RE: PG&E Energy Trading

I did not realize we were going to reserve on spreads which create zero net position and almost zero credit risk. The new forward correlations are 90+% per the var model and it looks like your credit model is still using the old correlations.

-----Original Message-----
From: Bradford, William S.
Sent: Tuesday, October 09, 2001 7:56 AM
To: Sacks, Edward; Presto, Kevin M.
Subject: RE: PG&E Energy Trading - Power, L.P.

Kevin,

I thought we agreed to take these reserves since EOL lacks the pricing capability for longer dated transactions. If you want we can restrict trading to 36 months on EOL and approve long-dated transactions on a one-off basis to insure our counterparty positions remain somewhat balanced.

Please advise,
Bill

-----Original Message-----
From: Sacks, Edward
Sent: Monday, October 08, 2001 3:29 PM
To: Presto, Kevin M.
Cc: Bradford, William S.
Subject: RE: PG&E Energy Trading - Power, L.P.

You and I had agreed to the structure below for '04 and '05 transactions. We are not taking credit reserves to the extent the trades are offsetting. Since '04 is rolling off shortly, we should review the EOL needs for East Power and again come to agreement on the pricing structure. Let me know when you would like to do so.

Ed

Peak $0.10 for '04 & '05 (vs $0.17 for '05)
Peak Cal Spreads $0.06
Peak Basis $0.04 (assumed correlation of 95%)
Off Peak $0.03
Off Peak (basis or spreads) $0

-----Original Message-----
From: Presto, Kevin M.
Sent: Monday, October 08, 2001 11:46 AM
To: Sacks, Edward; Hardy, Trey; Evans, Casey; White, Stacey W.; Vinson, Donald Wayne; Sturm, Fletcher J.
Cc: Bradford, William S.; Ngo, Tracy; Buy, Rick; Rohauer, Tanya; Reasoner, Monica; Brown, Kortney
Subject: RE: PG&E Energy Trading - Power, L.P.

There should be no credit on a TVA/Cin spread. The correlation between the 2 markets is 95% plus.

-----Original Message-----
From: Sacks, Edward
Sent: Monday, October 08, 2001 9:23 AM
To: Hardy, Trey; Evans, Casey; Presto, Kevin M.; White, Stacey W.; Vinson, Donald Wayne; Sturm, Fletcher J.
Cc: Bradford, William S.; Ngo, Tracy; Buy, Rick; Rohauer, Tanya; Reasoner, Monica; Brown, Kortney
Subject: PG&E Energy Trading - Power, L.P.

Please note the following addition to the domestic credit reserve for October 2001:

CP: PG&E Energy Trading - Power, L.P.
Deal No: 806688 & 806689
EOL No: 1972890 & 1972891
Deal Date: 10/5/2001
Deal Specifics: Sale / Buy (Basis)
Term: 1/1/2005 thru 12/31/2005
Volume: 50 MW/h Peak
Delivery Points: Cinergy / Into TVA
Trader: Fletch Sturm
Credit Reserve Amount: $8,000 (eight thousand US dollars)

CP: PG&E Energy Trading - Power, L.P.
Deal No: 806685 & 806686
EOL No: 1972884 & 1972885
Deal Date: 10/5/2001
Deal Specifics: Sale / Buy (Basis)
Term: 1/1/2004 thru 12/31/2004
Volume: 50 MW/h Peak
Delivery Points: Cinergy / Into TVA
Trader: Fletch Sturm
Credit Reserve Amount: $8,000 (eight thousand US dollars)

Comments or questions, please reply.

Ed Sacks