Federation of Connecticut Taxpayer Organizations

You asked for a description of the contracts among the Connecticut Resources Recovery Authority (CRRA), Enron, and Connecticut Light & Power (CL&P) regarding the CRRA Mid-Connecticut facility.

This memo describes the principal contracts in general terms based on a summary provided by CRRA's bond counsel and other sources. It does not (1) discuss certain related contracts such as the ones between CRRA and Resource Recovery Systems of Connecticut, Inc for the operation and maintenance of the facility and CRRA and other firms for the remediation of the facility site or (2) describe tentative agreements between CRRA and Enron for the development of a fuel cell facility.

SUMMARY

Legislation passed in 1983, commonly called the municipal rate law, required electric companies to contract with CRRA to purchase the power produced at Mid-Connecticut and similar facilities at above-market rates. Legislation restructuring the electric industry, passed in 1998, required the companies to (1) sell off their generation assets, including assets CL&P owned at the Mid-Connecticut facility and (2) make good faith efforts to buy down or buy out their purchased power contracts.

In September 1999, the Department of Public Utility Control (DPUC) approved CRRA's acquisition of CL&P's generation assets at the Mid-Connecticut facility. In January 2000, DPUC authorized CL&P to make a lump sum payment to CRRA of up to $ 290 million to buy down its purchased power contract. Under the bought-down contract, CL&P would continue to buy power produced at the facility, but at a substantially lower rate. The DPUC decision itself does not refer to Enron or other third parties. However, a subsequent decision, discussed below, describes a memorandum of understanding that was part of the 2000 case. Under the memorandum of understanding, CL&P and a third party designated by CRRA, called Connecticut Steam Corporation, would enter into a power purchasing agreement in which the corporation would purchase the steam produced at the facility.

In spite of these approvals, CRRA and CL&P were unable to conclude the necessary contracts. In early 2000, Enron approached CRRA and CL&P and proposed several transactions involving the Mid-Connecticut facility. In December 2000, CRRA, Enron, and CL&P entered into a series of contracts dealing with the facility itself and the steam and electricity it produces. These contracts covered a series of transactions, including (1) CL&P's sale of its Mid-Connecticut assets to CRRA for $ 10 million, with CRRA assuming most of the liability for remediating contamination at the site; (2) Enron's assumption of CL&P's obligation to buy the power produced at the facility, with CL&P making a $ 220 million lump sum payment to Enron for the above-market cost of the contract; (3) a capacity payment of $ 2. 2 million per month ($ 26. 4 million per year) from Enron to CRRA for the bulk of the steam produced at the facility over the life of the contract; (4) payment by CL&P to CRRA (by way of Enron) for the electricity produced at the facility at a substantially lower price than was charged under the original contract between CL&P and CRRA.

The deal has been characterized in the press as a CRRA loan to Enron, but on it's face it does not appear to have the structure or characteristics of a typical loan. Rather it is a series of related financial transactions structured as separate written contracts.