Government Affairs

1. Government Affairs 1

2. Strategy/Approach Protecting Existing Assets and Positions Support Potential Transactions New Markets Development Create and Exploit Opportunities • Facilitate Approvals • Structuring • Public Risk Identification and Mitigation • Open Markets • Transaction Opportunities get leverage measure results

3. Update - Key Trends • Deregulation backlash in California • puts new deregulation in North America on hold • risks slowing down process in already deregulating markets • creates opportunity • high profile for price risk management • impetus for wholesale market changes

4. Initiatives • Taking advantage of California situation to create policy changes in wholesale electric markets • Organizing support for NetWorks, Industrial Markets and Enron Global Markets businesses

5. Function and Organization • Network of internal and external resources • Hemispheric scope • Substantive expertise in energy, environmental, communications, markets and trade policy • Advocacy • Driving change • Business unit support • Transaction support • Information, knowledge and intelligence • Regulatory risk/opportunity assessment and management • Organized by operating company, geographically and by substantive area

6. Approach • Leverage firmly established position as leader of open market perspective • Form/lead coalitions to effect change and gain access to information • Objectives tied directly to asset and transaction enhancement/protection/creation • Support new businesses with minimal headcount additions by leveraging existing talent • Rigorous resource allocation process

7. Objectives - Wholesale Energy Protecting Existing Assets and Positions Support Potential Transactions New Markets Development Create and Exploit Opportunities • United Illuminating ICAP • Preservation of California Markets • Project “E-Trans” • PSE&G Natural Gas Outsourcing • New Jersey Natural Gas Outsourcing • Order 2000 Implementation/ FERC Action on Wholesale Electric Markets • Market Based Rate Authority Protests, e.g. AEP • Continue development of Brazilian Electric Market • Mobilize WB/USG to Push Energy Liberalization Policies in International Markets • Expanding Support to New Enron Units for Washington based financing • EES • EBS • Enron Deal Bench • ENA • Enron Europe • Azurix

8. Objectives - Wholesale Energy Protecting Existing Assets and Positions Support Potential Transactions New Markets Development Create and Exploit Opportunities • Puerto Suarez Brazilian Electricity Import Permit • Transredes Deferred Account • Elektro EBITDA Recovery • Cuiaba Bolivian Natural Gas Export Permit

9. Objectives - Retail Energy Protecting Existing Assets and Positions Support Potential Transactions New Markets Development Create and Exploit Opportunities • Implement Regulatory Hedge Strategies • Provide rate curve intelligence • Target three states for retail structuring legislation • Increase North America sales by supporting deal teams • Increase North America sales by originating opportunities

10. Objectives - EBS Protecting Existing Assets and Positions Support Potential Transactions New Markets Development Create and Exploit Opportunities • Support new trading initiative, e.g., Spectrum and Advertising, etc. • Deregulation/regulatory forbearance in Latin America • Collaborate with International Tax to mitigate tax exposure in the Americas • Support Blockbuster VOD and other multimedia initiatives • Curtailment of USF, taxes and avoidance of common carrier regulation • Avoidance of “telecommunications service” regulation of Internet Apps, IP Products and Media Cast

11. Objectives - Global Markets/NetWorks/Industrial Markets Protecting Existing Assets and Positions Support Potential Transactions New Markets Development Create and Exploit Opportunities • Create favorable climate for product and service offerings • Develop and implement strategy for ag commodity business • Develop understanding of industries from a regulatory perspective • Secure industry regulatory support of Enron’s proposal to create a secondary market for railroad capacity

12. Valuation Methodology • Difficult to quantify every activity undertaken by Government Affairs (in fact, much of what we do shouldn’t be quantified because “conclusions” may miss the point) • Ensures that Government Affairs continues to generate more value than actual expense • Process drives us to view ourselves as “originators” creating bottom-line value for Enron • revenue enhancement (new opportunity, market expansion) • cost reduction (fee delay, rate decrease) • Calculation process focuses on the following rules – • simplicity • consistency • objectivity • reasonableness • equity

13. Value Created – Hard • Alberta Power Purchase Agreement Auction $45,000,000 • BLM / US Forest Service ROW Fee Delay $44,500,000 • Transwestern Hector Road Receipt Point $41,600,000 • TNPC Private Placement (EGA Service Contract) $40,000,000 • California Green Credit Legislation $12,500,000 • California 1998 Revenue Adjustment Proceeding $10,000,000 • Vitro Power Plant Permit Extension $3,000,000 • Maine Electricity Consumers Cooperative $1,250,000 • Others $47,000,000 • Total Value Added from Enron Government Affairs Effort: $244,850,000

14. Value Created – Soft (Examples) • Received OPUC Approvals for Coyote Springs • Reformed Cinergy Wholesale Electricity Scheduling Practices • Delayed Implementation of California ISO Price Cap Reductions • Ensured EBS Trading Avoided Universal Service Fees • Supported 2000 Peaker Plant Interconnection Agreements • Supported EES “Quick Entry” into SDG&E • Completed Arcos Gas Transportation Agreement (Argentina) • Structured NYISO Transmission Congestion Contract Auction Process

15. Value Created - Intangibles (Examples) • Ohio Retail Access Settlements (7 Utilities) • Texas Implementation efforts • Cal PX Investigation of Silver Peak Line Scheduling

16. Regulatory Risk Exposure • United Illuminating ICAP Obligation $168,750,000 • 1999 Peaker Emissions Limitations • Puerto Suarez Brazilian Electricity Import Permit • Transredes Deferred Account • Elektro EBITDA Recovery $50,000,000 • Transwestern Hector Road Receipt Point $41,600,000 • Transredes Administrative Rule 411/99 + 412/99 • Others $?????????? • ------------------- • Total $???????????