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Enron Mail |
Doug,
This is a recap of my understanding of our damages calculation in the Calpine matter: For the year 2000, EPMI relied primarily on the contract with Oxychem to fulfill its obligations to LCRA. EPMI paid $1 per kilowatt month for a total of $1.2 million for capacity under the Oxychem deal. In addition, we had costs and expenses to supply energy to LCRA when it exercised its option. [Doug, I need to revisit our calculation here to make sure I understand it. Ed, this is information that I will need to supplement for you.] We also paid liquidated damages on, as you recall, two occasions, when we could not physically supply power. I received documentation from Mike Curry that shows LDs of $55,821.50 for 5/12/2000. We are attempting to locate documentation of the other day for which we had to pay LDs, but you believe it would have been a similar amount. We also discussed the issue of additional damages caused by LCRA's ability to select an 8 hour peaking option rather than a full 16 hour on peak day. EPMI would generally need to purchase a full 16 hour piece in order to fulfill LCRA's 8 hour peaking option. EPMI could then attempt to sell the extra 8 hours, but could only do so on the spot market and typically at a substantial discount over what EPMI could have sold the full 16 hour piece. The process of pulling documentation to show what we used to fulfill the days when LCRA selected the peaking option, and what part of the remainder of that piece we were able to resell (and at what price) is a very labor intensive process, which we currently have underway. You estimate that this "scaler" issue resulted in approximately $250,000.00 additional damages, which we will confirm as we are able to locate the documentation. Your estimate of total damages related to the year 2000 is $1 to 1.5 million. [I need to clarify whether this is in addition to the $1.2 million capacity charge.] For the year 2001, we are primarily relying on the Frontera contract. We paid Frontera $6.2 million for the year. We do not know how much of the $6.2 million we will be able to recoup from sales to LCRA and others, because we do not know with certainty what the price of natural gas will be and how many days LCRA will exercise either the daily 16 hour option or the 8 hour peaking option. Thus, we can, at best, estimate what our total costs will be for 2001. Thus far into the year, LCRA has only exercised its option a handful of times. Your approximation was 5 times. This results in minimal recovery based on sales to LCRA. When LCRA has chosen not to exercise its option we have gone into the spot market to sell the power. Our records indicate that we have sold the Frontera piece, when we could, and have recovered a total of $515,084 from 1/1/2001 through 4/18/2001. ( This is from a schedule provided by Eric Saibi.) For the remainder of April 2001, we can estimate perhaps an additional $129,408. (I arrived at this figure by taking the average profit per mwh for the 1st half of April and applying it to the last 8 week days of the month). Assuming that LCRA will exercise its option for most of the months of May, June, July and August 2001, we can arrive at an estimated recovery as follows: Taking an average natural gas price of $5.00, our variable costs for purchase of energy from Frontera will be $41.29 per mwh, and our variable costs for sales to LCRA will be $56.70; thus, we will recover approximately $15.41 per mwh sold to LCRA. There are 89 weekdays from May 1 through August 31. LCRA is expected to purchase full 16 hour days at times and choose only the peaking option at times (8 hours). We can blend this amount to average 12 hour days. $15.41 x 100 mw x 12 hours x 89 days = $1, 645,788. We may be able to sell the remaining half days when LCRA selects the peaking option on the spot market at a reduced price. If we are able to sell these 8 hour blocks at an average profit of $5.00 per mwh, we will recover an additional $178,000. We may occasionally be able to sell weekend hours during the summer months. Again assuming an average of $5.00 profit per mwh, we might recover an additional $272,000 ($5.00 x 100 mw x 16 hours x 34 days). We expect that LCRA will not exercise its option as often during the months of September through December. Using similar modelling, we can expect to recover perhaps an additional $750,000 to $1 million for the remainder of the year. Using these estimates we anticipate that we will recover approximately $3.75 million of our expenditure of $6.2 million, for a total loss of approximately $2.45 million for the year 2001. Because of the imprecision of our ability to estimate future variables, we should call this estimated damages of $2 to 2.5 million. I understand that we do not have our cover for 2002 finalized, but that we can expect losses similar to 2001, although perhaps a little lower. For purposes of estimation at this point, we would forecast a loss of $ 1.5 to 2 million for 2002. Doug, Please review this damages discussion at soon as you can, and then call me with any clarifications. Thanks. Bonnie J. White Enron Litigation Unit 1400 Smith Street, Suite 4824 Houston, TX 77002 Ph: 713-853-7244 Fax: 713-853-6576 bonnie.white@enron.com
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