Online Derivatives Trading with Regulated Utilities

As far as your email questions, my responses are following:

1. The list I have provided you is the only list that exists on financial
counterparties. There is no Excel spreadsheet to follow.
2. Duke Energy Corporation. At Mark's direction, I am sending his note
below regarding utilities. Again, until we do the due diligence on a utility
counterparty we have no way of knowing what kind of local, state or federal
regulation or approvals they may be subject to. We currently have masters
in place with only about 10 utilities/govt's. We are in the process of
negotiating another 30. Until those masters are executed and we have the
relevant resolutions, authority documents and/or legal opinions, I cannot
approve them for online trading. I have made every effort to search company
websites and elicit from Credit whether a counterparty is a regulated utility
or not. If I cannot tell by the information available to me, additional due
diligence will be needed to see if they are subject to local, state, or
federal regulation. Mark can override any decision I have made, I can only
make decisions within the guidelines the attorneys have set for me.
3. Montana Power Trading and Marketing Company is a subsidiary of a
regulated utility. I am unable to determine from Credit or their website
what type of regulation they might be subject to. The note is true that
Credit says they are getting out of the business anyway.
4. Petrotemex. Per my conversations with Mark and our advice from counsel,
unlike U.S. and U.K. counterparties, Mexican counterparties are not able to
enter into derivative transactions unless their articles and bylaws
specifically provide for these types of transactions. We will not know this
until the due diligence is completed, so I am supposed to say "no" for
Mexican counterparties we do not have a master swap agreement in place with.
5. PSEG. It is an energy services company; however, it is also not an
eligible swap participant (or "ESP"). CFTC regulation limits the derivatives
trading we may do to certain types of counterparties that meet certain
financial requirements (large, institutional type investors, companies,
banks, etc). Corporations and partnerships have to meet certain net worth
and asset levels or we cannot trade financially with them. Whenever I say
"not ESP" or "not eligible swap participant" it means they have not met the
financial net worth test.
6. The American Coal Company. See prior note.

---------------------- Forwarded by Tana Jones/HOU/ECT on 10/13/99 04:21 PM
---------------------------

From: Bob Shults 10/12/99 10:15 AM

To: Tana Jones/HOU/ECT@ECT
cc:
Subject: Online Derivatives Trading with Regulated Utilities

Does this mean that we have 10 utilities that are approved to trade? What
are we doing with the other 30-40?
---------------------- Forwarded by Bob Shults/HOU/ECT on 10/12/99 10:14 AM
---------------------------
To: Louise Kitchen/LON/ECT@ECT
cc: Tana Jones/HOU/ECT@ECT, Debbie R Brackett/HOU/ECT@ECT, William S
Bradford/HOU/ECT@ECT, David Port/LON/ECT@ECT, Bob Shults/HOU/ECT@ECT, David
Forster/LON/ECT@ECT, Sara Shackleton/HOU/ECT@ECT
Subject: Online Derivatives Trading with Regulated Utilities

We have not decided "to prevent any regulated utility from completing any
financial transactions" online. If we have already satisfactorily concluded
the necessary due diligence with respect to a particular utility, they will
be approved. It is only with respect to those utilities which have not yet
been researched that we are withholding approval. The due diligence required
involves asking the utility for certain information concerning their
organization and regulatory situation, hiring local counsel in the relevant
state and having research done into the laws and regulations in place there
and into any public utility commission orders respecting the particular
utility in question, and on occasion requesting an opinion letter from the
utility's counsel. We usually begin that process only when a trader believes
there is a likelihood of a sufficient volume of trading with the utility to
justify the time and expense. FYI, the due diligence process has in the past
revealed circumstances which prevented the utility from trading derivatives
or required actions to authorize such trading which had not been taken.

A recent count showed about 10 executed master agreements and another 30 to
40 in one stage or another of the due diligence/negotiation process.

Louise Kitchen
10/06/99 02:46 PM
To: Mark E Taylor/HOU/ECT@ECT, Tana Jones/HOU/ECT@ECT
cc: Debbie R Brackett/HOU/ECT@ECT, William S Bradford/HOU/ECT@ECT, David
Port/LON/ECT@ECT, Bob Shults/HOU/ECT@ECT, David Forster/LON/ECT@ECT
Subject: Customer Data

On Friday we will be receiving the remaining customer list from credit, due
to the timescales I am asking for turnaround on the customer matrix and
master agreement review by the end of play Tuesday 12th October.

Any problems with this please notify me immediately as we are now running up
against very tight deadlines in terms of getting all of the information in
the system for the launch schedule.

Thanks

Louise

Mark,
On another note we are requesting a review of the blanket decision which has
been made to prevent any regulated utility from completing any financial
transactions, if we are not prepared to do the due diligence on which ones
can transact and which ones can not - is this our responsibility or theirs?
ie their decision whether to trade or not.
Louise