Re: Power Systems

Dave -

I'll get with Kevin, Mike, and Bob for consensus, but, first my two cents
worth is that this doesn't make sense from a purely commercial standpoint.
It only makes sense if legal believes it is necessary.

I've reviewed the proposal, and technically have no problems with it.
Commercially, however, I have some problems. First, a few facts:

1. The permit currently allows for over 1000 hours per year.
2. A reduction to 9 ppm would allow for an increase to approx 3000 hours per
year.
3. Best case heat rate is 12,300, which is the highest heat rate of all the
peakers. Extra run hours would be more valuable at one of the other TVA
plants (with a lower HR). If New Albany were a good candidate for combined
cycle, then the extra run hours would be more valuable, but as a simple
cycle, it's difficult to envision needing more than 1000 hours.
4. Though certainly not a representative year, this year, we ran approx 225
hours at New Albany.
5. In 1999, we ran approximately 450 hours at New Albany. With the loss of
control area status (i.e. parking privileges), I would expect this to
increase in a typical year, but still not significantly above 1000 hours.
6. Any increase in run hours would not be automatic (though probable), since
a permit change would be required.
7. This proposal would also clean up some other technical issues (flame
scanners, etc); however, we have other proposals from PSM to clean these up
for approx $100k.
8. I leave it up to Kevin and Rogers to value their run hours, but my view
is that it is of minimal value, and certainly not worth the $7.8MM in the
proposal. I'm not as familiar with the Doyle contract, so I've not analyzed
for the $3.9MM for Doyle.

Bottom line: I recommend going forward only if driven by legal concerns.
Again, I'll get back to you after I've talked to Kevin, Mike and Bob.

Mitch

David W Delainey@ECT
09/25/2000 10:23 AM
To: Mitch Robinson/Corp/Enron@Enron, Kevin M Presto/HOU/ECT@ECT, Mike J
Miller/HOU/ECT@ECT, Robert P Virgo/HOU/ECT@ECT
cc: Mark E Haedicke/HOU/ECT@ECT, Richard B Sanders/HOU/ECT@ECT

Subject: Power Systems

Guys, Power Systems has given me a proposal to replace the New Albany and
Doyle 7B burners. This could possibly have two benefits:
a) elimination of the possibly tainted equipment given current patent issues
they are having with GE and
b) apparently the newer technology significantly reduces the Nox emission
correlating into increased operating hours.

I need two things to determine if we want to move forward:
a) Mark we need to be bullet proof on the patent (or lack thereof) issues on
the new equipment and that it would protect us from further exposure and
b) Mitch, Kevin, Mike and Bob, I need your technical and commercial opinions
on the merits of this proposal (ie) do you as a team support this proposal?

I believe the timing on this is rather short. Please get back to me at your
earliest convenience. I will forward a copy of the proposal to each of you.

Regards
Delainey