Re: Generators want to kill Annex V ,
 I think there is only one point of view. We should defend Annex V. We want =
to=20
preserve US$ 60 million in EBITDA for Elektro in 2001

Luiz Travesso (AES) was quite aggressive last Saturday in trying to convinc=
e=20
me otherwise. Needless to say, he did not.=20

My view was to defend contract sanctity, which for him is a [minor] detail.=
=20
He screamed loudly and swore to God he was not going to pay if Tiete gets=
=20
short. I said he would better discuss this issue in court, as opposed to=20
killing the messenger.

Demostenes (AES) defended the idea that ANNEX V is a risk sharing mechanism=
=20
between Gs and Ds and because of this those should sit down again and agree=
=20
on a new risk allocation mechanism. This is wrong.  I helped design Annex V=
.=20
The only reason why ANNEX V is there is to mitigate the isk for generators,=
=20
not distributors. (statistically, a generator will not able to deliver its=
=20
assured energy in 5 out of 100 years) Any amendment to Annex V will push=20
risks/costs back to Elektro.

The argument that rules are being changed is weak. No rules are being=20
changed. Annex V was part of the initial contracts and prices accordingly.=
=20
When Luiz Travesso replied that he overvalued Tiet during its privatization=
 ?because he did not take Annex V into account I expressed my sympathy.  I =
told ?him to hire more competent investment banks next time. ??We should no=
t fall into the trap of killing Annex V because all generating ?companies w=
ill be bankrupt, as Luiz claims. ??LM?????Orlando Gonzalez?05/19/2001 09:32=
 AM?To: sergio.assad@enron.com?cc: Luiz Maurer/SA/Enron@Enron, Fred Sampaio=
/SA/Enron@Enron, Joao Carlos ?Albuquerque/SA/Enron@Enron, Joe Kishkill/SA/E=
nron@Enron, Jose ?Bestard/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT ??Subject: Re=
: Generators want to kill Annex V  ??After today's round of meetings please=
 schedule a  call  tomorrow to review ?Enron's position on  all these point=
s.  Sergio Please coordinate and ask ?Cristina to set up.  I suggest mid mo=
rning on Sunday so we have time to ?adjust.  I do not want to defend two or=
 three points of view on the same ?subject as Enron.????Luiz Maurer?18/05/2=
001 22:21?To: Debora Klinger/SA/Enron@Enron?cc: Sergio Assad/SA/Enron@Enron=
, Fred Sampaio/SA/Enron@Enron, Joao Carlos ?Albuquerque/SA/Enron@Enron, Orl=
ando Gonzalez/SA/Enron@Enron, Joe ?Kishkill/SA/Enron@Enron, Jose Bestard/EN=
RON_DEVELOPMENT@ENRON_DEVELOPMENT ??Subject: Re: Generators want to kill An=
nex V  ??Debora??Good points.??Economic Equilibrium. You are right. We can =
claim it. However, it may be ?virtually impossible to claim the opportunity=
 cost of a foregone long ?position. I would not take this risk.??Your state=
ment that ANEEL has no power to change Annex V makes me feel more ?conforta=
ble. It makes me believe that the right way of approaching the issue ?is to=
 prepare a position paper on Monday and to deliver/explain it directly ?to =
Minister Pedro Parente. No need to spend time on consensus building on ?iss=
ues which are "zero sum game" by nature (two years of COEX have taught me ?=
this lesson).  Let's preempt the issue by being  faster and smarter. ??LM??=
??=09Debora Klinger?=0905/18/2001 09:46 PM?=09?To: Luiz Maurer/SA/Enron@Enr=
on?cc: Sergio Assad/SA/Enron@Enron, Fred Sampaio/SA/Enron@Enron, Joao Carlo=
s ?Albuquerque/SA/Enron@Enron, Orlando Gonzalez/SA/Enron@Enron, Joe ?Kishki=
ll/SA/Enron@Enron, Jose Bestard/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT ??Subje=
ct: Re: Generators want to kill Annex V  ??Maurer,??This is a very importan=
t issue. Although in case of loss to Elektro, we would ?always be eligible =
to claim for the reestablishment of the economic-financial ?balancing of th=
e concession agreements, we would be, with no doubt, in a ?better position =
in case we can maintain the Annex V.??Regarding the ANNEL sympathy towards =
generator=01,s pressure, I don't believe ?ANEEL has the authority to interf=
ere in a duly executed agreement, as it is a ?perfect legal act ("ato jur?d=
ico perfeito"). Only the Union is competent to ?intervene in such acts, bas=
ed on the public interest and the social well ?being.??I will work hard on =
the analysis of the matter and come back with further ?comments.??Thanks,?D=
,bora?????Luiz Maurer?05/18/2001 09:02 PM?To: Sergio Assad/SA/Enron@Enron, =
Fred Sampaio/SA/Enron@Enron, Joao Carlos ?Albuquerque/SA/Enron@Enron?cc: Or=
lando Gonzalez/SA/Enron@Enron, Joe Kishkill/SA/Enron@Enron, Jose ?Bestard/E=
NRON_DEVELOPMENT@ENRON_DEVELOPMENT, Debora Klinger/SA/Enron@Enron ??Subject=
: Generators want to kill Annex V??The rumor mill says that generators want=
 to revoke Annex V. No surprise. The ?bad news is that it seems that Aneel =
likes the idea.??This may represent a US$ 60 million loss to Elektro, only =
in 2001. ??Distribution companies are [aparently] against this measure. How=
ever, D/Cs is ?short position will [likely] applaud the idea (to avoid cost=
ly exposures in ?the MAE)??An Abradee group was created to think about the =
issue. Joao and Fred will ?participate tomorrow.??A few supporting argument=
s.??1) Contract sanctity. Why changing the rules in the middle of the game =
if ?Annex V was designed specifically to deal with rationing conditions? ??=
2) More subtle argument. The risk of  being exposed is the only economic ?i=
ncentive  for a D/C to reduce its load. Otherwise, we will have a classical=
 ?"free ride" problem: D/Cs will not put any effort to reduce their ?loads/=
revenues and will advocate for an ex-post adjustment on ICs based on ?verif=
ied load reduction. We can build a case that in the absence of this ?exposu=
re, D/Cs will have no incentives to work hand in hand with their ?clients t=
o foster load reduction and the whole program will fail.??Debora is working=
 on the legal aspects of Annex V, taking into account the ?new MP. Sergio h=
as talked to a few lawyers to get their views/written ?opinions.??What abou=
t writing a letter to Pedro Parente as Enron, exploring those issues ?and e=
xplaining why Annex V is so important to the success of the whole ?program?=
 (the free ride issue)??LM???????????
orlando.gonzalez@enron.com