Beck Comments on Incentive Fee Exhibit

Marvin,

The exhibit on the Incentive Fee Calculation I just received is essentially
the same as we have seen before, and I still have the same overall comment.?
Unless I have some misunderstanding, it seems to me that in a Back-to-Back
Transaction you could easily have a situation in which EPMI is making a
profit from a transaction on which the Cities are losing money.? The "Savings
per hour" on which EPMI's profit sharing is based is only the difference
between the Market Price (what the purchaser agreed to pay) and the Cities'
Target Production Cost (incremental fuel cost and variable O&M).? The
"Savings per hour" ignores all of the other costs that the Cities may be
obligated to pay under a Back-to-Back Transaction such as transmission,
ancillary service, imbalance, congestion, etc. (see the definition of Costs
below).? For example, if the Target Production cost is $40/MWh, the Market
Price $43/MWh, and transmission is $4/MWh, the Cities would be paying EPMI a
profit sharing incentive fee of $1.20/MWh, while losing $2.20/MWh on the sale
transaction.? As I have noted before, the "Savings" on a transaction should
be as follows:

Savings = Revenues from the Transaction - Production Cost (base on the Target
Production Cost and MWhs) - Costs associated with the Transaction incurred by
EPMI or the Cities (where Costs include the items defined in Article 1 of the
EMSA)

We will get back to you later with comments on the other documents. - - Al

Definition of Costs in the ESMA:

"Costs" means, when applicable to any Transaction, all costs, liabilities,
fees and expenses? incurred by EPMI (excluding EPMI's internal costs and
allocated overhead) in connection with the purchase, sale, replacement,
scheduling, transmission and delivery of Products and balancing services,
entered into between MDEA, EPMI, and third parties. Costs shall include but
shall not be limited to: (i) energy and fuel costs, (ii) transmission costs
and losses, (iii) congestion costs, (iv) scheduling fees, (v) penalties,
inadvertent energy flow charges, or imbalance charges that are exclusive of
MDEA's Ancillary Service charges (vi) taxes (other than income taxes); (vii)
fees, penalties, or charges imposed by the SPP, SERC, ISO or RTO, Federal
Energy Regulatory Commission (FERC), or other similar authorities; (viii)
broker fees; (ix) communication costs (x) other associated costs incurred by
EPMI.?

Al Malmsjo
R. W. Beck
(407) 648-3521 - Office
(407) 421-5402 - Cell