Baseline Business Audit Results Wholesale Enron Energy Services Report Date- August 8, 2001

1. Confidential Baseline Business Audit Results Wholesale Enron Energy Services Report Date- August 8, 2001

2. Project Objective and Scope • Project Objective: • Determine whether inputs and assumptions used to create customer baselines are complete and accurate representations of historical expenditures for in-scope services and sites. Verify that baseline amounts are appropriately captured in final contract terms. • Our business audit procedures included the following: • Review of contracts, baseline databases and source documentation for selected customer sites and • months. • Review of Baseline Development policies and procedures.

3. Baseline Development Process

4. Baseline Development Deal Test Summary • Tested 3 Customer Baselines- JC Penney, Park Place Entertainment, and Owens Illinois • Attributes tested • Database capture • Complete and accurate data capture from source data to database • Data normalization • Identification and verification of irregular amounts • Extrapolation • Consistent and supported application of extrapolation methods • Contract Capture • Complete and accurate data capture from database to contract • Population and Deal Test Population • Customer baselines executed from January 1 to June 30, 2001. • O&M and replacement capital baselines excluded from testing scope. • Summary of key deal test findings • Two sites using electronic source data showed double counted usage and data gaps. JC Penney • Contract baselines were not supported by database values for four of fifteen sites. JC Penney • Two different extrapolation methods are used for four of fifteen sites. Owens-Illinois

5. Observations and Recommendations

6. Observations and Recommendations

7. Observations and Recommendations