============= Page 1 of 86 ============= I CONFIDENTIAL 0 Endless possibilities.TM Finance Committee Meeting Supplemental Schedules February 12, 2001 Committee Members EXH006-00385 (004403469 Mr. Herbert S. Winokur, Jr., Chairman Mr. Robert A. Belfer Mr. Norman P. Blake, Jr. Mr. Ronnie C. Chan Mr. Richard N. Foster Mr. Jerome J. Meyer Mr. Paulo V. Ferraz Pereira Mr. Frank Savage Mr. John A. Urquhart GOVERNMENT EXHIBIT 289 Crim. No. H-04-25 (S-2) ============= Page 2 of 86 ============= Major Relationship Exposures as of close of business February 8, 2001 Relationship E-Rating Exposure Collateral Net Exposure TXU Corp 4 1,657,765,732 (140,400,000) 1,517,365,732 Bonneville Power Administration 2 790,070,314 0 790,070,314 Sithe/Independence Power Partners, L.P. 5 640,484,283 0 640,484,283 TransAlta Corporation 4 577,526,350 (6,500,000) 571,026,350 PG&E Corporation 11 576,066,266 (33,000,000) 543,066,266 Edison International 11 493,486,153 (5,000,000) 488,486,153 Reliant. Energy Inc. 4 1,001,192,910 (532,150,000) 469,042,910 Koch Industries, Inc. 2 295,170,384 0 295,170,384 American Electric Power Company Inc. 4 260,707,189 (32,000,000) 228,707,189 Duke Energy Corporation 3 1,501,501,038 (1,281,550,000) 219,951,038 Sempra Energy 3 258,085,349 (59,750,000) 198,335,349 Avista Corporation 5 183,680,775 0 183,680,775 Utilicorp United Inc. 5 181,409,205 0 181,409,205 Transcanada Pipelines Ltd. 3 159,293,273 0 159,293,273 Energen Corporation 3 152,028,622 0 152,028,622 Canadian Natural Resources 4 151,501,699 0 151,501,699 _ Calpine Corporation II 215,042,961 (75,000,000) 140,042,961 Columbia Energy Group 4 129,927,475 0 129,927,475 BP Amoco p.l.c. 1 165,332,499 (42,500,000) 122,832,499 FPL Group Inc. 2 122,058,886 (11,000,000) 111,058,886 Kinder Morgan, Inc. 5 152,992,342 (47,500,000) 105,492,342 The W illiams Companies, Inc. 5 713,361,407 (622,000,000) 91,361,407 The Southern Company Inc. 4 342,806,766 (313,000,000) 29,806,766 I I Non-Investment Grade Credit Exposures E0004403470 EXH006-00386 ============= Page 3 of 86 ============= Trade Credit Exposures above $50 m i l:lion as of close of business :February 8, 2001 Counterparty E-Rating Exposure Collateral Net Exposure TXU Europe Energy Trading Ltd. 4 1,430,196,621 0 1,430,196,621 Bonneville Power Administration 2 790,070,314 0 790,070,314 Sithe/Independence Power Partners., L.P. 5 640,484,283 0 640,484,283 TransAlta Utilities Corporation 3 571,015,371 0 571,015,371 Southern California Edison Company 11 449,892,431 0 449,892,431 Pacific Gas & Electric Company 11 385,565,861 0 385,565,861 Reliant Energy Resources Corp. 4 314,058,574 ---~i 314,058,574 Duke Energy Trading and Marketing, L.L.C. 3 1,467,678,039 (1,269,050,000) ;~ 198,628,039 Koch Petroleum Group, L.P. 2 167,920,602 '-G' 167,920,602 Avista Energy, Inc. 5 156,654,138 0 156,654,138 Canadian Natural Resources 4 150,487,828 0 150,487,828 American Electric Power Service Corporation 4 132,061,358 0 132,061,358 Calpine Energy Services, L.P. r -~ 196,132,648 (75,000,000) 121,132,648 Koch Energy Trading, Inc. 2 108,987,477 0 108,987,477 Florida Power & Light Company 2 107,140,065 0 107,140,065 The Chase Manhattan Bank 2 1,394,755,986 (1,289,450,000) 105,305,986 Columbia Natural Resources, Inc. ฉ 103,926,598 0 103,926,598 PG&E Gas Transmission, Northwest Corporation 4 99,674,070 0 99,674,070 Sempra Energy Trading Corp. 3 157,675,312 (59,750,000) 97,925,312 Energen Resources Corporation 3 93,901,495 0 93,901,495 PPL Montana, LLC 5 89,135,323 0 89,135,323 Williams Energy Marketing & Trading Company 5 706,790,005 (622,000,000) 84,790,005 AEP Energy Services, Inc. 4 116,697,622 (32,000,000) 84,697,622 BP Canada Energy Company 3 83,518,875 0 83,518,875 Neumin Production Co. 5 112,817,379 (32,000,000) 80,817,379 Belco Oil & Gas Corp. 8 74,182,194 0 74,182,194 Louis Dreyfus Natural Gas Corp. 4 78,117,258 (4,000,000) 74,117,258 CMS Marketing, Services and Trading Company 7 95,913,457 (22,000,000) 73,913,457 Cross Timbers Oil Company 8 82,636,179 (10,000,000) 72,636,179 TransCanada Pipelines Limited 3 71,551,152 0 71,551,152 Power Authority of the State of New York 2 68,652,234 0 68,652,234 Idaho Power Company 3 67,970,107 0 67,970,107 Reliant Energy Services Canada Ltd. 4 66,321,390 0 66,321,390 TransCanada Energy Ltd. 3 66,255,013 0 66,255,013 Marathon Canada Limited 5 59,678,582 0 59,678,582 Aquila Energy Marketing Corporation 7 59,330,294 0 59,330,294 Barrett Resources Corporation 6 58,617,416 0 58,617,416 Tractebel Energy Marketing, Inc. 5 58,519,301 0 58,519,301 Merchant Energy Group of the Americas, Inc. 4 58,369,836 0 58,369,836 Alabama Gas Corporation 3 58,127,127 0 58,127,127 Aquila Canada Corp. r -~ 56,286,669 0 56,286,669 Reliant Energy Services, Inc. 4 587,289,986 (532,150,000) 55,139,986 Mieco Inc. 80,716,159 (28,000,000) 52,716,159 Morgan Stanley Capital Group Inc. 2 126,993,832 (74,500,000) 52,493,832 Yorkshire Electricity Group plc 4 52,423,837 0 52,423,837 Southern California Gas Company 2 52,200,476 0 52,200,476 City of Tacoma 5 51,568,245 0 51,568,245 Virginia Natural Gas Inc. 6 50,954,577 0 50,954,577 Non-Investment Grade Credit Exposures 2 E0004403471 --XH006-00387 ============= Page 4 of 86 ============= Cash Collateral as of close of business February 8, 2001 Counterparty Amount The Chase Manhattan Bank $ 1,289,450,000 Duke Energy Trading and Marketing, L.L.C. - EPMI 1,239,800,000 Williams Energy Marketing & Trading Company - EPMI 622,000,000 J. Aron & Company 210,000,000 Reliant Energy Services, Inc. 171,483,600 Merrill Lynch Capital Services, Inc. 120,600,000 Bank of America, National Association 119,350,000 Mirant Americas Energy Marketing, L.P. 112,000,000 Credit Suisse First Boston International 69,000,000 Cargill, Incorporated 62,100,000 Bankers Trust Company 61,750,000 Kinder Morgan, Inc. 47,500,000 BP Amoco Corporation 42,500,000 PG&E Energy Trading-Gas Corporation 33,000,000 AEP Energy Services, Inc. 32,000,000 Vitol S.A. 30,070,000 Sempra Energy Trading Corp. 26,750,000 CMS Marketing, Services and Trading Company 22,000,000 PSEG Energy Resources & Trade LLC 12,300,000 Cargill-Alliant, LLC 12,000,000 Seneca Resources Corporation 10,500,000 Cook Inlet Energy Supply L.L.C. 7,700,000 Phoenix Dominion Energy, LLC 7,000,000 The Tudor BVI Global Portfolio Ltd. 6,730,000 Virginia Power Energy Marketing, Inc. 5,800,000 Torch Energy Marketing Inc. 5,250,000 Other Cash Received AOT Trading AG Idacorp Energy Solutions, L.P. California Power Exchange Corporation Hess Energy Trading Company LLC Morgan Guaranty Trust Company Of New York Phibro Inc. ConAgra Energy Services, Inc. Societe Generale PCS Nitrogen Fertilizer, L.P. General Re Financial Products Corporation Louis Dreyfus Corporation Utilicorp United Inc. Citibank, N.A. El Paso Merchant Energy, L.P. Williams Energy Marketing & Trading Company - ENA Duke Energy Trading and Marketing, L.L.C. - ENA NYMEX Mahonia Ltd Total 23,232,635 (1,000,000) (1,250,000) (3,302,390) (9,300,000) (10,125, 000) (12,250,000) (12,800,000) (15,000,000) (17,100,000) (21,250,000) (30,000,000) (47,500,000) (66,600,000) (159,000,000) (184,000,000) (213,500,000) (284,195,547) (1,053,600,000) $ 2,260,093,298 Total Incoming $ 4,401,866,235 Total Outgoing (2,141,772,937) $ 2,260,093,298 E0004403472 3 -XH006-00388 ============= Page 5 of 86 ============= Other Collateral as of close of business February 8, 2001 Incoming Letters of Credit Outgoing Letters of Credit Counterparty Amount Reliant Energy Services, Inc. $ 360,666,400 Duke Energy Trading and Marketing, L.L.C. - EPMI 242,750,000 Mirant Americas Energy Marketing, L.P. 201,000,000 TXU Energy Trading Company 140,400,000 Calpine Energy Services, L.P. 75,000,000 Morgan Stanley Capital Group Inc. 74,500,000 Woodward Marketing, L.L.C. 37,300,000 Sempra Energy Trading Corp. 33,000,000 Neumin Production Co. 32,000,000 Warren, George E Corporation 30,860,613 Mieco Inc. 28,000,000 Enserco Energy, Inc. 18,700,000 Enterprise Products Operating L. P. 17,250,000 PanCanadian Energy Services Inc. 16,000,000 Midland Cogeneration Venture Limited Partnership 15,000,000 Duke Energy Marketing Limited Partnership - ECC 12,500,000 FPL Energy Power Marketing, Inc. 11,000,000 Birchill Resources Limited 10,400,000 Glencore AG 10,091,375 Cross Timbers Oil Company 10,000,000 Hafslund Energy Trading, LLC 10,000,000 Natural Gas Exchange Inc. 10,000,000 ProLiance Energy, LLC 10,000,000 Niagara Mohawk Energy Marketing, Inc. 9,600,000 Societe Generale Energie (USA) Corp. 8,809,053 DevX Energy, Inc. 8,500,000 Contour Energy Co. 8,000,000 Panaco, Inc. 7,500,000 PetroPeru S.A. 7,476,500 Auburndale Power Partners LP 7,000,000 TransAlta Energy Marketing Corp. 6,500,000 Linder Energy Company 6,000,000 Metromedia Energy, Inc. 6,000,000 Castle Power LLC 5,750,000 Deseret Generation & Transmission Coop. 5,750,000 Edison Mission Marketing & Trading Inc. 5,000,000 HS Energy Services, Inc. 5,000,000 Interstate Gas Supply, Inc. 5,000,000 Select Energy, Inc. 5,000,000 United Oil & Minerals, Inc. 5,000,000 Other 118,322,150 Total $ 1,636,626,091 Counterparty Amount LG&E Energy Marketing Inc. $ (181,500,000) Duke Energy Marketing Limited Partnership - ECC (112,250,000) TransCanada Energy Financial Products Limited (109,000,000) Pacific Gas & Electric Company (95,500,000) California Power Exchange Corporation (92,290,000) ISO New England Inc. (40,000,000) Louis Dreyfus Corporation (30,000,000) Southern California Edison Company (22,700.000) Powerex Corp. (20,000,000) Empresa Estatal de Petroleos del Ecuador (14,795,400) El Nasr Steel Pipes & Fittings Co. (1,370,000) Cammesa (132,400) Power Pool of Alberta (100.000) Total S (719,637,800) Outgoing Surety Bond Counterparty Amount Mahonia Ltd. $ (1,266,022.000) Total S (1,266,022,000) Incoming Securities Counterparty Amount Bank of Montreal $ 103,250,000 Total $ 103,250,000 E0004403473 =XH006-00389 ============= Page 6 of 86 ============= California Credit Risk Mitigation (in $MM's) Utility PG&E - Return of customers to utility service $ 665 4t ARM Non-Regulated Collateral $ 33 Contract assignment and assumption Avista 132 Duke 99 Merchant Energy Group of America 57 Master netting and set-off agreement 30 4t 4rli Total $ 1,016 Utility - Pending SCE - Return of customers to utility service 315 Grand Total $ 1,331 5 E0004403474 =XH006-00390 ============= Page 7 of 86 ============= Merchant Portfolio as of December 31, 2000 Syndications $5.92 Bn $2.77 Bn Credit Interests 60.02 Bn $0.03 Bn Numbers in italics represent comparable amounts at September 30, 2000. 4 - 4 EXH006-00391 Condor Raptor Hedges $1.31 Bn $0.66 Bn $0.65 Bn $0.64 Bn , :- - ง !-FASB 125 - - - - $0.72Bn $0.43 Bn , , Net On-Balance Sheet Portfolio $19.53 Bn $13.24 Bn ' , , , E0004403475 } ; ,t . I f i . Equity JV Interests $0.32 Bn $0.3313n Gross Portfolio $27.48 Bn $17.09 Bn Total Net Portfolio $21.56 Bn $14.32 Bn ============= Page 8 of 86 ============= Merchant Portfolio After Syndication as of December 31, 2000 Numbers in italics represent comparable amounts at September 30, 2000. 4 - 5 Merchant Stru Credit Expo $0.56 Br $0.62 Bn Equ Instrur Enron Stock $0.82 B $0.82 8n E0004403476 it nents Fsical Assets $0.99 Bn $1.01 Bn Hedge Fund $0.00 Bn Equity $0.01 Bn 0.51 Bn $0.60 Bn EXH006-00392 Total Net Portfolio $21.56 Bn $14.32 Bn Total Net Portfolio $21.56 Bn $14.32 Bn ============= Page 9 of 86 ============= Increase in Gross Credit Exposure Significant price movements in NYMEX gas prices and Western basis Significant price movements in power prices Increased EES exposures due to negative CTC buildup in California Increase in magnitude of portfolio due to volume growth augmented the impact of price movements to Price Risk Management assets and liabilities 4 _ 6 E0004403477 EXH006-00393 ============= Page 10 of 86 ============= L Debt Instruments as of December 31, 2000 Net Credit Exposure: $17.55 Bn $10.16 Bn Portfolio Performance E-Ratings* Non- 70% Decrease : Performing n *Owens Corning 0% moved to 2% "Performing" •Carry Value of other Non-Performing Assets Shift from Investment Grade: written down. Downgrade of California utility 8% 19% companies. 2% 11 "E-Ratings" represent Enron's Internal Credit Rating System. 1 = AAA. 4- 7 Numbers in italics represent comparable amounts at September 30, 2000. EOO04403478  1-5 Investment Grade 6-8 B B+/B B/B B-  9-10 B+/B/B- * 11-12 All C & D Ratings 15% 17% EXH006-00394 ============= Page 11 of 86 ============= Top 25 Net Credit Exposures June 30, 2000 September 30, 2000 December 31, 2000 Type of Credit E-Rating Counterparty Name In $MM's In $MM's In $MM's Trade 4 TXU Europe Energy Trading Ltd. 1,452 1,389 1,238 Trade 3 Trans Alta Utilities Corporation N/A 293 836 Trade 11 Pacific Gas & Electric Company 54 61 808 Trade 5 Sithe/Independence Power Partners, L.P. 519 597 632 Trade 2 Bonneville Power Administration 162 242 606 Trade 2 Barclays Physical Trading Ltd N/A N/A 526 Trade 4 Reliant Energy Resources Corp. 166 179 385 Trade : 11 ,: Southern California Edison Company N/A WA 320 Trade 3 Duke Energy Trading and Marketing, L.L.C. N/A N/A 257 Trade 4 Reliant Energy Services, Inc. 56 N/A 220 Trade ~PG&E Energy Trading - Power, L.P. N/A 115 212 Trade 5 Avista Energy Inc.ฐ N/A N/A 181 Trade 4 Canadian Natural Resources 124 131 160 Merchant East Coast Power 158 158 159 Trade' . 7 Aquila Canada Corp N/A N/A 150 Trade 4 American Electric Power Service Corporation 62 WA 137 Trade 2 Florida Power & Light Company 149 145 134 . Trade 6 Columbia Natural Resources, Inc. N/A 77 132 Merchant 9 Mariner Combined Debt 114 112 123 Trade 3 AEP Energy Services, Inc. N/A 105 123 Trade 2 Koch Energy Trading, Inc. 89 108 iii Trade Aquila Energy Marketing Corporation N/A WA 106 Trade 3 Duke Energy Marketing Limited Partnership N/A 64 106 Trade 3 Energen Resources Corporation N/A 72 100 Trade 3 Idaho Power Company N/A WA 94 Trade 2 The Chase Manhattan Bank 159 198 WA . Merchant American Coal Tranche I 133 102 N/A Trade 11 Owens Corning WA 97 N/A Trade 4 Petro-Canada Oil and Gas 74 95 N/A Trade 5 Williams Energy Marketing & Trading Company 114 90 N/A Trade 4 Southern Company Energy Marketing, L.P. 58 73 N/A Trade 5 Neumin Production Co. N/A 63 N/A Trade 4 Merchant Energy Group of the Americas, Inc. N/A 53 N/A Trade ฎBelco Oil & Gas Corp. WA 52 N/A Trade 2 The Power Authority of the State of New York 52 WA N/A Trade 2 Merrill Lynch Capital Services, Inc. 57 WA N/A Trade 5 Tractebel Energy Marketing, Inc. 85 N/A N/A Trade 1 Koch Petroleum Group, L.P. 66 WA N/A Trade 4 Yorkshire Electricity Group plc 62 N/A N/A Trade 4 United Illuminating Company 62 N/A WA Top 25 Total 4,027 4,671 7,856 Other Net Credit Exposures 4,956 5,486 9,693 Total Net Credit Exposure 8,983 10,157 17,549 Counterparties new to "Top 25" list Non-Investment Grade Credit Exposures 4 _ 8 E0004403479 EXH006-00395 ============= Page 12 of 86 ============= Major Trade Credit Relationship Exposures as of December 31, 2000 Monetizations Exposure and Collateral Net Exposure E-Rating Relationship in $MM's in $MM's in $MM's 4 TXU Corp. 1,462 159 1,3 11 PG&E Corp. 1,136 0 1,136 4 TransAlta Corporation 857 19 838 4 Reliant Energy Inc. 1,121 474 647 5 Sithe/Independence Power Partners, L.P. 633 0 633 2 Bonneville Power Administration 606 0 606 2 Barclays plc 553 0 553 11 Edison International 407 7 400 3 Duke Energy Corporation 1,063 680 383 5 Utilicorp United Inc. 315 8 307 4 American Electric Power Company Inc. 301 32 269 5 Avista Corporation 217 0 217 4 Columbia Energy Group 157 0 157 1 Koch Industries, Inc. 151 0 151 3 Sempra Energy 586 466 120 ~ Calpine Corporation 192 75 117 3 Transcanada Pipelines Ltd. 96 0 96 4 The Southern Company Inc. 313 272 41 5 The Williams Companies, Inc. 559 540 19 Major Relationships Total 10,725 2,732 7,993 Other Trade Credit Exposures 11,848 2,847 9,001 Total Trade Credit Exposure 22,573 5,579 16,994 ONon-investment Grade Credit Exposures EOO04403480 4- 9 EXH006-00396 ============= Page 13 of 86 ============= Top 10 Country Net Credit Exposures September 30, 2000 % of December 31, 2000 % of E-Rating Country In $MM's Total In $MM's Total 1 United States 6,442 63% 12,110 69% 1 Canada 1,020 10% 2,270 13% 1 United Kingdom 1,873 18% 2,249 13% 1 Germany 120 1% 115 1% 1 Sweden N/A 100 1% 1 Switzerland 80 1 % 89 1 % 1 Norway N/A 76 1 Australia 26 38 P iaies 4 37 6 Slovakia N/A 36 1 Singapore 45 N/A F_9 Argentina 28 N/A 1 Netherlands 26 N/A Top 10 Total 9,706 17,120 Other Countries Net Credit Exposure 451 429 Total Net Credit Exposure 10,157 17,549 All Otl $920 5% 9% I I Non-Investment Grade Credit Exposures E0004403481 Numbers in italics represent comparable amounts at September 30, 2000. 4 - 10 EXH006-00397 ============= Page 14 of 86 ============= Debt Instrument Performance Non-Performing Exposure Detail Life to Date Q4'00 ; Net Net Change in Change in Type of Cost Carry Value Value Value , Credit Country E-Rating Transaction Industry Sector ($MM's) ($MM's) ($MM's) ($MM's) Merchant United States 12 Kafus/CanFibre Paper/ Pulp 23.39 0.00 (23.39) 0.00 Merchant United States 12 Ecogas Oil & Gas: A&D 19.79 0.00 (19.79) (13.23) Merchant Thailand 12 NSM Steel 19.28 0.00 (19.28) 0.00 Merchant United States 12 Hughes Rawls Oil & Gas: E&P 7.56 1.18 (6.38) 0.00 Merchant United States 12 Industrial Holdings Oil Field Services 7.50 7.12 (0.38) 0.00 Trade United States 12 Arcadia Energy Marketing 5.94 5.94 0.00- 0.00 Trade United States 12 Badak Gas Marketing Inc Oil & Gas: E&P 8.44 8.44 0.00 0.00 Trade United States 12 Perry Gas Energy Marketing 8.97 8.97 0.00 0.00 All Others 7.49 6.82 0.67 0.44 Total Non-Performing Credit Exposure 108.36 38.47 - 69.89 13.67 Total Net Credit Exposure $ 17,548.65 Non-Performing Percentage 0.22% Non-Performing Assets held b ENA CLO (Merlin) Merchant United States 12 Heartland Steel * Steel 15.00 15.00 0.00 0.00 Merchant United States 12 Kafus/CanFibre * Paper/ Pulp 60.00 60.00 0.00 0.00 Merchant United States 12 LSI Electric Specialty' Oil Field Services 0.18 0.18 0.00 0.00 Merchant United States 12 TransCoastal Marine Services' Oil Field Services 20.00 20.00 0.00 0.00 Total ENA CLO (Merlin) 95.18 95.18 0.00 0.00 Counterparties new to "Debt Instrument Performance" list from September 30, 2000 Represents Non-Performing Assets which were sold to Merlin CLO and therefore not included on Enron's balance sheet or marked to market. Balances shown represent the asset basis in the CLO which is exposure to Enron through a $113MM credit derivative. 4 - 11 E0004403482 EXH006-00398 ============= Page 15 of 86 ============= Equity Instruments as of December 31, 2000 Net Equity Exposure $4.01 Bn $4.16 Bn Pipeline Industry Coal $201 MM $46 MM 5% 1% - -I-Oil & Gas $1,148 MN 29% Utility Services - ' $48 MM 1 /o Steel MMMM Telecom $41 % $122 MM 3% Paper & Pulp $34 MM 1% Other $93 MM 2% Power $1,458 MM 36% Q4'00 FV Increase / Decrease + $99MM Mariner - Oil & Gas + $62MM Hanover - Oil & Gas - $93MM Catalytica - Utility Services - $69MM Avici - Telecom Geographic Region N Enron Stock & Swap $820 MM 21% kY South America 0% ' Asia/Africa $1 4 MM Caribbean/ Car 3 Middle East $566 MM 14% 4- 12 Numbers in italics represent comparable amounts at September 30, 2000. E0004403483 Europe $1,008 MM 25% India 0% EXH006-00399 ============= Page 16 of 86 ============= Equity Instruments Performance as of December 31, 2000 Net Equity Exposure $4.01 Bn $4.16 Bn Troubled $114 MM 3% 4% EC0044O3484 Numbers in italics represent comparable amounts at September 30, 2000. 4 - 13 EXH006-00400 ============= Page 17 of 86 ============= Equity Instrument Performance Troubled Asset Detail Life to Date Q4'00 Net Net Change in Change in Cost Carry Value Value Value Business Unit Country Transaction Asset Book - Industry Sector ($MM's) ($MM's) ($MM's) ($MM's) Enron Americas United States Kafus/CanFibre Public Equity Paper/Pulp 45.64 0.00 (45.64) 0.00 Enron Americas United States Ecogas Private Equity Oil & Gas: A&D 20.75 0.00 (20.75) 0.00 Enron Americas United States Hughes Rawls Private Equity Oil & Gas: E&P 12.03 0.00 (12.03) 0.00 Enron Americas Thailand NSM Public Equity Steel 12.03 0.00 (12.03) 0.00 Enron Americas United States Crown Energy Private Equity Other 5.47 0.00 (5.47) 0.00 Enron Americas United States Inland Resources, Inc. Public Equity Oil & Gas: A&D 6.92 5.24 (1.68) (0.52) Enron Global Assets Venezuela Citadel Venezolana Physical Assets Other 10.72 10.72 0.00 0.00 Enron Global Markets Puerto Rico San Juan Gas Physical Assets Pipeline 13.51 13.51 0.00 0.00 Enron Americas United States EnSerCo Offshore Private Equity Oil Field Services 5.19 5.19 0.00 0.00 Enron Americas United States Merlin CLO Equity Option Private Equity Other 23.50 23.50 0.00 0.00 Enron Americas United States Heartland Steel Private Equity Steel 25.44 41.75 16.31 0.00 All Others 29.59 14.31 15.28 0.84 Total Troubled Equity 210.79 114.22 (96.57) 0.32 Total Net Equity Exposure $ 4,011.91 ITroubled Percentage 3% 4- 14 E0004403485 EXH006-00401 ============= Page 18 of 86 ============= Bottom 10 Investments Life to Date Net Net Change In Cost Carry Value Value ($MM's) ($MM's) ($MM's) Remarks The British Columbia Supreme Court granted a creditor's petition filed on 8/14/00 and appointed PricewaterhouseCoopers Inc. as interim receiver. The Company Kafus/CanFibre continues as a debtor in possession. The ENA CLO (Merlin) Trust also holds $60 (Equity & Debt - EA) 69.03 0.00 (69.03) MM in debt. The liquidation of Ecogas was recently completed with all remaining assets and Ecogas facilities having been sold. Unsecured creditors have been settled with and all (Private Equity & Debt - EA) 40.54 0.00 (40.54) remaining issues have been adequately reserved. The remaining properties in the LLC have been sold. Enron will continue to pursue Hughes Rawls resolution of certain recent audit findings against the operator of the properties, with (Private Equity & Sr Loan - EA) 19.59 1.18 (18.41) some additional minor financial renumeration likely. Only 2 of the wells drilled have proved to be economically viable and the PV 10 reserve value on them is marginal. The original LLC structure is being dissolved, Bonne Terre certain assets in the project area are being sold and EA has brought in new partners (LLC - EA) 23.13 11.50 (11.63) on a promoted basis to continue development. The refinancing that had been contemplated to close in mid Jan-2001, and which would have taken Enron's debt investment out, has been delayed pending the sale of a Company business unit. The note has been in default and has been accruing Industrial Holdings interest at the 18% default rate. Recourse against Industrial Holdings has been (Term Loan - EA) 7.50 7.12 (0.38) limited based on the unsecured status of the note. A $35 MM offer recently closed that took out the ENA CLO senior secured credit facility at par. The ENA CLO senior subordinated credit facility was retired at around 38 cents on the dollar. The ENA CLO Credit Derivative will be called upon to Basic Energy (Sierra Well Service) underwrite the loss in full. A cash flow participation certificate will continue to attach, (Private Equity & Debt - EA) 1.25 1.25 0.00 capped at $1 MM per year and $5 MM in total. In 04 2000, EA sold its investment in the Thorn well property in Louisiana for approximately $28 MM (all cash) to a publicly traded E&P company. The exit strategy, post the Thorn well disposition, is to identify prospects under lease and then Cypress Exploration spend minimal exploration dollars that will create value, define potential and (Working Interest Operator - EA) 23.96 25.48 1.52 maximize sale proceeds. Drilling results for the partnership remain disappointing, with a total of 15 wells drilled to date with 7 currently producing. Gross contributions to date total $29.7 MM Juniper Exploration with distributions of $0.1 MM. Cash flow from two properties are currently covering (Limited Partnership - EA) 18.49 21.61 3.12 general & administrative costs. Enron is reducing involvement with the Company including resigning its Board of Directors seat. A forebearance agreement regarding principal payments due to the Heartland Steel Senior Bank Group expired on 1/19/01. Heartland filed for bankruptcy shortly (Private Equity & Debt - EA) 27.75 42.91 15.16 thereafter. The ENA CLO (Merlin) Trust also holds $15 MM in debt. San Juan Gas is a local gas distribution company serving Puerto Rico's capital through an underground gas distribution system. The Company is involved in numerous lawsuits related to an explosion that occurred in 1996. In late 1998 the San Juan Gas Company completed an extensive modernization program, including a system (Physical Assets & Debt - EGM) 31.17 31.17 0.00 * downsizing from 220 miles of pipeline to 23 miles. Total 262.41 142.22 (120.19) Counterparties new to "Bottom 10 Investments" list from September 30, 2000. Note that this asset historically is not subject to fair value. ECp04403486 4- 15 EXH006-00402 ============= Page 19 of 86 ============= Top 10 Investments Life to Date Net Net Change in Cost Carry Value Value ($MM's) ($MM's) ($MM's) Remarks Efforts continue to find the most efficient way to monetize the investment. The 2001 business plan calls for all cap-ex projects to be funded through internal cash flow Mariner Energy and bank debt, avoiding additional Enron funding. Through Nov-2000, Mariner's (Private Equity f Convertible & Revolving actual EBITDA was 114.2% of plan, with $80.232 MM recorded vs. a budget of Debt - EA) 242.07 496.43 254.36 $70.274 MM. For the year ended 12/31/00, the Company's common stock return was + 136%. Hanover Compressor Since going public in July- 1997, Hanover common stock has returned a cumulative (Common Stock - EA) 31.72 236.61 204.89 268% vs. a cumulative S&P 500 return of 44.9% over the same period. EA has finalized and signed a transaction agreement with El Paso that will sell our East Coast Power LLC JEDI 11 equity ownership in East Coast Power. Also included in the transaction are (Private Equity / Sub Loan - EA) 179.20 274.06 94.86 East Coast Power subordinated notes previously held by Enron North America. Venoco has recently successfully refinanced their credit facility with an increase in the borrowing base. The PV10 reserve value of this oil weighted producer has Venoco, Inc. increased significantly as crude prices have risen. They have also retained an (Private Equity - EA) 45.81 81.21 35.40 investment banking firm regarding a possible M&A opportunity. The Company was recently successful in raising $35 MM in private equity through a HORNBECK-LEEVAC Marine Services group of investors led by SCF Partners. An S-1 has been drafted in anticipation of (Warrants - EA) 0.00 23.51 23.51 an IPO during Q12001. The Company developed and commercialized a flywheel-based uninterruptible power system, with brand recognition and channel distribution facilitated by a five- year exclusive distribution agreement with Caterpillar. IPO'd on 8/7/00, selling 8MM Active Power shares at $17/share and then traded down through its IPO price, dropping to $12 (Public Equity & Warrants - EA) 5.00 26.30 21.30 3/4, before rebounding into the current high $20 range. Through its terabit routers, the Company provides intelligent, high-speed data networking equipment to telecommunications companies and internet service providers for next-generation optical networks. IPO'd on 7/27/00, selling 7MM Avici Systems, Inc. shares at $311 share and then traded down through its IPO price during Q4 2000, (Public Equity - EBS) 15.00 35.40 20.40 dropping to $16 3/4, before rebounding into the current high $20 range. Engineering on the Thermo Mechanical Project (which will increase mill efficiency) is Papier Masson Ltee complete and commissioning tests were successful. Production and EBITDA (Private Equity - EIM) 12.77 24.74 11.97 exceeded plan for the year 2000. The project consists of a 359 mile (578 km), 18-inch natural gas pipeline from the Centragas northern coast of Columbia to the central region. Two new compressor systems (Private Equity - EGA) 35.27 35.27 0.00 * have been installed to upgrade transport capacity by 56%. Ventane, headquartered in Venezuela, is a transporter and distributor of LPG. The Industrias Ventane Company holds approximately 47% of the market in total sales and serves over 2.5 (Private Equity - EGA) 163.48 163.48 0.00 ` MM of Venezuela's industrial, commercial and residential customers. Total 730.32 1,397.01 666.69 Counterparties new to "Top 10 Investments" list from September 30, 2000. ' Note that these assets historically are not subject to fair value. 4 _ 16 ECO04403487 EXH006-00403 ============= Page 20 of 86 ============= L. Merchant Equity Investments - Fair Market Value as of December 31, 2000 ($MM's) 6/00 9/00 12/00 6/00 9/00 12/00 6/00 9/00 12/00 Enron Stock & Swap** Public Equity Private Equity Includes write-ups and write-downs. " Includes a swap entered into at a price of $71. The swap expires June 14, 2001. 4- 17 6/00 9/00 12/00 Physical Assets E0004403488 EXH006-00404 ============= Page 21 of 86 ============= EES Status Report E0004403489 ~~ 4- 18 Finance Committee Meeting } EXH006-00405 ============= Page 22 of 86 ============= Energy Asset Projects -Net Present vague 160 140 12 u it C tfT C. E Z e as of December 31, 2000 - - - Step 1 - Enron Approval Plan / Actual - - - Step 2 - Customer Approval Plan / Actual - - - Step 3 - Installed Plan / Actual i f~. 0 --~-= • Excellent progress continued in developing projects and obtaining customer approvals • Project installation now ahead of plan • Next step is to verify actual project performance: Valuation personnel now in place, methodology / process developed Pre-project baseline measurements starting Post-project performance measurement will follow 4 - 19 E0004403490 EXH006-00406 OPG 5~< 0ฐ~ Q ฐ sac Few ~~~ ?Qc ~~a SO ~J` PJ~' ~Q o 01 ============= Page 23 of 86 ============= Energy Asset Management Verification • Sample: A total of thirty-four completed projects have been evaluated for actual performance relative to engineering estimate. • Projected versus Actual: Projected NPV $9.67 MM Standard Deviation • Conclusion: Net present value close to projected. • Issues: Actual $9.52 M M 44% Variance -1.55% 1) Wide distribution of energy efficiency outcomes. 2) Need for pre-measurement. The NPV results above evaluate project performance post-completion, but without pre-measurement, actual energy savings are not validated. • Next Steps: 1) Pre-measurement process begun. 2) Additional project performance data. 4-20 E0004403491 ~tI EXH006-00407 ============= Page 24 of 86 ============= L 34 Projects -Project Evaluation % NPV difference from forecast 200% 150% v 100% 0 0 L CL 50% A .0 v 0% c ea L -50% CL Z -100% -150% -200% Explanations for savings deviations • Assumption of baseline energy use was incorrect • New equipment has higher or lower efficiency than projected • Energy savings modeling inaccuracies 4-21 E0004403492 EXH006-00408 ============= Page 25 of 86 ============= 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter ID Task Name Completed ' Jul Au Se Ocl Nov Dec Jan Feb Mar A r Ma Jun I 1 2 Billing Payment System Reconciliation to Commodity Books 3 Establish plan for legacy deal reforecast I 4 Deep Dive analysis / data gathering ~~ N. Hon 5 Reforecasting performed on all legacy deals PRO 6 Cash Reconciliation of Liquidation - _ Establish plan V i i R. Boltz 6 Implementation of "Go-forward" monthy reconciliation 1 9 - - - Reconciliation performed on prior months C I Date TBO r I 10 Capture Tariff Price From Utility Bills 11 Establish plan E. Hughes 'Sip 1111.111.1111111P Ill 1. 12 Complete Float Analysis - Invoice and Payment System 13 Establish plan ?• E. Hughes 14 I I I ! 15 Risk Analytics E0004403493 ! 1 16 Position Report • f 17 Intramonth reporting for Power West Complete ` N. Hon g 18 Intramonth reporting for Power East 19 Create East intramonth book in Access Database N. Hong 20 Intramonth reporting for Gas 21 - Validate ALTRA positions / verify spot curves j j N. Hong j 22 - Develop & implement a plan for systems support from ALTRA To RGS N. Hong 23 Canadian Risk Position Reporting t 24 - Gas Positions captured in excel model revalued and reported monthly Complete 25 Conversion of Position from excel to RGS Complete N. Hong 26 - Power Canadian wholesale curve developed Complete l o Benevides P . r 27 Power T&D curve development Complete ' ~~ S. Stoness 28 - Timely value / report of Power Canada Positions Complete 29 Stress testing procedures Hong 1 30 Implement global analysis of EES Credit Reserve (after Agg Credit Phase II) ), h 31 Models 1 Project: Risk Analysis 1 53 ~'"ฐ 7 Task ~~~ Progress ~ Milestone ฎ Summary Date: Mon 2/5/01 - r r v :r of 4 ,2 S #3 V Arrow indicates status os of December BOD meeting t PYlannl_nnanq ============= Page 26 of 86 ============= EES / RAC Task Force 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter ID Task Name Completed] Jut Au Se Oct Nov Dec Jan Feb Mar A pr Ma Jun 32 Improve and streamline transaction valuation and market risk models ^fT P. Layton! M. Tribolet 33 Enhance Risk TRAC to handle risk analytics of EES portfolio (VAR analysis) 34 EAM Options volume 35 Establish options valuation & MTM Complete i D. Draper 36 Establish EES VAR and Volumetric Risk Limits for tariff exposure i . Stoness 37 38 EAM and AOPS Risk Management ` 39 EAM Risk Book I 40 -Segregation of duties surrounding asset performance validation Complete I D. Roberts € i 41 - Engineering Audit Control function established ` 42 - EAM Position Reporting (Time, Capital, Efficiency) Complete D. Draper ! D. Roberts 43 - Delivery Performance Risk (DAPR) philosophy and methodology Complete D. Roberts 44 - Site Level Actualization w/ Variance explanations D. Benevides 45 - Daily Position Report includes EAM Options Complete' y~vx~ j l 46 - Establish DASH EAM capital monitoring process Complete t C. Morrow r - 47 ------------------- - -- --- -- ------- H ddendum) Complete J. Hachen,/ C. Morrow --- - tablish AOPs Risk Book - - - -- - Establish Risk Analytics group for AOPS Complete l~ C. Morrow - -- - - Inventory AOP's deals c. Morrow - Develop financial models supporting deal risk exposure C. Morrow - Review Accounting Process C. Morrow 53 EAM Project valuation 54 - Project valuation personnel in regions for consistency Complete f i e D. Roberts 55 - Project valuation of legacy projects in system (measure asset performance) D. Roberts 56 - ECM Technical Model development (Energy Conservation Measures) I 57 Initial RAC audits (intermediate control) Complete n~ J. Hachen i i 58 Deal Pricing 59 - Develop ECM probabilistic curves based on EES experience t11t1 D. Roberts 30 -Utilize ECM probablistic curve for pricing M. Tribolet t 31 - RAC / EES agreement on handling implementation risk - pricing through MTM 777,7 M. Tribolet,EES-TBD 152 ~ roject: Risk Analysis Task j4 T,' r Progress F Milestone ฎ Summary ale: Mon 2/5/01 4-23 7 Arrow indicates status as of Decernber BOD meeting E0004403494 FxHOOR-Ctf 410 ============= Page 27 of 86 ============= EES / RAC Task Force 3rd Quarter 4th Quarter 1 st Quarter 2nd Quarter ID Task Name Completed ' Jul Au Se Oct Nov Dec Jan Feb Mar A pr Ma Jun 63 Credit Risk Management 64 Aggregate Credit Exposure f t 65 Phase I I I 66 Establish daily feeds for high priority A/R systems (gas, power, bundled) P. Ho 67 Establish daily feeds for MTM positions - RPS (power) S. Yeargain ss Establish daily feeds for MTM position -RGS (gas) 1 T. Donovan,IBM I 69 Establish daily feeds for intramonth forward - power west desk S. Yeargain 70 Setup global counterparty ID's for customers (630) with Dec. MTM > K. Williams 71 $100,000 and A/R > $50,000 ! i t 72 Phase II j 73 Establish daily feeds for other A/R systems (Clinton, Bentley, EECC, i , P. Ho,B. Mahendra 74 NEPCO, Bill Payment Sold) 75 Establish daily feeds for EFS - A/R and A/P I 76 Setup and establish daily feeds for intramonth book - PIPS - East Desk i S. Mrs 77 Setup and establish daily feeds for intramonth book - FIGS ;" s. Mitts a 78 Establish daily feeds for A/P i B. Mahendra 79 Set up and establish daily feeds for shipped not billed - Power S. Mitts 80 Set up and establish daily feeds for shipped not billed - Gas I i S.Mills I 81 Improve system and business processes of FIGS to allow validated data to ) . Mills,IBM b S M... ,. 82 . _ be transmitted daily by 5:00 a.m. t t I B3 Further curve development in RGS and RPS to componentize retail adders N. Hong 84 Consolidate benchmark & credit exposure to feed Risk TRAC (by 5:00am) { ram S Mills 1 85 Setup global counterparty ID's at average rate of 100 per week. t P 86 Daily new deals report to assist in daily credit monitoring ; 87 - Gas Complete p j M. Hwang l h1. Harris 88 Power Complete E0004403495 I N. Hong M. Hard 89 Review credit policy with Origination Complete Harris I i f 90 Review Transaction Approval Process Complete . j M.Triboleti . 91 Review credit policy with Trading Complete Harris 92 93 Review EES Clients and Evaluate Portfolio Quality of Credit Exposure Compare EES booked credit reserves to Credit Department reserve calc Complete I E. Kingshill Project: Risk Analysis Date: Mon 2/5/01 Task Progress Milestone • Summary 4-24 V Arrow indicates status as of December BOD meeting EXH006-00411 ============= Page 28 of 86 ============= EES / RAC Task Force 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter ID Task Name Completed Jul Au Se Oct Nov Dec Jan Feb Mar Jun A pr May 94 Review & implement process for booking credit reserves E.'Kingshill 95 Review EES cp's,assign E ratings, evaluate portfolio quality of credit exp s, 96 Review EFS cp's, assign E ratings, evaluate portfolio quality of credit exp , I .. , 97 Review Enron Direct cp's,assign E ratings, evaluate portfolio quality of credit e 98 Review Clinton cp's, assign E ratings, evaluate portfolio quality of credit exp ' 99 Review EES Accounts Receivable i 100 Identify EES AR systems (listing) Complete ; 1 TBD 101 Establish consolidation timetable ' I TBD t 102 Preparation of AR aging without listing I TBD 103 Preparation of AR aging with listing of obligors i TBD 104 Negative balance reporting TBD 105 Begin payment rate reporting i TBD 106 Deal Capture Controls 107 Hire Deal Capture group lead Complete toe Establish centralized deal capture / confirm group ` W. Prihoda E0004403496 Project: Risk Analysis Date: Mon 2/5/01 Task t TNa Progress Milestone ฎ Summary 4-25 V Arrow indicates status as of December BOD meeting FXH006-00412 ============= Page 29 of 86 ============= Market Risk Update E0004403497 4-26 y9o Finance Committee Meeting EXH006-00413 ============= Page 30 of 86 ============= Finance Committee Table of Contents u Risk Profile by Product o Risk Profile by Primary Commodity and Business Unit o Backtesting of Enron's Aggregate Value-at-Risk Model o Stress Testing o Enron Foreign Exchange Update o Trading Limit Changes o Discretionary VaR Allocations o Policy Changes 4-27 E0004403498 EXH006-00414 ============= Page 31 of 86 ============= L Risk Profile by Product Year Ended December 31, 2000 YTD Trading P&L YTD Trading P&L = $2.2 B ($MM) 1,146 Q1-Q3 P&L 617 E 't~=ffF Q4 P&L 193 s NR~ 76 f `7 ~r 64 54 50 ~ 40 39 ~ I I 40 36 21 19 (24) (, (53) YTD Average VaR YTD Average VaR = $47 MM ($MM) (38) (23) (12) (2) (1) (6) (4) (1) (5) (1) (2) (0) (3) (2) O (10)- 4 (20)- 11 (30) (40) (50) NA NA UK Financial Coal & Global EES Pulp & Metals Other(1) Weather Bandwidth Eur. Cont. Gas Power Power Freight Products Paper Gas Power Return on Enron VaR YTD 191% 165% 98% 191% 335% 55% 62% 190% 68% 100% 73% nil nil nil 290% (1) includes all commodities with profitAoss less than $10 MM 4-28 E0004403499 EXH006-00415 ============= Page 32 of 86 ============= Risk Profile by Primary Commodity and Business Unit Year Ended December 31, 2000 Commodity Comparison YTD Trading P&L ฎ 2000 P&L = $2.2 B ($MM)<: 1999 P& L = $0.9 B 1,200 1,123 900 794 600 1 336 0._[ 300 119 92 76 72 75 28 YTD Average VaR ฎ 2000 Avg VaR = $47 MM ($MM)~ 1999 Avg VaR = $19 MM 0 (10) (10) (6) (5) (2) (1) (6) (2) (20) (15) (30) (27) (40) (38) (50) Gas Power Products(1) Financial Other Return on VaR YTD 186% 185% 118% 191% 81% (1) includes Coal & Freight and Global Products Business Unit Comparison YTD Trading P&L YTD Trading P&L = $2.2 B ($MM) 1,900 1,763 1,500 1,100 700 300 213 155 40 39 (24) (100)Americas Global Europe EES Industrial EBS Markets Markets YTD Average VaR YTD Average VaR = $47 MM ($MM) 0 (t0) (7) (4) (1) (0) (20) (14) (30)- (40)- (44) (50) Americas Global Europe EES Industrial EBS Markets Markets Return on VaR YTD 249% 192% 69% 62% 189% nil 4 - 29 E0004403500 EXH006-00416 Gas Power Products(1) Financial Other ============= Page 33 of 86 ============= 2000 Quarterly VaR Limit Utilization 100% 90% 80% 70% 60% OQ1 O Q2 50% O Q3  Q4 40% 30% 20% 10% 0% NA Gas NA Power UK Power VaR Limit ($) 40 40 44 70 40 40 40 49 10 18 17 17 Financial Global Products Coal & Freight TOTAL ENRON 9 11 11 11 8 8 8 8 2 2 2 4 60 65 80100 4-30 E0004403501 i 1 EXH006-00417 ============= Page 34 of 86 ============= ($MM) 600 150 100 (50) Backtesting of Enron Corp. Aggregate VaR Year Ended December 31, 2000 8/24/00 - $165 MM 8/25/00 - $195 MM Curve Shift P&L VaR -VaR Limit ' 11 50 0 12/4/00 - $485 MM ~I, (100)Conclusion: VaR Model is acceptable. (150) (Kupiec Test) 8/30/00 - ($212 MM) (600) 12/12/00 - ($551 MM) I' 12/13/00 - ($204 MM) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 N N N N N N N N N \ \ ' v O 0 0 0 N N N N ` \ ` 0 0 N N ` 0 0 O O 0 N N N N N ~ a a a a 0 0 N N ~ 0 0 O 0 0 O 0 N N N N N N N T T 0 0 0 0 0 0 0 0 N N N N N N N N \ \ co co M ~ v v r N a N M N * * M co M m w. r N O co (7 N 0 ~` N r r C N O O O O O ` N M r N (q r 0 O O O> CA CA CA W W N (` ` N a ~N r r N (N ( ) ( ) It U) U) (O W h W W W m O) 0) O O O r r i~ `V Loss Notifications >VaR Limit ($194) MM 8/30 ($136) MM 12/7 ($ 87) MM 9/1 ($630) MM 12/12 ($105) MM 11/16 ($215) MM 12/13 4-31 E0004403502 EXH006-00418 ============= Page 35 of 86 ============= L Stress Scenario: Causes and Effects millions • Summer heat-wave in the US Fuel costs embedded in utility tariff rates increase at EES Gas/Power prices "spike" • Bankrupt utilities in volatile emerging markets Regulatory ruling in the Western US, providing for rate increases to CA utility customers ($20 / MWh) Fixed tariff contracts change to floating contracts - Enron becomes 2.4 million MWh short due to delay in customer switching $(187) 200 (735) D • Regulatory paradigm change in Europe (i.e. new electricity trading arrangements) (196) coupled with existing over - supply of gas in the UK Spread between gas and power widens • War in the Middle East and OPEC production cuts Crude oil prices gap upward t r'.Ef n' ~I f' Total Loss $(922) 4-32 E0004403503 EXH006-00419 ============= Page 36 of 86 ============= Stress Testing Potential Loss from a 25% Parallel Price Shift December 31, 2000 Increase Decrease ($MM) Power-West 611 UK Power 475 Global Products 150 NA Gasฎ- 136 Coal 120 European Gas 98 Continental Power ฎ 63 Power-East 40 Paper ฎ 30 Continental Gas , 12 Nordic Power 1 8 4-33 E0004403504 EXH006-00420 ============= Page 37 of 86 ============= 800 700 600 500 400 300 200 100 0 Enron Foreign Exchange Net Notional Position by Business Unit as of December 31, 2000 2,576 ($MM) Total $3,772 Exposure Impact 2,23 CTA Impact - $2,562 Lx' P&L Impact - $1,210 467 299 137 168 . 't• •' 53 52 xFaY 51 >37 49 14:,45 4 22 1777771 TO C 4) U ` a w m E w v w t U O ~N UU ) W Global Assets Global Americas Markets 4-34 E0004403505 14 13 9 y o W w N w w 342 c) I- EXH006-00421 ============= Page 38 of 86 ============= Enron Merchant & Strategic Assets Net Notional Position by Currency as of December 31, 2000 ($MM) Total $3,772 CNY $143 4% KRW $324 9% 4-35 Currency Legend BRL Brazilian Reais CAD Canadian Dollar CNY China Renminbi EUR Euro GBP British Pound INR Indian Rupee KRW South Korean Won MXN Mexican Peso T ki h Li TRIL VEB ur s ra Venezuelan Bolivar E0004403506 EXH006-00422 GBP MXN TRL VEB EUR $35 $22 $19 CAD @Ar. $93 i o/- 0.5% 0.5% OTHER ============= Page 39 of 86 ============= 200 150 Enron Sensitivity Analysis Comparison of South America vs. All Other Business Units Year Ended December 31, 2001 ($MM) Trading Portfolio VaR* $3MM 100 South America  P&L Impact 50 CTA Impact 0 (7) /2 (50) (80) (9) (38) (100) (150) 200'rBpa geted (94) (276) (200)- (250)- (300)- ) -) (350 ~J 10% Devaluation from Plan (366) All Other Business Units**  P&L Impact CTA Impact (84) (577) 30% Devaluation from Plan (786) E0004403507 * Based on a one day VaR with a 95% confidence interval. **All Other Business Units Include: Asia, India, Caribbean, Canada, EWC, Enron Europe, EE&CC, EES Europe & EBS. 4-36 EXH006-00423 ============= Page 40 of 86 ============= Foreign Exchange Project Update The Strategic Risk Management (SRM) group is investigating possible risk mitigation strategies due to changing market conditions in South Korea Currency • The Korean Won (KRW) has depreciated 13% vs. the USD in the last three months. • Corporate Korea (importers and exporters) is net short USD. Pressure on the Won will persist on the back of short covering. Industrial • Exports, namely DRAM, are at their slowest pace since May 1999. The growth of electronic shipments has decreased to 15.7% from 30% last year. • In addition to high crude prices, a 0.4% increase in Consumer Prices in December poses an inflationary risk. Market • Korean Composite Stock Index has shown extreme volatility, after gaining 83% in 1999 it dropped 50% between 01 /00 and 10/00. 4-37 E0004403508 EXH006-00424 ============= Page 41 of 86 ============= Summary of Trading Limit Changes We recommend BOD approval of the following trading limits as amendments to the Risk Management Policy appendices: Recommended Existing Oe- .,.Permanent,,Limit- .. -_-_-.,..._Permanent Limit ) AGGREGATE VaR LIMIT $125 MM $100 M M Corporate Discretionary VaR Limit $ 25 MM _ $ 25 MM in Oct 2000 European Natural Gas Net Open Position Limit Maturity / Gap Limit VaR Limit 200 Bcf * 90 Bcf 12-month (no change) $10 MM 60 Bcf 90 Bcf 12-month $7.5 MM * Temporary limit of 260 Bat expired year end 2000; permanent limit requested above will be decreased when markets allow optimum management of the large position resulting from a BOD approved transaction Weather Derivatives Net Open Position Limit 40,000 EOL Equiv. Contracts 30,000 EOL Equiv. Contracts ** Maturity / Gap Limit N/A N/A VaR Limit $4.5 MM $3 MM ** $100 MM notional value Coal and Freight Net Open Position Limit 30 MM MT. 15 MM MT Maturity/ Gap Limit 30 MM MT 12-month 15 MM MT 12-month VaR Limit $7 MM *** $4 MM *** *** Freight limited to $2MM VaR (No Change) Global Products Net Open Position Limit 18 MM BbI 12.5 MM Bbl Maturity / Gap Limit E0004403509 19 MM BbI 12-month 15 MM Bbl VaR Limit $15 MM **** $8 MM **** $4 MM VaR increase to $12MM for regular Global Products trading, plus $3 MM VaR'for EOL,Crude trading [L,_-__4 - 381`- p ~ ~~ EXH006-00425 ============= Page 42 of 86 ============= Summary of Trading Limit Changes Recommended Changes to Policy Limits (continued): Recommended Permanent Limit LNG Net Open Position Limit Maturity/ Gap Limit VaR Limit Equity Trading Net Open Position Limit Maturity/ Gap Limit VaR Limit Convertible Arbitrage Net Open Position Limit Maturity / Gap Limit VaR Limit ***** This product was included in the Debt trading commodity group that was transferred to Enron Europe and combined with Credit trading in December 2000; new limits requested to establish separate commodity group in Global Markets in 2001 9 Bcf 12 Bcf 12-month $5 MM $200 MM N/A $10 MM $150 MM N/A $2 MM Existing Permanent Limit None None None $100 MM N/A $6 MM wwwww wwwww wwwww Financial Instruments Foreign Currency: Net Open Position Limit Maturity / Gap Limit Interest Rate: Net Open Position Limit Maturity/ Gap Limit VaR Limit $150 MM N/A $250,000/bp N/A $5 MM (Combined) 4-39 E0004403510 $100 MM N/A $100,000/bp $ 50,000/bp (<= 2 yrs) $3 MM (Combined) EXH006-00426 ============= Page 43 of 86 ============= L__ Summary of Trading Limit Changes Recommended Changes to Policy Limits (continued): Soft Commodities Net Open Position Limit Maturity / Gap Limit VaR Limit Grains Net Open Position Limit Maturity / Gap Limit VaR Limit Meats (formerly called Livestock) Net Open Position Limit Maturity / Gap Limit VaR Limit Recommended Existing Permanent Limit Interim Limit 4,000 Contracts 2,000 Contracts N/A 2,000 Contracts $2 MM $0.75 MM 750 Contracts 1,000 Contracts N/A 1,000 Contracts $0.5 MM $0.5 MM 750 Contracts 1,000 Contracts N/A 1,000 Contracts $0.5 MM $0.75 MM Advertising Swaos Benchmark Net Open Position Limit Maturity / Gap Limit VaR Limit NA Portfolio Management Net Open Position Limit Maturity / Gap Limit VaR Limit New York A1849 PR CPP Houston CPP 54CPP 782CPP 108 CPP 782 CPP $2 MM $1 MM N/A N/A N/A N/A Terminated $5 MM 4-40 E0004403511 EXH006-00427 ============= Page 44 of 86 ============= L Discretionary VaR Allocations Year Ended December 31, 2000 Date 12/28/00 -1/4/01 12/7/00 - 12/27/00 7/12/00 - 10/5/00 Commodity NA Natural Gas NA Natural Gas NA Natural Gas Discretionary VaR $10 MM $50 MM $ 5MM 6/26/00 - 12/12/00 12/7/00 - 1/4/01 11/22/00 - 1/5/01 6/15/00 - 10/6/00 10/31/00 - 12/12/00 10/31/00 - 12/12/00 NA Cross-Commodity UK Power NA EES NA EES Pulp & Paper Steel $ 5MM $ 5MM $ 2MM $ 5MM $ 2MM $ 1 MM 4-41 E0004403512 EXH006-00428 ============= Page 45 of 86 ============= Summary of Policy Changes We recommend BOD approval of the following amendments to the Risk Management Policy: • Provide for notification of limit violations and loss notifications to the President and CEO at the discretion of the Chief Risk Officer, rather than the existing structured reporting. - Maintain commodity level automatic loss notification and limit violation requirements to Business Unit Office of the Chairman: • Daily Loss > 100% VaR Limit; Cumulative 5-day Loss > 125% VaR Limit • Net Open Position, Maturity/Gap, VaR > 105% VaR Limit Maintain Aggregate Daily Loss and Aggregate VaR Limit notifications to President, CEO, Chairman of the Board, and Chairman of Finance Committee: • Daily Loss > 100% Aggregate VaR Limit • Aggregate VaR > 115% of Aggregate VaR Limit Delegate to the Chief Risk Officer the authority for Discretionary VaR allocation to facilitate a new market driven allocation framework, rather than requiring both the Chief Risk Officer and the President to approve. J - Refine the calculation of Discretionary VaR available for allocation to consider portfolio diversification effect, VaR utilization, and other significant factors as determined by the Chief Risk Officer. 4-42 E0004403513 EXH006-00429 ============= Page 46 of 86 ============= Summary of Policy Changes (continued) .f Recommended BOD approval of the following amendments to the Risk Management Policy (cont.): • Clarify the cross-commodity trading policy to specify that trading limits are to be applied against Enron's consolidated commodity positions on an individual commodity group basis; Enron's consolidated Daily Position Report should provide required market risk disclosures by primary commodity group; for example, Enron's exposure to the North American Natural Gas market shall be aggregated across the company. - Delegate cross-commodity trading approval among established commodity groups to the respective Business Units Offices of the Chairman, with appropriate reporting to the Enron Corp. Chief Risk Officer. • Specify the operational control requirement that all trades executed over the telephone must be recorded electronically. E0004403514 4-43 =XH006-00430 ============= Page 47 of 86 ============= Agenda Item 5 E0004403515 EXH006-00431 ============= Page 48 of 86 ============= Enron Corp Projects and Amendments February 12, 2001 E0004403516 % 5_' Finance Committee Meeting =XH006-00432 ============= Page 49 of 86 ============= Agcnda Item 5a E0004403517 EXH006-00433 ============= Page 50 of 86 ============= X90 To: The Finance Committee of the Board of Directors From: Jeff Skilling and Rick Buy ,bject: Recommended Changes to the Risk Management Policy Date: February 12, 2001 I. We are recommending BOD approval of the following trading limits as amendments to the Risk Management Policy: Proposed Existing Permanent Limits Limits AGGREGATE VaR LIMIT $125 MM $100 MM Corporate Discretionary VaR Limit $ 25 MM $ 25 MM in Oct 2000 European Natural Gas Net Open Position Limit 200 Bcf * 60 Bcf Maturity / Gap Limit 90 Bcf 12-month (no change) 90 Bcf 12-month VaR Limit $10 MM $7.5 MM Q * Temporary limit of 260 Bcf expired year end 2000; permanent limit requested above will be decreased when markets allow optimum management of the large position resulting from a BOD approved transaction Weather Derivatives Net Open Position Limit Maturity / Gap Limit VaR Limit ** $100 MM notional value Coal and Freight Net Open Position Limit Maturity / Gap Limit VaR Limit 40,000 EOL Equiv. Contracts N/A $4.5 MM 30 MM MT 30MM MT 12-month $7 MM *** *** Freight limited to $2 MM VaR (no change) Global Products Net Open Position Limit Maturity / Gap Limit VaR Limit 18 MM Bbl 19 MM Bbl 12-month $15 MM **** 30,000 EOL Equiv. Contracts ** N/A $3 MM 15 MM MT 15 MM MT 12-month $4 MM *** 12.5 MM Bbl 15 MM Bbl $8 MM **** $4 MM VaR increase to $12 MM for regular Global Products trading, plus $3 MM VaR for EOL Crude trading LNG Net Open Position Limit Maturity / Gap Limit VaR Limit 9 Bcf None 12 Bcf 12-month None $5 MM None Interoffice Memorandum Department: Risk Assessment and Control E00044.03518 .ipect Integrity Communication Excellence nii1000 407 1 (7;OC) H006-00434 ============= Page 51 of 86 ============= r ie Finance Committee of the Board of Directors February 12, 2001 Page 2 Proposed Permanent Limits Equity Trading Net Open Position Limit $200 MM Maturity / Gap Limit N/A VaR Limit $10 MM Convertible Arbitrage Net Open Position Limit $150 MM Maturity/ Gap Limit N/A VaR Limit $2 MM Existing Limits $100 MM N/A $6 MM ***** ***** ***** ***** This product was included in the Debt trading commodity group that was transferred to Enron Europe and combined with Credit trading in December 2000; new limits requested to establish separate commodity group in Global Markets in 2001 Financial Instruments Foreign Currency: Net Open Position Limit Maturity / Gap Limit Interest Rate: Net Open Position Limit Maturity/ Gap Limit VaR Limit Soft Commodities Net Open Position Limit Maturity / Gap Limit VaR Limit Grains Net Open Position Limit Maturity / Gap Limit VaR Limit Meats (formerly called Livestock) Net Open Position Limit Maturity/ Gap Limit VaR Limit Advertising Swaos Benchmark Net Open Position Limit Maturity / Gap Limit VaR Limit NA Portfolio Management Net Open Position Limit Maturity / Gap Limit VaR Limit i -; Your Personal Best Makes Enron Best )rm 000-469-1 (5/92) -XH006-00435 $150 MM $100 MM N/A N/A $250,000/bp $100,000/bp N/A $ 50,000/bp(<=2 yrs) $5 MM (Combined) $3 MM (Combined) 4,000 Contracts 2,000 Contracts N/A 2,000 Contracts $2 MM $0.75 MM 750 Contracts 1,000 Contracts N/A 1,000 Contracts $0.5 MM $0.5 MM 750 Contracts 1,000 Contracts N/A 1,000 Contracts $0.5 MM $0.75 MM New York A1849 PR CPP Houston CPP 54 CPP 782 CPP 108 CPP 782 CPP $2 MM $1 MM N/A N/A N/A N/A E0004403519 Terminated $5 MM Communicate- Facts Are Friendly Better, Faster, Simpler N ============= Page 52 of 86 ============= The Finance Committee of the Board of Directors February 12, 2001 Page 3 II. We are recommending BOD approval of the following amendments to the Risk Management Policy: • Provide for notification of limit violations and loss notifications to the President and CEO at the discretion of the Chief Risk Officer, rather than the existing structured reporting. - Maintain commodity level automatic loss notification and limit violation requirements to Business Unit Office of the Chairman: • Daily Loss > 100% VaR Limit; Cumulative 5-day Loss > 125% VaR Limit • Net Open Position, Maturity/Gap, VaR > 105% VaR Limit; - Maintain Aggregate Daily Loss and Aggregate VaR Limit notifications to President, CEO, Chairman of the Board, and Chairman of Finance Committee: • Daily Loss > 100% Aggregate VaR Limit • Aggregate VaR > 115% of Aggregate VaR Limit • Delegate to the Chief Risk Officer the authority for Discretionary VaR allocation to facilitate a new market driven allocation framework, rather than requiring both the Chief Risk Officer and the President to approve. - Refine the calculation of Discretionary VaR available for allocation to consider portfolio diversification effect, VaR utilization, and other significant factors as determined by the Chief Risk Officer. • Clarify the cross-commodity trading policy to specify that trading limits are to be applied against Enron's consolidated commodity positions on an individual commodity group basis; Enron's consolidated Daily Position Report should provide required market risk disclosures by primary commodity group; (for example, Enron's exposure to the North v) American Natural Gas market shall be aggregated across the company). tqo - Delegate cross-commodity trading approval among established commodity groups to the respective Business Units Offices of the Chairman, with appropriate reporting to the Enron Corp. Chief Risk Officer. • Specify the operational control requirement that all trades executed over the telephone must be recorded electronically. E0004403520 Your Personal Best Makes Enron Best Communicate- Facts Are Friendly Better, Faster, Simpler Form 000.469.1 (5/92) EXH006-00436 ============= Page 53 of 86 ============= ENRON CORP. Proprietary and Confidential RISK MANAGEMENT POLICY Approved by Enron Corp. Board of Directors Approved: October 1, 1996 Amended: December 8, 1998 Amended: May 3, 1999 Amended: August 10, 1999 Amended: October 20, 1999 Amended: December 14, 1999 Amended: February 7, 2000 Amended: May 2, 2000 Amended: August 8, 2000 Amended: October 7, 2000 Amended: December 12, 2000 Amended: February 13, 2001 I. General Authorization Enron Corp. is authorized to execute Transactions and manage these Transactions within certain authorized Portfolios in support of its businesses. All Transactions covered by this policy must be conducted in compliance with all Enron Corp. policies, as each may be amended, supplemented or restated from time to time (collectively the "Enron Corp. Policies"). II. Portfolios Designated Enron Business Units are authorized to enter into Transactions which create Positions for Enron Corp. and its affiliates, other Enron Business Units or their respective customers within the authorized Commodity Groups and limits, specified in the Appendices. These Positions are managed in the following Portfolios: A. Trading Portfolio - designed to capture and manage risks related to physical delivery of energy and other commodities, to provide related risk management services, to take advantage of market arbitrage opportunities and to manage positions within the approved limits. This portfolio includes commodity transactions, financial instruments and securities transactions. B. Merchant Portfolio - designed to capture and manage merchant investments in public and private companies, including the active management of embedded exposures and to provide greater liquidity for Enron's merchant investment activities, consistent with Enron Corp.'s core competencies within the approved limits. This portfolio includes equity, "equity-like," debt and "debt-like" investments in the public and private sector. C. Capital Portfolio - designed to accommodate positions and transactions in Enron's own stock or derivatives thereof which may occur from time to time in the execution of approved structural transactions (for example, stock buy-backs, hedging of stock option programs, etc.). III. Position and Loss Notification Requirements Generally, Enron Business Units' business activities are subject to a combination of limits. These limits include, but are not limited to: Net Open Position, Maturity/Gap Risk, Potential Exposure (VaR), Regulated Exchange Limits, and Loss Notifications, as appropriate for the type of business activity under consideration. E0004403521 XH006-00437 ============= Page 54 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential Limits will be applied at the Commodity Group and Portfolio level, as appropriate and monitored daily. Unless specifically allocated to a business unit for a basket of products, these limits are to be applied against Enron's consolidated position on an individual commodity group basis. A. Net Open Position Limits. Enron Business Units' activities are subject to the Net Open Position limits at the Commodity Group level, as specified in the Appendices. B. Maturity/Gap Risk Limits. Enron Business Units' activities are subject to the Maturity/Gap Risk limits at the Commodity Group level, as specified in the Appendices. C. Potential Exposure Limits. Enron Business Units' activities are subject to potential exposure analysis using stress-testing and scenario analysis, as directed by the Enron Corp. Chief Risk Officer, and limits based on Value-at-Risk (VaR), as specified in the Appendices, calculated daily or as appropriate to the business activity under consideration at the Portfolio level and at the Commodity Group level. D. Regulated Exchange Limits. Enron Business Units may be subject to limits imposed by regulated exchanges on which they transact. Enron Business Units shall comply with any such limits imposed on them, as such limits may be modified from time to time. E. Loss Notifications. Daily Losses and Cumulative 5-day Losses resulting from Enron Business Units' activities are subject to the reporting requirements, as specified in Section IV.C. All Enron Business Units are expected to formulate limits subordinate to limits specified in the Appendices, which should be monitored internally and act as triggers for reference to and action by senior Enron Business Unit management. IV. Limit Violation/Loss Notification Requirements Notwithstanding the other provisions of this Policy, any violation of limits must be reported to the Enron Corp. Chief Risk Officer, and the Chief Risk Officer will notify President, CEO, or Chairman at his discretion, based on his determination of the significance of the violation. Such report to the Chief Risk Officer should be made prior to entering into a Transaction if there is a sufficient reason to believe that a limit violation will occur. Requirements for reporting limit violations and loss notifications, each accompanied by an explanation, will be as follows: A. Net Open Position Limits; Maturity/Gap Risk Limits. If the limit violation equals or exceeds the applicable limit by greater than five percent (5%), the Enron Corp. Chief Risk Officer shall ensure the prompt communication of the occurrence to the Enron Business Unit Office of the Chairman. B. Value-at-Risk Limits. If the VaR for any Commodity Group or Portfolio equals or exceeds the applicable limit by greater than five percent (5%), the Enron Corp. Chief Risk Officer shall ensure the prompt communication of the occurrence to the Enron Business Unit Office of the Chairman. If the Aggregate VaR Limit is exceeded by greater than 15%, the Enron Corp. Chief Risk Officer shall ensure the prompt communication of the occurrence to the Enron Corp. President, Chief Executive Officer, Chairman of the Board, and Chairman of the Finance Committee of Enron Corp. E0004403522 KHO06-00438 ============= Page 55 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential C. Loss Notifications. The Enron Corp. Chief Risk Officer shall ensure the prompt communication to the Enron Business Unit Office of the Chairman, if a Daily Loss in any Commodity Group or Portfolio is in excess of the corresponding VaR limit. The Enron Corp. Chief Risk Officer shall ensure the prompt communication to the Enron Corp. President, Chief Executive Officer, Chairman of the Board, and the Chairman of the Finance Committee of Enron Corp., if the aggregate Daily Loss is in excess of the Aggregate VaR Limit. The Enron Corp. Chief Risk Officer shall ensure the prompt communication to the Enron Business Unit Office of the Chairman, if a Cumulative 5-day Loss in any Commodity Group or Portfolio is in excess of 125% of the corresponding VaR Limit. D. Reporting to the President, Chief Executive Officer, Chairman of the Board, Audit and Finance Committees of the Board of Directors. Aggregate loss notifications and limit violations shall be communicated to the President, Chief Executive Officer, Chairman of the Board of Directors, and Chairman of the Finance Committee by the Chief Risk Officer of Enron Corp., as specified in Section IV. of this policy, and as otherwise determined by the Chief Risk Officer. Aggregate and other limit violations along with a summary of Enron's market risks will be reported to the Audit Committee of the Board of Directors by the Chief Risk Officer of Enron Corp. at all regularly scheduled Audit Committee meetings. V. Operations and Controls A. Segregation of Duties. Enron Business Units shall keep segregated from the business groups or individuals entering into Transactions each of the following activities: recording and aggregation of Transactions; preparation, issuance and verification of Enron Corp. or third-party documentation; reporting of Positions and Commodity Group information; review of the reasonableness of prices and models, periodic validation of prices from independent market sources; monitoring of limits; physical and/or financial settlement of Transactions; reconciliation of accounts; and preparation of financial statements. B. Position Reporting. Designated Enron Business Units shall prepare, distribute and make available data constituting a daily report ("Daily Position Report") including Commodity Group Net Open Position, Maturity/Gap Position, profit or loss, potential exposure (VaR) and any other parameters as may be required by the President or the Chief Risk Officer of Enron Corp. The Daily Position Reports at the Commodity Group level will also report various limits compared to their respective actual amounts and will be signed off by the Commodity Group Manager of the position(s) and the head of the commercial support group responsible for their preparation, before any subsequent trading occurs. For purposes of limit monitoring and aggregation of Enron's consolidated trading results, Enron's consolidated Daily Position Report should include the Net Open Position, Maturity/Gap Position, profit or loss, and potential exposure (VaR) for approved Commodity Groups consolidated across the company without regard to which business unit undertook the trading activity. In those instances where limits are granted to a business unit for a basket of commodities, reporting for individual commodity risk books shall be maintained to facilitate aggregation of Enron's actual consolidated commodity specific exposure. Management reporting may separately provide business unit sub-limit monitoring and trading results aggregated according to management lines. E0004403523 :XH006-00439 ============= Page 56 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential The President of Enron Corp. or Enron Corp. Chief Risk Officer shall designate individuals who are authorized to approve the Daily Position Report on behalf of Enron Corp. After approval, a consolidated Daily Position Report shall be distributed to the Chief Executive Officer, the President, the Chief Accounting Officer; the Chief Risk Officer of Enron Corp. and others as designated by the President or the Chief Risk Officer of Enron Corp. C. Stress and Scenario Testing. On a monthly basis, or as markets dictate, designated Enron Business Units shall formulate and examine the effects of extreme changes in the market parameters relevant to exposures and positions. Results of these tests should be made available to the Enron Corp. Chief Risk Officer, or his designee(s). D. Valuation. On a monthly basis, or as markets dictate, designated Enron Business Units shall provide evidence of verification of all market parameters used in the calculation of risk metrics and profits and losses. This should be made available to the Enron Corp. Chief Risk Officer, or his designee(s). E. Transaction Approval and Execution. Only those employees designated by the Enron Corp. Chief Risk Officer or his designee(s) will be authorized to enter into Transactions on behalf of Enron. The Chief Risk Officer must also maintain a record of those employees responsible for the individual Commodity Groups (Commodity Group Manager) as specified in the Appendices. Individuals will be assigned as commodity leaders to manage Enron's aggregate position across the company as determined necessary by the Chief Risk Officer. All Transactions must be entered into in compliance with current policies of the Credit Group, Market Risk Management Group, and other relevant groups, as determined by the Enron Corp. Chief Risk Officer. All trades executed on the telephone must be executed on telephones that are recorded electronically. F. Brokerage Accounts. Designated Enron Business Units periodically open trading accounts with clearing brokers to facilitate the conduct of their business. All openings or revisions of trading accounts with a broker or brokers will be reviewed and approved by the Enron Corp. Chief Risk Officer or his designee(s). The Enron Corp. Chief Risk Officer or his designee(s) will also notify the brokers of the names of personnel authorized to trade futures, options or other contracts on regulated exchanges. G. Calculation of the Net Open Position by Commodity Group. For purposes of monitoring the Net Open Position Limits, as specified in Section III.A, all Positions within a Commodity Group shall be aggregated into a reference Benchmark Position assigned to each group. VI. Policy Amendment Authority A. Portfolios, Commodity Groups and Positions. Subject to the authorization of the Board of Directors, the Enron Corp. Chief Executive Officer, the President of Enron Corp. and the Enron Corp. Chief Risk Officer, additional Portfolios may be created and additional Commodity Groups may be added within existing Portfolios, and the related limits will be created or revised accordingly. The President of Enron Corp. and the Enron Corp. Chief Risk Officer can authorize additional Positions within the existing Commodity Groups, provided that such Positions can be aggregated within the limits of a currently authorized Commodity Group. B. Cross-Commodity Position Authorization. If in the ordinary course of its business an Enron Business Unit or trading desk incurs an exposure to an underlying commodity or financial instrument for which it does not have explicit authority to carry, this exposure should be hedged internally with E0004403524 :H006-00440 ============= Page 57 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential the appropriate Enron desk(s), with appropriate notification to the Chief Risk Officer or his designee(s). Hedge positions should be in instruments that have an observable correlation with the underlying exposure, and should be rebalanced regularly to substantially neutralize the underlying exposure. Upon notification to the Chief Risk Officer or his designee(s), the Enron Business Unit Office of the Chairman who has authority for that commodity group may authorize a specific trader in a different commodity group to take speculative positions with other Enron trading desks in commodities and/or financial instruments other than those which that trader has explicit authority to trade (i.e. the Business Unit Office of the Chairman for North American Natural Gas may authorize a trader in the Coal group to trade gas with the North American Natural Gas desk). For limit monitoring purposes of Enron's consolidated trading results, these cross-commodity positions shall be captured by individual commodity to facilitate aggregation and reporting of Enron's consolidated exposure by commodity in the Daily Position Report (Coal desk's gas position will be aggregated with the North American Natural Gas commodity group.) C. Position Measurement Parameters. Any changes to parameters used in the aggregation and measurement of Positions must be approved by the Enron Corp. Chief Risk Officer or his designee(s). This includes, but is not limited to, the Benchmark Positions, VaR parameters, Maturity/Gap Risk periods, conversion ratios, volatility factors and correlation factors. Any material change as determined by the Chief Risk Officer will be communicated to Enron's Board at the next regularly scheduled Board of Directors' meeting. D. Interim Policy for New Commodity Groups. The President of Enron Corp. and the Chief Risk Officer of Enron Corp. may approve positions in new Commodity Group(s) prior to approval in the next meeting of the Enron Corp. Board of Directors, subject to the following criteria: (i) maximum VaR of $1 million, along with corresponding position limits, and (ii) maximum initial term of six (6) months, subject to one extension for an additional term prior to review by the Board of Directors for permanent limits. These interim limits adjust the limit violation and loss notification requirements at the commodity group level until the granted limits expire, but they do not change the Aggregate VaR Limit. Interim limits are to be reported to the Enron Corp. Board of Directors at each regularly scheduled Board of Directors' meeting. E. Discretionary VaR. The Enron Corp. Chief Risk Officer may allocate "Discretionary VaR" to the existing Commodity Groups listed in Appendix I, along with the corresponding adjustments to Net Open Position limits and Maturity/Gap Position limits, under the following guidelines: (i) allocation is limited to 100% of the existing commodity group VaR limit in Appendix I, (ii) VaR allocation and corresponding adjustments to position limits adjust the limit violation and loss notification requirements at the commodity group level, (iii) nominal allocations of Discretionary VaR may exceed the amount listed in Appendix I due to portfolio diversification effect, as determined by the Chief Risk Officer, (iv) term of allocation is determined by the Chief Risk Officer. Discretionary VaR allocations are to be reported to the Enron Corp. Board of Directors at each regularly scheduled Board of Directors' meeting. E0004403525 (H006-00441 ============= Page 58 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential F. Temporary Limits. The Board of Directors of Enron Corp. may from time to time approve temporary limits to encompass certain specific approved positions. These temporary limits adjust the limit violation and loss notification requirements at the commodity group level until the granted limits expire, but they do not change the Aggregate VaR Limit unless the Aggregate VaR Limit is specifically adjusted. G. Limit Changes and Other Policy Amendments. Any modification of limits or other amendments, supplements or updates to this Policy, unless otherwise covered by this Section VI, must be either approved by (i) the Enron Corp. Board of Directors, or (ii) the Enron Corp. President and Chief Risk Officer and ratified by the Enron Corp. Board of Directors at the next regularly scheduled Board of Directors' meeting. VII. Miscellaneous Employee Trading. No employee of any Enron Business Unit may engage in the trading of any Position for the benefit of any party other than an Enron Business Unit (whether for their own account or for the account of any third party) where such Position relates to (i) any financial instrument, security, financial asset or liability which falls within such employee's responsibility at an Enron Business Unit, or (ii) any other commodity not covered by (i) included in any Commodity Group. Employee Review of Policies. As determined by the Chief Risk Officer or his designee(s), an employee of any Enron Business Unit participating in any activity or transaction within the coverage of this Policy shall sign on an annual basis or upon any material revision to this Policy, a statement approved by the Enron Corp. Chief Risk Officer that such employee (i) has read this Policy, (ii) understands this Policy, and (iii) has complied and will comply with this Policy. Compliance with Policy. All Business Units and their employees should comply with this Policy. Dispensation for non-compliance should be sought from the President of Enron Corp., the Enron Corp. Chief Risk Officer or their designee(s). Willful or deliberate non-compliance or falsification of risk metrics or profits and losses referred to by this Policy will be regarded as gross misconduct. Supersedes Prior Policies. This Policy supersedes and replaces all previous Policies of Enron Corp. approved by the Enron Corp. Board of Directors concerning risk management or trading. This Risk Management Policy was approved by the Enron Corp. Board of Directors on October 1, 1996, and as permitted hereunder it has been amended as of the date reflected on the first page hereof. VIII. Definitions "Aggregate VaR Limit" shall mean the total Enron Trading Portfolio VaR Limit as specified in Appendix I. Discretionary VaR allocation, and approval of Temporary VaR limits and Interim VaR limits do not change the Aggregate VaR Limit unless the Aggregate VaR Limit is specifically adjusted by action of the Board of Directors. "Benchmark Position" shall mean the Position within a Commodity Group into which all other Positions within the same Commodity Group can be converted using price volatility and correlation based conversion factors. Such conversion factors shall be established and authorized by the Enron Corp. Chief Risk Officer, in conjunction with the President of Enron Corp. E0004403526 XH006-00442 ============= Page 59 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential "Commodity Group" shall mean a collection of Positions having sufficient relationship and correlation (as approved by the Enron Corp. President and Enron Corp. Chief Risk Officer) that allow for aggregation into a Benchmark Position. "Cross-Commodity Position" shall mean a Position within a certain Commodity Group that is not explicitly authorized as part of that Commodity Group. (i.e. Coal trading desk might hold a North American Natural Gas position as a hedge, or as a speculative position). The suitability and approval of Cross-Commodity Positions shall be reviewed and approved by the Business Unit Office of the Chairman over the approved commodity group. Aggregation of risk components and profit or loss for all commodity groups will be reported on a consolidated basis in the Enron Daily Position Report. "Cumulative 5-day Loss" shall mean a sum of Daily Losses for the last consecutive five days. Upon occurrence of a Cumulative Loss Limit violation, Cumulative Loss calculation is reset and begins with the Daily Loss following the day on which the violation took place. "Daily Loss" shall mean the loss in value of any Commodity Group on a daily basis, exclusive of non- trading type of originations and prudence. The Daily Loss will be calculated using the mark-to-market method on a net present value basis. "Daily Position Report" shall mean a hard or soft copy report including, but not limited to the following, for each major commodity and price curve traded: Commodity Group Net Open Position, Maturity/Gap Position, profit or loss, potential exposure (VaR), and for all positions regardless of financial accounting treatment: 0 I. The amounts by which the mark-to-market value of the portfolio can change for small (or unit) changes in all "market parameters", as a term structure (i.e. by time "bucket") and on a net aggregate basis. 2. For portfolios with option or non-linear risks, the concentration of sensitivities (delta, gamma, vega) according to expiry date and strike price ("strike concentration"). 3. The VaR for the portfolios, according to Enron's approved methodology. The Daily Position Report shall also report the aggregated risk components (positions, V aR, and profit or loss) for approved Commodity Groups on a consolidated basis, without regard to which Enron Business Unit transacted, as discussed in Section VLB. of this policy. "Discretionary VaR" shall mean the VaR capital specified in Appendix I approved by the Enron Board of Directors that may be periodically allocated by the Enron Corp. Chief Risk Officer to permanent Commodity Groups listed in Appendix I as provided in Section VI. E. of this policy. "Enron Business Unit(s)" shall mean Enron Corp. and any entity controlled, directly or indirectly, by Enron Corp., (including internal groups created for the purposes of trading, or aligned according to the commodities set out in the Appendices), or any entity directly or indirectly under common control of Enron Corp. For this purpose, the criteria for establishing "control" of any entity include but are not limited to, ownership of more than fifty percent (50%) of the voting power of such entity. "Market Parameters" shall mean market spot and forward prices/curves, market spot and forward volatility, correlation (where appropriate), market interest rates, spot foreign exchange rates (where appropriate). E0004403527 =XH006-00443 ============= Page 60 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential "Maturity/Gap Risk" shall mean the risks related to non-parallel changes of forward prices or interest rates. For purposes of this Policy, the Maturity/Gap Risk related to commodity Positions with forward prices shall be measured using a rolling total of the net open position per period, which may be modified based on the market structure of the underlying Position and pending authorization of the Chief Risk Officer of Enron Corp. "Net Open Position" shall mean the aggregate of the open Positions in a Commodity Group on a Benchmark Position equivalent basis. "Position" shall mean, collectively, the risk components (including, but not limited to, price risk, basis risk, index risk, credit risk and liquidity risk) of all products (commodities, financial instruments, securities, equities, financial assets or liabilities) which have been authorized for trading in the Enron Corp. Risk Management Policy, any of the Enron Corp. Policies or approved for trading through any amendments to this Policy. "Transactions" shall mean, collectively, forwards, futures, swaps, options, or any combination of these instruments and any other derivative or cash market instruments creating a Position. "Value-at-Risk" (VaR) shall mean the Potential Exposure related to a Commodity Group or Position representing the potential change in value resulting from changes including: market prices, interest rates, currency rates, counterparty credit condition, liquidity, funding and settlement risk, among others. VaR shall be calculated using the Enron Corp. adopted VaR methodology at the 95% confidence interval using a 1-day time horizon. Any recalibration or modification of the VaR methodology or parameters that take into account observed or anticipated changes in market factors or developments in VaR technologies must be approved by the Enron Corp. Chief Risk Officer or his designee(s). E0004403528 :XH006-00444 ============= Page 61 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential APPENDIX I Permanent Trading Limits (page 1 of 2): Commodity Group Benchmark` Position - Net Open Position Limit Matrieity Y Gap Risk Limit VaR Limit TRADING PORTFOLIO $125 MM Discretionary VaR $25 MM North American Electricity North American Electricity Equivalents 90 Twh 25 Twh (Rolling 12-Month) $54 MM (EES - $4 MM) North American Natural Gas NYMEX Henry Hub Equivalents 500 Bcf 200 Bcf (Rolling 3-Month) $61 MM (EES - $1 MM) Southern Cone Natural Gas Southern Cone Natural Gas Equivalents. 35 Bcf 20 Bcf (Rolling 12-Month) $2 MM Southern Cone Electricity Southern Cone Electricity Equivalents 3.5 Twh 3.5 Twh (Rolling 12-Month) $5 MM Metals & Minerals WE Copper Futures Equiv. 375,000 MT 600,000 MT (Rolling 12-Month) $8 MM European Natural Gas UK Northern Balancing Point Gas Equiv. 200 Bcf 90 Bcf (Rolling 12-Month) $10MM UK Electricity (1) UK Electricity Equivalents 35 Twh (1) 15 Twh (Rolling 12-Month) $10 MM (1) Continental Electricity Continental Electricity Equivalents 20 Twh 20 Twh (Rolling 12-Month) $4 MM Nordic Electricity Nordic Electricity Equivalents 20 Twh 20 Twh (Rolling 12-Month) $5 MM Australian Electricity Australian Electricity Equivalents 3 Twh 6 Twh (Rolling 12-Month) $3 MM Japanese Electricity Japanese Electricity Equivalents 4 Twh 4 Twh (Rolling 12-Month) $4 MM Credit Trading Market Value in USD $750,000 DV0l/bp total, $50,000 DV0l/b individual N/A $5 MM Convertible Arbitrage Market Value in USD $150 MM N/A $2 MM Global Products NYMEX WTI Equivalents 18 Mil Bbl (EOL Crude - 2 Mil Bbl) 19 Mil Bbl (Rolling 12-Month) (EOL Crude - 3 Mil Bbl) $15 MM (EOL Crude - $3 MM) LNG LNG Equivalents 9 Bcf 12 Bcf (Rolling 12-Month) $5 MM Weather Derivatives Maximum USD Exposure 40,000 EOL equiv. contracts N/A $4.5 MM Coal & Freight U.S. Eastern Coal Equivalents 30 MM MT 30 MM MT (Rolling 12-Month) $7 MM (Freight - $2 MM) Emissions S02 Credits 1,000,000 Credits 1,000,000 Credits (Rolling 12-Month) $3 MM (1) See Temporary Limits - Appendix 11 E0004403529 5A-12 =XH006-00445 ============= Page 62 of 86 ============= L ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential APPENDIX I Permanent Trading, Limits (page 2 of 2): (olnntodii (~rou ;,. } i _ f Rench mark>Positton Net Open Pbsihon Lima , .,. Lim-' ` ap Rtsk Maturity /Ga r VaALi h ~ mut' ` ~', Financial Instruments $5 MM Interest Rate USD Notional Equivalent @ AA Libor $250,000 / by N/A - Foreign Currency USD Spot Rate Notional Equivalents $150 MM N/A - Equity Trading Market Value in USD $200 MM N/A $10 MM Meats Trading Futures Contract Equivalents 750 Contracts N/A $0.5 MM C-rain Trading Futures Contract Equivalents 750 Contracts N/A $0.5 MM Soft Commodities Futures Contract Equivalents 4,000 Contracts N/A $2 MM Pulp & Paper Pulpex NBSK (Pulp) Futures Equiv. 500,000 MT 500,000 MT (Rolling 12-Month) $5 MM Lumber Board Feet (BF) 44 MM BF 44 MM BF $500,000 Steel Hot Rolled Coil Steel Equivalent Metric Tonnes (MT) 1.5 MM MT 2.5 MM MT $5 MM Broadband N/A N/A N/A $2 MM Advertising Swaps New York A1849 PR CPP 54 CPP 108 CPP $2 MM MERCHANT PORTFOLIO Market Value in USD N/A N/A N/A CAPITAL PORTFOLIO $10 MM Enron Companies Market Value in USD $300 MM N/A - Other S&P Equivalents $200 MM N/A - E0004403530 5A - 13 :XH006-00446 ============= Page 63 of 86 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential APPENDIX II INTERIM POLICY TRADING LIMITS: f'rtinmi~dity r=roup,. l;unchmark Position Net open Position Limit s : , av -4r ~i'S'~':0 r ' SriT~.~s~.a- . r1., .. '. Malurit_y~• / Ga~ ~Rislc I u ni`t p S 'IR I Lrnit iiEx i atton`Lhmt ~~4 P „,.~, itut u DRAM Chips 128M SDRAM PC100 Equiv. Chips 2 MM Benchmark Equiv. Chips 1.5 MM Benchmark Equiv. Chips $1 MM 5/15/01 TEMPORARY POLICY TRADING LIMITS: r.! • .z. .y '. ~.., y{. r• ChmmocU~ Gror_PE :,_ wYf?;w , Y4.(1.. J~. ...~. ,5 1U tr: `YY2 r+.(''"T t:)4 4.t .,-+ K. •„•y a.Y{'.ai'`:r. :Y.. t~hQ.i .~.1., a y.y M.• . irt;C:y fY~•'v)' R~'!t Ir7 ~ .: ".;rte! -~ '.•y'V: .~ Bgnchma~frkosihon ~ } .Zฐf ~ ~ ~ ~ Net:Q en.P~oi ,:U t f Y9~ sT .L. S: 2. a ri f".Ga sk,' zit'<''r W ~. tXt '.Al ES Y? ,:, A{th Lti %F,VA ' . . 1 f~.~T~~I,. ~.t~~ ei~~a7f ;T~ •5 ,•R~..4~~r~.+~ UK Electricity UK Electricity Equivalents 85 Twh (1) 15 Twh (Rolling 12-Month) $18 MM (1) (l ) (1) Limit amortization schedule for UK Electricity: NOP VaR 7/1/00 76.5 Twh $16,65 MM 10/U00 68.0 Twh $15.30 MM 1/I/01 59.5 Twh $13.95 MM 4/I/0I 5!.0 Twh $12.60 MM 7/1/01 42.5 Twh $11.25 MM 10/1/01 35.0 `fwh $10.00 MM (permanent limits per Appendix 1) DISCRETIONARY POLICY TRADING LIMITS: Discretionary VaR is allocated among Commodity Groups frequently in accordance with the Policy and limits in Appendix I. E0004403531 5A - 14 EXH006-00447 ============= Page 64 of 86 ============= Agenda Item 5b E0004403532 EXH006-00448 ============= Page 65 of 86 ============= Transaction Approval Process E0004403533 5B- 1 Finance Committee Meeting EXH006-00449 ============= Page 66 of 86 ============= Proposed Transaction Approval Process (TAP) Policy Revisions Organizational • Adjust for the elimination of Global Functions (and for the related elimination of Larry Izzo as EE&CC signatory) Risk Adjusted Capital Definition • Add Capital Expenditures to determine aggregate exposure in a transaction E0004403534 5B-2 EXH006-00450 ============= Page 67 of 86 ============= Agenda Item 5(b) TRANSACTION APPROVAL PROCESS (Suggested Form of Resolutions) WHEREAS, the Board of Directors of the Company approved resolutions on October 12, 1998 adopting the Enron Corp. Transaction Approval Process (the "Transaction Approval Process") which provides for (i) a process for review and approval of Capital Expenditures (as defined in the revised policy attached to these minutes) and (ii) a process for prior transactions involving Capital Expenditures to be reviewed for performance and results; and WHEREAS, the Board of Directors of the Company approved amendments to the Transaction Approval Process at meetings held on February 8, 1999, August 10, 1999, February 7t' and 8th, 2000 May 2, 2000, October 7, 2000 and December 12, 2000; and WHEREAS, it would be in the best interest of the Company to further amend the Transaction Approval Process in order to reflect the following changes: (1) amend the definitional provisions of the Transaction Approval Process to reflect changes in assignments and organizational structure of Enron Corp. and changes to the definition of Risk Adjusted Capital; and (2) amend the Transaction Approval Process by classifying all transactions seeking approval into conforming and non-conforming transactions and removing the classifications of global functions and region/business; NOW THEREFORE BE IT RESOLVED, that the Company revise the Transaction m Approval Process to that attached to these minutes and as set forth in these resolutions; RESOLVED FURTHER, that the revised Transaction Approval Process is adopted and approved, that a copy of the revised policy be attached to the minutes as Exhibit A, and that the persons, officers and Approving Units identified therein shall perform the responsibilities as specified; for the purposes of this policy a certification by the President, the Chief Financial Officer, the Treasurer, the Chief Risk Officer (or his or her designee), or any Senior Vice President to the effect that this policy has been complied with in connection with any transaction involving Capital Expenditures shall be conclusive evidence of compliance and may be relied upon by all persons interested in or participating in such transaction, including (without limitation) the officers signing transactional documents on behalf of the Company and attorneys issuing legal opinions with respect to the transaction; RESOLVED FURTHER, that the revised Transaction Approval Process shall not apply to the approval process for guarantees except as to those guaranteeing the obligations of unaffiliated third parties. The approval process for all other guarantees shall continue as described in the Company's existing "Policy for Approval of Guarantees, Letters of Credit, Letters of Indemnity, and Other Support Arrangements", and shall be reviewed by the Finance Group and the Risk Assessment and Control Group; E0004403535 EXH006-00451 ============= Page 68 of 86 ============= RESOLVED FURTHER, that the Chairman of the Board and Chief Executive Officer, the President and Chief Operating Officer, the Vice Chairman, the Executive Vice President and Chief Risk Officer, the Executive Vice President and Chief Financial Officer, the Vice President, Finance and Treasurer, any Vice President of the Company, or any other person authorized by the Board to act on behalf of the Company be, and each of them hereby is, authorized and empowered to negotiate, enter into, execute, and deliver on behalf of the Company any agreements and documentation in connection with any transaction involving Capital Expenditures which has been approved in accordance with the revised Transaction Approval Process and as the officers executing such agreements shall approve, such approval to be conclusively evidenced by such execution; and RESOLVED FURTHER, that all actions heretofore taken by the Chairman of the Board and Chief Executive Officer, the President and Chief Operating Officer, the Vice Chairman, the Executive Vice President and Chief Risk Officer, the Executive Vice President and Chief Financial Officer, the Vice President, Finance and Treasurer or any Vice President, in the name and on behalf of the Company, related to or in connection with transactions of the type contemplated by the new review process attached to these minutes but which originated prior to these resolutions, including, without limitation, the execution and delivery of any instruments or other documents as any such officer shall have deemed necessary, proper, or advisable, are hereby adopted, ratified, confirmed, and approved in all respects. a m 4) E0004403536 EXH006-00452 ============= Page 69 of 86 ============= Agenda Item 5c E0004403537 EXH006-00453 ============= Page 70 of 86 ============= Eli Lilly Bundled Energy Outsource Enron Corp. Board of Directors Finance Committee Presentation February 12, 2001 E0004403538 5C-1 j =XH006-00454 ============= Page 71 of 86 ============= Eli Lilly Bundled Energy Outsourcing Relationship Transaction Capital Request • Enron Board of Directors approved original transaction in December of 2000 • Request adjustments to deal structure for: Decrease in Energy Asset Project Capital of $3.4 MM Add LLC capital and mobilization costs of $8.7 MM Add Lease component for $99.5 MM to finance Capital Replacement Expenditures r r. E0004403539 5C-2 EXH006-00455 ============= Page 72 of 86 ============= Eli Lilly Bundled Energy Outsourcing Relationship Transaction Capital Request Capital Request: Total - Energy Asset Project Capital ' - LLC Class C Shares (Monetization of Eli Lily Savings) 2 - LLC Class A Shares 3 - Capital Replacement Expenditures 4 Total Capital Exposure • NOTES: Approved at December Board Current Meetinq_ Proposal Total $24.5 MM -$ 3.4 MM $21.1 MM $50.0 MM - $ 50.0 MM - +$ 8.7 MM $ 8.7 MM - + $999.5 MM $ 99.5 MM $ 74.5 MM +$104.8 MM $179.3 MM 1 - Current Energy Asset Project capital amounts decreased due to changes in relevant power/gas price curves. 2 - Up-front payment to Lilly represents a portion of their share of savings; Repayment obligation by Lilly, a AA credit, of $50 MM if savings not achieved; the Class C shares receive 70% of savings until $50 MM plus coupon is received (EES's Class A Shares receive remaining 30%); coupon of 9% is "at-risk" depending upon economics of LLC. 3 - Represents EES's share of initial mobilization costs and equity contributions for Projects and Capital Replacement. 4 - EES has agreed to arrange financing for Lilly's Capital Replacement expenditures. E0004403540 5C-3 =XH006-00456 ============= Page 73 of 86 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Eli Lilly Date DASH Completed: 2/6/01 Counterparty: Eli Lilly and Company RAC Analyst/Underwriter: Michael Tribolet Business Unit: EES Investment Type: Bundled Outsource Business Unit Originator: Michael Mann / Richard Zdunkewicz / Capital Funding Source(s): Balance Sheet Jeff Forbis Expected Closing Date: 2/20/01 MR Public OPrivate Expected Funding Date: 2/20/01 lRIMerchant OStrategic Board Approval: (]Pending OReceived ODenied ON/A [H]Conforming ONonconforming RAC Recommendation: (]Proceed with Transaction OReturns below Capital Price ODo not Proceed APPROVAL REQUESTED Eli Lilly Monetization $ 50.0 MM Equity in LCC $ 8.7 MM Capital Replacement Projects $ 99.5 MM Energy Asset Project Capital $ 21.1 MM Total $179.3 MM EXPOSURE SUMMARY This transaction $ 179.3 MM Existing commodity exposure S 15.5 MM Total exposure $ 194.8 MM PHASE II DEAL DESCRIPTION v EES closed Phase I, the commodity management and supply portion of this two-phase transaction, in December of 2000. This 6 request covers Phase II, the assets and labor component, which is an additional fifteen-year deal (TCV $619 million) with Eli Lilly and Company ("LLY"), where EES will provide the following services: • EAM Services: EES will develop, design, construct, and implement demand side energy management projects • O&M Services: EES will provide operation, repair, replacement, and maintenance to energy assets and water systems (including purified and potable) and will manage Lilly's coal and fuel oil consumption • Bill Management Services: EES will administer billing for water, sanitary sewer, chilled water, steam, coal and fuel oil at facilities covered in the transaction • Lease Financing: EES will provide lease capital for EAM projects and replacement capital projects ($21.IMM and $99.5MM, respectively) The outsource services will be provided by EES through an LLC created by EES and Lilly. (Commodity Management Services are currently being provided directly by EESI.) On a monthly basis, Eli Lilly will make a payment into the LLC comprising total gross consumption savings from projects, savings from Operational Modifications and Service Level Enhancements, lease payments for projects and capital replacement, and an O&M baseline (inflated by the appropriate regional indices). The LLC makes lease payments to EES (as financier) for projects and capital replacement and pays EES (as O&M manager) for actual O&M expenses. Economics sharing percentages are 70/30 Lilly and EES, respectively. Approximately 239 Lilly O&M employees are affected by the outsourcing. The LLC is making a distribution to Lilly of $50MM representing the monetization of a portion of Lilly's expected share of savings. This distribution was an additional inducement for Lilly to enter into this agreement with the LLC. EES will provide the LLC with the funds necessary to make this distribution through a preferred equity contribution. EES is entitled to a 9 percent preferred return on its equity contribution, and it will receive all of the cash normally distributable to Lilly until its preferred interest is fully redeemed. After the preferred interest is redeemed, the LLC will split gross savings 70 / 30 to Lilly and EES, respectively. Lilly will have an unconditional obligation to return the $50MM to the LLC if EES' preferred interest is not redeemed through normal operations. EES' 9 percent return on the preferred investment, however, is at risk of performance by the LLC in producing actual savings. E0004403541 EXH006-00457 ============= Page 74 of 86 ============= RAC Deal Approval Sheet Deal Name: Lilly - Phase II EES will provide two separate savings guarantees. First, EES will guarantee that gross consumption savings will be sufficient to cover the $21.1 million in leases for energy asset projects. Second, EES will guarantee that Lilly, as Class B Member, will never have to fund O&M losses (i.e., actual O&M expenses exceed the baseline payment). In exchange for this second guarantee, EES receives a 5% premium to the negotiated baseline (incremental value to EES of approximately $5MM). An Enron Corp guaranty will cover EES' obligations to Lilly under the contracts. ELI LILLY OVERVIEW Established in 1876, the Indianapolis-based company makes Prozac, the world's best-selling antidepressant (and 26% of Lilly's sales), as well as a variety of other pharmaceuticals, hormones, and nutritional products for humans and animals. Lilly also produces 40% of the world's supply of insulin. Other products include Gemzar for pancreatic cancer, Humalog (insulin), and Zyprexa, a schizophrenia treatment also approved to treat bipolar disorder. It is anticipated that these and other products will offset declining Prozac sales. The Lilly Endowment, a charitable foundation, owns 15% of the company. Ken Lay is on Lilly's Board of Directors. 2000 revenues were $10.9 Billion and net income was $3.1 Billion. Eli Lilly has 10 manufacturing branches in the US, 5 of which are served in this agreement. Eli Lilly is rated AA/Aa3. RETURN SUMMARY A preliminary model has been received from EES by RAC (displayed below). This model is in process of being validated by RAC. A DASH addendum will be circulated to reflect the final economics. In the event final economics do not provide a positive NPV, a revised approval by the Enron Board of Directors will be obtained prior to closing. Economic Value at Mid: Recap of EES NPV - PV 8% EAM Projects, gross savings $ 51,074 O&M Savings $ 53,856 Value to Lilly $ (73,451) Equity contributions $ (7,412) Credit Reserve $ (2,500) Total value to EES $ 21,567 TRANSACTION UPSIDE/OPTIONALITY Value from Service Level Enhancements and Operational Modifications not modeled. Additionally, future EAM projects may be identified. Actual O&M savings may exceed projections. E0004403542 Page 2 Q) U to =XH006-00458 ============= Page 75 of 86 ============= KAU Deal Approval sneer RISK MATRIX DESCRIPTION Assets & Labor Risk • Failure of EES to meet agreed to operational service levels. Of the 239 employees, approximately 20% are expected to walkover to EES under the outsourcing. This will place an emphasis on training new personnel in order to properly execute the O&M component. Agreement provides for escalating penalties to EES for failure to meet service levels (subject to a cap). • Lilly delay of an approved project that meets criteria set forth in the agreement • Lilly delay of an approved OM&R process enhancement that would have led to energy consumption savings • Lilly rejects OM&R process enhancement that meets the Project Checklist set forth in the agreement • Lilly rejects an EES proposed efficiency project for reasons other than those permitted under the agreement • Compliance with FDA's GMP ("Good Manufacturing Practices") associated with OM&R Services lieai ivame: laity- rnase ii MITIGATION/COMMENTS • Through an extended transition period, EES O&M personnel will engage in a rigorous training and certification process prior to servicing energy assets. There are no union issues. The low percentage of workers joining EES is primarily due to an offer by Lilly for those affected to transfer to other positions within Lilly. • EES is entitled to recovery of savings through monthly Project Delay Damages. • EES is entitled to recovery of savings through monthly OM&R Delay Damages. • EES has the right (but no obligation) to implement projects that meet contractual Project Checklist. EES is entitled to recovery of savings through monthly OM&R Rejection Damages, subject to a Lilly deductible and cap • EES has right (but no obligation) to implement efficiency projects that meet contractual Project Checklist. EES is entitled to recovery of savings through monthly Project Rejection Damages, subject to a Lilly deductible and cap. • Lilly's Quality Assurance/Quality Control group will be primarily responsible for compliance with GMP. EES personnel will, however, be extensively trained in GMP. Inflation Risk • Price increases in parts, labor and materials Agreement is inflation-neutral. Baseline is escalated via CPI (parts, materials) and ECI (labor) inflators published by the Bureau of Labor Statistics for the Midwest Region. • Inflationary pressure on investments in capital I • Capitall replacement and project costs are passed through expenditures to Lilly on an actual cost basis through lease payments Facility Profile • Change in Facility profile • Labor disputes (between Lilly and its employees) disrupt EES's provision of OM&R services • EES inability to perform services due to: inadequate staff level, inadequate staff skill level, inability to recruit from local markets in a timely manner • Catastrophic or major component failure of equipment related to replacement capital • Facility disposal or closure • Lilly's right to terminate for convenience after year 5 • EES will earn cost + 10% on any facility scope or service level changes. After 18 months, a new baseline for the change will be established. Labor disputes are considered a Force Majeure event; EES's contractual obligations would be suspended. All facilities are open-shop. • Transition strategy calls for staged facility takeover. Certification and takeover of a facility will not occur until EES has demonstrated full operational capability. • A rigorous capital asset assessment survey will be executed during the Transition phase. A Capital Replacement / Maintenance plan has been developed for execution during the term that will replace or refurbish a significant portion of Lilly's Energy Assets. • Lilly makes a Facility Termination Payment equal to foregone savings, unwind costs, and a recapture of transaction mobilization expenses. • EES to receive the Default Termination Payment, excluding the 2% default premium. E0004403543 Page 3 co U LO --XH006-00459 ============= Page 76 of 86 ============= T?AI-T)Pal Annrnvnl Sheet Deal Name: Lilly - Phase II Credit Risk • Lilly's financial position deteriorates / bankruptcy with executory contracts • Lilly is rated AA/Aa3 as of 1/2001 • Material Adverse Change provision: if Lilly's credit drops to or below `B' (S&P), payment for all service components is accelerated, invoices are due in advance, no grace period for bills, a 2% late fee is assessed to overdue bills, and Lilly funds all projects in-process. Legal/Other Risk • Environmental - EES is liable as the result of disturbing • EES service quality to ensure hazardous materials are not currently existing hazardous materials and those disturbed during project implementation or OM&R introduced by EES. EES liable for non-compliance with services. Lilly will provide list of plants and locations of environmental laws. known hazardous materials. • Lilly Default Upon Lilly default, EES to receive Default Termination • Consequential Damages / Direct Damages Payment equal to the greater of present value of all future expected savings or originally expected savings, adjusted to actual performance after year 5, plus a 2% default premium. • Product Liability Risk Contractual aggregate limit of $60MM during term; $5MM per occurrence ($10MM for environmental) limit. Amounts paid by non-EES affiliated 3`d party insurers do not count toward the aggregate liability cap. • Lilly indemnifies EES for 3`d party product liability claims (except for "willful misconduct"). EES only indemnifies Lilly for in -plant product or production loss. KEY SUCCESS FACTORS: Poor Fair Good Very Good Excellent Strategic Fit X Transaction Hedge Liquidity N/A Counter-party Risk X Contract Terms X U sell Potential X EAM risk mitigation X O&M risk mitigation X OTHER RAC COMMENTS A low percentage (20%) of Lilly O&M personnel are expected to join EES. This will make the O&M transition process more difficult to manage. Repayment of the $50 million under LLC structure is ultimately Eli Lilly credit risk, via the deficit restoration obligation and is not dependent on savings to Lilly. Thus, EES is exposed to minimum annual savings of at least 9% on the outstanding Class C shares. Current savings projections reflect the retirement of the Class C shares by year 11 of this agreement. EES will guaranty that EAM savings are at least sufficient to cover the lease payments associated with the $21.1 million of EAM capital. MILESTONES Walkover of O&M personnel. The utility operations at the five facilities included in the agreement are scheduled to transition to EES as follows: July 1, 2001 Lilly Corporate Center August 1, 2001 Greenfield E0004403544 June 1, 2002 Lilly Technology Center July 1, 2002 Clinton August 1, 2002 Tippecanoe Page 4 t\ CJ LO EXH006-00460 ============= Page 77 of 86 ============= RAC Deal A Sheet Deal Name: Lilly - Phase II APPROVALS Origination Structuring Origination Management Legal EES Management RAC Management Enron Global Finance Enron Office of the Chairman Name Signature i Michael Mann / Jeff Forbis Richard Zdunkewicz / M. Howe Michael Mann / Gayle Muench Vicki Sharp Lou Pai / Tom White Dave Gorte / Rick Buy Ben Glisan / Andy Fastow Jeff Skilling Dat / Z,& L b 67 ao U E0004403545 Page 5 i EXH006-00461 ============= Page 78 of 86 ============= FROM STRUCTURE FINANCE RAC Deal Approval Sheet Global Finance Summary (addendum to DASH) I. Transaction Summary: Total Deal/Project Capital Commitment Less: Financings' Less: Syndications Net Enron Investment Amount (MM) $179.3 -0- 50.0 $129.3 2. Investment terms and pricing: ฎ Market E] Above Market 0 Below Market Describe (if necessary): 3. Financing terms and pricing: E] Market E] Above Market ฎ Delow Market Describe (if necessary): Documents are drafted with ratings downgrade creating an event of default only when Lilly slides to "B" level. No financial covenants are incorporated by reference when credit reaches "BB", which are thought to be necessary to sell this asset into a 125 vehicle & receive full mark to market value. & ultimately will be necessary to sell it to the capital markets once construction is complete. 4. Legal or practical liquidity restrictions: 0 Unrestrict.rd 0 Legally Restricted 0 Practically Restricted Describe (if necessary):Lack of covenant structure/downgrade triggers could effect the liquidity for this paper to be sold without Enron credit enhancement. On the S50MM Lilly monetization, the 9% fixed interest rate exposes us to widening of credit spreads & changes in the underlying Treasuries until ultimate sale to the capital markets. 5. Any recourse to Enron (other than investment): 0 Recourse 0 No Recourse Describe (if any): U 6a. Business unit intent to syndicate: 0 None E] Partial ฎ All Describe (if necessary):initially the Lilly monetization will be funded through Whitewing. The Mark to market will be effected initially through Hawaii 125-0 & then subsequently into EES structured finance vehicle by June 30 which will allow us to capture more MTM income. Ultimately, once construction is complete, sale to the Capital Markets is anticipated. 6b. Intended Enron hold period: 6c. Likely Syndication Market: E] Industry/Strategic Partner E] Direct Private Equity E] Capital Markets 0 JEDT 2 0 LJM ) or 2 0 Margaux markets 6d. Is this a JEDI 2 "Qualificd Investment"? E] Yes 0 )EDI E] Enserco 0 Condor 0 Other: IES FAS13 125 vehicle, ultimately capital ฎ No. 7. Business unit intent to hedge investment price risk (c.g. with Raptor)? Describe (if necessary): Global Finance Representative Global Finance Legal: O None 0 Partial 0 All C'her l Li shutz Jordan Mintr Signature Name (Printed) Date E0004403546 (TUE) 2. 6' 01 17:02/ST. 17:01/N0. 4862145047 P 2 Deal Name: Ell Lilly -Z//,u ~ z - EXH006-00462 ============= Page 79 of 86 ============= AGENDA ITEM 5(c) (SUGGESTED FORM OF RESOLUTIONS) WHEREAS, Enron Energy Service Operations, Inc. ("EESO"), a wholly-owned subsidiary of the Company and certain of its affiliates and Eli Lilly and Company ("Lilly"), an Indiana corporation, desire to implement an energy management program ("Program") designed to outsource the management of Lilly's energy requirements; WHEREAS, in connection with the implementation of this Program, EESO or an affiliate of EESO and Lilly desire to enter into (i) a Commodity Management Agreement ("CMA") and (ii) a Limited Liability Company Agreement ("LLC Agreement") forming a Delaware limited liability company ("LLC") which LLC will enter into an Energy Services Agreement (the "Services Agreement") with Lilly under which the LLC will implement a Program for certain Lilly facilities for up to fifteen (15) years, which Program services will include energy management services, the design, procurement, installation and financing of certain energy projects, and the operation, maintenance, repair and capital replacement of energy infrastructure at designated Lilly facilities, all pursuant to and in accordance with a Project, Operations, Maintenance and Repair Agreement, (POMR") and a Master Lease Agreement ("Lease") each between EESO and the LLC (collectively the CMA, LLC Agreement, o Services Agreement, POMR and Lease are referred to herein as the ti "Agreements"); and to WHEREAS, as security for EESO's and its affiliates' obligations under the Agreements, the Company is required to guaranty the obligations of EESO and its affiliates thereunder; and WHEREAS, the Company deems it is in its best interests that EESO and its affiliates enter into the Agreements and that the Company guarantee the obligations of EESO and its affiliates under the Agreements; NOW, THEREFORE, IT IS RESOLVED, that the Board of Directors of the Company hereby approves in principle EESO's and its affiliates entering into the Agreements, and the performance of their respective obligations thereunder. RESOLVED FURTHER, that the President and Chief Operating Officer of the Company be, and hereby is, authorized, empowered and directed on behalf of the Company, under its corporate seal and otherwise, to take such further action, as may be deemed necessary or E0004403547 EXH006-00463 ============= Page 80 of 86 ============= appropriate in connection with the Agreements, including, without limitation, the authority and power to approve the execution of the Agreements and any agreement to be entered into in connection with the Agreements and to approve a guaranty agreement or agreements (collectively, the "Guaranty"), each with such terms, conditions and obligations as the President and Chief Operating Officer of the Company shall approve, such approval and the approval of this Board of Directors of the Company to be evidenced conclusively by the execution and delivery thereof by an officer of the Company, EESO or other subsidiary of the Company authorized by the President and Chief Operating Officer of the Company: RESOLVED FURTHER, that the officers of the Company be, and each of them hereby is, authorized, empowered and directed in the name and on behalf of the Company, under its corporate seal or otherwise, to take such further action as any such officer may deem necessary or appropriate in connection with the Company's obligations under the Guaranty, including the execution of the Guaranty and of any other certificates or documents as the officers of the Company shall approve, such approval and the approval of this Board of Directors to be evidenced conclusively by the execution and delivery of such other certificates or documents; RESOLVED FURTHER, that the officers of the Company, EESO or other subsidiary of the Company and their respective counsel be, and V each of them hereby is, authorized and directed (anyone of them acting `o alone) to take any and all such further action from time to time as any such officer may deem necessary or appropriate in connection with the Agreements and the Company's obligations under the Guaranty, including any amendment or modification of any of the Agreements or the Guaranty, and to , execute and deliver all such further instruments, certificates, notices, waivers and documents for and on behalf of the Company, EESO or the other subsidiary of the Company, under corporate seal or otherwise, and to pay all such expenses as in their discretion appear to be necessary, proper or advisable to carry into effect the purposes and intentions of this and each of the foregoing resolutions; and RESOLVED FURTHER, that all actions heretofore taken by an officer of the Company, or a subsidiary thereof, related to or in connection with the Agreements and the Guaranty and the transaction contemplated by these resolutions are hereby adopted, ratified, confirmed and approved in all respects. E0004403548 EXH006-00464 ============= Page 81 of 86 ============= r s m 0 CA.) EXH006-00465 ============= Page 82 of 86 ============= 3nda Item 7 n m o w o EXH006-00466 f ============= Page 83 of 86 ============= Adjourn m 0 0 .p. 0 CA.) cn cn `~~ ryt a'C•,r 7-1 Finance Committee Meeting EXH006-00467 ============= Page 84 of 86 ============= Agenda , m o ccn EXH006-00468 ============= Page 85 of 86 ============= Agenda n ti. 51, 0 0 0 cU'n w EXH006-00469 ============= Page 86 of 86 ============= =XH006-00470 1. Approval of December 11, 2000 Finance Committee Minutes 2. Financial Reports A) Chief Financial Officer Report B) Review of LJM procedures and transactions completed in 2000 3. Treasurer Report 4. Chief Risk Officer Report Quarterly Risk Update - Merchant Portfolio Summary - EES Status Report - Market Risk Update 5. Projects and Amendments A) Revision to the Risk Management Policy - Approve for Recommendation to the Board B) Revision to the Transaction Approval Process - Approve for Recommendation to the Board C) Eli Lilly - Approve for Recommendation to the Board 6. Other Business 7. Adjourn Mr. Winokur Mr. Fastow Mr. Causey Mr. Glisan Mr. Buy Mr. Buy Mr. Buy Mr. Blachman E0004403554 See Addendum for Deal Approval Sheets approved between Board meetings Page 1-1 2-1 2A-1 2B-1 3-1 4-1 4-2 4-18 4-26 5-1 5A-1 5B-1 5C-1 6-1 7-1 O Finance Committee Meeting