Physical Deals with Implicit Options

---------------------- Forwarded by Chris H Foster/HOU/ECT on 01/10/2001
12:05 PM ---------------------------

Enron Capital & Trade Resources Corp.

From: "Klinkner, Eric" <eklinkner@ci.pasadena.ca.us<
01/10/2001 11:04 AM

To: "Chris Foster (E-mail)" <cfoster@enron.com<, "Jon Cassity (E-mail)"
<jcassity@utilicorp.com<, "Trip Ballard (E-mail)"
<marvin_k_ballard@reliantenergy.com<
cc: "Endo, Steven" <sendo@ci.pasadena.ca.us<
Subject: Physical Deals with Implicit Options

Hey Guys

I'm considering some fixed or indexed gas and energy purchase transactions
with built-in price caps and/or floors as a hedge.
Given our sparse resources, I know I won't be able to ISDA agreements or get
a NYMEX account opened anytime soon.

Here are a couple of concepts that I'd like to float in hopes that your
organizations may feel comfortable executing under WSPP or existing gas
supply agreements:
1) Fixed price purchase that converts to monthly index below a specific
strike (implicit put);
2) Collared index (put/call) or capped index (call).

I'm thinking of border gas and SP15 energy products with fixed volumes,
prices (as applicable) and strikes by quarter.

Any comments?

Eric R. Klinkner
Director of Power Supply
Pasadena Water and Power Department
626-744-4478 Voice
626-744-6432 Fax
eklinkner@ci.pasadena.ca.us