February 2000 EMC Financial Results

Stan, please see the attached from Kerry. We have been close to shut down
economics but believe it still makes sense to run. Please let me know if you
want to disscuss this further.

JSP
---------------------- Forwarded by James Prentice/GPGFIN/Enron on 03/17/2000
01:30 PM ---------------------------

Kerry Roper
03/17/2000 02:25 PM
To: James Prentice/GPGFIN/Enron@ENRON
cc:

Subject: February 2000 EMC Financial Results

For the month of February, the Enron Methanol Company Income Statement
reflects a negative gross margin. As you pointed out, this raises a question
as to whether we should have been running the plant during the month.
Hopefully, this brief explanation will clarify the reasons we continued to
run.

As stated above, the gross margin was slightly negative; however, this
includes the cost of oxygen. Most of the oxygen expense (approx. $300,000) is
a fixed cost because of our take or pay agreement with Praxair. As a result,
when we evaluate whether or not to run, we look only at variable costs (which
do not include $300,000 of oxygen). If we ignore this take or pay oxygen
cost, then the gross margin is approx. $200,000 positive. This is roughly
equal to our variable O&M costs which means that were at "break even" for
variable margin and expenses. Given the high possibility of freezing
temperatures in February and an analysis that indicated that we could break
even for all variable costs, the decision was made to run the plant to
protect against freeze damage.

A simple schedule is attached to illustrate the break even analysis.