FW: Request for pre-petition payment to APS

-----Original Message-----
From: Hall, Steve C. (Legal)
Sent: Wednesday, January 09, 2002 4:48 PM
To: Baughman, Edward
Cc: Miller, Don (Asset Mktg); Sager, Elizabeth; Fischer, Mark
Subject: Request for pre-petition payment to APS

The West Desk would like to make a pre-petition payment to APS of $43,708, in order to be able to acquire further APS transmission to Pinnacle Peak. The transmission is required to serve a long-term, in-the-money contract. APS is the only provider of transmission to Pinnacle Peak at this time, which may qualify APS as a "critical vendor" entitled to receive a pre-petition payment.

If we do not pay APS this money, Enron will have to buy energy at the market. Mark Fischer estimates this will add approximately $3/MWh to the cost of delivering under this 25 MW/h, 3-year contract, compared with buying APS transmission. This would represent a potential loss of $285,000 for this year, and as much as $1,000,000 over the term of the agreement.

Mark has written up the details of the transaction below.

Let me or Mark know if you would like to proceed with this payment.

Steve

-----Original Message-----
From: Fischer, Mark
Sent: Wednesday, January 09, 2002 12:12 PM
To: Hall, Steve C. (Legal)
Cc: Alonso, Tom; Salisbury, Holden
Subject: APS Transmission prepetition payment

The particulars of the transaction:

We are obligated to deliver 25 MW of power to WALC at Pinnacle Peak through 12/31/04.

The company receives $45 for each MW delivered to WALC.

Pinnacle Peak is not a liquid trading hub. There are only two utilities with facilities at Pinnacle Peak, WALC and APS.

We are currently utilizing APS transmission to deliver energy to WALC during off peak hours.

The cost of the APS transmission is $1.95.

The energy to satisfy this obligation is available at Four Corners under contract from El Paso Electric. The energy from El Paso is contracted to be purchased through the end of this year under a prepetition agreement at a fixed price of $22.25.

The Transmission Service Agreement will be terminated by APS for nonpayment of a prepetition obligation of $43,708.60.

APS is the sole party able to provide transmission to Pinnacle Peak at this time.

Absent the ability to purchase transmission from APS, the company will be forced to settle the WALC obligation at above market prices due to the illiquidity at Pinnacle Peak. These costs could run as high as $5.

The inablity to purchase APS transmission for $1.95 will increase the company's costs by as much as $3 over the term of the WALC obligation.

There are approximately 95,000 MWh remaining to be delivered to WALC for the remainder of 2001 on light load hours.

The increased cost to deliver would result in an additional expense of $285,000 for the remaining deliveries this year.

The increased cost for the entire term of the WALC agreement could exceed $1,000,000.