-Specific (%): RAC CAPITAL PRICE: 18.54% Relative upside ratio N/A E0004402112 =XH003-01426 ============= Page 43 of 142 ============= RAC Deal Approval Sheet Deal Name: Mariner EnergyLLC. RETURN SUMMARY (cont.) Instrument Amount Maturity Coupon Strike PV lRR** Unsecured Notes $11 OMM 3/17/2003 15% N/A ($9.6MM) N/A Warrants* 900,000 3/17/2005 N/A $0.01 $1OMM 1'8.5% the valuation for this instrum ent only considers deterministic returns and assumes that Mariner will not repay the unsecured notes after 1 year. In addition, the model assumes that the warrants are exercised in 3 years. **'Ihe IRR of 18.5% is generated from the combined cash flows of the unsecured notes and the warrants. Comparable Debt Instruments Company Moody's Rating S&P Rating Coupon Maturity Price Yield Lomak Petroleum Caal B 8.75% 1/15/2007 87.00 11.55% Drypers Corp. Caal B- 10.25% 6/15/2007 78.00 15.39% Airtran Airlines B3 B- 10.50% 4/15/2001 97.25 13.30% Four M Corp. Caa 1 CCC 12.00% 6/1/2006 98.50 12.34% Trans World Airlines Caal CCC 11.50% 12/15/2004 63.00 25.30% Abraxas Petroleum Caa2 CC 11.50% 11/1/2004 68.25 23.01% RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Exploration Risk - Mariner will drill 3-5 These are all technically sound. Most have HCI, structure, and exploration tests in 2000 nearby analogy. Only 20% of the budget is allocated to exploration Concentration Risk - Three well bores (Pluto, Mariner is working to mitigate this. risk with insurance and through Dulcimer, and Apia) produce 60% of 2000 a production swap. expected production. If one of these wells goes down it could material impact the companies ability to fund the capital program Development Risk - The company plans to spend This is Mariner's area of expertise. They have successfully 52% of the capital budget ($37MM) developing completed six subsea tiebacks to date. two subsea tiebacks Solvency/Working Capital Needs Risk - Mariner The deal team is working with investment banks in order to find a may require additional funding for capex and suitable company that would be willing to purchase all/a portion of working capital needs over the medium term, Mariner's equity. The proceeds from this transaction would be especially if the company's operating performance applied towards paying down debt and funding working capital does not meet forecasted goals. needs. However, the likelihood and timing of finding a willing partner is uncertain. KEY SUCCESS FACTORS NA Poor Excellent Core Business x Strategic Fit x Upside Potential x Management x Risk Mitigation X OTHER RAC COMMENTS: Without the requested funding, Mariner will be forced to significantly lower its 2000 capital budget for exploration, project development and drilling. In addition, the company would most likely experience severe liquidity problems due to working capital shortages. RAC recommends proceeding with the funding to ensure Mariner's viability. O:\Stfm\FROM BD\DASH Marina_0300.4oc E0004402113 -page 2 =XH003-01427 ============= Page 44 of 142 ============= RAC Deal Approval Sheet Global Finance Summary 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financing Less: Syndication's Net Enron Investment Amount ($000) 31,x,coo . -0- -0- 31, ooo, cno $r 2. Investment terms and pricing: Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): Deal Name: Mariner EnergyLLC. 0 Unrestricted 0 Legally Restricted 6a. Business unit intent to syndicate: None Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: Market 0 Above Market 0 Below Market XMarket 0 Above Market O Below Market 0 Recourse 0 Partial 0 Industry/Strategic Partner 0 Capital Markets 0 JEDI 2 0LJM1or2 0 Other: Practically XNo Recourse D All D Direct Private Equity D JEDI 1 D Enserco D Condor D Margaux 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes XNo Global Finance Representative: Signature Name (Printed) Date O:Stfm\FROM BDIDASH Mariner 0300,E Page 3 E0004402114 EXH003-01428 ============= Page 45 of 142 ============= m ev-1 RAC Deal Approval Sheet Deal Name: Northern ea er APPROVALS ENA Originator ENA Commercial Transactions Group ENA Regional Mgmt. Legal RAC Management ENE Capital Management ENE Management Name Brad Dunn Ray Bowen Cliff Baxter or Greg Whalley Mark Haedicke Rick Buy or David Gorte Andy Fastow/Jeff McMahon Jeffrey Skilling or Joe Sutton WS2finTFROM BD\DASH dthnsr fl300.&c -P-w- 4 to J-/7 Y) 3 20 Ic O /loo J c5 c 00 EC004402115 EXH003-01429 ============= Page 46 of 142 ============= M-6 E0004402116 XH003-01430 ============= Page 47 of 142 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Mission Coal Financing Date DASH Completed: 20"' December 1999 Counterparty: Edison First Power Ltd. RAC Analyst: Esther Gerratt/David Hardy Business Unit: Coal Trading Investment Type: Coal Purchase/Financing Business Unit Originator: Riaz Rizvi, Stuart Staley Capital Funding Source(s): Enron Balance Sheet OPublic Private Expected Closing Date: 16'x' December 1999 ElMerchant OStrategic Expected Funding Date: 17'x' December 1999 OConforming ONonconforming Board Approval: Wending OReceived ODenied EIN/A RAC Recommendation: OProceed with Transaction (Returns below Capital Price ODo not Proceed APPROVAL REQUESTED Capital Commitment: GBP 15,000,000 (USD 24,300,000) for the purchase of 480,000 tons of coal which have an estimated resale value of GBP 11,345,000 (USD 18,380,000). EXPOSURE SUMMARY I) This Transaction Commodity Exposure: Long coal December 1999 480,000 metric tons, reducing evenly over a 12 month period, starting January 2000. VAR: 0 See Other RAC Comments Credit Reserve: 0 1-year deal Prepay Component (GBP m): 3.65 Corresponding to the difference between purchase price and resale value Total (GBP nm) 3.65 (USD 5.9m) 2) [:xistin, Ex pol sure Under an existing coal supply deal with Mission, there is a monthly delivered unpaid exposure which peaks at GBP 11,000,000 (USD 17,820,000) decreasing to GBP 8,000,000 (USD 13,000,000) towards contract end at May 2000. DEAL DESCRIPTION Enron will purchase 480,000 metric tons of coal from Edison Mission at GBP 30.988 (USD 50.2) per metric ton. The total initial outlay will be GBP 15,000,000. Over the following 12 months Edison Mission will buy back the coal (40,000 metric tons per month irrespective of actual plant consumption) at GBP 32.40 (USD 52.5) per metric ton. This price is intended to partly cover Enron's cost of capital and a credit spread tied to senior secured debt of a BBB-rated (E-rating 4) entity. There will be no physical movement of the coal. The coal will remain on Edison First Power Ltd's property but Enron will have title and risk over it. III case the coal had to be resold to a third party, the coal desk estimates that its price would be GBP 23.6 (USD 38.3) per metric ton (net of transportation costs). Background: In July 1999 Edison Mission Energy bought PowerGen's Fiddler's Ferry and Ferrybridge coal-Fred power plants for GBP 1.25 billion. It was reported that Edison Mission funded 32% of the acquisition by equity, and the remaining 68% was funded by dual tranche limited recourse debt financing of GBP 850 million, term 13 years (one tranche of GBP 830 million and the other of GBP 20 million revolving debt). Edison First Power Ltd issued a GBP 1.15 billion bond in August 1999 (lead manager was Merrill Lynch) which is listed on the Luxembourg Stock Exchange and has been privately rated by Duff and Phelps as BBB. Edison Mission Enery is Edison First Power Ltd.'s parent company - however, Edison First Power is a non-recourse vehicle and does not appear- on Edison Mission's balance sheet. TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Enron Balance Sheet GBP 15,000,000 To purchase commodity GBP 15,000,000 E0004402117 EXH003-01431 ============= Page 48 of 142 ============= RAC Deal Approval Sheet RETURN SUMMARY Return Components: PV @ Cumulative Capital Price IRE (GBP) Deal Name: Mission Coal Financing Cash Outflows 15,000,000 - Fees - Intermed. Cash Flows - Terminal Value - Total NPV (83,580) 8.60% Capital Price Components 6 month GBP LIBOR 6.25% Enron Credit Spread 0.80% Mission Credit premium 1.20% Syndication Fees 1.50% RAC CAPITAL PRICE: 9.75% (*) (*) The RAC Capital Price represents an estimate of the price necessary to syndicate the transaction to a third party (i.e. market clearing price - excluding legal costs) and is supported by input from EGF. The coal desk is expected to be charged an additional 260bp for the deal (GBP 184,420) which represents the difference between Enron's WACC (9.63%) and LIBOR + Enron Spread. This will.bring the cost to the team to 12.35% and the deal's NPV to GBP (268,000). TRANSACTION UPSIDES/OPTIONALITY The deal is subject to the closing of a separate 12-month coal import contract with Mission starting in June 2000 which is an extension to the existing 9-month coal supply contract described under "Existing Exposure" above. This extension deal involves supplying 4,200,000 metric tons of coal with an optional further 1,000,000 tnt and has a net present value of USD 8 million. CASH FLOW SUMMARY 4.00 2.00 --------------------------------------------------------------- 0.00 -2.00 -------••---..----•----------------------------------------- -4.00 - ------------------------------•------------------------------ c 0 -6.00 E -10.00 ------------------•-----•--•-----------••--••--------..-••-• m -8.00 ----- - --------------------- ------------------------ -12.00 -------- - - - -14.00 •1`•1............................................................. -16.00 ..._._.--- CP OO 61 k& 00 00 00 00 00 00 0p 00 00 E0004402118 S:\Underwriting\a-Projccts\Activc\Mission Prcpay\Mission DASH 21-12-99.doc Pace 2 EXH003-01432 ============= Page 49 of 142 ============= RAC Deal Approval Sheet RISK MATRIX (Main 5 Risks Only) Deal Name: Mission Coal Financi DESCRIPTION MITIGATION/COMMENTS Credit Risk of Counterparty Edison First Power Ltd. is a non-recourse vehicle and there is therefore no parental guarantee from Edison Mission. However, 'its GBP 1.15 billion senior secured debt (listed on the Luxembourg Stock Exchange) has been privately rated by Duff and Phelps as BBB. This rating was the basis for the calculation of the credit spread. Commodity Risk In the event of insolvency Enron retains title and risk over the coal and always has access to it. The risk of the coal being disposed of in some way other than by Enron is covered by Enron's global products insurance (covering in particular theft, fire, etc). An independent inspection will confirm the physical existence of the coal to which Enron has title and risk. Enron's coal will be made distinguishable from other coal stock at the site with flagpoles. Regular inspection rights will be a contractual obligation. Contractual terms will state that storage is free. In case the coal had to be resold to a third party, the coal desk estimates that its price would be GBP 23.6 per metric ton (net of transportation costs). Station Shutdown It is considered very unlikely that the power station will shutdown in light of the recent bank financing of GBP 1. 15 billion (6 months into a 13-year loan). If the station were to shutdown Enron would wear the risk of the transportation costs of moving the coal to another site. OTHER RAC COMMENTS: ']'here is no market risk in this deal unless the counterparty defaults in which case the originating desk estimates that the coal could be transported to another site and sold there for a net value of GBP 23.6 per ton (a loss of approximately 24%). APPROVALS Name Business Originator Stuart Staley Regional Mgmt. Mark Frevert Regional Mgmt. John Sherriff Legal Michael Brown RAC Management Rick Buy RAC Management Steve Young Enron Global Finance Paul Chivers Enron Global Finance Jeff McMahon ENE Management Jeffrey Skilling Signature Date (~-V -2 L - 2. c 23 1z l E0004402119 S:\Underwriting\a-Projccts\A\ctive\Mission Prepay\Mission DASH 21-12-99.doc Page 3 EXH003-01433 ============= Page 50 of 142 ============= RAC Deal Approval Sheet Deal Natvo. ?vti~sion Coal Finanrin2 .RIS r rATRIX loin S Risks Only) DGSCRIPrrON NUT] GkTIOhICOMMFILWS Credit Risk of Coanterpnrty Edisoe First Power Ltd. is a nont-recourse vehicle and There is thcrefcre no parental ;uarentee from Edi.eon Mission. However, its G)3? 1.15 billion senior secured debt (listed on the L+xccmbourg Stock Exchange) has been privatzly rated by Duff end Phelps as $88. This ratdl" was the basis for the ealculatioo of the crediI s read. Commodity Risk Lo the event of insolvency Enron retains title znd risk over the coal and always has access to it. The ri or the coal being disposed of some wry other than by Enron is eoverid by Enron's global ii products insurance (covering in particutir theft, fire, ctc). An independent inspection will confirm, the physical existence of the coal to which Euron has titL a risk. Enron's coal will be made distinguishable from other caal stock at the site with flagpoles. Regular inspection rights will be a conttecvtat obligation.. Contractual ;eras will state that storage is free. in cage the coal had to be resold to a third party, the coal dc:k estimates that is price would be GB;' 23.6 per metric ton (n t of erac.sporillion costs). Station Shutdown It is considered'i ; f ut;likely that tbee power station wilt shutdown its light of the recent bank financing of G13P 1.15 billion (G -nor-Us into a 13•ycar loan). If the station. were to shutdown Eros would wear the rill: or t e rre.nsportation costs of moving the coal to another Site. OTHER RAC COMMENTS: Thcrc is no tnarkec risk in this deal ttrtlrss the eottnterp: Try dogs; lrs in Which case the ot•iginating desk estimates that the coal could be transported to another site and said there for a net value of GSP 93.6 par tar, (;, loss of approximately 241/y). AMOVALS Name Be.5itiess Originator Stuart Stzlcy Regional Mgrsit. Mark Ftevett Regional Mat. John Sherri.' Legal Michaci Brown ?.AC Management Pick Buy R-0.C Maragenieat Stave Young T_•'uron Gloloa] Finance Paul Chivers _ Enron Global Finance '*W-11 a _Q- ,F4. I:.NE Management Jeffrc Sk• Inn Signstture Date ~3 !z ~ l X799 ~z(2,7,JSp S ~tlrgerwtieingl~•F'raieecUtti~~"ivigr• MpAy4tittt ivn u.`Stt a tz~.ae~ E0004402120 yaps 3 P.04 -1003-01434 ============= Page 51 of 142 ============= RAC Deal Approval Sheet Deal Name: Mission Coal Financing Global Finance Summary (addendum to DASH) I. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment Amount 'V/ ..-t000.ODQ 6881' IS*, ooo, pop 2. Investment terms and pricing: Market 0 Above Market 0 Below Market Describe (if necessary): -Po a &A., rl Cc 3. Financing terms and pricing: (Market O Above Market 0 Below Market Describe (if' necessary): /ht hGl- ~ A~c°'r ^t"~h f alto n 4. Legal or priictical liquidity restrictions: Restricted Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): gon/E 6a. Business unit intent to syndicate: Describe (it' necessary): 6b. Intended Enron hold period: 09C Mo^(at 6c. Likely Syndication Market: 6d. Is this a JEDI 2 "Qualified Investment"? 2 (yes 1A ZL,, Global Finance Representative: Signature S:1Underwriting\a Projects\Active\Mission Prepay\Mission DASH 21-12-99.doc eA I I 0 Direct Private Equity O JEDI 1 O Lnserco 0 Condor 0 Margaux O No PAir- Cat vt2-J4s Name (Printed) E0004402121 (Unrestricted 0 Legally Restricted 0 Recourse C3 Practically o Recourse 0 None 0 Partial 0 Industry/Strategic Partner [9'Capital Markets YJEDI 2 OLJMIor2 0 Other: _ 23 /.2 Y Date Page 4 XH003-01435 ============= Page 52 of 142 ============= M-7 EO004402122 wunn2n1 A"J ============= Page 53 of 142 ============= ENRON DASH ADDENDUM DEAL NAME: Motown Date DASH Completed: 02/11/00 Counterparty: MCN Energy Group, Inc. RAC Analyst: M. Bonney, E. Pedersen Business Unit: Enron North America Investment Type: Equity Business Unit Originator: Doug Clifford Capital Funding Source(s): Balance Sheet/Jedi II/Other OPublic 1 Private Expected Closing Date: March 2000 (]Merchant OStrategic Expected Funding Date: April 2000 []Conforming ONonconforming Board Approval: Wending OReceived ODenied [HIN/A RAC Recommendation: []Proceed with Transaction DReturns below Capital Price ODo not Proceed REASON FOR ADDENDUM Subsequent to the internal approval of the Motown Project (attached DASH dated 01/31/00), the Region reformulated its bidding strategy to exclude the Carson assets from the bid to MCN. Based on this information and additional changes made to the model to better reflect the reality of the transaction, the new economics are outlined below. APPROVAL AMOUNT REQUESTED Enron North America ("ENA") seeks approval to bid on the sale of MCN Energy Group, Inc.'s ("MCN") ownership in two co- generation facilities in Michigan. Capital Commitment $57,500 EXPOSURE SUMMARY 0 This transaction: $57,50 Total $57,500 TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Enron Equity $57,500 Capital Expenditure $57,500 Total $57,500 $57,500 RETURN SUMMARY PV @ Cumulative Capital Price IRR Capital Price Components Return Components: Cash Outflows ($21,600) - Risk free rate (%): 6.51% Fees $0 - Equity/Credit premium (%): 1.76% Intermed. Cash Flows $30,897 -3.40% Country Premium (%): 0.00% Terminal Value $0 16.15% Transaction-Specific (%): 2.73% Total NPV $9,297 16.52% RAC CAPITAL PRICE: 11.00% E-Rating Relative upside ratio 0.724 E0004402123 =XH003-01437 ============= Page 54 of 142 ============= RAC Deal Approval Sheet CASH FLOW SUMMARY $15,000 $10,000 $5,000 $0 $(5,000) $(10,000) $(15,000) $(20,000) $(25,000) 0.1 0.8 1.8 2.8 3.8 4.8 5.8 6.8 7.8 8.8 Years Terminal Value Ongoing Fees 1~ Outflows Cumulative P95 -r -Cumulative P5 .•.•• Expected cumulative cash flo E0004402124 O:\ECM\RAAP\$OPNDEAL\ECT\Motown 1l\Pricing_0200\Run 032200\DashAddendum_Motown 032900.doc Page 2 =XH003-01438 Cash Flow Summary ============= Page 55 of 142 ============= RAC Deal Approval Sheet APPROVALS Originator Regional Management ENA Management RAC Management Name Doug Clifford / Dave Duran Jeff Donahue Cliff Baxter Rick Buy / Dave Gorte P Date 22 (! !IC.rr.h(O 3 A 3 Q06 E0004402125 O:\ECM\RAAP\$OPNDEAL\ C1'av7otown 1lTricing_0200iitun 032200\DashAddendum_Motown 032900.doc Page 3 - =XH003-01439 ============= Page 56 of 142 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Motown Date DASH Completed: 1/31/00 Counterparty: MCN Energy Group, Inc. RAC Analyst: M. Bonney, K. Lucas, E. Pedersen Business Unit: Enron North America Investment Type: Equity Business Unit Originator: Doug Clifford Capital Funding Source(s): Balance Sheet/Jedi II/Other OPublic IM Private Expected Closing Date: January 31, 2000 (]Merchant OStrategic Expected Funding Date: April 30, 2000 )]Conforming ONonconforming Board Approval: OPending DReceived ODenied ON/A RAC Recommendation: Mx Proceed with Transaction DReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Enron North America ("ENA") seeks approval to bid on the sale of MCN Energy Group, Inc.'s ("MCN") ownership in three co-generation and one simple cycle facilities. Capital Commitment $58,785* *After non-recourse debt placement and Jedi 11 equity participation, ENA's equity stake wilt be approximately $18.75 MM EXPOSURE SUMMARY This transaction: 5$ 8,785 Total $58,785 DEAL DESCRIPTION Enron North America ("ENA") proposes to purchase three Qualifying Facilities ("QFs") in Michigan and California from MCN Energy Group, Inc. ("MCN"). The strategic rationale for acquiring these assets is to (1) restructure the PPAs in order to monetize stranded costs and (2) create new market-based PPAs with the utility that currently purchases power at above-market rates. ENA plans to restructure the PPAs associated with the three QFs by 2002 with a 20% discount on stranded cost to the utility. The value of the restructuring is derived from the delta between the current PPA prices and market-based replacement PPAs based on a curve, which the utility is willing to accept. The new PPAs will be decoupled from the current QFs, and ENA may fill its PPA requirements by buying power from the open market or running the plants. The facilities will essentially act as merchant plants dispatched based on their heat rate and market prices for electricity. The main value drivers in this transaction are (1) monetization of stranded costs specific to the three QFs, (2) replacement of the PPAs with a short position from the market, and (3) merchant value of the plants. ENA will incur breakage costs associated with unwinding the PPA and associated gas, steam and management contracts, which will take the form of up-front payments to the appropriate counterparties. The total bid price is expected to be less than $59 million, financed on a 60/40 debt to equity basis. Debt financing is still to be negotiated with banks and model assumptions are based on Enron Global Finance estimates of achievable financing terms. The facilities will most likely be purchased through a "Friend of Enron" structure, in order to satisfy any regulatory limitations on Enron's ability to hold QF assets. Other structures are also being considered, including Enron ownership through a special purpose vehicle with an option to buy out the investor when permissible (pending approval of a PUCHA exemption request from the SEC). Background information with regard to the three QFs is as follows: E0004402126 The Michigan Power Project ("Michigan Power") is a gas-fired, combined cycle power plant located in Northwestern Michigan (Ludington) that generates up to 129.0 MW (including 6 MW of merchant capacity currently sold to the utility on first right of refusal). The project is currently managed through long-term PPA with Consumers Energy ("CE"), steam contract with Dow Chemical Company and fuel contracts with MCN affiliates. Michigan Power began commercial operation in 1995. The turbines have historically produced about I million MWh per year and have a current heat rate of approximately 9,500 MMBtu/kWh • The Ada Cogeneration Project ("Ada") is a 29.4 MW gas fired combined cycle power facility located in West-Central Michigan. Commercial operation commenced in 1991. Ada serves electricity to CE under a 35 year PPA and maintains a steam contract of equal term with Amway Corporation. Fuel requirements are supplied under a firm Gas Supply Agreement which expires on December 31, 2008. The turbines are 9-years old and have a current heat rate of 10,300 MMbtulkWh with 190,000 MWh of annual production. • The Carson Cogeneration Project ("Carson") is a 42.0 MW gas-fired facility located in the Los Angeles, California area. The Carson project providc3 3crvicc to Southcrn California Edi3on undcr a 30 year PPA and provides Steam ".rvicee to XH003-01440 ============= Page 57 of 142 ============= RAC Deal Approval Sheet Mountain Water Ice Company. Both contracts expire in 2020. Gas is supplied under short term (one year) contracts at a price equal to the average California border gas price. The turbines at the Carson facility have been in operation since 1990 and have a current heat rate of 9,000 Mmbtu/kWh with 340,000 MWh of annual production. The Carson and Ada facilities are operated under long-term contracts with General Electric Plant Operations, Inc. ("GEEPO") and Dynegy provides O&M services for the Michigan project. • The Carso ;, Ada and Michigan power facilities have historically met the 5% PURPA power standard and 45% operating efficiency standard necessary to qualify as a Qualifying Facility ("QF') under the PURPA. If, during the term of the PPAs, the Ada or Carson facilities were to lose their status as QFs, then the off-taker may terminate the PPA. In the case of Michigan, CE will be obligated to purchase power pursuant to a tariff set by the appropriate regulatory agency. The bid submitted by the deal team will be subject to completion of due diligence and implementation of a viable regulatory structure (see Risk Matrix under Legal Risk). TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Enron Equity $58,785 Capital Expenditure $58,785 Total $58.,785 $58,785 RETURN SUMMARY PV @ Cumulative Return Components: Capital Price IRR Cash Outflows ($24,676) - Fees ($ 1,733) - Intermed. Cash Flows $26,173 10.56% Terminal Value $ 236 10.81% Total NPV ($0) 10.81% Capital Price Components Risk free rate (%): 6.53% Equity/Credit premium (%): 5.02% Country Premium (%): 0.00% Transaction-Specific (%): -0.55% RAC CAPITAL PRICE: 11.00% E-Rating Relative upside ratio IRR Distribution 1 0.0% Expected 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% PS 3.0% 5 2.0% 1.0% 0 0% . t~ eE zg aQ t~ tg * tE tR tE s t aE t4 se zg 00 M O. st h O A 0% rn a0 N n _ N 1O a Cn f1 CT ~O N o0 Vy o0 d' n V' O t~ 7 N O N v1 00 O N1 ~O 00 ~ ~O C E0004402127 C:ITEMP\Dash_Motown_0201DO-graph corrections.doc Page 2 0.437 =XH003-01441 ============= Page 58 of 142 ============= RAC Deal Approval Sheet CASH FLOW SUMMARY Cash Flow Summary $20,000 r -- __ $15,000 $10,000  Elapsed ® Outflows $5,000 $0 $(5,000) 0 Fees tH Ongoing $(10,000) $(15,000) $(20,000) 0 Terminal Value $(25,000) $(30,000) - 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 Years Cash flow weighted average life: 8.75 years TRANSACTION UPSIDES/OPTIONALITY (include chart to show impact if appropriate) • State-backed securitization plan. The return summary above assumes that 75% of the time "termination payments" are received from CE over time and are monetized by ENA in the capital markets at a rate reflective of CE's cost of borrowing long-term funds (unsecured credit). To the extent the final deregulation plan for Michigan includes provisions for securitization of stranded cost, the effective rate of monetization will be more reflective of rates seen in the municipal bond market. • Replacement PPA at Bid curve. The return summary above assumes that utility stranded investment and the replacement PPA are priced at ENA's Offer curve. To the extent ENA can buy power at prices below the offer, additional margins will be realized by Enron. • Ancillary services provided at the Ada facility. The return summary above assumes that the Ada Project is shut down at a terminal value of $50/kW upon PPA restructuring. The facility is currently used to provide voltage support on the CE electric system. To the extent that an ancillary service market develops as a result of deregulation in the Michigan, additional value may be realized from the plant. • Expansion of the Ludington site. The Michigan Power Project is interconnected to the 138 kV system in Northwestern Michigan and has undeveloped land adjacent to the site for future expansion. The state's 5% generation reserve margin, physical constraints currently present in the electric transmission system (which limit delivery of power into the state) and active development of gas pipeline projects in the region make Michigan attractive from a network coverage standpoint. No value has been attributed to future expansion in the above return summary. • Transmission constraints as they impact prices used to value merchant plants. Transmission constraints into Michigan may lead to periods of higher price volatility in the Michigan market than may be reflected in the AEP to Michigan curves used to value merchant assets post restructuring. The ability to realize this value stems from the development of a more liquid power market than exists presently in Michigan. A more liquid market may develop with deregulation in the state and the introduction of multiple suppliers and load aggregators. No value is attributed in the return summary relating to this effect. EXIT STRATEGY (Merchant investments only) The Region plans to sell the facilities if the restructuring process is successfully achieved either to a third party or to the ENA trading desk. E0004402128 C:ITEMP\Dash_Motown_O2010D_graph corrections.doc Page 3 :XH003-01442 ============= Page 59 of 142 ============= RAC Deal Approval Sheet RISK MATRIX (Maximum 5 DESCRIPTION MITIGATION/COMMENTS Regulatory Risks The progress and timing of deregulation in Michigan may impact -Risk that restructuring of Michigan Power and/or ENA's ability to restructure and monetize the Michigan Power Ada PPAs will be delayed or does not occur due to and/or Ada PPAs - CE has low incentive to restructure contracts uncertainty related to Michigan electric utility before MPSC determines overall stranded costs. Michigan's industry restructuring. Legislature is expected to consider legislation during the 2000 Session - probable passage in Sine Die. If legislation passes by 12/31/00, Consumers Power can expect a MPSC Order on stranded costs within 24 months. -Risk that Michigan legislation will not provide for Monetization of stranded costs will be greatly enhanced to the Securitization. extent the final plan for deregulation in Michigan provides state- backed recovery of costs through Securitization. In the absence of legislative mandate, Motown has been modeled using a rate for monetization that is reflective of the utility's long-term cost of borrowing. -Risk that either MPSC or CPUC do not approve The MPSC and CPUC must approve the PPA restructuring. ENA the PPA contract reforms. should seek to structure the reformed PPAs to provide ratepayer benefits. -Risk that MPSC issues enforceable Order In the initial MPSC Restructuring Order, the MPSC did not providing Consumers Power with a legal address the recovery of stranded costs after 2007 - this issue is regulatory out. currently under appeal. If this is found to be legal, CE could interpret the Force Majeure.clause to stop payment to Michigan Power and/or Ada PPAs. There exists persuasive case law apart from this appellate case that supports the proposition that the MPSC cannot limit the time frame for the recovery of QF stranded costs. -Risk that transmission constraints impact replacement PPA. See Transmission Risk discussion below. -Risk that California modifies current policy California AB 1890 provides for full recovery of QF associated supporting QF associated stranded costs. stranded costs. California could modify its current position. There exists persuasive case law that would limit California changing its policies. Mitigation through rapid contract reform. -Risks inherent with QF status - efficiency/thermal ENA indicates that both issues are managed. obligations and ownership restrictions. E0004402129 C:ITEMPSDashMotown_020100 ..ph_corr„ctions.doc Page 4 :XH003-01443 ============= Page 60 of 142 ============= RAC Deal A roval Sheet Merchant asset value The model assumes that the current PPA will be replaced with a Risk that estimated merchant value is PPA that is non-specific to the facilities. It is the Region's overestimated. intention to run the plants as merchant assets. The merchant value was determined based on input from the East Desk trading floor and the deal team with regard to proper price curves and constraint issues. Three different values were obtained and used as probabilistic parameters in the RAROC model: (1) Spread option valuation of $216/kW (intrinsic) was estimated based on Cinergy plus Michigan basis power curve from 2000- 2015, New York plus $0.30/MMBtu gas curve and treasury rates. (2) The deterministic dispatch model yielded a value of $237/kW based on Cinergy plus Michigan basis power curve from 2001- 2020, Chicago City gate plus $0.15/MMBtu gas curve and a 14% discount rate. (3) Regression analysis value of $301/kW was estimated based on the plants' heat rate and age (R2 of 0.7 and T-stats of - -4.5 ). An expected price of $237 was used in the model with an extreme value distribution (minimum of $216 and a maximum of $301). Transmission The impact of transmission constraints into Michigan is deemed -Risk that ENA will be transmission constrained in considerable and could impact the pricing and deliverability of filling the electric needs of the utility under a power. The problem is deemed to be most critical for the summers replacement PPA. 2001 and 2002. The value of Michigan and Ada as merchant facilities was adjusted for such constraint and the cost of the plant's "optionality" as it relates to fulfillment of the replacement PPA is fully reflected in each plant's merchant value based on the power and gas curves given by the desk. If these offer curves do not reflect the market in 2002, the merchant value of the plants could change. As the plants located in Michigan are currently interconnected to and operate in parallel with the CE system, the risk of non-delivery from the plants should not materially change due to PPA restructuring. C:ITEMP\Daslr_Motown 020100graplr_corrections.doc EOO04402130 Page 5 XH003-01444 ============= Page 61 of 142 ============= RAC Deal Approval Sheet Financing assumptions The model financing assumptions are based on Enron Global -Risk that debt cannot be financed at specified Finance estimates of achievable financing terms for the stated rates facilities in North America. No letters of interest have been -Risk that securitization or monetization will be obtained from banks at this time. more expensive than assumed The model assumes that ENA will leverage its investment. A 14- year loan term based on a swap LIBOR rate plus 138 by (increasing to L+175) was assumed as new debt to the project. Av