physical option - proposals, term sheets, pricing

Mark: How should we handle this? In the past, I have provided Andrea
Bertone with Elizabeth Sager's latest (and evolving) physical trading forms
which Tozzini has used as a starting point. Sara
---------------------- Forwarded by Sara Shackleton/HOU/ECT on 04/19/2000
05:12 PM ---------------------------

Sami Arap@ENRON_DEVELOPMENT
04/19/2000 02:43 PM
To: Rick Hopkinson/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Lynn
Aven/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sara Shackleton@ECT
cc:
Subject: physical option - proposals, term sheets, pricing

FYI (just thoughts ...)
---------------------- Forwarded by Sami Arap/ENRON_DEVELOPMENT on 04/19/2000
05:50 PM ---------------------------

D'Arcy Carroll
04/19/2000 01:51 PM
To: Don Black/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Remi Collonges/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Joao
Guimaraes/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Luiz
Baccaro/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Brett R
Wiggs/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Joao Carlos
Albuquerque/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sami
Arap/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, James M
Bannantine/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT

Subject: physical option - proposals, term sheets, pricing

Group - we need to address the due diligence for executing the " first "
physical option transactions in Brasil and for Direct Sales ( and Wholesale
). The initial industrial candidates are:

Owens Corning ( 1.6MWs firm ). 1 site, peaking unit. break-even R$182/MW -
5 year term
Carbocloro ( 10 MWs firm ). 1 site 3rd part re-sale(Copel) , monthly call
option. supplanting product sales, estimate minimum incentive strike R$
125/MW - 3 or 4 year term,
O Globo. (1-3MWs) 2 sites, peaking units. awaiting summary terms and
conditions.
White Martins (10-15MWs ). 8 sites (MG), intersite flexibility to adjust
product between sites and maximize energy re-sale. 3rd party re-sale
(Cemig). short-term capacity basis indutrial demand for gases short-term
variable price - 2 or 3 year

In all four cases, Enron is buying the right to buy power and all 3 are
executable in Q2/Q3. We are expecting (hoping) to transact paying no premium
- with the focus on the strike price itself being the profitability incentive
to the customer. However, we'll need to guage our pricing ability ( and
appetite from a book and risk control point of view ) for option length and
the forward curve, not to mention getting the terms and conditions into
reasonably standardized and legally binding contracts.

Wholesale. Am including Wholesale on the wire given both the synergies on
contracting and pricing and given the significant potential ( benefit and
opportunity to Enron's regional trading effort ) to launch the physical and
financial option product line into the commercial Wholesale effort.

Note: Particularly to put options - how many LDCs would we expect to charge
us anything for our right to sell them power at R$30 or R$40/MWh ( or have
charged us 3-5 months ago for the right to sell closer to R$50-60.

We're having first sit down with Remi and Sami this afternoon, Wed Apr 19;
please shoot any/all additional inputs, insights.