FW: MDEA Comments

-----Original Message-----
From: Cross, Edith
Sent: Thursday, April 12, 2001 4:53 PM
To: Morse, Brad; Rorschach, Reagan
Subject: MDEA Comments

Here are my comments on the MDEA draft:

1) It is my understanding that the TECO-Frontera contract was used as a
template for MDEA. I would like to clarify the differences between the TECO
deal and the MDEA deal. The TECO-Frontera deal consists of EPMI marketing
the excess capacity off the Frontera plant. TECO has some existing sales off
that plant which are not incorporated in our profit sharing arrangement
("Existing Transactions"). Also, we agreed to work with them to sell
"Structured Transactions" off the plant. The "Back-to-Back Transactions"
refer to the daily sale of MW off the plant, that EPMI is sleeving for TECO.
I understand that we may have opportunities to sell excess generation off
MDEA's generation assets, however, I don't think the bulk of the contract
should focus on this. There is little mention of the obligation to serve the
Native Load through 3rd party transactions, which as I understand it, is the
intent of the MDEA deal.

2) Definitions section:

Existing Transactions - defined as MDEA having prior obligations to sell
energy etc. - I don't think MDEA has any of these outside of their Native
Load.

Marketing Strategy - This mentions a Trading and Risk policy. The policy
used for TECO mentions that EPMI will provide VAR reports. This will not be
done for Clarksdale/Yazoo.

3) Section 4 - Availability of Products; Metering

Risk of loss and all price, credit, and unit contingency.... I thought
we were bearing credit risk with 3rd parties.

Further down in the paragraph in parens... (and execute a Confirmation
evidencing such obligation)... We need to check with the Deal Clearing
group what they will be confirming. Normally, hourly trades do not get
confirmed. I have not yet informed anyone in confirms about this deal
because I was assuming we would not have to provide confirms to MDEA.
Please let me know if this is not the case.

4) Section 8 - Performance Standards

(b) (1) Availability calculation is using 480 MW, this is the Frontera plant
capacity.

5) Section 9 - Delivery Point and Title

What about sales to MDEA from EPMI (this goes back to my statement in #1
that this contract focuses more on the buy side instead of the sale).

6) Section 11 - Fuel management services

I thought we were sleeving the gas, therefore, EPMI will be a party to the
Fuel Related Transactions.

6) Section 16 - Payment and Fees

Existing Transaction Costs are mentioned - These may be irrelevant to this
section

"Market Proceeds" - I think this should more specifically state that this
is only in relation to the Mwhrs sold off their facilities to a 3rd party.

MOST IMPORTANTLY - There is no mention of how EPMI will be reimbursed for
the power that we purchase on MDEA's behalf. I expect that this will be most
of the settlement activity related to this deal.

7) Exhibit [] REPORTS

1) Profit & Loss, Risk Statement - This says that we will track the change
in value of the power output. We are not going to monitor the forward value
of their positions.

2) Position Statement - This will not be done at all. To truly give an
accurate position statement, we would need to forecast their load for the
next two years, and then economically dispatch the plants to see what their
net short position is. I don't think this is relevant, and per my previous
conversations with Reagan, we are not doing this.

In the TECO agreement, we are giving a forward view of the value of the
plant. This cannot be done for MDEA because we cannot determine when we are
dispatching to serve their load or to sell to a 3rd party.

This is all for now....

E