============= Page 1 of 151 ============= CONFIDENTIAL1 ~ ~~33 Addendum Deal Approval Sheets Finance Committee Meeting May 1, 2000 Committee Members I X90. =XH003-01234 Endless possibilities. Mr. Herbert S. Winokur, Jr., Chairman Mr. Robert A Belfer Mr. Norman P. Blake, Jr. Mr. Ronnie C Chan E0004401920 Mr. Paulo V. Ferraz Pereira Mr. Jerome J. Meyer Mr. Frank Savage Mr. John A. Urquhart ============= Page 2 of 151 ============= Strategic Transactions m EXH003-01235 ============= Page 3 of 151 ============= Enron Transaction Appri I Summ Strategic Transactions Board of Directors Meeting: TODAY'S DATE: May 2, 2000 April 21, 2000 Tab No. Region/ Business Investment Class Date Approved Transaction Name Transaction Size Approval Authority* Net Amount S-1 EBS Conforming 31-Mar-00 AHI $ 56,850,000 ENE-CEO/COO $ 56,850,000 S-2 EBS Conforming 17-Mar-00 BellSouth PoP Deployment $ 6,025,000 ENE-OOC $ 6,025,000 S-3 Europe Conforming 14-A r-00 Condensing Turbine $ 11,000,000 ENE-OOC $ 11,000,000 S-4 Caribbean Conforming 14-Apr-00 EcoElectrica-Workin Capital $ 11,750,000 ENE-OOC $ 11,750,000 S-5 Enron Global LNG Conforming 12-A r-00 Elba Island LNG Terminal $ 66,100,000 ENE-CEO/COO $ 66,100,000 S-6 EES Conforming g 16-Feb-00 Georgia Arm $ 68,100,000 ENE-CEO/COO $ 68,100,000 S-7 ENA Conforming 31-Jan-00 Hurricane $ 21,000,000 ENE-CEO/COO $ 21,000,000 S-8 EE&CC Nonconformin 02-Feb-00 Jertovec Pre-NTP $ 10,000,000 ENE-OOC $ 10,000,000 S-9 ENA Conforming 16-Mar-00 Mariner - Pluto II $ 26,019,000 ENE-CEO/COO $ 26,019,000 S-10 EES Conforming 08-Feb-00 MDW $ 55,600,000 ENE-CEO/COO $ 55,600,000 S-11 EES Nonconformity 07-A r-00 Mercury (including addendum) $ 29,200,000 ENE-CEO/COO $ 29,200,000 S-12 EGF Conformity 31-Mar-00 Nowa Sarz na Equity Purchase $ 10,630,000 ENE-OOC $ 10,630,000 S-13 ENA Conforming 28-Mar-00 Powder River III $ 18,744,000 ENE-OOC $ 18,744,000 S-14 India Conforming 29-Mar-00 Property Acquisition $ 40,000,000 ENE-CEO/COO $ 40,000,000 S-15 ESA/EBS Nonconformity 10-Mar-00 South America Fiber Optic Network $ 10,054,000 ENE-CEO/COO $ 10,054,000 S-16 ESA Conforming 07-A r-00 Transredes II $ 5,000,000 ENE-OOC $ 5,000,000 Total Funded Capital Approved: $ 446,072,000 $ 446,072,000 w~.. .. ....i.. ....J 4- +l 4,drrnurinn fr,ncarfinn 1rnntraet nnvatinnl Tab Region/ Investment Date Transaction Name Transaction Approval Net Amount No. Business Class A roved Size Authority* S-17 EEL Conforming 1-Mar-00 NP TPL Deal $ - ENE-OOC $ - * Approved under authority granted at the August 1999 Board meeting. Included for information purposes only. E0004401922 EXH003-01236 ============= Page 4 of 151 ============= S-1 E0004401923 EXH003-01237 ============= Page 5 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEEr4 DEAL NAME: - AHI Date DASH Completed: 3/29/2000 Counterparty: WarpSpeed. RAC Analyst: Chulley Bogle Business Unit: Enron Broadband Services Investment Type: Acquisition Business Unit Originator: Mark Russ Capital Funding Source(s): Balance Sheet OPublic Private Expected Closing Date: 4/21/2000 DMerchant Strategic Expected Funding Date: 4/4/2000 Conforming DNonconforming Board Approval: OPending DReceived ODenied IEN/A RAC Recommendation: (]Proceed with Transaction DReturns below Capital Price DDo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment $56.85MM (Equity portion varies with ENE share price until Board approval is received)' EXPOSURE SUMMARY Equity $47.69 MM (635,718 shares@$75, current value) Cash 9.16 MM Total $56.85 MM DEAL DESCRIPTION EBS proposes to acquirel00% of WarpSpeed Communications, a company based in Northern California, for $56.85MM. (See exposure summary) WarpSpeed has developed software that, inter alia, allows real time switching of T-1 circuits. Having done extensive due diligence the EBS engineering team, consisting of Dorn Hetzel, VP Network Engineering and Operations, David Easterby, Larry Ciscon and David Berberian, is confident that this software can be adapted in a timely manner, and used as the platform for its bandwidth trading software. This would accelerate EBS' automation of bandwidth provisioning at the DS3 level and above. The alternative to acquiring WarpSpeed would be to use the platform being developed internally. The EBS engineering team acknowledges, however, that while that product would be adequate for the promised April 30 launch, it would need further development for additional functionality, extensibility and scalability features that are critical to the next versions of switching control software. Over the last 3 years, WarpSpeed has developed a robust code base which EBS' engineering team believes can provide these features more quickly and with greater capacity to evolve with market trends. Founded in 1997, WarpSpeed is able to provide broadband connectivity on demand. It achieves this by combining the cost- effectiveness and flexibility of Virtual Private Networks (VPNs), with the Quality of Service (QoS)'and security of leased lines, This service has spawned a new class.of broadband services called Dynamic Private Networks. The company currently has 54 employees, forty-five (45) of whom are engineers, experienced in developing connection management and switching software. TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Cash $9.16MM General Corporate purposes $47.69MM Enron Equity $47.69MM Debt Repayment $9.16MM Total $56.85MM $56.85MM - RETURN SUMMARY WarpSpeed's business can be broken down into three separate areas of value: Acquisition Cost $ 56,850,000 1) Existing Code Base $ (12,000,000) 2) Incremental Benefit of "Buy vs. Hire" $ (24,300,000) Strategic Premium without T1 Business $ 20,550,000 3) Value of the T1 Business $ (7,000,000) Strategic Premium $ 13,550,000 E0004401924 =XH003-01238 ============= Page 6 of 151 ============= RAC Deal Approval Sheet 1) The Code Base - $12 MM Deal Name: AHI, Ownership of the code base, whether through acquisition or building in-house, is imperative to the success of EBS. The code base will serve as the platform from which EBS will launch its bandwidth-trading product. The engineering team has estimated the cost of developing the Code Base at $12MM: the time required is estimated at 20-man years. The estimate is based on the current pay scale for software engineers. This is expected to rise in the short term. The cost of any delay, while difficult to quantify, may be several times the actual cost of the code, due to the importance of time to market. Additionally, the following factors need to be considered under a build scenario:  Time to market would be significantly increased. That would have negative implicationsfor Enron's share price. • The existing WarpSpeed team is uniquely skilled; being knowledgeable in both telecom and software engineering  Recruiting the number of engineers needed would require 6-18 months 2) "Buy vs. Hire": An experienced team of engineers and managers - $ 24.3 MM As part of the package, EBS will also acquire the WarpSpeed management team and engineers. This engineering team possesses a rare combination of telecom and software skills that would bring a lot of value to EBS. EBS requires software- engineering talent and, without this acquisition, would need to rent or hire the talent to ensure the accelerated development of the EIN. The estimated recruiting time for 45 engineers of this caliber is about 12 months, on average per engineer. The estimated cost of renting during this period is $28.8MM. Incremental analysis of "rent vs, buy" and "hire vs. buy" shows that "buying" saves approximately $24.3MM on a present value basis. Savings for "buying vs. renting" are even greater. - 3) The existing TI business - $ 7 MM WarpSpeed is currently engaged in the business of providing switched nationwide T1 service on demand. This service connects customers, by local access T1 circuits, to WarpSpeed's network of DS3s, which is currently leased from AT&T. This enables the establishment of connections, between the customers designated points of origination and termination, for the specific time requested by the customer. The technology is based on a unique and highly scalable on-line transaction processing architecture. Customers are charged based on the minutes used, in addition to a monthly charge for'local TI access, which is a pass through to the local loop service provider. The T1 business could either be added to EBS' slate of product offerings or discontinued. EBS management believes that there is a potential market for this product and is reviewing the business plan. This business has been estimated by EBS, to be potentially worth $7MM. Strategic Premium The strategic premium can be justified based on the fact that EBS will be acquiring an experienced team of multi-skilled engineers, who are accustomed to working each other. In addition, EBS will, by acquiring WarpSpeed, reduce the time required for software development by some 20-man years. CASH FLOW SUMMARY EBS will be required to deliver, at closing, the 635,718 shares and $9.159MM for repayment of WarpSpeed debt. EXIT STRATEGY This is a strategic acquisition. No exit is anticipated. Ec004401925 J O:\ECM\RAAP\$OPNDEAL\EBS Deals\AHApriced_ 0300\DASH AHI_l0.doc Page 2 =XH003-01239 ============= Page 7 of 151 ============= RAC Deal Approval Sheet RISK MATRIX Deal Name: AHI DESCRIPTION MITIGATION/COMMENTS Retaining Talent Retention of management and engineering talent is crucial to the success of the acquisition. EBS enlisted outside consultants to evaluate the Northern CA market, with a view towards ensuring that compensation, including bonus and long-term incentives, is market competitive. Of the 45 engineers whose salaries were reviewed by the consultants, 27 were deemed to have market or better compensation. Additionally:  Two of the three members of the management team will be given 3-year contracts. The other member, due to family commitments, has requested, and will be given, a two year consulting contract.  The entire WarpSpeed team will be offered a Cash and Enron stock option retention package, in addition to standard competitive compensation packages.  The sales and marketing team may be retained depending on its ability to fit within the EBS organization. Team Integration An integration plan has been designed to keep the existing team in place to capitalize on the established product development structure. Reporting to Kevin Hannon, the WarpSpeed team will be kept in California, and will initially be focused on the delivery of the BW Manager switch. This will provide direction, and allow the team to add value in the near term. Value Based on Enron Share Price The purchase price has been set according to a fixed number of Enron shares. To the extent that Enron's share price increases before authorization of the new shares, EBS will be paying more for this acquisition. Limit on Indemnities An escrow account provides protection for any breaches of indemnities. This escrow account consists of 10% of the purchase price in Enron shares and will be released one year after the acquisition. No recourse for Enron exists beyond the one-year escrow account. T1 Business EBS will need to decide whether to deploy resources to expand/continue this business or to close it down. EBS Enterprise Services team is meeting with WarpSpeed management this week to examine this issue. If the decision is made to discontinue the business, the exposure is expected to be less than $2MM. E0004401926 Qt`,ECP.1`d? .^,P,$4PMDC".L`IrDE v Dcalo`,".flP,priood_0300`,D^.SH_^.HI_l0.do ps oP. 3 =XH003-01240 ============= Page 8 of 151 ============= RAC Deal Approval Sheet Deal Name: AHI KEY SUCCESS FACTORS NA Poor Excellent Core Business X -Strategic Fit x Upside Potential X Management x Risk Mitigation* X The risks of transaction are not fully mitigated. However, buying WarpSpeed significantly reduces the operational/developmental risks of EBS going forward. OTHER RAC COMMENTS: Over a 3-year period, equity investors, mainly venture capitalists, had invested $35mm into WarpSpeed. Enron Corp will be granting registration rights in connection with the issuance of.Enron common stock for this transaction. APPROVALS Commercial Commercial Technical Technical Legal Accounting RAC Management Commercial Management Enron Capital Management ENE Management Name Mark Russ Rich DiMichele John Griebling Dorn Hetzel Kristina Mordaunt Todd Lindholm Rick Buy/Dave Gorte "5Gi`7cIn-A,,~ . Joe Hirko/Ken Rice/Kevin Hannon Andy Fastow/ Jeff McMahon Jeffrey Skilling/Joe Sutton ? o-O Signature Date ECO04401927 0:\ECM\RAAP\$OPNDEAL\EBS Deals\AHI\priced 0300\DASH_AHI_l0.doc Page 4 EXH003-01241 ============= Page 9 of 151 ============= RAC Deal Approval Sheet Deal Name: AHI KEY SUCCESS FACTORS NA Poor Excellent Core Business x Strategic Fit x Upside Potential x Management x Risk Mitigation* x *Buying WarpSpeed reduces the operational/developmental risks of EBS going forward. OTHER RAC COMMENTS: Over a 3-year period, equity investors, mainly venture capitalists, had invested $35mm into WarpSpeed. Enron Corp will be granting registration rights in connection with the issuance of Enron common stock for this transaction. APPROVALS Commercial Commercial Technical Technical Legal Accounting RAC Management Commercial Management Enron Capital Management ENE Management Name natu Date Mark Russ C - ~- 0 O 'Rich DiMichele & John Griebling Dorn Hetzel Kristina Mordaunt Todd Lindholm 0,0 Rick Buy/Dave Gorte Joe Hirko/Ken Rice/Kevin Hannon Andy Fastow/ Jeff McMahon Jeffrey Skilling/Joe Sutton E0004401928 G:\Houston\Private\Corporate Development\from_Reagan\AHI\DASH AHI_I3.doc =XH003-01242 Page 4 3 ============= Page 10 of 151 ============= r NA Poor Exteilent (.=t Business- X Strata 'c Fir x Upside PC "al x Mina etnent ~ Risk Miei erion• x KEY SUCCESS FACTORS 2 'Buying W arpSpeed redueas the operadoul/developmental risks of EBS going forward. OTE13M RAC COMMENTS: Over a 3-year period, equity investors, mainly venttut capitsllau, had invested 335=n into WarpSpeed. E=n Corp will be granting regietradon rights in connection with the issuance of Earott c=m= stock for this tranaactioa. APPROVALS Cotnmerciel Co¢mtarcial Technical Technical Legal Accouutag RAC Maztagemeat Canm z'rcial Management Enron Capital Maaagemeai ENE Manageatent Name Ma k RV 63 Rich DiMichele Signature Date . - C_1TFMPOA SH_AHl_12.dw John Griebliag Dora Haul Mauna Mordaunt Todd Lindholm Rick Buy/Dave Gvrte Joe Hitko/Ken Ric"evin Hannon Andy Fasrow/ Jet!McMahon Jetliey Skillina/Joe Sutton Page 4 E0004401929 ~r d O 42 / =XH003-01243 ============= Page 11 of 151 ============= i4'AK.) i. 2U00 i 1 ! I'M RAC Deal Approval Sheet tiVKUN (Uvi ilid i vA iuI Deal Name: AHI ilv. ivv) KEY SUCCESS FACTORS NA Poor Excellent _. Core Business x Strategic Fit x Upside Potential x Management x Risk Mitigation* x *Buying WarpSpecd reduces the operational/developmental risks of EBS going forward. OTHER RAC COMMENTS: Over a 3-year period, equity investors, mainly venture capitalists, had invested $35mm into WarpSpeed. Enron Corp will be granting registration rights in connection with the issuance of Enron common stock for this transaction. 1 APPROVALS Name Signature Date Commercial Mark Russ Commercial Rich DiMichele Technical John Griebling Technical Dorn Hetzel 'y o7J Legal Kristina Mordaunt Accounting Todd Lindholm RAC Management Rick Buy/Dave Gorte Commercial Management Joe Hirko/Ken Rice/Kevin Hannon Enron Capital Management Andy Fastow/ Jeff McMahon ENE Management Jeffrey Skilling/Joe Sutton E0004401930 C;\TEM P\OAS H_A H I_ 13,doc Page 4 EXH003-01244 ============= Page 12 of 151 ============= 1 IO IMIKKJ WAR. 31.2000 3;01PMM RI - HIRKOWflCATIONS i AACDwlAppN.Ug is IAX N0, •5035318668 NO 1014 2 1 ?NO. 10125 1?. 25 DesaL M AIU SUCCISS FACTORS NA ow core wimu R 14e tf~l ilk tloo• i `9vyla4 WMVSpesasd'oml the oper%doMMYdevelopmeetal Asks e(DS doing M..d. OTMM MC COMM>iDraj Over a 3-rev period,' *.4%lb InyottorR m ij .e m wpltilitt0, Md lavestad $33ssm feoe WypypOed boron "*Ill be drsntka ceaissss lei d4h , is oMscdco whh Jw ii uan s of Hams coma n asset f Oils arsooccoa, Al'PROVAJL Now Coma rlal Coasnr.nsl.J _ Rar ~ .r iets dldkioio ?etitaksl D ..~._ Jebe tilled r.ow~el Dom Hacse) A,ccountlni ?odd Li.dhota+ ~_ RAC Mr..gsmsa Rich I uy/Dsvg Code C,mmereiol Ma, i4crosttt lot ItxkdK d Rke V4o-..) e1 P A Capital Masagament Md` y F&No'w/ Jeff msHa am @ 4E Msrussimal l.y Skull )ae Sutton Ds '111~ .01 CMTWMASH_.N)_)A,daa Pi i1 E0004401931 EXH003-01245 ============= Page 13 of 151 ============= RAC Deal Approval Sheet Deal Name: AHI KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit x Upside Potential x Management x Risk Mitigation x OTHER RAC COMMENTS: Over a 3-year period, equity investors, mainly venture capitalists, had invested $35mm into WarpSpeed. Enron Corp will be granting registration rights in connection with the issuance of Enron common stock for this transaction. APPROVALS Name Signature Date Commercial Mark Russ Commercial Rich DiMichele Technical John Griebling Technical Dorn Hetzel ~. t d i M K i l'~ Legal aun or na r st Accounting Todd Lindholm RAC Management Rick Buy/Dave Gorte Commercial Management Joe Hirko/Ken Rice/Kevin Hannon Enron Capital Management Andy Fastow/ Jeff McMahon ENE Management Jeffrey Skilling/Joe Sutton E0004401932 C:\TEMP\DASH AHI l0.doc Page 4 EXH003-01246 ============= Page 14 of 151 ============= cO • 3~iHd 1)t101 *:* RAC Deal Approval Sheet Deal Name: AM Global finance Summary (addendum to DASD 1. Transaction Summary .1v. V J V, I . V Amount (8000) Total DetillProjoct Capital Commitment S56.SSOMM Ltsa: Ficancings -0- Less: Syndications -0- Net Enron Investment $56.850MM 2. Inveatraent terms and pricing: ® Markr_t O Above Market O Below Market Describe (if necessary): The investment is being rrade usia Enron shares and cash. To the extant that Enron share prices A, U vary, the cost of the investment will change. boo 0 3. Financing (emus end pricing: Describe (if necessary): 4. Legal or practical Uquidity restrictions: Restricted Describe (if necessary): a] Market O Above Market 0 Below Market 0 Unrestricted O Legally Restricted IR Practically 5. Any recourse to Enron (other than investment; ® Recourse 0 No Recourse Describe (if any): Fnron Corp wil] be granting registr i on rights in cormectian with the- tssuance of Enron common stock. 6a. Business unit intent to sy'ndicatt:: © Nonc 0 Partial 0 All Describe (if necessary): 6b. Intended Enron hold period: This is a strategic investment. 6c, Likely Syndication Market: 0 Industry/Strategic Partner O Direct Private Equity Q Capital Markets 0 JEM 1 0 JEDI 2 0 Ftuterco O LJM 1 or 2 O Candor 0 Other: O Margaux Global Flsa+tace epresen vta c. 6d, Is this a JEW 2 "Qualified Investment"? 0 Yes R tS .. - - C.\TEM PID AS H _AH („ 10.doe KHO03-01247 Signature ® No (} JREn1Ct- M . LAW ye7. - Name (Printed) E0004401933 Date Paec 5 I ============= Page 15 of 151 ============= S-2 E0004401934 EXH003-01248 ============= Page 16 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: BellSouth PoP Deployment Date DASH Completed: March 17, 2000 Counterparty: BellSouth Telecommunications, Inc. RAC Analyst: David Crews Business Unit: ECI Investment Type: Capital Expenditure Business Unit Originator: Nate Alvord Capital Funding Source(s): Balance Sheet OPublic [F]Private Expected Closing Date: March 17, 2000 OMerchant Strategic Expected Funding Date: April 15, 2000 !]Conforming ONonconforming Board Approval: OPending DReceived ODenied IN/A RAC Recommendation: !]Proceed with Transaction DReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment Year 1 up to $ 2.275 million Year 2 up to $ 3.750 million Total up to $ 6.025 million EXPOSURE SUMMARY 1) Enron Firm Commitment Per Location Total Signing Bonus $ 250,000 Tier 1 DSL Payment (3 locations) Year 1 $200,000 $ 600,000 Year 2 $250,000 $ 750,000 Total-Enron Firm Commitment $1,6009000 2) Enron Commitment based only on Bell South option Tier 1 Dedicated Lines - Year 1 $ 60,000 $ 180,000 Tier 1 Dial up - Year 1 $ 40,000 $ 120,000 Tier 1 Dedicated Lines and Dial up - Year 2 $250,000 $ 750,000 Total - Enron Commitment based on Bell South Option $1,050,000 Total Enron Obligation $2,650,000 3) Enron Options Tier 2 - DSL Payments (9 locations) Year 1 $ 90,000 $ 810,000 Year 2 $125,000 $1,125,000 Total Enron Options $1,935,000 4) Bell South Contingent Puts Tier 2 Dedicated Lines - Year 1 $ 20,000 $ 180,000 Tier 2 Dial up - Year 1 $ 15,000 $ 135,000 Tier 2 Dedicated Lines and Dial up - Year 2 $ 125,000 $ 1,125,000 Total - Bell South Contingent Puts $1,440,000 Maximum Potential Enron Exposure DEAL DESCRIPTION E0004401935 $6,025,000 Enron would pay up to $6.025 million to BellSouth for the right to locate Enron equipment in BellSouth facilities in 12 priority locations with access to 15 markets over a 2 year period. Enron is obligated to pay for the three Tier I locations (Atlanta, Miami, New Orleans) for 2 years if Bell South performs under the contract. If Bell South provides access to their dedicated and dial up customers, Enron is obligated to pay for these customers as described in the Exposure Summary. Approximately 50% of Bell South's DSL lines are in these three markets, which makes these locations the priority for this investment. Enron has the option to locate in the Tier 2 cities (Nashville, Birmingham, Baton Rouge, Charlotte, Orlando, Jacksonville,. Louisville, Memphis, and Raleigh), but is under no obligation to do so. Only. Orlando is on Enron's current network. The value of these sites will depend on how quickly Enron can incorporate them into the network. Once Enron commits to a Tier 2 location, Bell South has the option of providing access to their dedicated and dial up customers for the payments described above. Enron will pay an additional bonus of $250,000 if the agreement is signed on or prior to March 16, 2000. Half of this signing bonus is refundable if Bell South terminates the agreement after the 3 month Atlanta location beta test period. As of December 31,1999, Bell South had 30,000 DSL subscribers, demand for 4,000 DSL lines per week, and was prnvisinning 1,4UU USI, lines per week. Bell south is targeting a goal of 1,200 DSL lines pro day through morn effective XH003-01249 ============= Page 17 of 151 ============= provisioning techniques including self installation for a 12/31/00 target of at least 200,000. Bell South estimates that they currently have between 50,000 and 70,000 dedicated circuits and 750,000 narrowband customers. TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Enron Equity $ 6,025,000 Tier 1 Sites 2,400,000 Tier 2 Sites 3,375,000 Bonus Payment 250,000 Total $ 6,025,000 6,025,000 RETURN SUMMARY These payments would provide quick access to the customer base of BellSouth, which has a fast-growing pool of DSL subscribers. It is not possible to justify this investment based on Enron's current level of content. This investment provides an option that is valuable in attracting content and provides increased revenue as new content is contracted. Two methods have been used to put this into context. 1) An alternative approach to fixed payments for collocation had been a 10% revenue share. Under that arrangement, Enron would need to generate $28 million from the Tier 1 sites and $34 million, if all Tier 2 sites are deployed, over the next two years to justify the payment made. The ability to recognize this revenue will be impacted by the speed of deployment into the POPS. 2) To justify the colocation in the Tier 1 locations, Enron would need the Bell South customers (DSL, dedicated line, dial-up) to spend an average of 21 minutes per month watching Enron content (assuming equipment is fully depreciated over 2 years, 26 minutes during the first term, and 16 minutes during the second term). This would compare to the US West deal which would require 26 minutes per month of Enron content for year 1. The assumptions for this analysis are broad but have been added to try and put the upfront payment amount into context. CASH FLOW SUMMARY Year One: $250,000 bonus payment March 16, 2000 (payable within 30 days of March 16 execution date) $300,000 (x3) priority sites $300,000 per each Tier 1 site deployed for DSL, dedicated lines, and dial up $125,000 (x9) other priority sites $125,000 per each Tier 2 site deployed for DSL, dedicated lines, and dial up Year Two: $500,000 (x3) priority sites $500,000 per each Tier 1 site renewed for DSL, dedicated lines, and dial up $250,000 (x3) other priority sites $250,000 per each Tier 2 site renewed for DSL, dedicated lines, and dial up If the Tier 1 sites are not deployed one year after execution of the agreement, through no fault of BellSouth, Enron is obligated to make full payment ($1.15 million less amounts already paid) but retains the right to deploy in the sites for the remaining term of the deal. EXIT STRATEGY The agreement lasts for two years, but there is no obligation to service or pay for Tier 2 locations in either year. E0004401936 C:\TEMP\-5182598.doc Page 2 XH003-01250 ============= Page 18 of 151 ============= RISK MATRIX (Maximum 5) DESCRIPTION MITIGATION/COMMENTS Content Delivery Enron needs to be able to deliver ePowered content for 23 minutes average to all the DSL customers to recover the costs of colocating. Currently, EBS does not have enough content to recover this cost. The added reach should help EBS' marketing for additional content. Applications Enron is obligated to give Bell South 30 days written notice of new applications streamed by Enron (specifically interactive applications). If Bell South determines that such application will materially adversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all applications. Access to Network The Tier 1 sites (Atlanta, Miami/South Florida, New Orleans) are on Enron's current network. If Enron fails to make all three Tier 1 locations commercially operational within 9 months of the effective, through no fault of Bell `South, the agreement terminates 12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's current network. To obtain value from these sites, they will need to be connected to the Enron network through either satelliteor fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 sites. Test Period During the first 3 months of the Agreement, Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its equipment. Renewal The parties agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to bring u an of the Tier 2 locations during the first year. OTHER RAC COMMENTS: The economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contract. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. APPROVALS Commercial Mgmt. Commercial Mgmt. Regional Mgmt. Legal Accounting RAC Management Enron Capital Management ENE Management C:\TEMP\ -5182598.doc Name Nate Alvord David Cox Joe Hirko/ Ken Rice Signature Date Kristina Mordaunt Tod Lindholm Rick Buy/ David Gorte Andy Fastow/Jeff McMahon Jeff Skilling/Joe Sutton ECO04401937 Page 3 XH003-01251 ============= Page 19 of 151 ============= RISK MATRIX (Maximum 5) DESCRIPTION MITIGATION/COMMENTS Content Delivery Enron needs to be able to deliver ePowered content for 23 minutes average to all the DSL customers to recover the costs of colocating. Currently, EBS does not have enough content to recover this cost. The added reach should help EBS' marketing for additional content. Applications Enron is obligated to give Bell South 30 days written.notice of new Oy\e p icatio If Bell South determines that such application will u~ materially dversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all ~~ applications. Access to Netwo G The Tier 1 sites (Atlanta, Miami/South Florida, New Orleans) are on Enron's current network. If Enron fails to make all three Tier 1 locations commercially operational within 9 months of the effective, through no fault of Bell South, the agreement terminates 12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's current network. To obtain value from these sites, they will need to be connected to the Enron network through either satellite or fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 sites. Test Period (,'1 r1 Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its equipment. Renewal The parties agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to bring u any of the Tier 2 locations during the first year. OTHER RAC COMMENTS: The economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contract. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. APPROVALS Commercial Mgmt. Commercial Mgmt. Regional Mgmt. Legal Accounting RAC Management Enron Capital Management ENE Management C:ITEMP\DASH BellSouth.doc Name Signature Nate Alvord David Cox Joe Hirko/ Ken Rice Kristina Mordaunt Tod Lindholm Rick Buy/ David Gorte Andy Fastow/Jeff McMahon Jeff Skilling/Joe Sutton E0004401938 Page 3 Date XH003-01252 ============= Page 20 of 151 ============= wine. 1 /• LVUV i 1 v ynm '-n wiN RISK MATRLY (Maximum 5) -1003-01253 DESCRIPTION NIITIGATION/COMMENTS Content Delivery Enron needs to be able to deliver cPowered content for 23 minutes average to all the DSL customers to recover the costs of eoloeating. Currently, EBS does not have enough content to recover this cost. The added reach should help EBS' marketing for additional content. Applications Enron is obligated to give Bell South 30 days written notice of new applications streamed by Enron (specifically interactive applications). If Bell South determines that such application will materially adversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all applications. Access to Network The Tier I sites (Atlanta, Miami/South Florida, New Orleans) are on Enron's current network. If Enron fails to make all three.Tier 1 locations commercially operational within 9 months of the effective, through no fault of Bell South, the agreement terminates 12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's current network. To obtain value from these sites, they will need to be connected to the Enron network through either satellite or fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 sites. Test Period During the first 3 months. of the Agreement, Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its e ui ent. Renewal The parries agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to brie u an of the,Tier 2 locations during the first year. OTHER RAC CON UNTS: The economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contact. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. I Date APPROVALS Name S '" Commercial Mgmt. ,{ h a Commercial Mg=t. David Cox Regional Mgmt. Joe Hirko/ Ken Rice 3 ~ 7 ~aG Legal Kristin Mordaunt Accounting Tod Lindholm RAC Management Rick Buy/ David Gorte Enron Capital Management Andy Fastow/JeffMcMahon ENE Management Jeff Skilling/Joe Sutton C:'TEMflDASH_Bel South.doe Page 3 E0004401939 MAR 1.'r ;'b00 1,1:21 iG0?833~~i~t? PAGE. 02 ============= Page 21 of 151 ============= FRU`'I R n . =utru 14-..54 r rw tN Q1µ =eKIJHllrHl•!L G 2t2~i TO 9130134@953z, P. 05-' SK MATRIX (Maximurrt 5) ~ _ DESCRIPTION ~ MITLGATlON/COMMENTS Content Delivery 1 Gnron needs to be able to deliver ePowered content fir 23 minutes average to all the DSL customers to recover the costs of celoeatirg. i CttrreotII, EBS does not have enough content to recover this cost. Tie added reach should help EBS' marketing for -additional __ content. Appll:ations Enron It obligated to give Bell. South 30 days written notice of new applications streamed by Enron (specifically interactive applications). 1f Bell South deterriines that ouch application will materially adversely a!lhet its netwmxk, service or custotners, the partial will ny to negotiate a solution. If a solution is not nt godated, Bell South has the right to block that application or all _ Access to Netwcd a lirstiotts: The Tier I sites (Atlaatr., MiaimiSouth Florida. New Crleans) are on luau's current: oetwork. If Enron Us to matte a!1 three Tier 1 locations commercially operalonol within 9 months of the etTective, through ro fault of Boll South. the agree] nt terminates 12 months pier the Atlanta location becomes commercially operational, with full 'meat for Year One Tier One locations ptp+able. Of the Tier 2 sites, only Orlando is on Enron's current nezwrork. To obtain value frog. these sits, they will need to be connected to the Enron network through either sateUlte or fibs networks. EBS will have to pay the full fixed payment for a partial yew of doployraent E=on is not obdigarsd to make payments relating to Tier 2 sites. Test Period During the first 3 atoms of the A emoa:, Boll South will beta teat at Its Atlanta location, and nay conclude tat the agree=nt should be terminated. Ia the event.this happens, Bell South will refund 9125,000 of the sigrsdtg bonus and Eamroa will remove its _ . equipment. - - Renewal _ he parties agree to work toward rat tuatly agreeable compensation , for Bell South in year two, but the agreement autoln; tioaiiy renews a second year with Bell South's compensation per location l ft n:newed as specified in the tgrtomettt. Boron is not obligated to ' b*r tip anY of the Ttar 2 lodctines durin the first year. OTHER RAC COMdWNTSt 711 economics for deployment at a Tier 2 site will vary dramatically with the tint icmainino raider the cotrtract. The Contract structure may cause a deLsy In deploy-alent in these sites, or a separate negotiation outside of this acnrract. APPROVALS Name Signature Data Commercial Mgmt. Nate Alvord , Commercial Mgmt. Dzvvid CC:tC > Regional Mgrat Joe H'srkowr Ken Rice Legal Kristisa Mordaunt Accounting Tod Lindholm PAC Managtvnant --Rick BW David Gorta Eaton Capital Management Andy Fastowfiefi'McMnhon ENE lfuangerneat Jeff Skihins)Joe Sutton C:~TE1+iP1~9162595! dac Pies 3 E0004401940 MAR 17 2000 15:09 fnGE..03 XH003-01254 ============= Page 22 of 151 ============= MAR 17 2000 15:46'FR ECI NETWORK SERVICES 713 646 B514 TO 918502652263 RISK MATRIX (Maximum 5) P. 05/06 DESCRIPTION MITIGATION/COMMENTS Content Delivery Enron needs to be able to deliver ePowered content for 23 minutes average to all the DSL customers to recover the costs of co locating. Currently, EBS does not have enough content to recover this cost. The added reach should help EBS' marketing for additional content Applications Enron is obligated to give Bell South 30 days written notice of new applications streamed by Enron (specifically interactive applications). if Bell South determines that such application will materially adversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all applications. Access to Network The Tier I sites (Atlanta, Miami/South Florida, New Orleans) are on Enron's current network. If Enron fails to make all three Tier 1I locations commercially operational within 9 months of the effective, through no fault of Bell South, the agreement terminates 12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's currant network To obtain value from these sites, they will need to be connected to the Enron network through either satellite or fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 silos. Test Period During the first 3 months of the Agreement, Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its ui ment. Renewal The parties agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to 1 an of te Tier 2 locations during the first year. brirtr u- OTHER RAC COMMENTS: . The. economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contract. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. APPROVALS Name Signature Date Commercial Mgmt, Nate Alvord Commercial Mgmt. David Cox - J 1 ~_~'C) Regional Mgmt. Joe Hirk / Ken Rice w Legal Kristina Mordaunt Accounting Tod Lindholm RAC Management Rick Bud/ David GortE Enron Capital Management Andy Fastow/Jew ahon ~_ ENE Management Jeff Skilling/Joe Sutton EC004401941 3 C iTEMP\-sltl2s96.aoe p„B,r OOB.' TM %I t'TC4 9t-9 £Tl'0J. :wu e5.7T 000E-LT ZJUW H003-01255 ============= Page 23 of 151 ============= Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Amount ($000) $ 6,025 -0- -0- $ 6,025 El Market 0 Above Market O Below Market 0 Market O Above Market O Below Market O Unrestricted O Legally Restricted t] Practically Describe (if necessary): Capital expenditure on a 2 year asset 5. Any recourse to Enron (other than investment): 0 Recourse 1 l No Recourse Describe (if any): 6a. Business unit intent to syndicate: i l None O Partial O All Describe (if necessary): 6b. Intended Enron hold period: 2-year term 6c. Likely Syndication Market: O In dustry/Strategic Partner O Direct Private Equity O Capital Markets O JEDI 1 O JEDI 2 O Enserco O LJM 1 or 2 O Condor O Other: O Margaux 6d. Is this a JEDI 2 "Qualified Investment"? O Yes 1F No Global Finance Representative: i~ ' Larry Lawyer f 0~ igna re Name rm e e C:\TEMP\-5182598.doc Page 4 E0004401942 =XH003-01256 ============= Page 24 of 151 ============= man. I /. LVVU" I I VUIIYI L. IC RU I' RISK MATRLX (Maximum 5 ) DESCRIPTION MITIGATION/COMritENTS Content Delivery Enron needs to be able to deliver cPttwered content for 23 minutes average to all the DSL customers to recover the costs of eolocating. Currently, EBS does not have enough' content to recover this cost. The added reach should help EBS' marketing for additional content. Applications Enron is obligated to give Bell South 30 days written notice ofnew applications streamed by Enron (specifically interactive applications). If Bell South determines that such application will materially adversely affect its network, service or customers, the parties will try to negotiate a solution. If a solution is not negotiated, Bell South has the right to block that application or all a lications. Access to Network The Tier 1 sites (Atlanta, Miami/Sourh Florida, New Orleans) are on Enron's current network. If Enron fails to make all three Tier 1 •ops commercially operational within 9 months of the effective, through no fault of Bell South. The agreement terminates .12 months after the Atlanta location becomes commercially operational, with full payment for Year One Tier One locations payable. Of the Tier 2 sites, only Orlando is on Enron's current network. To obtain value from these sites, they will need to be connected to the Eaton network through either satellite or fiber networks. EBS will have to pay the full fixed payment for a partial year of deployment Enron is not obligated to make payments relating to Tier 2 sites. Test Period During the first 3 months of the Aereement, Bell South will beta test at its Atlanta location, and may conclude that the agreement should be terminated. In the event this happens, Bell South will refund $125,000 of the signing bonus and Enron will remove its equipment ra- w,~ I be o-f"e- ~t $i2s`cck~ ,.• Renewal The parties agree to work toward mutually agreeable compensation for Bell South in year two, but the agreement automatically renews for a second year with Bell South's compensation per location renewed as specified in the agreement. Enron is not obligated to brie u an of the,Tier 2 locations during the first y year. OTBERRAC COMV LENTS: The economics for deployment at a Tier 2 site will vary dramatically with the time remaining under the contract. The contract structure may cause a delay in deployment in these sites, or a separate negotiation outside of this contract. APPROVALS Name Slg Date Commercial Mgtsrt. .r h e Commercial Mgmt. David Cox Regional Mgmt. Joe Hirko/ Ken Rice '3117 /o )070Z~ G Legal Kristin Mordaunt Accounting Tod Lindholm RAC Management Rick Buy/ David Gorte Enron Capital Management Andy Fastow/JeffMcMahon ENE Management Jeff Skilling/Joe Sutton C:\TEMP\DASH BellSouth doe Page 3 E0004401943 MAR 17 2000 13:12 13039374440 PAGE A7 KHO03-01257 ============= Page 25 of 151 ============= S-3 E0004401944 EXH003-01258 ============= Page 26 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAIN E: Condensing Turbine Date DASH Completed: 07/04/00 Counterpany: ETOL- Wilton Power Station RAC Analyst: Moises Vdoi / Renata Frankova Business Unit: UK Origination Investment Type: Capital Expenditure Business Unit Originator: Matthew Scrimshaw Capital Funding Source(s): Balance Sheet Public (]Private Expected Closing Date: Q2 2000 OMerchant Strategic Expected Funding Date: Q2' 2000 (]Conforming ONonconforming Board Approval: Mending ![1 Received ODenied ON/A RAC Recommendation: 91 Proceed with Transaction OReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Atnot t: Up to S I 1 M (£6.9M) ose. To increase the Wilton Power Station's steam condensing and electrical generation capacity. Requirements: 1) The transaction's NPV will be recalculated at the time of closing of the transaction with an updated power curve. 2) ABB to submit a foundation study and revised consolidated bidding document (including milestone program) before the contract is signed. EXPOSURE SUMMARY Commodity Exposure: NA Associated Guarantees: NA Existing Exposure: 579.5 M (ETOL investment value) This transactioru S 11.0 M Total: $ 90.5 M DEAL DESCRIPTION Enron Capital & Trade Resources (ECTRL), on behalf of Enron Teeside Operations Limited (ETOL), plans to invest $1 IM at the Wilton Power Station to increase its steam condensing and electrical generation capacity. The project involves the re-commissioning of a low-pressure turbo alternator (Secondary 4) as a fully condensing machine. The fully condensing machine will generate up to 34 MW of additional power, which will be sold to internal customers (ICI Chlorchems, 1C1 Olefines, and Dupont Melanar) at the Wilton site. This Lurge, integrated petrochemical and manufacturing site depends on ETOL for the supply of utilities, with Wilton Power Station providing power and steam at intermediate and low pressures. Currently, customers at the Wilton site need approximately 70 MW in excess of what the Wilton Power Station can produce. With the implementation of Secondary 4, the power plant will increase its capacity by 34 MW, therefore reducing the amount of energy being imported from the g id. In addition, this investment will enable the Wilton Power Station to operate with more flexibility. It will allow up to 34 MW of additional power to be generated even if steam demand from internal customers decreases. This is possible since any excess steam not used by the chemical plants will be used to n .m Secondary 4. On the other hand, during extreme surges of steam demand, the turbine will run using steam from alternative sources that are delivered to the ETOL site. Third party conractdrs will manage re-commissioning of the turbine. The condensing turbine will be owned and operated by Enron Teeside Operations Limited (ETOL). I3`CTRL will provide the capital required for the project and receive the revenues from the electricity sold to internal customers at the ETOL site under the Capacity Toiling Agreement (CIA) between ECTRL and ETOL. The Wilton boilers (spare boiler capacity) and TPL will supply the steam for the condensing turbine, with a maximum capacity of 175 tones of steam per hour. Under the Steam Site Services Agreement (SSSA), ETOL has the right to use 684 tones of steam per hour from TPL. Currently, ETOL receives a credit calculated at the start of the month for any steam they do not use. Therefore any TPL steam used in the condensing turbine will reduce the credit and this has been reflected as a cost in the project economics. E0004401945 H003-01259 ============= Page 27 of 151 ============= RAC Deni Approval Sheet Deal Name Condensing Turbine TRANSACTION SOURCES AND USES OF FUNDS ('000s) Sources Uses Enron Balance Sheet 511,000 Capex $11,000 Total S11,000 Total $11,000 RETURN SUMMARY (`000s) PV @ Cumulative Return Cornponenta: Capitol Price IRR Cash Outflows ($9,707) - Fees - - lntenned. Cash Flows $10,106 14.79% Terminal Value Total NTV 5414 14.73% TRR Distribution 12.0% Expected 10.0% 8.0% 6.()% 4.0% F 95 0.0 % C' Sq `~ N C T ~ 4G v. ~~'S x n n r ~ K ry m r c~ r, I= .. r-4 ,n °C Capital Price Components Risk free rate (%): 6.20 Equity/Credit premium (%): Country Premium (%): - Transaction-Specific (%): 7.40* RAC CAPITAL PRICE: 13.60% 6.7.b for gcncrul ETOL risk (aa per pricing at tin time of acquisition) + 0.7% for eonstractiou risk CASH FLOW SUMMARY 20, 000, 000 Cash Flow Summary 5,15,000,000 ' 510,000,000 . 55,000,000 $0 S(S.000.000) 9 10 11 S(1(),000,000) Years 505.000,000) -• kir^f Uut floes - Q Ougo in g -.. -Expected cumulanvc cash tlov.s -*r Cumulative P5 ~-71- Cumulative P95 TRANSACTION' UPSIDES/OPTIONALITY The project greatly increases the optionality of the plant, with potential upsides from the leverage of the increased security of supply, and upsides from new business opportunities. The project also fits in well with future growth strategies of the Wilton power station. • Enhanced plant operation: The optionality provided by the new turbine improves the operational flexibility and ciliciency of the plant. It also enhances the security of supply for steam customers, since the steam used in the S:,Underwriung\Prolcets tPre-Approvai)MActive\Condcnsing Turbin Priced0400\Does1D?SII100400.doc Page 2 E0004401946 :H003-01260 ============= Page 28 of 151 ============= RAC Deal Approval Sheet Deal Name: Condensing Turbine condensing turbine is immediately available for site usage when one of the chemical plants suddenly needs additional steam. The improved security of supply can be leveraged in future steam contract negotiations. • 1\4w Business opportunities: The security of supply improves the long-term competitive advantage of the Wilton Site. '!here is also an option value associated with the project from III' steam sale opportunities to existing customers. For example, DuPont requires HP steam to be available at all times. With Secondary 4 in place, this can be achieved quicker than if the boilers at the Wilton site had to suddenly be ramped up, thus increasing the output to meet the I-]P steam demands of DuPont. • Asset develmmment and growth yrwe•zv: The turbine is a key building block for future asset strategies, such as the re- comnissioning of a mothballed coal boiler (relevant should site steam demand increase), as well as plans to re-power the station with a set of gas turbines. Overall, signing up new customers is more beneficial to ETOL even though an increase in steam demand by itself has a negative impact on the project economics. EXIT STRATEGY Nia RISK MATRIX (Main 5 Risks Only) Steam Demand On-site steam demand may place restrictions on the operation of Secondary 4. if steam demand increases, less spare steam capacity is available to be used in Secondary 4 since the meeting of steam demand requirements from the Wilton site. is a priority. In that case, the remaining (supplemental) volume necessary for running Secondary 4 would be purchased from TPL, thus incurring an additional cost. On the other hand, on a deterministic case, if steam demand falls by 10% beyond current levels (389te%hr), the value of the project increases by approximately £2M. The future volume of on-site steam demand has a fair amount of uncertainty. However, in the absence of new chemical plant expansion there is a general expectation by . the FTOL team that it will slowly decrease, based on historical data from the chemical plants. Therefore, all things being equal it is likely that there will be excess steam to run. Secondary 4. Installation of the condensing turbine will also reduce the volume of excess steam being vented through the venting and heat exchange capabilities. Instead of venting excess steam, it will be used to operate Secondary 4. This is particularly valuable as current venting licenses may be withdrawn in the future by environmental agencies. Electricity Demand Risk that on-site demand is not sufficient to absorb additional 34 MW. The Wilton site is currently importing 70 MW front the grid to satisfy on-site demand. The new equipment will replace up to 34 MW of the imported electricity. ETOL does not currently have a license to export powerr to the grid if a significant decrease in demand occurs. However, the ETOL team believes it is unlikely that the electricity demand will decrease below the generation capacity of the Wilton Power Station (including the additional 34MW). For such an event to happen (which would imply an economic loss to the project), several industrial customers would have to shut down, at one time, for an extended period. Sit?adcr'x'riting\Projtots (Pre-Approval)l4ctive\C(ridensingTutbinc\Nricedtl%lO\floo\DASHlOO4Ot).duc Pig: 3 t E0004401947 :HO03-01261 ============= Page 29 of 151 ============= RAC Deal Approval Sheet Deal Name: Condensing Turbine Cost Overruns /Delays Risk that it is not possible to convert Secondary 4 to a condensing set meeting the required performance criteria, within a reasonable cost, currently estimated at $11 M. This risk is more significant than one would incur in a greenfield project for example because of the number of interfaces with other existing systems in the plant. in order to reduce this risk ETOL will sign a fixed price contract with ABB under which some risks will be transferred to them. Availability - Risk that the availability of 97% assumed in the economics of the model is rot achieved. Provisions for maintenance has been estimated to be 2 weeks per year when the turbine is not running. Other planned maintenance will tale place during off.-peal: hours. Maintenance time has been aligned to that of the boilers in order to maximize the overall efficiency of the site. Commodity Risk Risk that power pool prices decrease down to the cost of marginal. fuel (gas or FIFO) reducing the margin from condensing generation. The potter desk will hedge this risk on its book at the time of closine of this transaction. KEY SUCCESS FACTORS NA l Pour Escellcut j Core chless X gi SrrateQic Fit X Upside Potential X ManaLement X Risk Mitigation X OTHER RAC COMMENTS: The valuation model.used for the analysis of this deal (the Watershed model) involves the use of rainbow options to calculate the least expensive fuel, when Secondary 4 will be turned on or off etc. Given that tie use of rainbow option valuation incorporates the volatility of fuel and electricity prices it wouldn't be correct to further simulate these variables using Monte Carlo simulation. Thus, the only variables that were subject to Monte Carlo simulation were future steam demand and cstimated capital costs, two main risks in this transaction. S:\Undcnvriting '-njeCts (Pre-Approval)1Active'.Condcmia; Turbine\Priced)}100\Docstt)AsIil00400.doe Page 4 E0004401948 :HO03-01262 ============= Page 30 of 151 ============= :on Power Station Steam is generated by the three boilers and used to run the different NaL Gas I Oil Nat. Gas 1 Oil Coal 1 Oil turbines at different pressures. 1n addition, steam may be purchased No g No 7 No.S from TPL under the Steam Site Goiter Fbiler Service Agreement to nut Goiter Secondary 4. IP slreom from TPL Excess steam hom site at intennediotc pressure Three genorators)Groducing 120MW Inlermedlagpressure steam (IP) to Willon site 30 hMW (Proposed investment) LP stream from TPL Excess steam from site at low pressuro 42 Ltnv pressuje steam (LP) to Willon site E0004401949 ti XH003-01263 ============= Page 31 of 151 ============= RAC Deal Approval Sheet Global Finance Summary (addendum to DASH) 1. Transaction Summary Total DealIProject Capital Commitment Less: Financings Less: Syndication Net Baron Tnvestmettt 2. Investment terms and pricing: Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): G market Deal Name: Condensing Turbine Amount ($000) 11.000 -0- -0- 511,000 O .Above Market 0 Below Market 0 Market 3 Above Market 0 Below Market rj4. 1 O Unrestricted 0 Legally Restricted Practically 5. Any recourse to Enron (Other than investment): 0 Recourse a No Recourse Describe (if an)): &i-hosc,% Srtr NNaEA. H003-01264 Ga. Business unit intent to syndicate: one 0 Partial 0 All Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: 0 IndustryiStrategic Partner 12 Direct Private Equity 0 Capital Markets 0 JEDI I ^/A 0 JEDI 2 a Enserco 0 LJM 1 or 2 0 Condor 0 Other: 3 Margaux 6d. Is this a TEDI 2 "Qualified investment"? 0 Yes t'No Global Finance Representative: Signature Name (Printed) ate S:\tlnderw'ri;ing'Proj=ets (Prc•Approval)\Activt:<4indcn.cing Turbine\Pricedo40OU7ocs`DASH10040Q.doc Wage 6 -_ E0004401950 ============= Page 32 of 151 ============= RAC Deal Approval Sbcet APPROVALS Business Originator Regional Mgrnt. Legal RAC Management Enron Global Finance ENE Management C:17LP+ff 4061553.doc Deal Name: Condensing Turbine Name Signature Date Matthew Scrimshaw i0~¢ OO Mark rrevert ~-an Michael Brown Dave Gorte Steve Young tZ oa Jeff Mc\Mahon Paul Chivers l 2 f o Joe Sutton i Page 5 EC0044O1951 (H003-01265 ============= Page 33 of 151 ============= AAC Deal Approval Sheet APPROVALS Name Business Origginator Matthew Scrimshaw Regianal Mgnt, Mark Frcvert Legal ~^ Michael Brown RAG ManageiTicnc Dave Gate Enron Global Finance ENE Management Steve Young Jeff McMa] an Paul Chivers lot Sutton C:bYindawnkTEMp\DASH 100400.6« Deal Name: C mdcneing Turbiuc lgnature Date i 2 j4-/ 00 ra.c 5 ECO04401952 1003-01266 ============= Page 34 of 151 ============= S-4 E0004401953 EXH003-01267 ============= Page 35 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: EcoElectrica-Working Capital Date DASH Completed: 13-April 2000 Counterparty: EcoElectrica, L.P. RAC Analyst: Daniella Caxneiro Business Unit: Enron Caribbean Basin Investment Type: Working Capital Facility Business Unit Originator: Daniel Castagnola Capital Funding Source(s): Balance Sheet Public MPrivate Expected Closing Date: 13 April 2000 Merchant [K7 Strategic Expected Funding Date: 13 April 2000 !]Conforming 0Nonconforming Board Approval: OPending DReceived DDenied ]N/A RAG Recommendation: Proceed with Transaction DReturns below Capital Price DDo not Proceed APPROVAL AMOUNT REQUESTED Working Capital Facility The Caribbean Basin Region is requesting approval to provide a short-term, $9.00 MM Working Capital Facility to Enron's 47.5% owned investment, EcoElectrica, L.P (the "Project"). The proceeds will be used to provide liquidity to cover expenses of the Project for a period of not more than 12 months. Enron Guarantee Enron as sponsor of the Project is also requesting a $2.75 MM guarantee in order to release cash deposits held by Bank of America securing an irrevocable stand by letter of credit entered into by the Project, as security for the payment for LPG to its supplier. Mission Edison will provide a similar guarantee. The Guarantee is expected to expire in August 2000 when the Project's facility begins running on LNG. EXPOSURE SUMMARY Working Capital Facility $9.00. MM Enron Guarantee $2.75 MM Total $11.75 MM *This is incremental to the existing 533.5MMinitial equity investment in EcoElectrica, and the subsequent 595.0MMequity investment to unwind the "Churchill" FASB 125 transaction. DEAL DESCRIPTION Working Capital Facility Enron Caribbean Basin wishes to provide the Project with a short-term working capital facility to pay for ongoing expenses during the initial operating period, not expected to exceed 12 months. The facility will be an unsecured subordinated loan to the Project, however, senior to all existing subordinated debt at the Project. This is senior to Enron's other positions in EcoElectrica. The maturity will not exceed 12 months from the closing date, and the pricing is expected to be PRIME + 200bps with a default interest rate to include an additional 2%. Summary of Key Terms: • Tenor: up to 12 months. • Security: Unsecured loan. • Interest rate: Unsecured rate is a floating rate equal to PRIME plus a margin of 2.00% p.a. • Default interest rate: 2.00% p.a. over and above the unsecured rate. • Payment Schedule: Based on EcoElectrica's cash availability. • Seniority: Proposed Working Capital Facility will be senior to Sub-notes Payable to Enron and Mission Edison, and GE Preferred investment. Will be subordinated to senior debt. ENE Guarantee On July 1,1999 the Project established a $5.5 MM Irrevocable Standby Letter of Credit (the "LC") in favor of its current fuel supplier, Dynegy Global Liquids, as security for the payment of liquefied propane gas pursuant to a contract entered into on March 21, 1999. The LC, established with Bank of America N.T. & S.A. ("BOA"), is 100% cash collateralized, and the owners, Enron and Mission Edison, desire to place corporate guarantees in lieu of the cash deposit held as collateral (50% each). The $5.5 MM cash deposit will be released by BoA to the Project and used as additional working capital. The LC expires on June 28, 2000, but will be extended until August 30, 2000, at which time Enron's guarantee will have also expired. 4. E0004401954 :XH003-01268 ============= Page 36 of 151 ============= RAC Deal Approval Sheet Deal Name: EcoElectrica -Working Capital Working Capital Facility & Guarantee Sources Uses Enron Balance Sheet $9.OOMM EcoElectrica, L.P. (operating $11.75MM expenses) Enron Balance Sheet $2.75MM Total $11.75MM Total $11.75MM RETURN SUMMARY Working Capital RAC's capital price for the working capital facility is PRIME + 50bps, or 9.50% p.a. as of today. Based upon RAC's analysis of the proposed working capital facility, RAC rates it the equivalent of a "BB"P'Ba2" or "E-7" risk. The comparative analysis below indicates that Enron will be charging above market rates (prime + 200bps) for the working capital facility requested. Net available cash flows for 2000 are based on the deterministic model provided by the deal team for the analysis of the Churchill Unwind' transaction (DASH 30 March 2000). Senior Debt Existing W/C Facility Proposed W/C Facility Notes Payable GE Preferred Investment Net Available Cash Flows before proposed W/C Facility repayment Interest payment on W/C Facility Principal payment of W/C Facility Net Available Cash Flows after proposed W/C Facility repayment 2000 26,186 (855) (9,000) 16,331 ENE Guarantee: The RAC capital price for the ENE guarantee is 2.00%. This guarantee is also considered to be a "BB" /"Ba2" or "E-7" risk. Enron, however, will not charge a guarantee fee to the project, since Mission Edison, the other 50% equity holder in EcoElectrica, is putting up a guarantee in its ratable share of $2.75MM in the project at no cost. Therefore, there is no economic detriment to Enron in not assessing a fee on the $2.75 MM ENE Guarantee. ENE Guarantee APPROVALS Regional Originator Region Management Region Legal RAC Management Enron Capital Management Office of the Chairman Name Daniel Castagnola Avg. Int. Rates %DebtiTotal Cap 7.94% 70.87% 8.95% 3.53% 11.0% 1.06% 12.55% 4.01% 9.00% 12.34% Avg. Int. Rates %Debt/Total Cap 2.00% 0.32%- David Haug Coralina Rivera or Ned Crady Rick Buy or Dave Gorte Andy Fastow or Jeff McMahon Joe Sutton Si ature 1 1401 Date Y/ Do C:\My Documents\Ecoe1ectrica\DASH EcoElectrica WorkingCapita1Facility__041300-715pm.doc t E0004401955 Page 2 XH003-01269 ============= Page 37 of 151 ============= RAC Deal Approval Sheet Deal Name: EcoElectrica -Working Capital Working Capital Facility & Guarantee Sources Uses Enron Balance Sheet $9.00MM EcoElectrica, L.P. (operating $11.75MM expenses) Enron Balance Sheet $2.75MM Total $11.75MM Total $11.75MM RETURN SUMMARY Working Capital RAC's capital price for the working capital facility is PRIME + 50bps, or 9.50% p.a. as of today. Based upon RAC's analysis of the proposed working capital facility, RAC rates it the equivalent of a "BB"P'Ba2" or "E-7" risk. The comparative analysis below indicates that Enron will be charging above market rates (prime + 200bps) for the working capital facility requested. Net available cash flows for 2000 are based on the deterministic model provided by the deal team for the analysis of the Churchill Unwind transaction (DASH 30 March 2000). Avg. Int. Rates %Debt/Total Cap Senior Debt 7.94% 70.87% Existing W/C Facility 8.95% 3.53% Proposed WIG Facility 11.0% 1.06% Notes Payable 12.55% 4.01% GE Preferred Investment 9.00% 12.34% 2000 Net Available Cash Flows before proposed WIC Facility repayment 26,186 Interest payment on W/C Facility (855) Principal payment of W/C Facility (9,000) Net Available Cash Flows after proposed W/C Facility repayment 16,331 ENE Guarantee: The RAC capital price for the ENE guarantee is 2.00%. This guarantee is also considered to be a "BB"P'Ba2" or "E-7" risk. Enron, however, will not charge a guarantee fee to the project, since Mission Edison, the other 50% equity holder in EcoElectrica, is putting up a guarantee in its ratable share of $2.75MM in the project at no cost. Therefore, there is no economic detriment to Enron in not assessing a fee on the $2.75 MM ENE Guarantee. Avg. Int. Rates %DebuTotal Cap ENE Guarantee 2.00% 0.32% APPROVALS Name gn ture Da Regional Originator Daniel Castagnola,Q .,~ Q0 Region Management David Haug Region Legal Coralina Rivera or Ned Crady RAC Management Rick Buy or Dave Gorte Enron Capital Management Andy Fastow or Jeff McMahon Office of the Chairman Joe Sutton C:\My Documents\Ecoelectrica DA1 f Ecotlecuica WorkingCapita1Facility_o41300-'715pm.doc ECO04401956 Page 2 XH003-01270 ============= Page 38 of 151 ============= RAC Deal Approval Sheet Deal Name: EcoElectrica _Working Capital Working Capital Facility & Guarantee Sources Uses Enron Balance Sheet $9.00MM EcoElectrica, L.P. (operating $11.75MM expenses) Enron Balance Sheet $2.75MM Total $11.75MM Total $11.75MM RETURN SUMMARY Working Capital RAC's capital price for the working capital facility is PRIME + 50bps, or 9.50% p.a. as of today. Based upon RAC's analysis of the proposed working capital facility, RAC rates it the equivalent of a "BB"/"Ba2" or "E-7" risk. The comparative analysis below indicates that Enron will be charging above market rates (prime + 200bps) for the working capital facility requested. Net available cash flows for 2000 are based on the deterministic model provided by the deal team for the analysis of the Churchill Unwind transaction (DASH 30 March 2000). Senior Debt Existing W/C Facility Proposed W/C Facility Notes Payable GE Preferred Investment Net Available Cash Flows before proposed WIC Facility repayment Interest payment on W/C Facility Principal payment of WIC Facility Net Available Cash Flows after proposed WIC Facility repayment 2000 26,186 (855) (9,000) 16,331 ENE Guarantee: The RAC capital price for the ENE guarantee is 2.00%. This guarantee is also considered to be a..'BB"P'Ba2" or "E-7" risk. Enron, however, will not charge a guarantee fee to the project, since Mission Edison, the other 50% equity holder in EcoElectrica, is putting up a guarantee in its ratable share of $2.75MM in the project at no cost. Therefore, there is no economic detriment to Enron in not assessing a fee on the $2.75 MM ENE Guarantee. APPROVALS Regional Originator Region Management Region Legal RAC Management Enron Capital Management Office of the Chairman Avg. Int. Rates %Debt/Total Cap ENE Guarantee 2.00% 0.32% Name Signature Date Daniel Castagnola David Haug Coralina Rivera or Ned Crady Rick Buy or Dave Gorte Andy Fastow or Jeff McMahon Joe Sutton C:\MyDocuments\Ecoelectrica\DASH EcoElectrica_WorkingCapitalFaciliry 041300-715pm.doc Page 2 E0004401957 Avg. Int. Rates %Debt/Total Cap 7.94% 70.87% 8.95% 3.53% 11.0% 1.06% 12.55% 4.01% 9.00% 12.34% =XH003-01271 ============= Page 39 of 151 ============= RAC Deal Approval Sheet Deal Name: EcoElectrica -Working Capital Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment Amount ($000) $11.75 -0- -0- $11.75 2. Investment terms and pricing: U Market 1] Above Market 0 Below Market Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): O Market 0 Above Market 0 Below. Market 1] Unrestricted U Legally Restricted 0 Practically [] Recourse O No Recourse 6a. Business unit intent to syndicate: 1] None 0 Partial O All Describe (if necessary): Due to the short-term nature of the commitments, syndication is not expected. 6b. Intended Enron hold period: Guarantee: 6 months Working capital facility: 12 months 6c. Likely Syndication Market: 0 Industry/Strategic Partner 0 Capital Markets 0 JEDI 2 0LJM1or2 l] Other: 0 Direct Private Equity O JEDI 1 0 Enserco 0 Condor O Margaux 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes 1] No 4,2e Global Finance Representative: ~~ Signature Name (Printed) Date C:\My Documents\Ecoelectrica\DASH 'EcoElectrica WorkingCapitalFac~lity__041300-715pm.doc XH003-01272 E0004401958 Page 3 ============= Page 40 of 151 ============= S-5 m 0 0 .p P 0 C0 01 EXH003-01273 ============= Page 41 of 151 ============= lVl-~,^Iat //W"\ ENRON RISK ASSESSMENT AND CONTROL g g, DEAL APPROVAL SHEET DEAL NAME: Elba Island LNG Terminal Date DASH Completed: April I1, 2000 Counterparty: El Paso Corp./El Paso Merchant Energy RAC Analyst: Farhad Ahad Business Unit: Enron Global LNG/CALMS Investment Type: Equity/Demand Charge Business Unit Originator: Doug Rotenberg Capital Funding Source(s): Balance Sheet DPublic Private Expected Closing Date: April 12, 2000 OMe+-chant ]Strategic - Expected Funding Date: Elba Island - October 2003 !Conforming ONonconforming Board Approval: OPending DReceived ODenied EN/A RAC Recommendation: OProceed with Transaction ]Returns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED The Enron Global LNG Group is requesting approval to enter into a 17-year LNG terminal capacity arrangement at a cost of $11.7MM-S 13.1NWyear with El Paso Merchant Energy (EMS) which holds 100% of the capacity of the Elba Island (Georgia) LNG terminal ("EIT"). Enron Global LNG'ss payment and obligations under the capacity agreement are to be guaranteed by Enron Corp. Present Value of Expected Capacity Payments, Capital Price @ 17% 566.1 million ($2002) FINANCIAL EXPOSURE SUMMARY This Transaction: Nominal: $210.0 million; Discounted @ 17%: $66.1 million (52002) DEAL DESCRIPTION The Enron Global LNG group (ELNG) has an option for LNG terrninalling capacity and an option to sell 62 TBtu per year of natural gas produced from LNG to El Paso Energy or its affiliates at the EIT for a seventeen year period commencing in the first quarter of 2002. The strike price for gas sold under this option is Henry Hub plus $0.02M fbtu. This contract/option has an exit provision, which gives ELNG the right to walk away at no cost, provided this option is exercised no later than April 12, 2000. In exchange for the right to sell this quantity of regassified natural gas, Enron pays El Paso a base fee for cost of service for 62 TBtu at the EIT of approximately $12 million per year and variable fees based upon throughput expected to approximate $6 million per year. Base fees escalate each year, reaching approximately $13 million in 2018, the last full year of this contract. Enron is committing to pay demand charges at EIT but is under no obligation to deliver LNG. EME is committing to take LNG (and pay for if not taken) properly nominated by ELNG. EIME's obligations are secured by El Paso Corp. The rationale for ELNG exercising this option and entering into this LNG terminalling agreement is to use the EIT for its own projects on a long-term basis (Jose, Venezuela LNG project), to sell Enron's rights to a third party for that entity's project (e.g., LNG projects from Trinidad, Algeria, or Nigeria), or to operate the EIT as a merchant facility and purchase LNG from a third party and sell it to EMI and/or arrange short-, medium-, or long-term trades with third parties using the EIT and EME as the offtaker. The EIT LNG facility was constructed by Sonat and was operational between 1977-1980, but it has been closed since 1980 as deregulation in the industry and lower than projected U.S. natural gas prices made this terminal uneconomic. The writedowns of the EIT (original cost basis $400MM) and the level of U.S. natural gas prices prevailing currently and projected on a forward basis have improved the economics of the terminal and thus re-commissioning of EIT is scheduled by 412002. The proposed ELNG agreement represents 36% of the EIT capacity and 60% of the output of the lose LNG facility. British Gas has control of the remaining 64% and will pay approximately $20 million annually for this capacity to support its Trinidad LNG project. ELNG has the right to sell regassified LNG to El Paso at Henry Hub + $0.02 in a market that following the reactivation of the EII' will trade at approximately Henry Hub less $0.05. ELNG can either deliver LNG when the option is in the money, firm up delivery if a higher price is offered or divert LNG volumes to higher value markets. TRANSACTION SOURCES AND USES OF FUNDS ($000) Uses for 17-year life of contract: nominal $210.0 million; PV @ 17%, $66.1 million ($2002) Source of Funding: Enron Balance Sheet G~Ca,vne.,Gav~l.I~mwWambrr6~0h5 N~ ~ 2C11,enU~y. Jet EC004401960 XH003-01274 ============= Page 42 of 151 ============= RAC Deal Approval Sheet Deal Name: Elba Island LNG Terminal RETURN SUMMARY - (Merchant Analysis) Discount Rate Components Capital Price Risk-free rate 6.S4% Equity Premium 5.02% Transaction premiu_m_ 5.14% RAC Capital Price (All-in) 17.00%* Probabilistic DCF Cumulative PV @ Capital by Component (3' Party Shin)' fl R Price Cash Outflows + Outstanding NA ($63,960) Ongoing Cash Flows _ NA $61,259 Total NA ($2.701) The capital price for this project was determined assuming it is equivalent to the market equity return for a merchant power plant in the U.S. Cash Flow Summary $100,000 Curl Ongoing $50,000 D Fees s0 Outflows 5(50.000) Cumulative P95 $(100,000) ---.•--Terminal Value 5(150,000) Cumulative PS S(200,000) -s-- Expected cumulative cash flows $(250,000) --f- Elapsed 1 3 5 7 9 11 13 15 17 19 Years The origination team and RAC agreed upon and constructed a model to define the expected merchant risk/returns of ELNG's proposed terminal capacity commitment to ElT. This merchant analysis assumes no dedicated ELNG source of LNG supply (i.e., the Jose Project or third party long-term contract) to utilize the EIT. The origination team developed a merchant LNG analysis (global supply/demand balance, economics to producer/buyer, attached) that suggests in the five year time horizon from the reactivation of the EIT that there is adequate excess LNG supply to acquire LNG volumes and economically utilize ELNG's terminal capacity. Following the initial five year time horizon, three outcomes were modeled on a probabilistic basis, (1) ELNG's rights are sold. assigned or otherwise conveyed to a third party with ELNG's obligation effectively being: terminated (probability 20%), (2) ELNG pays full terminal charges for years 6 to 17 of the contract and does not deliver a single cargo of LNG to EIT (probability 20%), (3) ELNG acquires merchant cargoes year to year with the volume available driven by a probabilistic analysis of the forward U.S..gas price curve, i.e., the higher the gas prices the more attractive the EIT capacity to the LNG producer (probability 60%). See Attachment I for the returns projected under each scenario on a deterministic basis. Zero cargoes were assumed to be available below S1.90/MMBtu with the volume scaling up to 12 cargoes (two thirds ELNG's entitlement of the EIT) at S3.40JMMBtu. TRANSACTION UPSIDES/OPTIONALITY - INTEGRATION WITH GLOBAL LNG STRATEGY An upside of the ETT to ELNG is that it creates a market for up to 60 percent of the proposed lose (Venezuela) LNG project's output. If Ertron elects to exit the EIT, the offtake represented by EIT could be replaced, however, it will likely cause a delay of 6 to 12 months. ELNG is developing several high value markets in Puerto Rico and the Dominican Republic, working with E=n Europe to supply the ARCOS power plant (1200MW) in Southern Spain. working with Union Fenosa on an LNG regas/LNG sale into Spain and the Dominican Republic and further liquid markets may open from time to time. The contract structure of Jose LNG provides for a 19 month window commencing September 2000 (with a total financial exposure of 54MM) to complete the execution and financing of the project and back-to-back the deals. ELNG has the right to elect a Redelivery Option and convert the sale into a sell/buy with a redelivery to ELNG of regassified LNG at the tailgate of EIT. With such election, ELNG can effectively make regassified LNG available to ENA (or directly to a third party) for medium or long-term sales. The benefit of this option is expected to be $0.05/MMBtu to $0.15/IvIMBtu, provided a pipeline is built from the EIT to either the Carolinas or Florida. The current gas sales agreement with El Paso for the BIT provides a price of plus $0.GZ%1NMtu basis to Henry Hub, a premium to ENA's estimate of the market price of gas at the EIT today of negarive $0.0SIMMB to basis to Henry Hub. GYSm.aHCa,udJ~+Waa.anQ~D~..7t~t:aomeaf~~.dee 2 E0004401961 (H003-01275 ============= Page 43 of 151 ============= RAC Deal Approval Sheet Deal Name: Elba Island LNG Terminal This investment is a strategic fit and a catalyst for growth for the Caribbean and the Atlantic LNG businesses. The EIT market is unique and complementary to ELNG's other potential markets. The flexibility provided by EL.NG's arrangement with EME is unmatched in the global LNG marketplace. With ELNG's put/demand charge structure with EIRE, ELNG can offer demand charge structures to third parties that no other suppler can provide in a market that is extremely wary of long-term take or pay commitments. The project may be able to utilizc shipments from the Hoegh Galleon (formerly; Mystic Lady), which Enron has on a 17-year charter commencing late this year. Other possible uses of the Hoegh Galleon are supplying LNG to the Metgas Project in India. Availability of the Hoegh Galleon for shipments to the EIT serves to mitigate a material risk of this investment, and assuming it is used in connection with the EIT for the full term of its charter, this increases the NPV by approximately $11 million. Further, GPG is working with Southern Natural Gas on a new pipeline to Florida which may be included as part of our joint Florida operations (Citrus). This pipeline could add, to the extent capacity is taken by ENA or it's customers, to ENA is marketing ability in this key gas demand area. EXIT STRATEGY This contractual obligation is self-liquidating at the conclusion of its seventeen-year term. The planned business strategy is to (1) utilize the EIT capacity and gas sales option with. El Paso as the anchor buyer for the Jose LNG project (in which case the payment obligation will be to the account of a project company, with the Enron Corp. guaranty remaining in place), (2) to sell, assign, or subcontract the EIT capacity to a third party with long-term LNG supply and/or transportation, or (3) utilize the EIT capacity and gas sales option in a merchant operation (economics described herein). There is no assurance that either alternatives (1) or (2) will be available to Enron at present. RISK MATRIX Description Of Risk Miti tion/Comments • Natural gas price variability and • The contract sales prices to El Paso are based upon pricing volatility in the U.S market indices commonly used in the natural gas industry in the U.S. • Low natural gas prices in the local As a consequence, both the pricing variability and volatility U.S. market in particular and/or in can be limited through the use of a variety of price hedging the U.S. market in general may instruments. make merchant LNG importation • Enron could utilize a swap for the first five years of this into the U.S. uneconomic (Henry transaction: No swap or other hedging agreements are Hub prices below approximately currently in place. In the absence of a long-term LNG supply $1.90fMmbtu, assuming current contract, it is not advisable to hedge fully the EIT natural gas LNG prices and shipping costs, price exposure for the term of the EIT contractual obligation. may make this investment uneconomic). Constraints on LNG Merchant • The Enron-controlled Hoegh Galleon is presently the only Shipping Capacity available merchant LNG tanker. It should be noted that Enron has other projects that may be better uses of the Hoegh Galleon, such as Metgas. Value created in the other projects will offset the loss of the Hoegh Galleon's value to Enron value at Elba. Other LNG tankers are available seasonally for merchant service today (see attached Merchant LNG Analysis) as are tankers under the control of LNGsuppliers. The high cost of LNG tankers and the inability to finance these ships for merchant service makes a large fleet of such tankers unlikely. C:mnnen'QwW mouWaenrr~,~0n$N. I:OOma i,, oc :XH003-01276 E0004401962 ;f ============= Page 44 of 151 ============= RUC Deal Approval Sheet Deal Name: Elba Island LNG Terminal RISK MATRIX (Continued) Descri tion O Rial: I MitigationJComments • Other existing or future LNG • A risk exists that other LNG terminals may offer more terminals may be more attractive attractive economics than the EIT. The Cove Point, MD locations for merchant LNG terminal may be re-commissioned by Columbia shipments than the BIT, reducing Energy/Nisource in the same timeframe as the BIT. Once a throughput at the EIT even if U.S. baseload supply of 500,000 MMBtulday is secured, this gas prices support LNG facility may begin to attract merchant volumes away from importation. EIT. The model for this invesrrnent assumes a 20% probability that there is no throughput at the EIT because of either low U.S. natural gas prices or more competitive LNG terminals. • Customer's Failure to Take • El Paso has a firm obligation to purchase and receive all volumes confirmed and delivered by Enron. backed by a 100% take-or-pay commitment and a parent guaranty from the El Paso Energy Corporation BBBJBaa2 . • Scheduling Risk- Annual Program • Enron has full take-or-pay rights for volumes Enron has • Scheduling Risk - Operational available for delivery that cannot be scheduled (due to a Problems failure or El Paso) once the LNG Terminal is reactivated. The terminal is fairly tight with Enron and BG product. There is a risk that all of Enron's entitlement cannot be scheduled or delivered. Enron must plan adequate shipping and access to a liquid market in Puerto Rico or Lake Charles (an open access facility) to mitigate this schedule risk at Elba Island. • Enron's right to its scheduled Arrival Windows at the LNG Terminal is absolute. In the event o f any operational problem experienced by Enron (e.g. shipping delays), the opportunity loss is limited to the affected Arrival Windows. Business interruption insurance will be secured for such situations. Operational problems at the LNG Terminal itself will, under Southern LNG's tariff, be generally characterized as "force majeure". Other operational problems will not relieve El Paso of its obligations. • A substantial lack of scheduling capacity over three years gives Enron the right to cancel the contract. • Failure of LNG Supply • Enron plans to secure protection through alternate supply • Failure to Deliver LNG locations. • Failure to Obtain LNG Shipping • Enron has "force majeure" protection for ship failure. after Scheduling Delivery at the • Enron has no firm delivery obligation and its cover exposure BIT. is limited to cargoes of LNG that have been confirmed at the time any problem occurs. This will be a maximum of two cargoes. • Enron has the right to supply domestic replacement gas to cover. Cover is capped at 500% of Henry Hub. Typical replacement gas should be less than $0.1OIMMBtu • Enron will make its own ship charter arrangements and is negotiating the utilization of British Gas's spare ship capacity dedicated to the Trinidad-Elba trade. • Enron can purchase and deliver LNG on an "ex-ship" basis. • Regulatory Risks and Related • Enron's access -to the Elba Island terminal regulator (FERC) Concerns (Cost Overruns) is indirect, since El Paso is Southern LNG's customer. Although Enron has agreed to limited protest rights around the reactivation of the LNG Terminal, it can breach this obligation by actively protesting with the FERC, but at the loss of its Rate Moratorium. • En on has the right to protest costs overruns (above a certain minimum at the FERC. The British Gas consortium will !:.! E0004401963 KHO03-01277 a ============= Page 45 of 151 ============= PL-kC Deal Approval Sheet Deal Name: Elba Island LNG Terminal also be a potentially strong protesror as well. • Enron's exposure to vaporizer improvement costs is capped. Also, Enron will control the construction and installation of the nitrogen treating facilities. In addition, Enron can rely on the FERC to take a more active roll in judging the prudency of cost overruns in light of recent initiatives in this specific area. KEY SUCCESS FACTORS NA Poor Excellent Core Business I I X Strategic Fit I I X Upside Potential X Management X I Risk Mitigation I X OTHER RAC COMMENTS: In the absence of a dedicated LNG supply contract and related LNG tanker shipping contract from Jose LNG project or a third party, this is considered a relatively speculative contractual investment with an assumed 20% probability of no revenue generation to offset the base terminalling fee after five years of operation. Other investments in other LNG terminals, particularly the Cove Point, Maryland LNG terminal, may provide (when nearly fully utilized) more attractive economics for merchant LNG importation. However. with a successful conclusion of the lose LNG project or robust growth of the Atlantic LNG trade, the EIT contractual investment on a project or merchant basis may produce returns exceeding its capital price. APPROVALS Regional Mgmt. Tax Legal RAC Management Enron Capital Management ENE Management Originator Other Name David Haug Keith Gerken Nancy Corbet Rick Buy/David Gorte Andy Fastow/Jeff McMahon Jeffrey Skilling Doug Rotenberg jZtGK ~-E2GSi~Ks~ 7OS,e 5v-s7Ot) a~La~awa~ee~aat.Mos~avlamM ~t0~tw ~ s~anwine.ae 5 ate ~- o0 ao Y t w 4 i of E0004401964 XH003-01278 ============= Page 46 of 151 ============= RAC Deal Approval Sheet ATTACHMENT I. Three Scenarios for ELT for 17-year term of the contract. Deal Name: Elba Island LNG Terminal Deterministic Scenario PV @ 1717c Explanation . 1. 5 years of full merchant $23 million The lack of liquid markets and the relative excess of global LNG supply utilization, then provides for economic utilization of this terminal capacity for the initial five- conveyance of the years. With excess capacity in Algeria and expansions in Nigeria, Algeria and terminal capacity Trinidad, it is assumed that this capacity would be attractive as a baseload payment obligation to a market or as a "balancing" market due to the demand charge/put structure. third party (probability 20%) 2. 5 years of full merchant $2 million The five year global LNG supply excess holds but thereafter no LNG and utilization, then payment transportation capacity is available (on economic terms to both parties) to be of terminal capacity utilized at the EIT terminal. Only likely with sustained (years 6 to 17) low gas charges for years 6 to 17 prices (below 51.90(MMBtu). wide and sustained price differential between (probability 20%) U.S. and European gas prices, or lack of availability of LNG tankers. 3. 5 years of full merchant $24 million The five-year global LNG supply excess holds but thereafter LNG is only utilization, then available under certain U.S. gas price environments. LNG tanker availability is utilization driven by the assumed if U.S. natural gas prices arc sufficient. U.S. gas price environment with no volumes available below $1.90IMMBtu and 12 cargoes available at $3.40IMMBtu and higher (probability 60%) Hence, from the deterministic Base Case the first five years' value is $23 million, and the values for the remainder of the term for Options 1, 2 and 3 are $0, ($21 million), and $1 million, respectively. The expected probabilitistic PV is lower than any of these factors due to the probabilistic modeling of the possibility of uneconomic operations in the first five years and thereafter. a~~~~~+outaa~a,rs~a.~sw+noa~a:~y.~ 6 EO004401965 KH003-01279 ============= Page 47 of 151 ============= r Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment Amount ($000) $210,000 -0- -0- $210,000 2. Investment terms and pricing: Describe (if necessary): 21 Market 0 Above Market 0 Below Market 3. Financing terms and pricing: 0 Market 0 Above Market 0 Below Market Describe (if necessary): 4. Legal or practical liquidity restrictions: 0 Unrestricted 0 Legally Restricted ® Practically Restricted Describe (if necessary): Permission is required by El Paso. 5. Any recourse to Enron (other than investment): El Recourse 0 No Recourse Describe (if any): This performance guarantee will be offset by LNG sales. 6a. Business unit intent to syndicate: i] None 0 Partial 0 All Describe (if necessary): 6b. Intended Enron hold period: This guarantee is NOT a capital lease. Enron is required to have this guarantee for a period of 17 years. 6c. Likely Syndication Market: 0 Industry/Strategic Partner 0 Direct Private Equity 0 Capital Markets 0 JEDI 1 0 JEDI 2 0 Enserco 0 LJM I or 2 0 Condor © Other: 0 Margaux 6d. Is this a JEDI 2 "Qualified Investment"? O Yes ® No ~A~.i:! Gas c...n i4 ' 0 0 Global Finance Representative: Signature` Name (Printed) Date E0004401966 fi~ TOTAL PACC.00 >i"V CH003-01280 ============= Page 48 of 151 ============= XH003-01281 S-6 E0004401967 I ============= Page 49 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL IDEAL APPROVAL SHEET DEAL NAME: Georgia Army Date DASH Completed: February 11, 2000 Counterparty: U.S. Military RAC Analyst: Kate Lucas Business Unit: EES Investment Type: Structured Credit Business Unit Originator: John Carr Capital Funding Source(s): Balance Sheet Public Private Expected Closing Date: June 30, 2000 Merchant OStrategic Expected Funding Date: 3`d Quarter 2000 Conforming GNonconforming Board Approval: OPending Received ODenied ON/A RAC Recommendation: Proceed with Transaction Returns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment $ 68.1 million Bid Bond Amount N/A EXPOSURE SUMMARY This transaction: $ 68.1 million Total $ 68.1 million DEAL DESCRIPTION Enron Federal Solutions, Inc. ("EFSI") proposes to enter into a 50-year contract with the U.S. Military Defense Energy Support Center ("DESC") wherein EFSI will take ownership of the electric, gas, water, and wastewater systems at four military installations in the State of Georgia. These installations are Fort McPherson, Fort Gillem, Fort Stewart, and Hunter Army Airfield. EFSI will take ownership of these assets at no charge, and will instead commit $68.1 million in capital to be drawn over the next two years for improvement projects. These projects include the following services: (1) project identification, (2) design, (3) financing, (4) construction of energy infrastructure, and (5) O&M services on energy assets. EFSI has entered into teaming agreements with Black & Veatch, an engineering firm, to subcontract the operations and maintenance tasks under the contract. The deal is structured such that this capital and any interest payments are recovered over the next 20 years. Each month for the 50-year duration of the contract, the government will pay EFSI a fixed monthly sum for operations and maintenance, indexed to the government's indexes for labor and materials. The subcontractor has also agreed to fix its fees, adjusted at these same indexes. At the end of the 50-year contract, the military bases will take ownership of the utility systems. The capital costs for this project will be recovered. at an interest rate of 275 by above treasury bonds over the course of 20 years. The remaining 30 years of the contract, the government will pay a fee reflective of the O&M costs, plus a margin of 12.8% TRANSACTION SOURCES AND USES OF FUNDS ($ thousands) Sources Uses Enron Equity $68,100 Improvement Projects $68,100 Total $68,100 $68,100 RETURN SUMMARY PV @ Cumulative Return Components: Capital Price IRR Cash Outflows (capital draws)' ($ 52,675) - Acct mgmt/billing services ($ 1,260) - Cash Flows (Capital) $ 69,853 15.62% Cash Flows (O&M) $ 3,373 - Total NPV $ 19,292 15.62 96 1 Capital Price Components Risk free rate (%): 6.51% Equity/Credit premium* (%): 0.75% Transaction-Specific" (%): 2.00% RAC CAPITAL PRICE: 9.26 E-Rating t Not equal to the nominal $68.1 million because it is drawn over the course of two years. * Spread of U.S. Government Agencies over U.S. Treasuries ** Includes Subcontractor Performance Risk XH003-01282 E0004401968 ============= Page 50 of 151 ============= RAC Deal Approval Sheet Deal Name: Georgia Army TRANSACTION UPSIDES/OPTIONALITY The government has indicated that at the end of the project time frame, the contractor could be awarded an extension to continue operations indefinitely. EXIT STRATEGY Not applicable to a strategic investment. RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Previous issues with prospective subcontractor • Enron has had some dissatisfaction with Black • This situation will need to be worked out before EFSI can enter & Veatch in the past with respect to power into this relationship with Black & Veatch. If our relationship projects. The Enron Office of the Chairman with Black & Veatch does not improve, EFSI will need to find has suspended any new projects with Black & a different subcontractor. This would require price re- Veatch until this situation is resolved to negotiation, which is likely to shrink EFSI's margins on this Enron's satisfaction. deal. Performance Risk • As part of the bid process, EFSI has submitted • EFSI has locked in prices with the subcontractor before cost and timing estimates to the government. entering into the contract with the government. As such, cost EFSI has based its fees to the government overruns will be passed through directly to the subcontractor, according to these estimates. Therefore cost with a 10% risk premium built into the price. overruns would hurt EFSI's margins on the • Enron has conducted joint due diligence with Black & Veatch project. with respect to the condition 'of the systems. Cost estimates • Given that Enron has been dissatisfied with from Black & Veatch are based on this assessment of the Black & Veatch in the past, it is possible that condition of the utility equipment at the installations. they will not perform to standards suitable to • EFSI's commitment to using -Black & Veatch as the O&M EFSI. subcontractor is only for one year. In the event that EFSI is • In the event that there are significant utility dissatisfied with the performance of Black & Veatch, the outages, the government may elect to reduce contract can be renegotiated or terminated at this time. its payment to EFSI for the month in which • EFSI will need to negotiate with Black & Veatch that any these outages occur. reductions in the tariff paid by the government to EFSI as a result of poor performance on the part of Black & Veatch will be deducted from payments made to Black & Veatch by EFSI. Termination Risk • As with other government contracts, this • EFSI intends to include a "make whole" provision in the agreement includes a "termination for contract, ensuring that the government would reimburse for convenience" clause. costs incurred in the event the termination option is exercised. • The government's liability will be only EFSI's unrecovered capital investment at the point of termination plus any reasonable documented costs the contractor incurs as a result of contract termination. No termination schedule has as of yet been provided to RAC. This schedule will be provided to the government at signing. C:\TEMP\DASH-georgia_army 02012000.doc :XH003-01283 E0004401969 Page 2 ============= Page 51 of 151 ============= MAI C Deal Approval Sheet Deal Name: Georgia Arm Syndication Risk • Though the counterparty is an agency of the U.S. government, the financing is imbedded in the transaction and, as such, may be difficult to syndicate on terms favorable to EESO. As noted above, this transaction is considered to be strategic, mitigating, to some degree, the importance of this consideration. The deal fee paid by the government includes a 12.18% margin over the mid desk price and financing at 275 by above the relevant maturity treasury bond. KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit X Upside Potential X Management X Risk Mitigation x C:\TEMP\DASH-georgia army_02012000.doc E0004401970 Page 3 EXH003-01284 ============= Page 52 of 151 ============= RAC Deal Approval Sheet Deal Name: Georgia Army OTHER RAC COMMENTS: The current teaming agreement with Black & Veatch has prohibited Enron from entering into talks or negotiations with backup subcontractors. Therefore, if Enron is dissatisfied with Black & Veatch's performance, a new subcontractor contract would need to be negotiated. It is uncertain whether terms as favorable as those negotiated with Black & Veatch would be reached with another subcontractor, however the deal team believes it may be possible to contract with other areas of Enron. As the costs and revenues are fixed over the life of the contract and therefore known to a reasonable degree of certainty, RAC did not perform a probabilistic simulation of the transaction financial model. APPROVALS Legal EES CEO RAC Management Enron Global Finance ENE Management ENE Management Name Vicki Sharp Lou Pai David Gorte/Rick Buy Andy Fastow/Jeff McMahon Joseph Sutton Jeffrey Skilling C:\TEMP\DASH.jeorgia_army_02012000.doc ECO04401971 Page 4 Date Z l ut.. XH003-01285 ============= Page 53 of 151 ============= RAC Deal Approval Sheet Deal Name: Georgia Bases -- Hunter, Stewart, McPherson, Gillem (Federal Government) Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): Amount ($000) $68,100 -0- -0- $68,100 O Market ZAbove Market O Below Market U.S. Agency credit priced at above current market spreads. The financing rate will be fixed at the 20-year Treasury rate existing on the date of closing plus 2.75%. We expect to sell the receivable at a rate approximately equal to average life Treasurys plus 1.90%. 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical licuidity restrictions: Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: O Industry/Strategic Partner O Capital Markets O JED12 OLJM1or2 O Other: O Below Market 0 Practically Restricted I /No Recourse Cd3 All O Direct Private Equity O JEDI 1 O Enserco Q Condor 0 Margaux 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes eN o LAAA f /3rzA 7-T Global Finance Representative: Signature Name (Printed) ate XHO03-01286 O Market 0 Above Market Unrestricted O Legally Restricted O Recourse O None O Partial Intend to sell on or about the date of contract award. E0004.401972 ============= Page 54 of 151 ============= S-7 m C) 0 0 .r, 0 C0 w EXH003-01287 ============= Page 55 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Hurricane Date DASH Completed: 1/28/00 Counterparty: Texaco RAC Analyst: Tyrell Harrison / Jeff Soo Business Unit: ENA Gas Assets Investment Type: Equity Business Unit Originator: Greg Sharp/Harold Bertram Capital Funding Source(s): Balance Sheet OPublic OPrivate Expected Closing Date: 1/00 DMerchant Strategic Expected Funding Date: N/A MConforming ONonconforming Board Approval: ©Pending DReceived DDenied ON/A RAC Recommendation: ]Proceed with Transaction DRetums below Capital Price DDo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment $225,500M Bid Bond Amount NA EXPOSURE SUMMARY This transaction: $21,000M Total $21,000M DEAL DESCRIPTION ENA is proposing to form a NewCo with initial assets consisting of ENA's LRC (Louisiana Resources Pipeline Co. and Louisiana Gas Pipeline), Napoleonville storage facility and related contracts and Texaco's Bridgeline pipeline, Sorrento storage facility and related contracts. In order to maintain trading capabilities, ENA will keep 150 MMcfd of firm transportation capacity on LRC and 2.5 Bcf of storage capacity at Napoleonville. Entering into NewCo with Texaco is preferable to an outright sale since extensive discussions/negotiations with potential acquirers has led Enron to believe that a sale of LRC/Napoleonville would result in less value to Enron. Since LRC is captive to one supply area at Stingray/Sea Robin on the West side of the Mississippi corridor, Enron has been unable to benefit from long-term sale opportunities that are typically found on the East side. However, by forming a joint venture with Texaco's Bridgeline pipeline, Enron would be able to participate in these long-term marketing opportunities. and realize trading profits from basis blowouts in the area. Increased electric load is expected to result in greater price and volume volatility, which should yield attractive trading profits. NewCo would be one of the largest gas suppliers in Southeastern Louisiana and would have an opportunity to optimize the combined gas supply and sales portfolio. Further, ENA expects to avoid significant capital expenditures that would have been necessary during the next several years to maintain the competitiveness of LRC. The transaction is envisioned as a combination of Texaco's marketing franchise and ENA's trading/risk management and financial engineering strengths. Staffing for NewCo will be sourced from each company's respective strengths (i.e., marketers from Texaco and traders from Enron), with employees assigned to work for NewCo but continuing to be employed by their respective employers. Economics of NewCo will be 60/40 TI/ENE, but control will be shared 50/50. As shown below, the GP of NewCo will be a 50/50-controlled LLC. Bridgeline will be kept as a subsidiary of NewCo in order to, amoung other things, isolate historical liabilities of the business. LRC will be merged into NewCo. Separately, ENA will enter into contractual arrangements for 150 MMcfd of firm pipeline capacity and 2.5 Bcf of storage in order to maintain existing trading opportunities. XH003-01288 E0004401974 ============= Page 56 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Existing Pipeline $204,500 Formation of NewCo Assets $225,500 Assets Equity Injection $21,000 Total $225,500 $225,500 RETURN SUMMARY' PV @ Cumulative Return Components: Capital Price IRR Capital Price Components Cash Outflows (20,596) - Risk free rate (%): 6.72% Fees $0 - Equity/Credit premium (%): 5.02% Intermed. Cash Flows $55,597 - Country Premium (%): - Terminal Value $7,147 - Transaction-Specific (%): -0.74% Total NPV $42,148 NA RAC CAPITAL PRICE: 11.00% E-Rating N/A Relative upside ratio 0.994 1: The returns and capital price are presented on an unlevered basis. 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% I 1.0% 0.0% i NPV @ Risk-Free Rate Adjusted for Sovereign Premium P5 10 2 r n n n n L-: 1000 00 00 02 00 00 00 2M 00 N - `L O v1 O\ 7 00 M n N .p M oo \0 M 00 vi M O 00 ~n en O 00 44 N N M IT r \0 r- 00. 00 4A 44 6v 69 64 44 614 64 64 49 64 69 64 64 64 * The graph above reflects the incremental NPV from entering into the NewCo structure versus maintaining the current LRC structure. O:\Stfin\'rromjmb\CorpDev\liurricane\Dash Hurricane 013100.doc E0004401975 KHO03-01289 a Page 2 ============= Page 57 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane Cash Flow Summary $100,000 $80,000 - $60,000 $40,000 ("'a $20,000 $- , $(20,000)0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 $(40,000) Years o Terminal Value Ongoing Fmm Fees ® Outflows -.- Cumulative P95 --?IE- Cumwlative P5 -,- Expected cumulative cash flows Average Life = 6.3 years CASH FLOW SUMMARY Weighted average life: 6.3 years TRANSACTION UPSIDES/OPTIONALITY - N/A EXIT STRATEGY - N/A RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Discovery Pipeline Volumes There is a risk that the low-cost supply volumes from the. Discovery pipeline may not be realized over the life of the project. Engineering estimates anticipate a large portion of the total gas supply will be available from Discovery. If such volumes did not materialize, the NewCo would be forced to obtain gas from a more expensive source. Synergy Realization Cost savings are expected to be achieved under the NewCo structure primarily through outsourcing and associated personnel reductions. The expected percentage cost savings are approximately 16% of the combined stand-alone levels. Trading Margins ENA Gas Trading expects to make a margin trading around the information and capacity on the existing pipeline assets 'in addition to the new assets from Texaco. Any decrease would negatively impact the existing LRC structure as well as the proposed NewCo structure. The magnitude of the impact would be greater on the NewCo due to larger volumes. O&M / G&A Overruns The potential for O&M and/or G&A cost overruns is present in the current LRC structure and the NewCo structure. Identical percentage overruns would have a more detrimental effect for the NewCo due to its larger size. OaStfin\Fromjmb\CorpDev\Hurricane\Dash Hurricane 013100.doc E0004401976 Page 3 XH003-01290 ============= Page 58 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit x Upside Potential X Management X Risk Mitigation x OTHER RAC COMMENTS: • The most significant value driver in the deal is the synergies expected to be achieved by the combined entity. The analysis of the expected synergies was performed by Robert Morgan of HPL Engineering. The simulation reflected the potential that these cost saving might not materialize. • The margins assumed to be made from financial and physical trading were taken at face value from the Gas Trading Desks. • Based on operational assumptions provided by the deal team, ENA's portion of the NewCo EBITDA is expected to be approximately $11 MM greater than the estimated stand-alone LRC EBITDA on an annual basis. It should be noted that the expected stand-alone LRC operations without trading are cash flow negative in each year. • The RAC analysis compared the stand-alone case versus the proposed NewCo structure and did not examine the alternative of an asset sale. • Using the information provided by the deal team, the RAC analysis did not detect a scenario where the stand-alone case would be more NPV beneficial than the proposed NewCo structure. • The capital price does not reflect a premium associated with risk associated with achieving synergies from combining the two companies. RAC has assumed that between ENA and Texaco, that these synergies are realizable. O:\Stfinx.From;mb\CorpDev\Hurricarc\Dasy Hurricane_0131oo.doe E0004401977 Page 4 EXH003-01291 ============= Page 59 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane Global Finance Summary 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): Amount ($000) $21,000 -0- -0- $21,000 X Market Above Market Below Market 3. Financing terms and pricing: X Market Above Market Below Market Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): There are control limits on selling an interest. 5. Any recourse to Enron (other than investment): Describe (if any): 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: 6d. Is this a JEDI 2 "Qualified Investment"? Unrestricted X Legally Restricted Practically Recourse X None Partial All X No Recourse 0 Industry/Strategic Partner 0 Direct Private Equity 0 Capital Markets 0 JEDI 1 O JEDI 2 0 Enserco O LJM I or 2 O Condor 0 Other: O Margaux D:\StfiaLFroma;mb\CorpDc•UIu~ikane\Da;y Hurricane 013100.doc =XH003-01292 Yes X No Page 5 E0004401978 ============= Page 60 of 151 ============= RAC Deal Approval Sheet Deal Name: Hurricane Global Finance Representative: TOE- b F- F Kf- R--- !2/f 160 Si a Name (Printed) Date APPROVALS Originator Originator Originator Originator Legal Tax RAC Management Enron Capital Management ENA Management ENE Management Name Harold Bertram / Tim Detmering Brian Redmond Greg Sharp Mark Haedicke r)" Jordan Mintz Rick Buy /David Gorte Andy Fastow/Jeff McMahon Cliff Baxter Date 131 m / 3/ o0 >r t o0 ~,3 ou Jeffrey Skilling \\enehou\houston\common\Stfin\From, jmb\CorpDev\Hurricane\dash_1 31 99.doc EC004401979 XH003-01293 3'o Page 6 ============= Page 61 of 151 ============= S-8 E0004401980 FXHnn3-n1 294 ============= Page 62 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Jcrtovec Pre-NTP Date DASH Completed: 2 February 2000 Counterpane: F.E&:CC RAC.Analyst: Otto von Schwerin Business Unit: Central Europe Origination Investment Type: Equity. Business Unit Originator: Rob Soeldner Capital Funding Source(s): Balance Sheet OPublic SPrivate Expected Closing Date: 3 February 2000 Merchant Strategic Expected Funding Date: QIIQ2 2000 OConforming ONonconforming Board Approval: OPending. OReceived ODenied EN/A RAC Reconunendation: Proceed with Transaction ORetums below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment: Management approval is sought for up to S10 million toward the cost of anticipated Pre-Notice-To- Proceed (NTP) work and cancellation charges over a 5-month period from Engineering Release (kick-off) until Financial Close (signing of the loan agreements - dry close). Another separate DASH will be prepared and submitted before Financial Close to seek approval for the overall Jertovec Proj cot. Bid Bond Amount: N/A EXPOSURE SUMMARY N/A DEAL DESCRIPTION This is an interim DASH to seek approval in order to proceed wit Engineering Release. Pre-NTP wore is e:cpect docurtn~ri~5r NPV @ Risk-Free Rate Adjusted for Sovereign Premium 600% 50.0% 40.0% 30.0% - 20.0% 10.0% 0.0% c'^. GD N r- N •L^ - vl O h O '7 C C ~O N C N N 00 v1 00 7 - n C O 'O M n 'O 'D r` 00 00 Ci O O N N c^. 7 '~? 'ct V V'f Vn . , h V1 , V1 V7 69 ER 69 ~T 64 b3 fA 69 69 69 Y7 69 64 69 69 69 C:\7EMP\Final_DAS H. doc E0004401992 Page 2 EXH003-01306 ============= Page 74 of 151 ============= RAC Deal Approval Sheet NON-HEDGABLE (IDIOSYNCRATIC) RISKS Deal Name: Mariner-Pluto RISK DESCRIPTION MITIGATION/COMMENTS Reserves The Pluto project may contain less ECT is guaranteed minimum monthly reserves than Mariner estimates. payments, regardless • of whether Mariner produces less than planned. However, Enron engineers estimate an average cumulative production of 73 BCF while Mariner guarantees 86 BCF of cumulative transport volume. This leaves ECT exposed to Mariner credit risk for the difference between guaranteed volumes and actual transported volumes. Abandonment Risk Enron, as owner of pipeline, will be If ECT elects to abandon the liable for costs associated with gathering line at the end of the abandonment. Abandonment contract term, Mariner is responsible requirements in deepwater GOM for any abandonment costs in excess are not well established of $500,000 If ECT continues to use the gathering line, ECT will be solely responsible for abandonment Abandonment requirements are anticipated to only include purging and plugging costs. Construction Risk There is a possibility that Mariner The purchase of this pipeline is may be unable to complete contingent upon the successful construction of the gathering line completion of construction and flow and get the well on production by of gas. Mariner would be November 1999 which could result responsible for all cost overruns. in the loss of Mariner's lease on gas field related to this project. Operating Risk There is the possibility that Catastrophic risk insurance will be unforseen events could shut down carried to counter this potential operations for extended periods of economic loss. The $500,000 time. deductible per event has been modeled along with a probability of occurrence estimated to be 2% per year. Regulatory and Pluto is subject to safety and Mariner will be responsible for Environmental Risk environmental regulation by the compliance and.the related cost of all Department of the Interior's MMS requirements Minerals Management Service ECT will carry the appropriate (MMS) amount of insurance above that required of Mariner C.UEMP\Final DASH.doc E0004401993 page 3 EXH003-01307 ============= Page 75 of 151 ============= ,`AL heal approval Jneet HEDGABLE OR MARKET RISKS ,neat tvame: .mariner-r.uLw Foreign Exchange The functional currency of the transaction is US Dollar and all revenues and costs are denominated Risk in US Dollars. Interest Rate Risk Although the transaction is classified as equity, the valuation bears interest rate risk associated with the RAC capital price, since the transaction is classified as Merchant and the discount rate will be re- determined quarterly. No interest rate hedges have been included in the valuation model. Equity Risk Equity market risk for this transaction is reflected as part of the discount rate. The terminal value was assumed to be the abandonment costs. No market risk hedges have been included as part of the valuation model. Credit Risk The pipeline gathering revenue stream is guaranteed by Mariner Energy. Given that Resource Evaluation expects contracted volumes to exceed production, the gathering pipeline will be exposed to Mariner Credit risk. Mariner's credit rating is B-. This risk was modeled using the implied default probabilities. Mariner anticipates selling down of 2/3 interest to Burlington Resources, an A- credit, in near term offers credit enhancement, and potentially provides Mariner with access to additional capital No credit hedges have been incorporated into the valuation model. Inflation Risk The equity investment bears inflation risk because the contract calls for fixed payments over the next 9 years which implies that the real value of the payments could decline as a result of an unexpected increase in inflation. Commodity Risk The project is indirectly exposed to commodity risk because our counterparty's primary source of revenue is derived from commodity gas sales. This exposure has been incorporated through counter art risk. OTHER RAC COMMENTS: SYNDICATION (ECM): o _,,-Immediately syndicatable at current capital price Syndication within one year at current capital price o Not syndicatable at current capital price o N/A APPROVALS: Nan}e ignature RAC Management Rick Buy ff Enron Capital Management Andy Fastow/Jeff McMahon S S +YH't Business Unit Originator Brad Dunn Engineering Management Monte Gleason ECT Legal ?F77 r Bar6arc Gray Business Unit Mgmt W. Craig Childers l rJ2,~_~ Portfolio Manager Jere Overdyke ENE Management Ken Rice ENE Management Jeffrey Skilling C:ITEMP1Fnat_DASH.doc Page 4 E0004401994 Date 7Z ~' ~ Z"2 Q s'1t45 EXH003-01308 ============= Page 76 of 151 ============= S-10 m 0 0 0 (0 0 EXH003-01309 ============= Page 77 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: MDW Date DASH Completed: February 8, 2000 Counterparty: U.S. Military District of Washington RAC Analyst: Kate Lucas Business Unit: EES Investment Type: Structured Credit Business Unit Originator: Dean Tarbet / Charlie Thompson Capital Funding Source(s): Balance Sheet OPublic OPrivate Expected Closing Date: October 30, 2000 Merchant OStrategic Expected Funding Date: 4th Quarter 2000 Conforming ONonconforming Board Approval: E3Pending Received Denied O N/A RAC Recommendation: OProceed With Transaction DReturns below Capital Price ODo not Proceed APPROVAL AMOUNT REQUESTED Capital Commitment $ 55.6 million Bid Bond Amount N/A EXPOSURE SUMMARY This transaction: $ 55.6 million Total $ 55.6 million DEAL DESCRIPTION Enron Federal Solutions, Inc. ("EFSI") proposes to enter into a 15-year privatization contract with the Defense Energy Support Center ("DESC"), wherein it will take ownership of the electric, water/wastewater, and natural gas systems at five military installations in the Maryland, Virginia, and Washington, D.C. area. The installations included in this deal are Fort Meade, Fort McNair, Fort Myer, Fort Belvoir, and A.P. Hill. EFSI will commit $55.6 million for identification, development, and implementation of projects related to this privatization. EFSI has entered into teaming agreements with ABB and Black & Veatch, an engineering firm, to subcontract the operations and maintenance tasks under the contract. Both firms have been engaged to perform an initial engineering audit of the infrastructure at the installations. EFSI will draw the capital for these projects over a two-year period of time, and will be paid a fixed monthly amount by the government. The terms of the government's payback period will be 15 years, the duration of the contract. TRANSACTION SOURCES AND USES OF FUNDS Sources Uses Enron Equity $55,600 Energy projects $55,600 Total $55,600 $55,600 RETURN SUMMARY PV @ Cumulative Return Components: Capital Price IRR Cash Outflows (capital draws)t ($45,695) - Acct mgmt/billing services ($ 1,613) - Cash Flows (Capital) $ 57,343 16.12% Cash Flows (O&M) $ 4,145 - Total NPV $ 14,180 16.12% E-Rating Capital Price Components Risk free rate (%): 6.70% Equity/Credit premium* (%): 0.69% Transaction-Specific" (%): 2.00% RAC CAPITAL PRICE: 9.39%1 ' Not equal to the nominal $55.6 million because it is drawn over the course of two years. * Spread of U.S. Government Agencies over U.S. Treasuries "* Includes Subcontractor Performance Risk :XH003-01310 - E0004401996 ============= Page 78 of 151 ============= RAC Deal Approval Sheet Deal Name: MDW TRANSACTION UPSIDES/OPTIONALITY The government has indicated that there is the potential for additional capital improvement projects beyond the 2-year capital improvement plan. EXIT STRATEGY Not applicable to a strategic investment. RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Previous issues with prospective subcontractor • Enron has had some dissatisfaction with Black • This situation will need to be worked out before EFSI can enter & Veatch in the past with respect to power into this relationship with Black & Veatch. If our relationship projects. with Black & Veatch does not improve, EFSI will need to find a different subcontractor. This would require price re- negotiation, which is likely to shrink EFSI's margins on this deal. Performance Risk • As part of the bid process, EFSI has submitted • EFSI has locked in prices with the subcontractor before cost and timing estimates to the government. entering into the contract with the government. As such, cost EFSI has based its fees to the government overruns will be passed through directly to the subcontractor, according to these estimates. Therefore cost with a 7% risk premium built into the price for Black & Veatch overruns would hurt EFSI's margins on the and one of 5% built in for ABB. project. • Enron has conducted joint due diligence with Black & Veatch • Given that Enron has been dissatisfied with and ABB with respect to the , condition of the systems. Cost Black & Veatch in the past, it is possible that . estimates from Black & Veatch and ABB are based on this they will not perform to standards suitable to assessment of the condition of the utility equipment at the EFSL installations. • In the event that there are significant utility • EFSI's commitment to using Black & Veatch and ABB as the outages, the government may elect to reduce O&M subcontractors is only for one year. In the event that its payment to EFSI for the month in which EFSI is dissatisfied with their performance, the contract can be these outages occur. renegotiated or terminated at this time. • EFSI will need to negotiate with both Black & Veatch and ABB that any reductions in the tariff paid by the government to EFSI as a result of poor performance on the part of either subcontractor will be deducted from payments made by EFSI to Black & Veatch and/or ABB. Termination Risk • As with other government contracts, this • EFSI intends to include a "make whole" provision in the agreement includes a "termination for contract, ensuring that the government would reimburse for convenience" clause. costs incurred in the event the termination option is exercised. • The government's liability will be only EFSI's unrecovered capital investment at the point of termination plus any reasonable documented costs the contractor incurs as a result of contract termination. • No termination schedule has as of yet been provided to RAC. This schedule will be provided to the government at signing. O:\ECM\ tAAP\$OPNDEAL\E Ei S' iD* ,DASH_-MDW O2072000.doc E0004401997 Page 2 EXH003-01311 ============= Page 79 of 151 ============= RA =XH003-01312 C Deal Approval Sheet Deal Name: MD W Syndication Risk • Though the counterparty is an agency of the U.S. government, the financing is imbedded in the transaction and, as such, may be difficult to syndicate on terms favorable to EESO. As noted above, this transaction is considered to be strategic, mitigating, to some degree, the importance of this consideration. The deal fee paid by the government includes a 8.42% margin over the mid desk price and financing at 275 by above treasury bills. KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit x Upside Potential X Management x Risk Mitigation x 0:1ECM\ RAAP\$OPNDEAL\E-E Sn`viD ADASH_iviDW 02072000.doc Page 3 E0004401998 ============= Page 80 of 151 ============= RAC Deal Approval Sheet Deal Name: MDW OTHER RAC COMMENTS: RAC did not perform an analysis of the transaction financial model using probabilistic scenarios. APPROVALS Legal EES CEO RAC Management Enron Global Finance ENE Management O:IECMrRAAP1$OPNDEAU& B -Sir viDW\DASri iDW 02072000.doc Name Signature Vicki Sharp Lou Pai David Gorte/Rick And Fasto Jeff McMaho Jeffrey Skilling/Joseph Sutton E0004401999 Date 2 S /00 Page 4 EXH003-01313 ============= Page 81 of 151 ============= RAC Deal Approval Sheet Deal Name: MDW OTHER RAC COMMENTS: RAC did not perform an analysis of the transaction financial model using probabilistic scenarios. APPROVALS Legal EES CEO RAC Management Enron Global Finance ENE Management Name Vicki Sharp Lou Pai David Gorte Andy Fastow/Jeff McMahon Jeffrey Skilling/Joseph Sutton Signature r 77 Date E0004402000 C\TEMP\DASH_MDW 02072000.doc Page 4 EXH003-01314 ============= Page 82 of 151 ============= RAC Deal Approval Sheet Deal Name: Military District of Washington Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment Amount ($000) $55,600 -0- -0- $55,600 2. Investment terms and pricing: Describe (if. necessary): O Market QAbove Market 0 Below Market U.S. Agency credit priced at above current market spreads. The financing rate will be fixed at the 15-year Treasury rate existing on the date of closing plus 2.75%. We expect to sell the receivable at a rate equal to average life Treasurys plus 1.80%. 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Describe (if necessary): 5. Any recourse to Enron (other than investment): Describe (if any): 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: O Industry/Strategic Partner C~Capital Markets O JEDI 2 OLJM1or2 0 Other: 0 Below Market 0 Practically Restricted a No Recourse &AII 0 Direct Private Equity O JEDI 1 0 Enserco Q Condor O Margaux 6d. Is this a JEDI 2 "Qualified Investment" 0 Yes 'No Global Finance Representative: '~ Z-'~ ~ Aignature Name (Printed) Date E0004402001 0 Market 0 Above Market Unrestricted 0 Legally Restricted 0 Recourse 0 None 0 Partial Intend to sell on or about the date of contract award. EXH003-01315 ============= Page 83 of 151 ============= S-11 E0004402002 EXH003-01316 ============= Page 84 of 151 ============= i ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET Addendum to DASH Signed March 22, 2000 Project Mercury The valuation and purchase price for Project Mercury have changed since the original DASH was signed due to: • movement in the commodity market; • the exclusion of certain Value Added Services commodity contracts from the transaction; • a refinement in the valuation of the impact associated with the recently adopted PG&E General Rate Case; • the elimination of the assumed release in prudency currently on Mercury's books from the deal economics. Based upon this revaluation, the negotiated purchase price of $22mm has changed to $20mm, resulting in a net decrease in expected NPV of $.5mm. Value changes to Mercury (amounts in millions) KHO03-01317 Commodity movement and PG&E Rate Case 5.8 ru ency Revaluation -8.3 Purchase rice Reduction . Change in Deal 1 J APPROVALS Name Signature e EES Corp. Development Mark Muller/ Jimmie Williams a EES Commodity Mgmt. Dennis Benevides (o ~V0 Legal Vicki Sharp 'rs `7 /. Regional Management Lou Pai Enron Gov. Affairs Steve Kean/Jim Steffes /., RAC Management David Gorte v w p~ Enron Capital Management Andy Fastow/Jeff McMahon AU, d 7 ENE Management Jeffrey Skilling/Joe Sutton C, t~ 7 w E0004402003 ============= Page 85 of 151 ============= Approval of Acquisition of PG&E Energy Services Corporation In accordance with §2.04 of the Amended and Restated Limited Liability Company Agreement of Enron Energy Services, LLC, ("EES"), dated as of December 31, 1997, Enron Corp., In its sole discretion, approves of the expansion of the business of EES in connection with its acquisition of PG&E Energy Services. Corporation ("Services"), a California corporation, to include existing Services' commodity contracts and customers. J:\legal\pinder\1999\corres\apprvl.ltr E0004402004 :XH003-01318 Operating Officer Enron Corp. ============= Page 86 of 151 ============= L_ CA Retail Customer Mark Wood GRC Decision Shared Savings Early Outs Lesser of Options'' Rate Cap. * Missing Info. Hydro Credit Adj. CA Retail Customer Mtm MA Commodity Gas Book Credit Reserve Place Holder Supply Hedge Value Total Est. MtM PG&E Rate Alloc. Redesign @ 75% Consumption @ .18% Consumption @ .25% Price Prudency @ $.35/Mwh June 1 Close Date (Two Month Liq) Total Est. MtM Purchase Price Deal NPV Mercury Commodity Reconciliation 4/4/2000 3/20/2000 414 less (original DASH) 3/20 (1,739,811) (882,390) (857,4`21) (6,435,000) 6,435,000 (342,734) (342,734) - (150,000) (150,000) - (459,000) (459,000) - (906,000) (592,000) (314,000) (3,597,545) (8,861,124) 5,263, 579 (587,000) (587,000) - (2,854,345) (2,854,345) - (500,000) (500,000) - 35,196,680 34,710,384 486,296 27,657,790 21,907,915 5,749,875 6,674,750 6,674,750 - (1, 800, 000) (1,800,000) - 3,692,694 (3,692,694) (560,000) 2,260,219 (2,820,219) 2,974,048 - 2,974,048 - $ 34,946,588 $ 37,509,627 $ (2,563,038) (20,000,000) (22,000,000) 2,000,000 $ 14,946,588 $ 15,509,627 $ (563,038) EOO04402005 =XH003-01319 ============= Page 87 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET 2000 A Mercury Date Completed: arc 22, Counterparty: Quantum Ventures RAC Analyst: Vlady Gorny Business Unit: EES Investment Type: Equity Business Unit Originator: Mark Muller Capital Funding Source(s): Balance Sheet Public xjPrivate Expected Closing Date: June 2000 E3Merchant jStrategic Expected Funding Date: June 2000 Conforming px Nonconforming Board Approval: Pending DReceived ODenied pN/A Recommendation: px rocee wit ransaction p eturns below Capital rice E3Do not Proceed APPROVAL REQUESTED Enron Energy Services Operations (EESO) is seeking approval to acquire certain assets of PG&E Energy Services ("Mercury"), EESO's largest competitor, through a purchase of 100% of the stock of Quantum Ventures, a wholly-owned subsidiary of PG&E. The assets purchased include the retail power and gas books, billing systems and working capital - largely customer receivables. EXPOSURE SUMMARY Cash Payment $20.0 million (for retail power and gas books and the billing systems) Credit Exposure $ 4.0 million (counterparty accounts receivable, including the benefit of PG&E guarantee and wholesale/retail credit risks) Market Risk - Power $ 4.5 million (Overnight VaR of $1.3 million and liquidation period of 12 days) - Gas $ 0.7 million (Overnight VaR of $0.3 million and liquidation period of 5 days) Total "Risk Adjusted Capital" $29.2 million DEAL DESCRIPTION Strategy: EESO will purchase the contracts and the related billing system from its largest competitor in the California, as PG&E Energy Services exits this market. Quantum Ventures' personnel (approximately 30 people) associated with the billing system will be initially retained by EESO. Structure: $20.0 million will be paid up front for the purchase of the power and gas commodity books. $80.0 million will be paid up front for the related working capital, which is 100% guaranteed by PG&E Corp. After 180 days, any uncollected accounts receivable will be repurchased at their original face amount, guaranteed by PG&E. Commodity Portfolios: Transaction creates a Net Open Power position of 3.3 million Mwhs - Short and Gas position of. 3 Bcf- Short (Retail Electricity Load of 8.5 million Mwhs - Short and Retail Natural Gas Load of 15 Bcf- Short), mainly in California. The power positions extend through the end of 2003 and gas positions extend through 2001. RETURN SUMMARY Deal Valuation: $35.0 million Bid Amount: <$20.0 million Deal NPV: $15.0 million TRANSACTION SOURCES AND USES OF FUNDS Sources Uses EESO Balance Sheet $I0G,7660 Power Commodity Book $20,U00 Working Capital $80,000 Total* -$100,066- *7here is a working capital true up that will adjust the final purchase price. The anticipated final purchase price range is $90 - 100 million. E0004402006 EXH003-01320 ============= Page 88 of 151 ============= RAC Deal Approval Sheet TRANSACTION UPSIDE/OPTIONALITY Deal Name: Mercury Potential upside may be realized on the IT/Billing system and renewal/extension of retail customer contracts. The billing system is in balance (accurate) for the California market. EESO may be able to leverage this capability into its existing outsource agreement with Computer Science Corporation. RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Regulatory Risk: • Exposure to changes and redesigns of PG&E's Monitor closely PG&E rate cases, evaluate the CTC roll-off unbundled tariffs and T&D tariffs, CTC roll-off date on an on-going basis. Given low valuation of PG&E date, duration of the CTC rebate period and PG&E hydro generation, EES will consider acquiring hydro assets Hydro generation valuation. to manage the existing retail portfolio.  Transaction requires FERC Approval under Section  Transaction will not close until FERC approval is obtained. 203 of the Federal Power Act. Market Risk: • Exposure to wholesale power and gas prices, • Hedge majority of the wholesale exposure through the ancillary service prices and intra-day load volatility. respective desks. Credit Risk: • MTM exposure related to retail and wholesale Credit reserve has been factored into the valuation of the power and gas portfolios. deal for both the MTM exposure and A/R. • Inability to collect customers' accounts receivable PG&E (A2/A) provides a full guarantee on the A/R for the in the normal course of business (beyond 180 day 180 day period. closing). The reserve level and guarantee mitigate the credit risk since a proper due diligence on clients, financials and contracts could not be performed for confidentiality reasons. Legal Risk:_  Due diligence has been limited due to Mercury Where full due diligence was not conducted, EESO is confidentiality concerns. relying on seller's representations with related sellers  FERC approval and HRS filing are required. indemnity extending for 18 months for full amount of base • Under the state anti-slamming rules, notice and purchase price. opportunity to cancel service must be given to Approval on an expedited basis is expected. Obtaining certain customers. approval is a condition for closing.  The target has on-going liabilities related to These customers represent nominal value. excluded liabilities transferred out of the company EESO is obtaining a Quantum indemnity for such liabilities prior to close. and a PG&E Guarantee. Enron Corp. guarantee. IT/ Billing System:  The IT/Billing Systems are not directly compatible EESO is attempting to hire key Mercury staff to promote w/EESO software and hardware, some time will be systems integration. required to make the adjustment. 90 day overlap for integration. KEY SUCCESS FACTORS Poor Fair Good Very Good Excellent Core Business - - - - X Strategic Fit - - - - X Upside Potential - - X - - Risk Mitigation - - X - - J cor aI Developme_n_t\C__, xpneviR N \Mercury\Dash\Mercury DASH 4.6. l.doc E0004402007 Page 2 =XH003-01321 ============= Page 89 of 151 ============= RAC Deal Approval Sheet Deal Name: Mercury OTHER RAC COMMENTS: • The valuation of the deal incorporates assumptions that are not captured in the Exposure Summary: changes and rate allocation redesigns of PG&E unbundled utility tariffs, regulated T&D tariffs and CTC related issues. These are typical risks assumed in EESO transactions. The amount of PG&E's stranded costs depends on the valuation of PG&E's hydro generation. The valuation of the deal assumes that the assets will be valued at $2.9 billion (current book value of $1.2 billion). In the event that the hydro generation is valued at $2.0 billion - about 5% or less probability, the deal NPV will decrease by approximately $10 million. • The due diligence to be performed by Enron personnel on the historical load data provided by PG&E. If the valuation is materially affected, the purchase price will be adjusted. J:\Corporate Development\CorpDev\B Neff\Mercury\Dash\Mercury DASH 4.6.1.doc Page 3 ECO04402008 EXH003-01322 ============= Page 90 of 151 ============= RAC Deal Approval Sheet Deal Name: Mercury APPROVALS EES Corp. Development EES Commodity Mgmt. Legal Regional Management Enron Gov. Affairs RAC Management Enron Capital Management ENE Management Name Signature Mark Muller/ Jimmie Williams Dennis Benevides Vicki Sharp Lou Pai Steve Kean/Jim Steffes David Gorte Andy Fastow/Jeff McMahon Jeffrey Skilling/Joe Sutton J.ra ?Ark :Development\CnmDev\B Neff\Mercury\Dash\Mercury DASH 4.6.1.doc 11 ~j ECO04402009 Date Page 4 XH003-01323 ============= Page 91 of 151 ============= RAC Deal Approval Sheet • Global Finance Summary (addendum to DASH) 1. Transaction Summary Total. Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): Deal Name: Mercury Amount ($000) too/ O'V -0- ~07, t7'Og O Market 0 Above Market 0 Below Market 0 Market O Above Market 0 Below Market 4. Legal or practical liquidity restrictions: 0 Unrestricted 0 Legally Restricted 0 Practically Restricted Describe (if necessary): 5. Any recourse to Enron (other than investment): 0 Recourse O No Recourse Describe (if any): 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: 0 None 0 Partial 0 Industry/Strategic Partner O Capital Markets O JEDI 2 O LJM I or 2 0 Other: 0 All 0 Direct Private Equity - O JEDI I 0 Enserco 0 Condor 0 Margaux y~ rJJa -IV,( *4 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes No Global Finance Representative: F~_ 1A Larry Derrett ature Name (Printed) Date J,1 p.mts.Development\C9rpDev\63.N?t\Merciuy\Dash\Mercury.DAS.N 4.6.1.E -Page 5 E0004402010 EXH003-01324 ============= Page 92 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Mercury Date DASH Completed: March 22, 2000 Counterparty: Quantum Ventures RAC Analyst: Business Unit: EES Investment Type: Equity Business Unit Originator: Mark Muller Capital Funding Source(s): Balance Sheet DPublic !]Private Expected Closing Date: June 2000 Merchant Strategic Expected Funding Date: June 2000 DConforming ONonconforming Board Approval: Wending DReceived DDenied DN/A RAC Recommendation: OProceed with Transaction DReturns below Capital Price DDo not Proceed APPROVAL REQUESTED EESO is seeking approval to acquire PG&E Energy Services ("Mercury"), EESO's.largest competitor, through a 100% stock purchase from Quantum Ventures. The assets purchased include the retail power and gas books, billing systems, and working capital. EXPOSURE SUMMARY Cash Payment $22.0 million Credit Exposure $ 4.0 million (includes A/R and retail book exposure) Market Risk -Power $ 4.5 million (Overnight VaR of $1.3 million and liquidation period of 12 days) - Gas $ 0.7 million (Overnight VaR of $0.3 million and liquidation period of 5 days) Total "Risk Adjusted Capital" $31.2 million RETURN SUMMARY Deal Valuation: $37.5 million Bid Amount: <$22.0 million> Deal NPV: $15.5 million OTHER RAC COMMENTS: • Valuation of the deal incorporates assumptions that are not captured in the Exposure Summary: changes and rate allocation redesigns of PG&E unbundled utility tariffs, regulated T&D tariffs and CTC related issues. • Amount of PG&E's stranded costs depends on the valuation of PG&E's hydro generation. The valuation of the deal assumes that the assets will be valued at $2.9 billion (current book value of $1.2 billion). In the event that the hydro generation is valued at $2.0 billion - about 5% or less probability, the deal NPV will decrease by -$10 million. • Due diligence to be performed on the historical load data provided by PG&E. DEAL DESCRIPTION • Strategy: EESO will purchase its largest competitor in the California market and a billing system. • Structure: $22.0 million will be paid upfront for the purchase of the power and gas commodity books. $78.0 million will be paid up front for the related working capitaL which is 100% guaranteed by PG&E Corp. After 180 days, any uncollected accounts receivable will be sold back to seller, guaranteed by. PG&E Corp. • Commodity Portfolios: Transaction creates a Net Open Power position of 3.3 million Mwhs - Short and Gas position of 3 Bcf - Short (Electricity Load of 8.5 million Mwhs - Short and Natural Gas Load of 15 Bcf - Short), mainly in. California. The power positions extend through the end of 2003 and gas positions extend through 2001. E0004402011 v =XH003-01325 ============= Page 93 of 151 ============= RAC.Deal Approval Sheet Deal Name: Mercury TRANSACTION SOURCES AND USES OF FUNDS Sources Uses EESO Balance Sheet $100,000 Power Commodity Book $22,000 Working Capital $78,000 Totals $100,000 $100,000 *There is a working capital true up that will adjust the final purchase price. The anticipated final purchase price range is $90- 100 million. TRANSACTION UPSIDE/OPTIONALITY Potential upside may be realized on the IT/Billing system and renewal/extension of retail customer contracts. The billing system is in balance (accurate) for the California market. EESO may be able to leverage this capability into its existing outsource agreement with Computer Science Corporation. RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Regulatory Risk: • Exposure to changes and redesigns of PG&E's  Monitor closely PG&E rate cases, evaluate the CTC roll-off unbundled tariffs and T&D tariffs, CTC roll-off date on an on-going basis. Given low valuation of PG&E date, duration of the CTC rebate period and PG&E hydro generation, EES will consider acquiring hydro assets Hydro generation valuation. to manage the existing retail portfolio. • Transaction requires FERC Approval under Section  Transaction will not close until FERC approval is obtained. 203 of the Federal Power Act. Market Risk:  Exposure to wholesale power and gas prices, • Hedge majority of the wholesale exposure through the ancillary service prices and intra-day load volatility. respective desks. Credit Risk: • MTM exposure related to retail and wholesale Credit reserve has been factored into the valuation of the power and gas portfolios deal.  Inability to collect customers' accounts receivable in the normal course of business. IT/ Billing System:  The IT/Billing Systems are not directly compatible  EESO is attempting to hire key Mercury staff to promote w/EESO software and hardware, some time will be systems integration. required to make the adjustment.  90 day overlap for integration. Legal Risk: • Due diligence has been limited due to Mercury Where full due diligence was not conducted EESO, is confidentiality concerns. relying on seller's representations with related sellers indemnity extending for 18 months for full amount of base purchase price. • FERC approval and HSR filing are required.  Approval on an expedited basis is expected  Receipt of approval is a condition for closing • Under state anti-slamming rules, notice and  These customers represent nominal value. opportunity to cancel service must be given to certain customers. • The target has ongoing liabilities related to  EESO is obtaining a Quantum indemnity for such liabilities excluded liabilities transferred out of the company and a PG&E Guarantee. prior to close. • Enron Corp. guarantee.  Language to come if necessary. \\eeshou-fs2\common$\Corporate Development\CorpDev\B Neft\Mercui\Mercury _DASH,$_2,2_3. P,~ge 2 ECO04402012 S EXH003-01326 ============= Page 94 of 151 ============= RAC Deal Approval Sheet Deal Name: Mercury KEY SUCCESS FACTORS Poor Fair Good: Very Good Excellent Core Business - - - X Strategic Fit - - - X Upside Potential - - X - Risk Mitigation - - X - - E0004402013 \\eeshou-fs2\common$\Corporate Development\CorpDev\B Neff\Mercury\Mercury DASH 3_22_3.doc page 3 u EXH003-01327 ============= Page 95 of 151 ============= RAC Deal Approval Sheet APPROVALS EES Corp. Development EES Commodity Mgmt. Legal Regional Management Enron Gov. Affairs RAC Management Enron Capital Management ENE Management Name Mark Muller/ Jimmie Williams Dennis Benevides Vicki Sharp Lou Pai Steve Kean/Jim Steffes David Gorte R. f, u; Andy Fastow/Jeff McMahon Jeffrey Skilling/Joe Sutton Deal Name: Mercury S' a re Date 3 e 3 2z 00 3 z Zc 3 a~ EOO04402014 r .r7 =XH003-01328 C:ITEMF Dash2.doc Page 3 ============= Page 96 of 151 ============= r S-12 E0004402015 EXH003-01329 ============= Page 97 of 151 ============= ENRON RISK ASSESSMENT AND. CONTROL DEAL APPROVAL SHEET DEAL NAME: Nowa Sarzyna Equity Purchase Date DASH Completed: 30 March 2000 Counterparty: LJM2 RAC Analyst: Olivier Herbelot Business Unit: EGF Investment Type: Equity Business Unit Originator: Anne Edgley Capital Funding Source(s): Balance Sheet OPublic Private Expected Closing Date: 31 March 2000 OMerchant Strategic Expected Funding Date: 31 March 2000 ]Conforming ONonconforming Board Approval: OPending DReceived DDenied ©N/A APPROVAL AMOUNT REQUESTED Capital Commitment: .$10.63 million to purchase from LJM2 a 25% indirect equity in the Nowa Sarzyna Facility ("ENS") Bid Bond Amount: N/A EXPOSURE SUMMARY Commodity Exposure: N/A Associated Guaranties/Contractual Obligations: N/A Existing Exposure: $ 4.65 million (25% of equity in ENS - cost basis) Total $15.28 million DEAL DESCRIPTION Purchase of additional 25% indirect equity in ENS, a gas fired heat and power station in SouthEastem Poland with a generating capacity of 116MW and thermal generating capacity of 70MW. Power will be sold to the Polish Grid Company under a 20 year Power Delivery Agreement. The price of energy and capacity is expressed in Zlotys but indexed to the USD every 6 months for the previous 6 months. The Polish Oil and Gas Company (a state-owned integrated monopoly that controls the entire gas sector in Poland) will supply natural gas to ENS under a 20 year Fuel Supply Agreement. The fixed and variable price of fuel is passed through the power and steam sales agreements. ENS has agreed to sell low and high pressure steam to Organika (state owned chemical company) under a 20 year steam sales agreement. This agreement represents approximately 90% of the facility's total thermal output, with ENS negotiating to sell the remaining 10% of thermal energy to the City of Nowa Sarzyna for residential heating purposes. Enron originally owned 100% of the equity in ENS but sold 75% of it in December 1999 to LJM2 for $30 million. At the time, Enron Europe committed to making reasonable and best efforts to sell LJM2's equity interests to a "qualified" third party buyer or to Margaux (provided that Margaux was launched by 31 March 2000, which won't be the case). RETURN SUMMARY PV @ Cumulative Return Components: Capital Price IRR Capital Price Components Cash Outflows (10.6) - Risk free rate (%): 6.2% Fees - - Equity/Credit premium (%): Intermed. Cash Flows 7.8 Country Premium (%): 1.4% Terminal Value 2.0 Transaction-Specific (%): 5.7% Total NPV (0.8) 12.5% RAC CAPITAL PRICE: 13.3% Note: Those figures correspond to RAC's best current estimate but a zero NPV would be within the margin of error at this stage. EXIT STRATEGY Whilst Enron will continue to hold indirectly 50% of ENS, approximately 60% of the value of the asset will be raised as debt through the Margaux structure and certain risks related to the operations of the plant (reduction in availability due to equipment failure and increase in heat rate) will be passed to the debt holders. The Margaux structure does not limit our ability to sell the asset to a third party. E0004402016 XHO03-01330 ============= Page 98 of 151 ============= RAC Deal Approval Sheet Deal Name: Nowa Sarzyna Equity Purchase RISK MATRIX (Main 5 Risks Only) DESCRIPTION MITIGATION/COMMENTS Plant Completion Delays The plant was originally scheduled for completion in December 1999. Final tests before anticipated completion were carried out on 14 February 2000. Investigations are ongoing to determine why an oil pump stopped working during the test, which required plant shut down. As a result, a replacement rotor has been ordered for the damaged rotor, however, it is being determined if the damaged rotor, after servicing, can be used until the new rotor arrives. Subject to insurer's agreement, EE&CC is hoping to get the plant into commercial operation by May 2000. Delay in start up insurance is expected to cover the L/Ds that could become payable under the gas supply and power/steam sales agreements as well as possible debt service requirements (the total of which could reach up to $37 million if the plant is commissioned with a year delay). The project company would however have to cover the first month of L/D's and interest, resulting in a potential negative cash flow of $6 million, as modeled in the return calculation reported above. Tariff Regulation Due to recent changes in regulations, ENS had to submit for approval to the regulatory authority a cap on the power tariff which will be in place for the remainder of 2000. This cap is Zloty 212.96/MWh (equivalent to 5.3 c/kWh), 6% higher than the initial tariff for the year. Therefore, ENS will only be able to pass through Zloty/USD devaluation for up to 6% before Enron's returns are affected. At this stage, it is expected that a new cap will be negotiated each year with the regulator on the basis of cost justifications provided b ENS. Other Risks The remain the same as per DASH dated 10 May 1999. KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit X Upside Potential X Management Risk Mitigation X OTHER RAC COMMENTS: APPROVALS Name Signature Date Business Originator Anne Edgley Regional Mgmt. Mark Frevert Legal Michael Brown RAC Management Dave Gorte C L?~` ~3 //00 Steve Young Enron Global Finance Jeff McMahon Paul Chivers ECO04402017 ENE Management Joe Sutton C:\TEMP\NS DASH 29-03-2000.doc Page 2 (H003-01331 ============= Page 99 of 151 ============= 31:03 ou rill ly:ou taa Ul/ly/vlr/l - -•-• - RAC Deal Approval Sheet Deal Name: Nowa Sarz yna Equity Purchase APPROVALS Name Signature Date Business Originator Anne Edgley L I • c 3 • o-zz. Regional M -nit. Mark Frevert . Legal Michael Brown RAC Management Dave Gorte Enron Global Finance ENE Management Steve Young Jeff McMahon Paul Chivers Joe Sutton _ _ S:\Undcrwriting\a-ProjcctAActivc\NowaSa,zina\NS DASH 29-03-2000.doc E0004402018 3~o cw 71.03• m,Q 31_3 Page 3 KHO03-01332 ============= Page 100 of 151 ============= 31.03 '00 FRI 19:4.4 FAX 01719707251 (,K,%1 l;NxU1\ nuxurn _ •MRR 31-2800 13:04 ENRON 713 646 5930 P.02/A2 Steve YQ=g 3 l~ En n Global Finance DeE£MeMahon Paul Cbi'+ers -T £~-- ?t.v3•DO ENE Mznagem(=t lea Sun an PAC Deal Apprw ul Shut beat Numc: Nowa Sarzytm Equity Purchase APPROVALS Name Signature Date )Business Originator A.nn- E gl y _ J . Zr ! -' czz Xcgienal Mart Mark Frevtrt Legal micheet Brown RAC Maflagement Dave Gotte p " rl t T07~ S:1Unde~rain i•Pts~eevlnedvelNCraSvziw~NS VA A 24.03-2000.dae Page 3 E0004402019 TOTAL P.O2 31!f.3 "DO FRI 1413:, [TX.'RT NO 0776] 7.1002 XH003-01333 ============= Page 101 of 151 ============= RAC Deal Approval Sheet Deal Name: Nowa Sarzyna Equity Purchase Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Amount ($000) $10,000 -0- -0- Net Enron Investment $10,000 2. Investment terms and pricing: 0 Market 0 Above Market 0 Below Market Describe (if necessary): v :XH003-01334 3. Financing terms and pricing: Describe (if necessary): 4. Legal or practical liquidity restrictions: Restricted Describe (if necessary): 0 Market • 0 Above Market 0 Below Market 5. Any recourse to Enron (other than investment): Describe (if any): 6a. Business unit intent to syndicate: Describe (if necessary): 6b. Intended Enron hold period: 6c. Likely Syndication Market: 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes U No Global Finance Representative: Signature Name (Printed) C:\TEMP\NS DASH 29-03-2000.doc E0004402020 Page 3 0 Capital Markets U JEDI 1 0 JEDI 2 0 Enserco 0 LJM 1 or 2 0 Condor 0 Other: 0 Margaux 0 Unrestricted 0 Legally Restricted 0 Practically 0 Recourse 0 No Recourse 0 None 0 Partial 0 All U Industry/Strategic Partner U Direct Private Equity Date ============= Page 102 of 151 ============= V1, 'IV I'll £ L' 10 ..J U r 3 1 U l i ii l l! l .: J l ..1.:•. a.....,.. .. ~ .,....,. n/y ' 00 FRI 16:56 FAX 020 7783 8020 ENRON EtTROPE Z004 RAC Deal Approval Shact Desk Name.• Nows Sarzye. Equity Purcaasc _ ApPYtOYALS Name et¢natun Date Business Originator Antie Ed lc a3. aO rt r o" Re aionzi f•t gmt. Mark Frave I .F, •,' Michael gown RAC M{3r.t;betu~n: Dave Gorte - Steve Young Enraa Global Finance JeffMcMahon ~ ~ Paul Cklvors y-7. OO ENE M,nagement Joe Sutton 8wbaer+rteinBa~Prok~Vta~reWcwassrzftu~NS DAs}; 29.o3.20ae.dcc E0004402021 F.Ye 3 q t Effective Rent (Rs/SF/M) Annual Kent (US$ MM) q t Effective Rent (Rs/SF/M) Annual Rent (US$ MM) q t Effective Rent ** (Rs/SF/M) Annual Rent (US$ MM) Communications - - - 58,100 120 1.90 58,100 110 1.74 DPC 9,220 86 0.22 15,912 86 0.37 15,912 110 0.48 Enron Global ENP 22,553 92 0.57 32,423 92 0.81 32,423 110 0.97 MetGas 6,051 81 0.13 11,365 99 0.31 11,365 110 0.34 EIPL 11,685 188 0.60 20,640 168 0.95 20,640 110 0.62 Total 49,509 107 1.52 138,440 115 4.34 138,440 110 4.15 (* It is assume that nron 1 sates rent out new property at t e same location as they are present y occupying (** Fumishing/buildout charges to be recovered separately) The above table shows the rent expense including expansion to be US$ 4.34 MM per annum to be in excess of the proposed EIPL proposed rent of US$ 4.15 MM per annum. E0004402032 C:\W11i1DOWS\TEMP\1'rump_ 1JASH 0322SW.doc Page XH003-01346 ============= Page 114 of 151 ============= Global Finance Summary (addendum to DASH) 1. Transaction Summary Amount ($000) Total Deal/Project Capital Commitment $40,000 Less: Financings -0- Less: Syndications -0- Net Enron Investment $40,000 2. Investment terms and pricing: X Market U Above Market 0 Below Market Describe (if necessary):This is an acquisition of a first-class building in Bombay to house all of Enron's current and future Indian businesses. 3. Financing terms and pricing: XU Market U Above Market 0 Below Market Describe (if necessary): The purchase price and buildout will be financed via a rupee denominated bond offering in the Indian financial markets with a guarantee from Enron Corp. Expected interest rate is in the range of 11 % to 13% for five years fixed rate. 4. Legal or practical liquidity restrictions: U Unrestricted U Legally Restricted X0 Practically Restricted Describe (if necessary): Since this is real estate, it's liquidity is dictated by the relative strength of the real estate market in Bombay at the time we try to sell it or sublease it. There are no legal restrictions to prevent a sale or sublease. 5. Any recourse to Enron (other than investment): XU Recourse U No Recourse Describe (if any): As described above, the financing will be guaranteed by Enron. 6a. Business unit intent to syndicate: XU None 0 Partial U All Describe (if necessary): Not Applicable 6b. Intended Enron hold period: Until we outgrow the office space. 6c. Likely Syndication Market: N/A U Industry/Strategic Partner U Direct Private Equity U Capital Markets 0 JEDI I U JEDI 2 U Enserco U LJM I or 2 0 Condor U Other: 0 Margaux 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes XU No E0004402033 _J :H003-01347 ============= Page 115 of 151 ============= Global Finance Representative: William Ll Gathmann 0 Signature Name (Printed) Date EO004402034 003-01348 ============= Page 116 of 151 ============= INTEROFFICE MEMORANDUM To: Joe Sutton From: Dave Gorte; %-7 Date: March 29, 2000 Re: Property Acquisition/India Building Purchase DASH This memorandum will confirm that I have received a voice mail from Jeff McMahon indicating his approval of the above transaction. He will sign this DASH upon his return on Friday. ECO044O2035 (H003-01349 ============= Page 117 of 151 ============= RAG Deal Approval Sheet KEY SUCCESS FACTORS -Poor Excellent Core Business x Strategic it Upside Potential x Management s Mitigation OTHER RAC COMMENTS: The economics of this investment are driven significantly by the residual value of the property. Commercial real estate values in India have been volatile; as a result, the projected returns for this investment are widely dispersed. APPROVALS Region Originator Region Legal Region Management RAC Management ENE Management ENE Management Enron Capital Management Name P Sreekumar Sandeep Katwala Sanjay Bhatnagar/Wade Cline Rick Buy/Dave Gorte Joe Sutton Ken Lay/Jeff Skilling Andy Fastow/Jeff McMahon Signature Date E0004402036 C:\W INDO WS\TEMP\Trump_ DASI-I 032800.doc - J Page XH003-01350 ============= Page 118 of 151 ============= SO '39dd it:80 OOOZ 6z bdw RAC Deal Approval Sheet KEY SUCCESS FACTORS NA Poor Excellent Core Business X Strategic Fit x Upside Potential X Mana anent X Risk Mitigation X OTHER RAC COMvfNTS: hhc economics of this investment are driven significantly by the residual value of the property. Commercial real estate values in India have been volatile; as a result, the projected returns for this investment are widely dispersed. APPROVALS Region Originator Region Legal Region Management I,AC Management ENE Management GENE Management Enron Capital Management Name P Sreekumar Sandeep Katwala Sanjay Bhatnagar/Wade Cline Rick Buy/Dave Gorte Joe Sutton Ken Lay/Jeff Skilling Andy Fastow/Jeff McMahon E0004402037 Date a 3~ 25 3 ;gyp LO v 2-,r.<3lco XH003-01351 ============= Page 119 of 151 ============= S-15 m n 0 0 0 N 0 W W EXH003-01352 ============= Page 120 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: South America Fiber Optic Network Date DASH Completed: 01 March 2000 Counterparry: TB G - Tramportadora Bra silcira RAC Analyst: Daniella Carnciro / Juan Samudio Gasoduto Bolivia - Brasil S.A. investment Type: Equity Business Unit: ESA (50%) / EBS (50%) Capital Funding Source(s): Balance Sheet Business Unit Originator: Pravin Jain Expected Closing Date: 03 March 2000 QPublic EPrivate Expected Funding Date: TDD OMerchant Strategic Board Approval: Pending OReceived ODenied EN/A OConforming ENonconforming _ RAC Recommendation: Proceed with'rransacrion DReturns below Capital Price ODo not Procecd APPROVAL AMOUNT REQUESTED Capital Comrnitmcr,t SS 10,054 EXPOSURE SUMMARY This transaction: S10,054 Total S 10,054 Actual construction on the Right of Way is estimated to cost an additional S51MM if multiple subduct conduits arc installed (allows up to three expansions), and S43NIM if single-subduct conduits are used (option for one expansion only). DEAL DESCRIPTION Eaton South America and Broadband Serrices propose to spend 310MM for the purchase of a non-exclusive perfected use of Rights of Way ("ROW") :long a 987-kilometer seginent of the pipeline from Catnpinas to Porto Alegrc from TBG-Transportadora Brasilc-.ra Gasodute Bolivia-Brasil S.A Population along this route is over 6.6 million (4% of Brazilian population) and accounts for 8.7% of the Brazilian total purchasing power. A proposed fiber swop would extend the network mach over an additional 950km, connecting the original network to the prime cities of Sao Paulo, Rio do Janciro and Bclo Horizontc. Population in the swapped route exceeds 22.1 million (I 3"/o of population), and accounts for 27.2% of the country's purchasing power. The purchase of the ROW is subject to two conditions precedent: (a) Resolution of a 189krn ROW gap, and (b) Obtaining licensing from ANP and ArATEL. The ROW will not provide rnvcnucs directly, but will clazify Enron's and Petrobri s' position in the market and will provide several commercial options going forward. Enron's Position By purchasing the ROW Enron will have demonstrated willingness to build along the proposed route. With the resolution of the ROW gap and by obtaining regulatory approval, Enron will become a more credible seller of fiber in the marketplace. It will become more economical for firms to purchase fibers from Enron than to spread the fixed cost of ROW and construction of a network themselves. Petrobrit' Position / As a condition precedent to the sale, Enron must obtain ROW along 189km owned by Petrobras rather than the pipeline, or along a satisfactory alternate route (i.e. highways, railroads). Pctrobris owns a 51% stake in TEG and has delayed negotiations as it tries to dccidc its own future role in the telecom market in Brazil. The Deal Team can leverage Enron's purchase of ROW to put additional commercial pressure on Peuobris with the potential for legal/regulatory pressure to follow. Cornmcrcial Options 1. Sell fiber to a third party. The break-even S909/km (based on a $43vLV1 constnrction cost) for 48 fibers supports deal offcred to Intelig at Sl,180/km. 2. Sell fibers to EBS for developing their network • The favorable conclusion of a proposed strategic swap with Intelig will give Eoron valuublc miicagc for increased network reach which in turn could provide a South America platform for EIN, broadband interrncdiatiott and content delivery Serviccs. 3. Option to increase the number of fibers based on demand up to three times, and up to 216 fibers per expansion. Capital Estimated Investment Description of Investment Timing S 1 0,054,000 TBG Pipeline use of ROW - Campinas - Porto Alegre Current E0004402039 H003-01353 ============= Page 121 of 151 ============= RaC Deal Approval Sheet Deal Name: South America Fiber Optic Network TRA.rSACTION SOURCES AND USES OF FUNDS Sources Uses 50% ESA/ 50% EBS Equity $10,054 Capital Expenditure (ROW) $10,054 Total $10,054 $10,054 RETURN SUvi ARY PV ( Cumulative " Reiurr. Components: Capital Price IRR Cash Outflows (S38,385) N/A Fees $0 -100.00% Tntcrmcd. Cash Flows $39,154 28.62% Tcrrniral Value $0 28.62% Total NPV S769 28.62%~ E-Rating 9 Capital Price Components Risk free ratc (%): 6.39% Equity/Credit premium (%): 5.02% Country Premium (%): 5.80% Transaction-Specific (%): 11.79% RAC CAPITAL PRICE: 26.00"/0 Relative upside ratio 2.253 ' Note: Cash flows reflect the probability that the Build and Expansion options are exercised, which will be treated as separate rra)tsactions. IRR Dis tribution 35.0% r PS J tl io 25.0% 15.0% 10.0% F5 5.0% F95 0.0% o e o 0 0 0 0 0 0 0 0 0 o c o 0 p v-i ' oo r t~ - t0 O h O' v oo c~ h O r~ N C v1 N eo .- - a7 c O r` ri O 'C O N V N r r n ~n so - .-. ._ V c+ e N C' -- - N N N N Cash flowSuututary 5400,000 _T Elapsed I -e-- Expec tedc''tuative csh ScQO,000 I _ ~~- f --e--C=uativc C5 +G^dative P95 5200,000 i , I +Outflaw~ 4100,000 ly 0 f l t c 4 1 7 A tee 'w 1t; •L 1.1,~~a n l• to `0 `J; `t S7 1w} ^1] n C~/ ^A V 4I -"~T=und Vzlw S;10U,0U0) J .. Months C:\windo ws\TEMP\-0004240. doc :H003-01354 Average Life = 1.7 years Psoc 2 E0004402040 ============= Page 122 of 151 ============= RAC Deal Approval Sheet Deal Name: South America Fiber Optic Network CAPITAL EXPENDITURE CHART ':,APITAt. EXPENDITURE CHART Capital Expenditure $51 MM S10MM Time A - Inibal Investment. ROW Purchsse 9 = Investment in Network Construction • based on timing of first pre sales C = Investment n Network Expansion - based on subsequt:nt pre-sales • Note: Flexlolury of up to rnree 216•tioer expansions. SACTION UPSIDES/OPTIONALITIES TR. Expansion • Multiple subducu allow the option to install additional fibers in conduit based on pre-sales. There is significant value in this option as the investment in the purchase and installation of each set of 48 fibers costs approximately $9M_M, while the deal team estimates the 48 fibers could be sold for as much as S 117MM. This probability has been included in the model :nd causes the tail. II. Swap A proposed swap transaction with lntelig would extend the reach of the fiber network from 1,220km to 2,1701en, and connect the prime cities of the Brazilian South/Southeast region. The cities connected by the network after the swap transaction account for 18% of the Brazilian population of 1 63 million, and 36% of the country's purchasing power. • Having access to these prime cities would provide EMS with a strategic benefit in constructing its network. III. Segment II - Extend Network from Southeast Brazil to Chile. There is an opportunity to extend the network reach from the Southeastern Brazil to Santiago, Chile. The Project would build the second segment from Porto Alegre to Buenos Aires. The Deal'Team is currently negotiating with railroad concessionaires for this route segment. National Grid, Williams Communication and Trans Canada have formed a joint, venture to build from Buenos Aires to Santiago. This joint venture has been in negotiations with the Deal Team to swap fibers on the two routes. EXIT STRATEGY e Sell off fiber network at break even price; or cap losses at $10MM (initial ROW investment). C:\ivindows\TEMP\-0004240. doe E0004402041 PaGc 3 H003-01355 A B C' ============= Page 123 of 151 ============= RAC Deal Approval Sheet Deal Nanic: South America Fiber Optic Network RISK MATRIX DESCRIPTION MITIGATION/COMMENTS Price Risk Pricing assumptions significantly impact the project's returns. The model range of 31,200 to $2,000 fiber/km per 48-fiber packet is a RAC estimate based on Deal Team proposals. An Anchor Tenant contract at $1,180 fiber/km has been offered, which helps define the low end. The Deal Team has other proposals in front of customers at prices up to $5,000 fiber/km for fiber sales of 4 to 6 fibers. This number has been discounted due to: • Open Access (see below) will put significant downward pressure on prices. • Current proposals arc theoretical in nature and do not reflect actual commitments. • The need to sign up customers quickly to demonstrate commitment to the project and the need for multiple trausactious for the sale of all 43 fibers will influence ricin . Fiber Build by Competitors There are a number of companies interested in building networks in SouthJSouthwest Brazil. These companies arc either potential customers or competitors. I • Embratel and Incelig have the need for fiber that justifies strong capital corrunitment to the development of routes in this area. They arc currently not building fiber for sale, preferring to i swap with existing players, in an apparent attempt to keep new players out of the market. Tf this strategy changes, they would become formidable competitors. • With the purchase of the ROW Baron will have shown comrnianent to a fiber build which will help attract customers. If another credible player enters the market and shows stronger commitment (purchase ROW and commit to build), then customers may gravitate to them. • Under the TBG Shareholders Agreement, any TBG i Shareholder has the right to use TEG's ROW provided that fair compensation is paid and such compensation is approved by TBG's board of directors. Also, recent legislation prevents ROW owners (pipelines, highways, etc) from denying ROW to qualified interested parties (qualified by ANATEL) provided that a fair price is paid. • Potential players in the market: Embratel, Intel.ig, AES, and Williams. Open Access Unde- current legislation, Enron may be forced to sell unused capacity at "fair market" prices as defined by ANATEL I (Brazilian Telecom Regulatory Agency). This legislation is new (November 1999) and has not burn interpreted by ANATEL yet. The concept of fair market is just now being introduced in the Brazilian telecom market and may significantly impact on the potential upside of this transaction. I Public Notice Under recent legislation, TBG will probably have to issue a public notice of the availability of the ROW, making ROW available for purchase to other investors. The notice may I include technical information, pricing and time periods for obtaining the ROW. Ultimately, the entire agreement may be made available to the public _ C:`windows\f 1v1P\--0004240.doc Page 4 E0004402042 =XH003-01356 ============= Page 124 of 151 ============= :RKC v°MAR. H). 2000 9:03A(I 66EC(- pi RAC Dcn1 Approval Shat Deal Name: South Arnerkn Fiber OptitlNetwork VC, 0921 i 0006 Other Re~u story Rinks - Th 9nzii telecom some ij xMderbomh rspi•1 rcculxtory, thane and nvw tcgulatiolu or untmueen apphcauotu of wing to ationceautdWee set eeonom;c 189km ROW Cep On* of tba coaditiod.i protxdeat in the ptt:paaed agre•mertt 11 a szdsfictury tohttioa !ar the 1.89-Womatet ppt as tlto roast. Same of tat. selationa may lachdc; • rurzhuing use of rigtta of may dir.otly$nrn Pctzobzht, • Ptttttuuiag Cights of way dizcaly Eora tsioony nuttteritis of railwZy concee>ionairtr, or pir..bwice coodulr &orrt otLcr partlts fcr tt4 tcatioai (Eunmar tt cxittSuo t(r z eaadutt not~k that rata pareUal to the'TBC, )CD W). • inttig Fins the gxQs with rot railroad rigiln of may, A (tdi914v alts artveri otway, )EY SUCCESS PACTOIZS NA Poor ~YC.uaa! Cots Ba es9 x S ;.Flt x U ide Pot 1 Mangy amcnt Risk Mfd 7rinn OTBER PAC C01YVMENTS: This lz a irpecuL dyc tavcstincat that may result in the loss of the ititzal iavoctma>! it the trurkct for i s dots nae dealop oY another more iggr e r ve player decide; to build, if the msrkct dots develop, shit Fnvosmrnt btt{ rmbcddud optioaa m ezgmd capoclry, which would si tfe•snlfy irerstse returns. .Lay c oa rpuc ion e]Dng the XOW (without s 100% at the cirlml caverad ttxvur„1h p-.alia) would tcquitt a DESK My :n1: of fiber ro PBS would tcT.ire s scppzh DASR. I AP 'RO Y..L9 NsmP RAC Managomenr Rrrmn Capiitxl Ma.attgemt 1 Burlaeoc t.lnit Originator Lcg31(ESA) Legal (EBS) Suiiness Unit (Kcryzaontant (ESA) 'Burinw Unit Meaatemce:C(23A) Duslnas Uttlt M•mzgetttestt ("E13 S) 1:3udiaud Unit Mxr agcutcat (FMS) tE 1 taaag meat e;\Wtn~C, +TnMo41Ena14O c tnr. i y d GoYte left ldc.Mehoa PMVjp J110 Robert George Krls dim Mnrdaao t rim $t w=ont IN Ki>rhkill Joe Ekko S tee $Iiiott loft Skilling tr 2AU i ck Trgt 5 E0004402043 r ============= Page 125 of 151 ============= RAC Deal Approval Sheet r Other R gulatory Risks The Brazilian telecom sector is undergoing rapid regulatory change and new rcgulati.ons or unforeseen applications of existing reculations could affect project economics. t 89km ROW Gap One of the conditions precedent in the proposed agreement is a satisfactory solution for the 189-kilometer gaps on the route. Some of the solutions may include: • Purchasing use of rights of way directly from Petrobras. • Purchasing tights of way directly from highway authorities or railway concessionaires, or purchasing conduit from other parties for gap sections (Barramar is constructing a conduit network that runs parallel to the TBG ROW). • Intelig bridging the gaps with its railroad rights of way. • Acquiring individual altemative ri hts of way. KEY SUCCESS FACTORS NA Poor Excellent Core Business x Strategic Fit x I Upside Potential x Management x Risk ,-litigation x OTHER RAC COMMENTS: Deal Name: South America Fiber Optic Network This is a speculative investment that may result in the loss of the initial investment if the market for fiber does not develop or another more aggressive prayer decides to build. If the market does develop, this investment has embedded options to expand capacity, which would significantly increase returns. Any construction along the ROW (without a 100% of the capital covered through pre-sales) would require a DASH. Any sale of f•.ber to EBS would regwrc a separate DASH. APPROVALS: N acne Signature Pate RAC :Management David Gorte Enrw Capital Management Jeff McMahoa Business Unit Originator Pravin Jain Legal (ESA) Robert George Legal (EEiS) ..- Kristina Mordaunt Business Unit Management (ESA) Jim Bannantine _ Business Unit Ivianagement (ESA) Joe Kisbkill Business Unit Management (EBS) Joe Hirko Business Unit Management (IBS) Steve L•lliott F.NE Management Jeff Shilling C -\windows\TEM P\-0004240.dac E0004402044 Page S KH003-01358 ============= Page 126 of 151 ============= I<:l( I kul •\ppl.w.- [ S1u. t Dcul Natttc: StlutlL Amerit:a Fiber optic tit ct~urk r i111Cr [fit"'Ul;ttury lti..ks 7 he Rrttrili'm tclcct7i i sector to t•tudt:1guing, r; pk! rl't:Lllalttr' CIT.U z. '• l ul nc•w rt al;tli;7tts ur unl'nrc•a:t:n ;1ltllltcd6uni n1 t4gnlal iulls Could of (rct prnii:'_t rt•unnmic'; !: %t 1:, . (7W (j.+l p. (lt IItC CUtI(IllitNl( prct:ctlc,ll it, ('b' ;7r.llv,t:•4t[ au1: t11Jtl I, 511.51 J..tury solmmit fur (he t\t)-I:illtllletL't ;:1111 ltn Iltt: IUltlt• .1~ thr sulutxlna ,;lay ittclutlC' i'ur It :bi la :INC u; rightst' tt•: y .liruel k- !Suet l'Cn'+Ihr - l'urchasin . rtGr.> of w:y tlircctly Iruul hi_lm.ty •luthhr;t,.~ • . r~ilw;7y Cnllt-'CSSIUttIire . ur (urlltulill~. ~tutllui; tt'NU: :t:l•:: 1 :lthe (UC yap sec ictr.5 (~'an'ttn; t t: r• tltlsu'll,'tin:. twiwork llt_t rues pnrtllcl to tilt: I`I:s(.. IZ(l\b I. • I;uuhr hiitl ink; the gar"; ttidi itS r:liiluti.l rt,:h:, ut'%:.1:. I ..... ...... _.. . Poisr --- . _...._-_ ._..._._... ~. _...._. u t::c t ... t Icaiot,tirtr, or purcboslnz conduit from otLcr pardtJ fcr Ifs tcatiotsr (Harr=%Ar !r rnnsuvotttiC a coahttit oot•wk thre tapu pare t1a I to the TSC XO W), + Lntelig brid&rsrs the ffspc with ro railroad nighty of may, A tndivfdn ahtmattve 7thft of way, XEY SUCCESS)FACTOI s NA Poor ~Ye.Uan! Cot? r", esa x S ACFt X rJ !de Poc ! Maria oiztent Risk Mfd 7tinn OTBER P .AC COMMENTS: This ii a ypeculsuvc iavcsrmeat that ruby :esuh in the loss of the initial itavectmcat if the mrrkct for GUT do" not de Clop or another mare aggress ivo plcyer decides to build, if the mukel dots de~tlop, thi invoscouat btt cmhcddud optioaa to eacgmd capeity, which would sil,`aiIIesnt1y itx rttse retixms. • AMY coat4-tfrcon tS2ong the >,OW (wit}sout a 100% ox the c+rha! coverad tttseu;I;gz6-ar-iaa) wodl4 tcgUitt % DAS!L • Ahy sntc of fiber to PBS would require .1 epttats DASH. I APVROVa1.9: RAC M..nagnmcnr EX-Ton Capital M-twoeMMI Buc$tscc Unit Originator Legal (ESA) Le&o! (EBS) Busi.aess Unit kzwaorl+cnt (,ESA) Dwinam Unit M"emaat (.9M) buxloars Unit M'anageirent (ESS) 3b,6=44 Uuit Mxnag«utrat (EMS) ENE ManagClI%ent Ct'r9rRicwR\T)9.1 D4.IlUt1240.&c tnr DI'Vid Colic Jeff MrAhhoa Praviu Jain Robot George Krtstitu Metziaaot Tim 9t:IIhnatine Jot: KiYhkill Toe Fiirko . Steve $tliott J f $killiug '3111 $ J E0004402055 J ============= Page 137 of 151 ============= RAC Deal Approval Sheet Deal Name: South America Fiber Optic Network Other Regulatory Risks The Brazilian telecom sector is undergoing rapid regulatory change and new regulations or unforeseen applications of existing regulations could affect project economics. 189km ROW Gap One of the conditions precedent in the proposed agreement is a satisfactory solution for the 189-kilometer gaps on the route. Some of the solutions may include: • Purchasing use of rights of way directly from Petrobras. • Purchasing rights of way directly from highway authorities or railway concessionaires, or purchasing conduit from other patties for gap sections (Barramar is constructing a conduit network that runs parallel to the TBG ROW). • lntelig bridging the gaps with its railroad rights of way. • Acquiring individual alternative TiZhts of way. KEY SUCCESS FACTORS NA Poor Excellent Core Business X strategic Fit Upside Potential x Management x Risk Mitigation X OTHER RAC COMMENTS: This is a speculative investment that may result in the loss of the initial investment if the market for fiber does not develop or another more aggressive player decides to build. If the market does develop, this investment has embedded options to expand capacity, which would significantly increase returns. • Any construction along the ROW (without a 100% of the capital covered through pre-sales) would require a DASH. • Any sale of fiber to EBS would require a separate DASH. APPROVALS: Name Signature hate RAC Management David Gorte Earon Capital Management Jeff McMahon Business Unit Originator Pravin Jain Legal (ESA) Robert George ~~ Legal (EBS) Kristina Mordaunt 1 3 Business Unit Management (ESA) Jim Bannantine Busincss Unit Management (LISA) Joe Kishkill Business Unit Management (EBS) ]oc Hirko Business Unit Management (liBS) Steve Elliott ENE Management Jeff Sldlling C' \windows\TF.MP\-000424U.dcc Page 5 E0004402056 H003-01370 ============= Page 138 of 151 ============= C %urt U. \( I)wl 'lpptu~ltl lhta Ut:al NacfC: tit)llllt.'Amerit.u F'ihcr Optic tiv r. thci [•;I;;'ulawry I•tieks I he Rravilian tclt:c:cHn batnor is t111(1Ci;yt:in,~ rapid rt•t;ulatil clTat:_t. ; l:ul Ilt`\V r at:(Ii:nt5 nr unt;~re cc n al P t aiiuI1' I . C.r?:;i:t:• t•t gulatiuni could afrccc pr(ti~t_tct•ultnmtc•;- !;< ;t m I:OW U;Ip.........._ -~ Or c of ilia ctlnditimi.,; prcccdcnt in lhr ;)n>hla:.ccF ;t,rc Wren !, .. ,alislti(:cu:y tint for the tFO-kil(amct t on the lout(- U t1i suluuilns may include: • ('ur~haitta:ric ut riLill: u1 \\'::y tlirt_t:lIv ! t u l't rl•ullr:c. • Purchasing r.LLTD of \v;;y diro.1ty From 16--dmay r_it\ts; Cttltccssiunaires. rtr rurclI ;iI , ctxtllui: li(nr• :+:!,::l aJltttdt ItATllcti fur gap KCtliatts (f.•Jrt'al1ti11 1c . (;nltiU'1tt:1i11;; ;: utatvnrk tlt:t rurt:c parallel to the `(1$(i IZO\" I. • I:v~lir hiiti i the 611P.; \,"it!' ifs t 1lsul( [_~~IC.ntial ! S. lalt;l'sCC................ ;)):41-A" 1:.\(' ('Oi\•l'lEN'I•S: ltlal lvt: I vv,,1(11.,11 1h41 tiuiy (CiIIII 11) 1111. 1i);N (?i II:: Mittal p(ilyCr decides to I:a/ild. II'lltt: ni ikct lIt>c. rlc'n:hip. this it:\~',;rtttnl hn;: II. t. dell 1vU.lIL.I sii.(nilic;uttly incrca:,a r~tuIIo. • ('. •. ('t t:V.ll'tlCllUll a1U110, the ROW (WllhUltl U IUO t)I t11C t•ullit7I l'ttt'crctI +.hruugil }::1:•iakrS) l1ta:!:I !'t;.1U:1: .: 1):\.-•I l tihcr to F:Citi wntll;l rcyuir: ttseparalr f).'\'-Il. "..tn.• tit _tlll((il'C 1)utt. •.i.I:Ij11t111CIll. I)avld (;ill IC t..i :tl ?~1.utayl rttr+>l tell 14•lcmahun 1!.r,:nsa !.111:1 OrlLtl wor It I':IVllt !:tilt IZuhcri (./Ct,r~V :! ,, i.'l:it IVI:an l:ntt'nt (liS\t lilts Lialli mtinc j.i ~~ - - tJ'>j"_ (1( ` +:: !u(:,. ! 'nmt ;' 1unl rrnl nl (L 1\ I 1tlc K ishkill i:u : !i ., i lttt btalt:ticntenl i L'•'13~) Jut I ltrklt !oil %larla-vntcnt (E S) Steve lrlliull ! '•1:1;1as;atwnl It fl' St:i)liii .. ...! I Nil' tine , E0004402457 H003-01371 ============= Page 139 of 151 ============= 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financing Less: Syndication's Net Enron Investment 2. Investment terms and pricing: Describe (if necessary): 3. Financing terms and pricing: Describe (if necessary): Amount ($000) $10,054 -0- -0- $10,054 (91 Market 0 Above Market 0 Below Market M Market 0 Above Market 0 Below Market ON/A 4. Legal or practical liquidity restrictions: 0 Unrestricted 0 Legally Restricted t] Practically Restricted Describe (if necessary): Purchasing a non-exclusive Right-of-Way 5. Any recourse to Enron (other than investment): 0 Recourse El No Recourse Describe (if any): 6a. Business unit intent to syndicate: M None O Partial 0 All Describe (if necessary): 6b. Intended Enron hold period: Strategic Investment 6c. Likely Syndication Market: 0 Industry/Strategic Partner 0 Direct Private Equity O Capital Markets 0 JEDI 1 O JEDI 2 0 Enserco O LJM I or 2 O Condor 0 Other: 0 Margaux 6d. Is this a JEDI 2 "Qualified Investment"? 0 Yes 0 No Global Finance Representative: L~4,N- CC' /^A - LAtjyt)(_ 31, ~60 Signature Name Date E0004402058 XH003-01372 ============= Page 140 of 151 ============= 03/03%00 MON 13:50 FAX ENRON DO BRASIL gjuut MAR 31 2i:i 13:41 FR ENRON INTL ECUN ANRLY?13 :545 t:t t' lu yk~117>1 1»e~l ~b~ r. tu~i uo RAC Deal Approval Sheet Deal Name: Saving Priva a Zysn APPROVALS Region Originator CEO - ESA CEO-ESA Region Legal PAC Management /s.YV&\ Vaj/i1Gl l,aa&I45l:11lCll\ Office of the C}+~ Name SiP atur I ste Peter Weidler Jim Bannantinc Diomedes Chtistodoulo Randy Young __ Dave Garte _ Z%11LLl/ ru vw UL ocll MUMdavu Jeffrey Skifing - Joe Sutton \\E1-NTCOMMOI\G COMMON\Commonls? rc\Trnn:rcdcs\TRSADASH\DASHTRS43-3I-00,doc F/s' 4 APR 03 2000 11,52 PAGE. 01 E0004402059 (H003-01373 ============= Page 141 of 151 ============= 04/04 '00 11:36 FA.T 02077834479 PARK-ST LONDON Lgjooz 31 ' Mar 00 17:25 ENRON LEGAL DEPARTMENT 55 11 55031351 pa6 MAR 31 2000 14:13 FR ENRON INTL ECCN P R'_Y713 345 6057 TO 9011551155031351 P.05.e6 RAC Deal Approval Sheet APPROVALS Region Orig+natot CEO - ESA CEO - ESA Region Legal RAC Menaganenr Enron Capital 114anngciu i OEficc of the Chaiztnan Name Peter Wcidlcr Jim Bann=tsne Diomedcs Christ oulo Randy Young Dave Gone Andy Fastow or Jeff McMahon Jeffrey Stilling Joe Sunon Deal Naine: Saving Private Ryan Date 33icx7 ~ ov '1'b au ~~et-T17CUt~{NOt~ CtSMMON~Cotrmronb>_netiTrs~aedct~TR~q DASHZASH TRSA 3.31-00 CoC ;;::R 04 2020 ^OJO:35 Pace 4 020??8344?9 PpG=,P~ E0004402060 FXH3-01374 ============= Page 142 of 151 ============= RAC Deal Approval Sheet Global Finance Summary (addendum to DASH) 1. Transaction Summary Total Deal/Project Capital Commitment Less: Financings Less: Syndications Net Enron Investment 2. Investment terms and pricing: Market Describe (if necessary): 3. Financing terms and pricing: Market Describe (if necessary): Amount ($000) $5,000 -0- -0- $5,000 0 Above Market O Below Market 0 Above Market 0 Below Market Based on local borrowing comparables (BNB Facility). 4. Legal or practical liquidity restrictions: ;~ Tnrestricted 0 Legally Restricted Practically Restricted Describe (if necessary): ~' 5. Any recourse to Enron (other than investment): 0 Recourse )XNo Recourse Describe (if any): 6a. Business unit intent to syndicate: None 0 Partial 0 All Describe (if necessary): Inefficient to syndicate this small of an exposure. 6b. Intended Enron hold period: Expected term of 3 months to allow sufficient time for negotiation and closure of Cuiaba purchase and sale. Potential term of 14 months if unsuccessful. 6c. Likely Syndication Market: 6d. Is this a JEDI 2 "Qualified Investment"? O Yes ;KNo Global Finance Representative: 3 r (c't'l S(.~l /1 r~ 3131 /oo Signature Name (Printed) Date E0004402061 \\EI-NTCOMMOI\G COMMON\Common\sa rac\Transredes\TRSA DASH\DASH TRSA 3-31-00.doc 0 Industry/Strategic Partner 0 Capital Markets 0 JEDI 2 0LJM1or2 0 Other: Deal Name: Saving Private Ryan 0 Direct Private Equity 0 JEDI 1 0 Enserco Condor 0 Margaux Page 5 XH003-01375 ============= Page 143 of 151 ============= S-17 m n 0 0 -p 0 N 0 0) N EXH003-01376 ============= Page 144 of 151 ============= ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: NP TPL DEAL Date DASH Completed: [31st March 2000] Counterparty: National Power RAC Analyst: Jitendra Patel Business Unit: Enron Europe Limited (EEL) Description: Contract Novation Business Unit Originator: Rob Bayley / Denis Bajolle Capital Funding Source(s): n/a Expected Closing Date: [end of April'00] Expected Funding Date: [None] Board Approval: Pending OReceived ODenied l]N/A RAC Recommendation: (]Proceed with Transaction ODo not Proceed APPROVAL REQUESTED • Receive £506 MM cash payable by National Power Plc. • Take over a loss-making power purchase agreement with Teesside Power Ltd. from Midlands Electricity [Net present value £(461) MM], but controlled by NP; (requiring Enron Corp. performance guarantee of up to £600 million - to be negotiated). • Enter into a financial power swap priced significantly away from Enron's current UK power forward price curve [Net present value £(28) MM], (requiring an Enron Corp. performance guarantee for £40 million). DEAL DESCRIPTION Midlands Electricity has a long term power purchase agreement ("PPA") with Teesside Power Ltd. ("TPL") for 500 MW at prices substantially above current prices. Midland is one of four Regional Electricity Companies who contracted in 1991 with TPL to purchase power under long-term PPA's. In 1999, National Power purchased Midlands' supply business and therefore became liable for this PPA, which has substantial negative present value to the holder. National Power has announced its intention to demerge itself into a domestic U.K. vertically-integrated electricity company and an international power development business. In preparation for the demerger, National Power approached Enron to execute the following transactions: • Novate the Midlands TPL PPA to Enron; • Enron and National Power will enter into a new long-term 407 MW baseload contract for differences "CFD" in which Enron receives a fixed low price in exchange for UK power pool prices ("PPP"); • National Power will transfer to Enron £506 MM cash upon novation of the out-of-the-money TPL contract and the new below-market CFD. Cash Consideration Enron (supported by Enron Corp guarantee) 407 MW Firm National Power Baseload Sale 500MW PPA (Run-of-plant) Novation to Enron TPL E0004402063 =XH003-01377 ============= Page 145 of 151 ============= RAC Deal Approval Sheet Deal Name: NP TPL Deal Both the TPL PPA and the new sale to National Power have the same term (terminate 31 March 2008). National Power's intent is not to materially alter their power position but to replace "non-firm" power revenue from TPL with receipts based on firm power from Enron. STRATEGIC RATIONALE Rationale behind Enron appetite for the deal: • £16m accrual earnings creates a slightly short power and indexation position and gives us the option to get long if power prices start to rise. • Receive £506m of cash upfront. • Replaces a PPA holder whose interest may not be aligned with TPL and its shareholders (Enron 42.5%) • Moves Enron closer to being able to restructure TPL. • Helps to mitigate Enron's guarantee exposure to TPL default. Hedge for NETA. Rationale behind NP appetite for the deal: • Following the sale of Drax, Eggborough and Killinghome, NP is cash rich. They are prepared to use cash to resolve an off-market PPA. • By exchanging the PPA against the CfD, they exchange a hard to manage, non tradable physical contract for a financial CfD which can be hedged easily in the market. Also, since NP (domestic) will be using accrual accounting, by entering into a CfD agreement to buy power below market, £17/MWh in a £19/MWh market (i.e. prepaying for power), they will be able to pass that CfD to their supply business and recognise good earnings over time. • Finally, by crystallising the £500m losses in the PPA, NP will be able to take a current tax deduction which may be carried forward and used to offset tax on future profits as they arise. POSITION/EXPOSURE SUMMARY The PPA The price in the PPA with TPL into which Enron will step into is a function of the following published indices: • industrial power prices ("Energy Trends - Elec"), opens a 2.2 TWh short position; • industrial heavy fuel oil prices ("Energy Trends - HFO"), opens a 894,779 mt short position; • the UK producer price index ("PPI"), opens a £87.1 mm short position; • the UK Department of Energy cost of fossil fuels index ("COF ), opens a small illiquid short position; in return for Pool Purchase Price ("PPP") receipts on 500 MW capacity with 60% Load Factor. Also, a short natural gas position of around 12 Bcf arising from rejected Enrici tolling capacity. The CFD Enron receives £17/MWh in return for PPP on 407 MW baseload capacity Each of these positions will be hedged with the appropriate MTM trading books. The impact on the UK Power book arises from the net position from the PPA with TPL and the new CFD with NP as above, and is summarized as follows: E0004402064 Page 2 EXH003-01378 ============= Page 146 of 151 ============= RAC Deal Approval Sheet Deal Name: NP TPL Deal Longer Liquidation Horizon - VCR Proposed Deal 1-Day VAR ($mm) Position (TWh) 10-day 30-day 60-day ET ELEC 0.6 -2.2 1.9 3.3 4.6 :.PPA + CFD 0.5 -5.1 1.7 2.9 4.1 RESULTING NET POSITION 1.1 -7.3 3.4 5.8 83 CURRENT - UK POWER BOOK 6.7 -24.5 21.3 37.0 52.6 CURRENT + DEAL 7.7 31.8 24.6 42.8 60.7 CURRENT + DEAL + PROJECT REPEAT 15.2 .81.7 49.7 86.5 122.7 'LIMIT, 85 0 .~. , The analysis includes the effect of Project Repeat, since this is pending, yet to be booked. Due to the depth of the UK power portfolio and the relative liquidity of the near term market, it is expected that the power position in this deal could be closed out sooner than 10 days. The only component of this transaction that is truly illiquid is the COF position. Using HFO as a proxy the position is equivalent to short 488,000 mt. RETURN SUMMARY Expected P&L P&, PV £MI)!_A Capacity Charge: -£470.19 TPL Grid Charges: -£33.74 ICI Rejection (10% of CFD): -£1.47 Enrici Rejection: -£7.60 Share of IG: £7.71 Share of Ancillary Services: £2.11 EC MTM (On MinGen Volume): £50.82 PPA Gross Value: -£452.37 Adjustment for Index, Plant and NETA Risk: -£12.50 PPA Net Value: -£464.87 SPPA £3.50 PPA + SPPA Net Value: -£461.37 NP CFD: -£28.76 Cash Payment: £506.00 Net P&L Accrued Pre-tax: £15.8 Value of 75 by ENE COF (Accrued): £13.57 Total Value: £29.4 Expected Return Analysis - Not applicable since all earnings are on accruals basis. E0004402065 Page 3 EXH003-01379 ============= Page 147 of 151 ============= RAC Deal Approval Sheet Deal Name: NP TPL Deal ACCOUNTING ISSUES Because the PPA transfers a large portion of plant operating risk to the PPA holder and Enron operates the plant, it will be accounted for as an operating lease of a portion of the plant for U.S. GAAP purposes. Thus, any imbedded value in the transaction will be recognized on an accrual basis over the remaining term of the PPA. LEGAL ISSUES This deal does not present any special legal risks. The agreement with National Power will be binding on Enron with Enron Corp. approval or other internal approvals. It will however be subject to third party consents/approvals which Enron and National Power will use reasonable efforts to obtain. RISK MATRIX As a counterpart to the Midlands PPA, Enron will be exposed to the following risks: DESCRIPTION MITIGATION/COMMENTS Commodity Risk Enron will be exposed to the following residual commodity positions: Energy Trends Electricity (specifically the basis risk between ET-Elec and PPP) Energy Trends HFO (specifically the basis risk between ET-HFO and crude oil) PPI (net of some existing offsetting positions in the inflation book) Cost of Fossil Fuel Index Credit Risk The existing PPA is considerably out-of-the-money to Enron, hence the negligible credit reserve on this contract. Similarly we have risk on Npower under the CFD. NPower is a newly formed subsidiary of National Power PLC which is rated A- by S&P. Our exposure to NPower will be protected by a parent company guarantee and proposed documentation will include MAC clauses covering for downgrade, change of ownership etc. Operating Risk Plant Risk The power received under the PPA's is subject to plant availability, output variations due to temperature and steam exported to ETOL. Performance risk exists on TPL but given its' approx. 42% ownership by Enron and the fact that we operate the plant we consider this negligible. Operating Profile As the PPA's are based on the run-of-the-plant, Enron as buyer will not know how it's minimum purchase obligation will be produced throughout the year. The value of power produced depends on whether supplementary power purchase agreements ("SPPA") are in place and the way TPL elects to run the plant to produce minimum volumes. Grid Costs The PPA valuation is based on a forecast of future grid connection expenses. Actual future costs may vary. This has been mitigated by a carve out clause in the agreement with National Power. Transmission Losses The National Grid Company's proposed treatment of transmission losses will penalize generators in the North of England. As proposed, TPL's offtakers will be responsible for transmission loss payments (i.e. the offtakers will receive less than 100% of TPL's output). This has been mitigated by a carve out clause in the agreement with National Power. Tax Risk There is a risk that £480m of the £506m upfront receipt of cash will be subject to immediate US taxation at 35% (in addition to UK tax at 30%). This would result in an additional tax expense of £168m. This is an absolute tax expense as no tax credit can be taken. There are a number of defences strategies each of which would need to fail before the exposure crystallises. Regulatory Under the TPL PPA's, new laws or regulations imposed on TPL that result in a quantifiable increase in generation costs is passed through to the offtakers. This has been mitigated by a carve out clause in the agreement with National Power. NETA Included in the UK New Electricity Trading Arrangements ("NETA") is the concept of daily balancing. To the extent that TPL fails to balance its position in the UK pool, costs will likely be asst :c to the offtakers, including Enron as holder of the PPA. Page 4 E0004402066 :XH003-01380 ============= Page 148 of 151 ============= 31/03 '00 21:42 FAX 0171 970 7660 ENRON GAS TRADING 1J004 31/03 '00 PRI 18:48 FAX 020 7783 8027 ENRON CAPITAL AND TRAD$ t00 RAC Deal Approval Sheet Dexi Name: NP TPL Deal BUSINESS UNIT APPROVALS; Name Sl n urn Date Rub Baylcy / Danis BeJollc Q G Structuring London Data $urbo PAC Landvn Steve Young ~l a Business Unit Managsment P4 hard Lewis s /cj Financial & Trading Support Fernley Dyson ~ 03 ~] Lvgsl London Pxui Slmuns ` 0 00 Txansaodon Support Phillip Lord o 3 Alb Earou CapI 1 Mpbagemortt Paul Chivers 3 f ~3. u Tax London _ Jim Sandt _ + . Tax Landau Rod Sc en '3) 0I 04 E0004402067 Pap 6 Z01Z0t Z1 =A1. QO/1•mj 4n797P7t,5'Ln ~1P„ 1310H mtld N!'iUQHSbr Mno_71 _, fPp 1 1 A • 177 t719 71 Q7rr 7r-r-I1 C41 7 P.04 EXH003-01381 ============= Page 149 of 151 ============= 20'd sated nQ F a (S a2 U 0991, 6l'.f, IJ.IFI uoung aoI AqS UlIOI UA O.ig IaEgo!Yd note o of / MoisTa3 Ptrv ng )PL) ouueN 07, ~ L IaLluG- LL-Cow urawaoatrBw 3.J •lutdw ;iun ssaursng -2uioW Ttu fl ssamsng Ie2a,T ;uauiaf TelTdeo uoiua aT =',ohuvpq ov a S'IVAO2Iddy :S'IYAOZ'tW InQ'Zds JN :awehj TsaQ :-T6 890ZOtI70003 ;aayS I>aoaddv Ina Z)Y?I Z9£ L O-£OOHX- CO e MIQYiLL St%9 .II02IKa 099L 0L6 TLTO IVA 6Z:Rl 00, CO/T£ ============= Page 150 of 151 ============= 31/03 '00 18:29 FAX 0171 970 7660 ENRON GAS TRADING 2004 E0004402069 RAC Deal Approval Sheet APPROVALS: APPROVALS Name Signature Chief Accounting Officer Rick Causey Deal Name; NP TPL Deal Date Page 5 P171 97c 7660 91% 13.04 EXH003-01383 ============= Page 151 of 151 ============= RAC Deal Approval Sheet Deal Name: NP TPL Deal DEAL DEFINITIONS Bid Bond A letter of credit or surety bond delivered at the time of submission of a bid. It guarantees that if the bidder is awarded the project that is the subject of the bid, the bidder will execute the relevant project documents in accordance with the terms of the bidder's bid. Deal Description short written summary of the investment. Deal Name Unique name for an investment/deal usually defined by Capital Pricing director or Business Unit Originator. Deal Risk Premium (%) Premium for a deal derived by a comparison of the transaction volatility of returns to historical sector volatility of returns; additionally incorporates any other adjustments for risks specific to the transaction. Premium could be negative if the transaction exhibits less risk than is reflected in the unadjusted capital price. Capital Commitment ($M) Expected present value of cash outflows in the transaction. Expected IRR (%) the discount rate at which the net present value of the expected cash flows would be equal to zero. This measures the expected return of the transaction but does not incorporate a measure of risk. NPV @ Capital Price ($M) Net Present Value at the Capital Price discount rate. Risk-Free Rate (%) the rate derived by weighting Treasury curve rates by the expected cash flows in the corresponding periods. Type of Investment Specific type of investment. For example, VPP, LP, loan, equity, alliance, debt, derivatives, refinance, and physical sales. Sometimes referred to as Instrument Type. Value at Risk ($M) The loss in value over a specified period of time (quarterly, daily, etc.) which will be exceeded with a certain probability. Evaluated based on market comparables. E 0004402070 Page 7 XH003-01384