Pastoria

Regarding the Summary of Proposed Agreement Between Enron and Catalytica that
accompanied the Confirmation for the spark spread derivative appended to Sean
Black's E-Mail forwarded to you earlier today, please note that the Summary
has been revised ( see attachment below ). However, Attachment 1 to the
revised Summary, which sets forth the general terms and conditions of the
spark spread option, is unchanged from Attachment 1 to the previously
delivered Summary. In addition, I've found no other indication in my files or
E-Mail messages that the Confirmation you initially furnished was modified
when it was sent to Catalytica or otherwise modified to date. By copy hereof
I'm requesting Sean confirm that fact so we are sure we are still working
from the same page.
---------------------- Forwarded by Barton Clark/HOU/ECT on 09/01/99 01:30 PM
---------------------------

Sean Black
08/31/99 11:11 AM
To: Barton Clark/HOU/ECT@ECT, Dale Rasmussen/HOU/ECT@ECT
cc: Brad Nebergall/HOU/ECT@ECT, Chris Holmes/HOU/ECT@ECT, Samuel
Wehn/HOU/ECT@ECT, David Parquet/SF/ECT@ECT
Subject: Pastoria

Dale/Bart,

Attached below is the latest revision of the proposed agreement between Enron
and CCSI concerning the 10 mm prepayment. The CCSI board gave preliminary
approval of the agreement yesterday and their accountants are also on board,
so we need to get a draft of a legally binding agreement together that we can
resend to Catalytica for review and approval.

Regarding the Enron/GE Agreement, we are still awaiting GE's formal revisions
to the agreement. However, we spoke with them last week about their main
concerns. From my notes, the following is a summary of the comments that GE
had and the areas where we expect that they will revise the language (refer
to the agreement sent to GE on 8/13/99): As you will note, the two key issues
GE is concerned with are (1) assignability and (2) the definition of the
'purchase option.'

Comments from GE conference call:

Recital Section:

Item K - GE has not agreed to fund total remaining cost; GE and CTAL have
agreed to seek out additional funds and will, themselves, commit some
additional funds. However, their concern is the extreme event where they
have grossly underestimated the costs to develop XONON and they do not want
to be committed to funding a 'limitless' gap if CTAL will not cough up money
or some other form of value and/or no other external source of funding can be
found. In this case, we need to be covered through both agreements in the
sense that GE would need to provide us a XONON credit (which may be worthless
if the technology has not been developed for any one of the three product
lines) and we would pass the credit through to CTAL in exchange for the spark
spread (in otherwords, CTAL needs to take on this risk, not Enron). In sum,
GE feels that they will only fund XONON if they get an order for Pastoria.

Item N - GE will revise this language because they feel we should be at least
committed to purchasing GE equipment, assuming that Pastoria goes through and
this item, as written, implies to them that we should have no obligation to
purchase GE equipment, even if Pastoria goes ahead (e.g., implies to them
that we could go back and purchase ABB or Westinghouse, etc. if Pastoria goes
ahead, at our discretion)

2.3 - Change date to March, 2001 for a 2003 COD and March 2002 for a 2004 COD.

3.4 - Same revision as for 2.3

3.6 - Related to Item N of the recitals; GE wants to revise or clarify the
meaning of "Purchase Option" to mean an intent by Enron to purchase equipment
from GE if Pastoria goes ahead.

3.8 - Limit GE's participation to providing information and/or documentation
on XONON for the permitting process

3.11 - OKAY with the concept but want to revise it to relate to XONON
technology rather than turbines.

5.3 - Want to define a configuration for 750 MW here, in the event that this
is the size that is chosen by the developers.

9.2 - This is the big issue with GE; they don't want such 'broad'
assignability for this agreement, as they have previously agreed to at
Pittsburg and other projects because the language is so broad. They are
going to revise this language and I expect the definition to be 'narrower'.

Our plans for reaching closure on the agreement with GE are the following:

1. Receive revised agreement from GE (hopefully by the end of today)

2. Incorporate your recent comments to the GE Agreement (the comments
received after 8/13)

3. Brad and Chris to travel to SF to meet with Dave Parquet and Sam Wehn to
review revised document in person and incorporate their final comments.

4. Send agreement back to GE for final review and comment.

At this point, we need to begin revising the Enron/CTAL Agreement below into
a legally binding document. Bart, if you have not already done so, could you
begin revising this agreement accordingly.

If you have any questions, please do not hesitate to call.

Regards,