Enron Japan Near-Term Strategy - Government Affairs and Regulatory Overview

1. エンロン　ジャパン Government and Regulatory Affairs Near Term Strategy Houston 平成12年4月

2. Enron JapanPolitical EnvironmentNear Term StrategyMaster Contracts DevelopmentProgress to Date

3. Joe Hirl Trading/Origination Cap Mkts/Struc Fin E-Commerce/IT Reg/Govt Affairs Acct/Risk/Admin Jonathan Whitehead Director (UC) Carl Livermore Nicholas O’Day Jan-Erland Bekeng Trading Origination Morten Erik Pettersen Director Origination (External) Director Finance (External UC) Director E-Commerce (External) Director RA/GA (External) Controller (Internal) Manager Trading (External) Director Origination (External) IT Support (Internal) Mike Grimes Manager Acctng Manager (External) IT Support (External) Risk Manager (Internal) Risk Manager (External) Jim Pyke Associate Rousseau Anai Analyst Analyst (Internal) Office Admin Manager (External) Expats: 7 Temporary: 7 Interpreter/Translator (External) Local: 11 Proposed Enron Japan Organization Plan

4. 2000 2001 2002 2003+ Electricity Trading & Origination • Back-to-back Transactions • Prime Interface w/ E Power • Market Student • Creation of Swaps Market • Structured Transactions • Calculated Position-taking • Additional Svcs to E Power • Leverage IT System for Growth • Trade Transmission Rights • Dispatch Control/optimization • Creation of Options Market • Effective Market-maker Role • Capitalize on Market Views and Inefficiencies • Whole Business Risk Mgt (Income Swaps) • Trading Outsource Services • Facilitate Market Rationalization • Some Small Position-taking • Basic Arbitrage • Ancillary Services incl B/U • Consider real option positions • System Modelling • Decision Models • Intranet/internet Mkting Products • Some Structured Xsactions • Use Finance to Build Positions • Leverage Physical Positions/ Options • Basic Cross-commodity Xsactions • Develop/incentivize Counterparties Capital Markets/Struc Finance • Relationship Building • Electricity/Gas Leads • Support E Power Transactions • Evaluate E-Comm Venture Capital Opps • Prepays/monetizations • Innovative Ownership Structures (i.e. Leases) • Debt Funding, Commodity-linked Transactions • Equity • Balance Sheet Re-financings Other Commercial • EOL Rollout for Selected Domestic Commodities • EOL Rollout for International Commodities • Evaluate weather transactions • Evaluate credit transactions • Evaluate FX transactions • Coal • LNG • Domestic Gas • Fuels IT Development & Commercialisation • Trading Systems Development • System Modelling • Enron Technologies Evaluated • Leverage Systems to Reach Vast Customer Base • Develop CP Trading Systems While An Electricity Trading/Origination Will Be a High Initial Priority, Opportunistic Plays Will Also Be Considered

5. Enron Japan’s Business Structure Enron Asia Pacific Africa China Other Investors (Orix) Risk Mgt, Mkting, Trading Services Enron Japan Encom Electricity Cap Mkts/ Struc Fin E-Commerce Other EPower • Provide marketing and risk mgt services for contestable customers in newly created market • Facilitate creation of financial market for electricity swaps and other derivatives • Provide risk mgt outsource services for “new players” • Provide 3rd party finance as a means to gain access to electricity positions and optionality • Develop other commodity/finance based transactions • Develop online trading system, EnronOnline, for domestic energy market and for local use in accessing international commodities • Investigate potential for venture capital activity in e-commerce and internet based technologies • Develop mkting and risk mgt businesses in areas of Enron expertise: • Coal • Gas • Liquid Fuels • Weather • Credit Power Aggregation and Development Generat’n Capacity and Energy • Aggregate existing generation from IPPs and self generators for onsale to market • Develop green field generation facilities to support developing mkt needs

6. Enron JapanPolitical EnvironmentNear Term StrategyMaster Contracts DevelopmentProgress to Date

7. PRO NEUTRAL AGAINST Politicians & Bureaucrats • Key MITI bureaucrats • DG Industrial Policy • DG International Trade • Policy Bureau • DG International Trade • Administration Bureau Politicians – LDP Denjishin Denjishin members - academics Denjishin members - utilities Large Industrials Large industrials with no significant business rel with utilities (eg. NTT, Toyota, Asahi Glass, Toray) Large industrials with significant business rel with utilities (eg. Nippon Steel, NKK, Toshiba, Hitachi) Utilities Producers & Consumers General consumers Lobby And Interest Groups in Japan

8. Ruling Coalition Anti-Electricity Deregulation Ruling Coalition is Anti-Electricity Deregulation • Almost all politicians are against deregulation, including Shinji Sato, the so-called “architect” of deregulation • Announced on 7 January 1997 that: “Japanese electricity rates are too high by international standards. To correct the situation, the territorial monopolies system of the 10 utilities needs to be reconsidered and the separation of power generation from distribution/transmission is to be reviewed” • Sato and the LDP at that time were anti-utilities as a result of a change in political funding practices by Keidanren and the utilities • Relations between the LDP and the utilities have improved in the last 12 months with a significant increase in political donations to the LDP funneled through civil and engineering construction projects undertaken by the utilities The Bureaucracy Key in Japan • MITI is pro-deregulation • Bottom-up decision making • MITI uses “independent” Denjishin Committee to promote reform – dominated by academics with incentives to reach appropriate decisions Gaiatsu Required • MITI and the administration frequently use Gaiatsu to achieve their goals • US Government the most powerful Gaiatsu • Japanese Government has encouraged the US Government to assist with promoting energy deregulation in Japan

9. Japan Continues to Move Towards Full Liberalization Timetable for Electricity Deregulation Partial retail competition takes effect. Expanded wholesale bidding (all thermal plants) Electric Utility Industry Law revised to allow wholesale IPPs Fourth Round of IPP bidding MITI review - will liberalization continue? Second Round of IPP bidding Third Round of IPP bidding First Round of IPP bidding 2003 1995 1996 1997 1998 1999 2000 Electric Utility Industry Law revised to allow retail competition for large industrial users Revised wheeling tariffs issued MITI Regulations/guidelines for transmission access and wheeling. Source: Cambridge Energy Research Associates

10. Enron JapanPolitical EnvironmentNear Term StrategyMaster Contracts DevelopmentProgress to Date

11. Phase 2 May - September Phase 1 April - May Near Term Regulatory Strategy Overview • Support existing business initiatives • Develop contracts to permit power trading (Wheeling and Purchase/Sale) • Complete map out of government and regulatory environment • Bureaucracy: MITI, MOF, MPT,FTC • Government and political power brokers • Deliberative bodies (denjishin) • Industrial associations • International and bilateral organizations • Identify • key decision makers • decision making processes • political constraints • Maintain and further develop existing relationships with regulators and USG • Develop e-commerce regulatory strategy • Continue supporting existing business initiatives • Move power trading contracts from standard Japanese utility format to Enron preferred format • Review and comment on mid year wheeling tariff review • Expand relationships, targeting relevant decision makers • Assist with ongoing Government/regulator education • Shape policy in key areas of concern in electricity • Continuation of the reform process • Dispute resolution • Anti competition regulation • Information disclosure • Utility unbundling • Gas reform • Identify potential regulatory changes impacting the business • Implement e-commerce strategy • Maintain license compliance program

12. Key Issues in Electricity and Gas Goals (12 months) Critical Success Factors • Continuing Reform. Continuation of the reform process prior to 2003 through periodic reviews • Dispute resolution. • Introduction of a less confrontational dispute resolution process • Increased resources within MITI to deal with disputes and promote further reforms • Information disclosure. • Provision of transmission information via internet • Access to information supporting tariff calculations • Annual public rate reviews • Anti Competitive practices. • Provision of further information to industry participants on unfair practices • Increased resources in the FTC and procedures to deal with energy related disputes • Utility Unbundling. • Move to complete unbundling of utilities • Establishment of an ISO • Open Access. • Open, non discriminatory access to all stages of the supply chain • Policy of linking of main transmission systems • Develop and negotiate contracts to permit electricity trading as soon as possible • Move contracts from standard Japanese utility format to Enron preferred format • Greater rate transparency for the August/September wheeling tariff review • Reactivation of the electricity reform group within MITI • Significant increase in the capacity and capability of the dispute resolution groups within MITI and the FTC • Provide timely and accurate advice of potential regulatory changes impacting Enron’s business • Recognition of Enron by Governments, regulators and industry bodies as a knowledgeable, forthright and balanced spokesperson on relevant issues • Develop and implement e-commerce strategy • Positive and consistent public profile • Measured support from US Government • Access to decision makers and industry bodies in Japan • Coordinated approach to USTR, APEC, WTO etc • Close internal coordination with all Enron groups operating in the region • Good lines of communication with the Public Affairs Group • Appropriately qualified local staff Key Issues, Goals and Critical Success Factors

13. Significant Events/Milestones Implementation Implementation March - Competition introduced - USTR report on bilateral trade issues April - Commence negotiations with utilities on contracts - Commence lobbying Energy Sub Committee of the Deregulation Committee May - Implementation of call program - Energy sub committee sets 12 month goals - APEC Energy Ministers Meeting - E-commerce forum in Tokyo June - Commence lobbying MITI on tariffs - WTO meeting Tokyo July - Clinton visit to Tokyo Aug – Sept - Electricity tariffs reset to use forward looking costs - Public comment period commences on gas reform November - Public comments due on gas reforms January - Gas wheeling tariffs released • Target key decision makers in Japan relevant to Enron’s areas of business • The broad areas of focus are likely to include: • MITI, MOF and MPT – Tokyo and Washington • Central Research Institute of the Electric Power Industry • Asia Pacific Energy Forum • Deregulation committee, energy sub committee (business committee established by PM reporting to cabinet) • Relationship companies (Orix, Asahi Glass, Toray etc) • Non- government industry associations, particularly those representing large commercials (eg supermarkets, dept. stores, consumer groups, mid size companies) • Academia (strong representation by academics on committees) • Provide information/education to these groups through presentations, seminars and media • Maintain a strong relationship with the US Government and the USTR in Tokyo and Washington • Consider how best to use the multi-lateral agencies to maintain pressure on continuing reform

14. Enron JapanPolitical EnvironmentNear Term StrategyMaster Contracts DevelopmentProgress to Date

15. Master Contracts Development Goals • Phase I: Develop and negotiate “standard” contracts to permit wheeling/trading as soon as possible • Phase II: Move contracts from standard Japanese utility format to a more Enron preferred format, subject to existing legal/regulatory structure within 12 months Phase 1 Contracts • Purchase/Sale and Wheeling contracts which adapt Japanese terms and conditions to incorporate basic provisions needed by Enron • Additional contracts which can be incorporated into the basic Phase 1 contracts: • Transfer Supply • Maintenance Back-Up Service • Surplus Power Purchase Phase 2 Contracts • Master Sales/Purchase Contract • Dutch Master Contract terms and conditions, adapted for Japanese terms and concepts • Addendum for power receipt/delivery points • Addendum for each new transaction • Master Wheeling Contract • Terms and Conditions for wheeling from Enron - RWE contract, adapted for Japanese terms and concepts • Incorporate utility wheeling tariffs by reference • Back-up power provision • Addenda for: Transfer Supply, Maintenance for Back-up, Surplus Power Purchase

16. Enron JapanPolitical EnvironmentNear Term StrategyMaster Contracts DevelopmentProgress to Date

17. Progress to Date • Public comments on electricity reforms submitted November 1999 – no amendments • Private comments on proposed wheeling tariffs submitted January 2000 (complete legal and accounting analysis of tariffs) • Detailed clarification issued by MITI addressing all issues raised • List of key issues submitted to USTR and incorporated into deregulation agenda • Significant concessions made by Japanese Government • Deploy further personnel to implement and enforce rules • Expand or clarify Fair Trade Guidelines • Implement guidelines on information disclosure • FTC to assign personnel to monitor and promote deregulation in sector • List of key issues submitted to PM appointed Deregulation Committee • Engaging in regular dialogue with: • MITI • USG/USTR • Central Research Institute for the Electric Power Industry • Asia Pacific Energy Forum – represented on Denjishin

18. Administrative Initiatives • Mike Grimes Regulatory Affairs manager committed for 12 months • Hiring process underway for local Director RA/GA • Finalized identification of DC office resource • Analyst/associate to be identified • Close co-ordination with Epower regulatory efforts • Increasing co-ordination in region with Mike Dahlke and David Merrill • Multi-lateral agencies strategy under review • Japan working group structure under review