Subject: urgent - pastoria update
water :
we have reached agreement with kern water bank on a detailed term sheet for the backup water supply . azurix has assisted in the process , but will not be part of the definitive agreement . kern water bank says that we can have the definitive agreement done this month - we think it might take longer because they are slow .
calpine negotiations :
- big issue - the condition precedent to closing related to the water agreement : we want to attach the kern water bank term sheet and say that the definitive agreement must be materially similar to the term sheet - calpine will want it to be precise .
- big issue - natural gas transport : we need calpine to commit to taking the transport regardless of what credit support kern requires for the assignment . tycholiz is working with kern to nail that down . kern ' s original credit proposal was that they wanted a $ 40 mm letter of credit to backstop the transport .
- purchase price adjustment - 0 - $ 10 mm based on water bank deal ( minimum gain to enron of $ 30 mm plus upside ) .
- upside - provision in the purchase and sale agreement that allows ena to pursue a contract with dwr and if the price of the contract is greater than $ 56 / mwh and the implied spark spread from a bona fide gas offer is greater than 11 , 400 ( based on rockies plus transport ) , then ena gets $ 0 . 50 per mwh . this could be worth $ 10 mm + + +
- minor stuff - transition agreement - how we work together and share risk after signing and before closing - development continues , calpine needs to work with ge , site owner , cec , etc .
- timing - expect to sign on march 13 and close as soon as the water bank deal is done , but no later than april 30 , 2001 .
natural gas transport :
- march 15 we must commit to kern expansion capacity for the project . this is very hairy : without the transport , the project can not get gas . the transport without the project is a big potential liability ( $ 40 mm + ) . we are looking at 100 , 000 / day for 15 years . tycholiz is working on this to try to limit the liability by having the project put up a l / c - i dont think kern will accept it . i recommend we commit to the transport with a clear put to calpine concurrent with closing the project sale . if for some reason the project sale to calpine does not close , we will have a permitted ca project with equipment and gas supply . if we wanted to break up the project assets , we would have to remarket the capacity for a potential significant loss .
approvals :
- there are two dashes that are circulating - ( i ) divestiture and ( ii ) for ongoing development costs and commitment to kern . divestiture dash gives us authority to sell to calpine . the second dash seeks approval for additional development $ and the kern transport . rac is still debating over the form of this dash . the daily var estimate on the transport is $ 5 mm and with a 45 day liquidation period , the var is $ 34 mm .
enron board of directors :
the second dash requires approval by the executive committee of the ene board , which is scheduled to meet by conference call on monday , march 12 . the three - page presentation for that meeting is due to rebecca carter on friday .