============= Page 1 of 104 ============= CONFIDENTIAL 130* Endless possibilities.T"' Finance Committee Meeting October 6, 2000 =XH005-01094 E0004402655 Committee Members Mr. Herbert S. Winokur, Jr., Chairman Mr. Robert A. Belfer Mr. Norman P. Blake, Jr. Mr. Ronnie C. Chan Mr. Jerome J. Meyer Mr. Paulo V. Ferraz Pereira Mr. Frank Savage Mr. John A. Urq.uhart GOVERNMENT EXHIBIT 210 Crim. No. H-04-25 (S-2) ============= Page 2 of 104 ============= LU N O d' It O O U W Agenda EXH005-01095 ============= Page 3 of 104 ============= AGENDA Meeting of the Finance Committee of the Board of Directors of Enron Corp. 10:00 a.m. (E.D.T.), October 6, 2000 The Breakers, Flagler Boardroom Palm Beach, Florida 1. Approval of August 7, 2000 Finance Committee Minutes Ukl ` Page Mr. Winokur 2 Fastow 9 LJM 3 21 Approve for Recommendation to the Board 3. Treasurer Report Mr. Glisan 28 4. Chief Risk Officer Report Mr. Buy 36 Quarterly Risk Update - Credit Update 37 - Foreign Exchange Project Update 40 - EES Status Report 46 Market Risk Update 51 5. Projects and Amendments 61 A) Revision to the Risk Management Policy Mr. Buy 62 - Approve for Recommendation to the Board B) Revision to the Transaction Approval Process Mr. Buy 73 - Approve for Recommendation to the Board C) Equity Derivatives Authorization Mr. Glisan 80 - Approve for Recommendation to the Board 6. Other Business 85 7. Adjourn 86 E0004402657 Raa Arldandum for Deal Approval Sheets approved between Board meetings Finance Committee Meeting :H005-01096 ============= Page 4 of 104 ============= 00 L) (0 N O O O U W Agenda Item I EXH005-01097 ============= Page 5 of 104 ============= Enron Corp Finance Committee Minutes October 6, 2000 E0004402659 2 y&01 Finance Committee Meeting :XH005-01098 ============= Page 6 of 104 ============= DRAFT MINUTES MEETING OF THE FINANCE COMMITTEE OF THE BOARD OF DIRECTORS ENRON CORP. AUGUST 7, 2000 Minutes of a meeting of the Finance Committee ("Committee") of the - stars-of- ora "Qom an " ,held pursuant to due notice at 3:00 p.m., C.D.T., on August 7, 2000 at the Enron Building in Houston, - Texas. All of the Committee members were present, either in person or by telephone conference connection, where each member could hear the comments of the other participants and join in the discussion, as follows: Mr. Herbert S. Winokur, Jr., Chairman Mr. Robert A. Belfer Mr. Norman P. Blake, Jr. Mr. Ronnie C. Chan Mr. Jerome J. Meyer Mr. Paulo V. Ferraz Pereira Mr. Frank Savage Mr. John A. Urquhart Directors Wendy L. Gramm, Ken L. Harrison, Kenneth L. Lay, John Mendelsohn, and Jeffrey K. Skilling, Messrs. Richard B. Buy, Richard A. Causey, Andrew S. Fastow, Ben F. Glisan, Jr., David B. Gorte, Mark E. Koenig, Theodore R. Murphy, and Joseph W. Sutton, and Ms. Rebecca C. Carter, all of the Company or affiliates thereof, also attended the meeting. Directors Robert K. Jaedicke, Charles A. LeMaistre, and John Wakeham and Messrs. James M. Bannantine, Richard A. Lammers, and Brent R. Wiggs joined the meeting in progress as noted below. The Chairman, Mr. Winokur, presided at the meeting, and the Secretary, Ms. Carter, recorded the proceedings. Mr. Winokur called the meeting to order, noted that a draft of the minutes of the meeting of the Committee held on May 1, 2000 had been distributed to the Committee members, and called for any corrections or additions. There being none, upon motion duly made by Mr. Meyer, E0004402660 4 Finance Committee Meeting :H005-01099 ============= Page 7 of 104 ============= seconded by Mr. Belfer, and carried, the minutes of the meeting of the Committee held on May 1, 2000 were approved as distributed. Mr. Winokur called upon Mr. Fastow to present the Chief Financial Officer's report, a copy of which is filed with the records of the meeting. Mr. Fastow discussed the Company's current and projected key financial ratios and stated that the ratios were based on the current plan. He noted that certain projected ratios deviated from commitments made to the rating agencies earlier in the year and he discussed the reasons for the deviations. He reviewed the stock trading portfolio and he stated that the all of the positions had been closed by the end of the previous week. He discussed me Lompany's exposure o ; a chart depicting the Company's interest rate sensitive items, and noted the intarPSt rateS_ He commented on the Company's cost of capital and he stated that the Company was still reviewing the equity component of the cost of capital calculation. Directors Jaedicke and LeMaistre joined the meeting following Mr. Fastow's presentation. Mr. Fastow called upon Mr. Glisan for the Treasurer's report, a copy of which is filed with the records of the meeting. Mr. Glisan reviewed the a liquidity, report as of July 25, 2000 and noted that the Company's total liquidity was over $7 billion. He reviewed year-to-date investments and proceeds on sales of assets and he stated that without additional action by the Company the year-end debt balances would be over the target levels. Messrs. Fastow and Skilling joined him in a discussion of the Company's capacity in the bank markets, the constraints facing the Company, and the projected cash flows from new businesses. Mr. Glisan then presented a schedule describing the vehicles the Company was utilizing to manage its balance sheet debt. He discussed Raptor I and Raptor II, previously approved by the Board, and noted that Raptor I was almost completely utilized and that Raptor II would be not be available for utilization until later in the year. He noted that Project Whitewing still had available capacity but that the Company vas proposing an additional Raptor structure, Raptor III, to increase available capacity. Following a discussion, upon motion duly made by Mr. Blake, seconded by Mr. Meyer, and carried, the Raptor III transaction was approved for recommendation to the Board. Mr. Winokur called upon Mr. Buy to present the Chief Risk Officer's report, a copy of which is filed with the records of the meeting. Mr. Buy discussed the composition of the Company's merchant portfolio as of June 30, 2000 and any significant changes since the May Board meeting. He commented on the significant increase in the Company's credit exposure E0004402661 Finance Committee Meeting :H005-01100 ============= Page 8 of 104 ============= and he noted that it was primarily driven by increases in gas and power prices in North America and a decrease in power prices in Europe. He reviewed a detail of non-performing debt instruments and the Company's top 25 credit exposures. He stated that the Company was still working to reduce its over $1 billion exposure to TXU Europe Energy Trading Ltd., a BBB+ rated company. He reviewed the top 10 countries where the Company had the largest trade credit exposure and he noted that the U.S., Canada, and the U.K. combined contributed over 96% of the Company's total trade credit exposure. He commented on the significant increase in the Company's credit reserve and he noted that it was caused by the considerable increase in prices and volumes marketed.. He presented the Company's equity Investmen po o io e a `- `--`- , - ' region, and performance measurements. He discussed the Company's expectations and he.stated crr rrrv~srrr~rr~ ~~ra~~a a„ . ~.,, . that the assessments were made on a qualitative basis by comparing current expectations to original expectations and did not imply that the assets needed to be written-down. He noted that any write-downs taken on investments were shown on the troubled asset detail. Messrs. Skilling and Sutton joined him for a discussion of the international investments included in the troubled assets detail and a general discussion of Project Summer. Mr. Buy then discussed the Company's ten top and bottom performing investments and commented on investments new to the list since the first quarter. He postponed the foreign exchange project update, included in the meeting materials, until a later meeting. He briefly discussed Project Doorstep, a review by the Company, with assistance from Arthur Andersen LLP, of the Company's remote offices to ensure the establishment and maintenance of the Company's global standards. Mr. Buy then presented the Market Risk Update and discussed the returns each commodity group had earned compared to the Value-at-Risk ("VAR") it had taken. He noted that the Company's overall return on VAR was greater than any of the individual commodity groups' returns due to the benefits of diversification. He gave an overview of the VAR backtesting, stress testing, and the Company's exposure under "worst case" scenarios of 5% and 25% shifts in commodity prices. He reviewed limit violations during the second quarter of 2000, noted that the majority of the violations had occurred in the gas portfolio, and discussed the reasons for the violations. Director Wakeham and Messrs. Bannantine, Lammers, and Wiggs joined the meeting. E0004402662 L) 4 . O FInnnrn (.nmmlttee Meeting H005-01101 ============= Page 9 of 104 ============= Mr. Buy then discussed proposed changes to the Enron Corp. Risk Management Policy ("the Policy"). He stated that the Company was recommending that the Policy be amended to increase the aggregate VAR limit by $15 million. He noted that the Executive Committee of the Board had approved a temporary increase in the aggregate VAR limit at a meeting on June 1, 2000 with the recommendation that the increased VAR be submitted to the Board. He discussed how the additional VAR limits would be allocated to the commodity groups and he noted that there was not a corresponding increase in the volumetric limits. He then discussed certain proposed limit increases to existing commodity groups within the Policy, including Metals and Minerals, Continental Electricity, and Nordic ec ncr y, an ce am evi current practice and to add clarity to roles and responsibilities. He stated +horc ,,,ca- a pmnncal t~ inc cease the North American_ Electricity position and VAR limits if the Company was successful in its bidding for certain power purchase arrangements in Canada, as approved by the Executive Committee of the Board at the July 31, 2000 meeting. He then mentioned actions taken by the Company's management, under the Interim Trading Policy, since the May 2, 2000 Board meeting. Following a discussion, upon motion duly made by Mr. Urquhart, seconded by Mr. Belfer, and carried, the proposed revisions to the Policy were approved for recommendation to the Board. Mr. Winokur left the meeting and with the Committee's permission Mr. Blake acted as Chairman and presided for the remainder of the meeting. Mr. Blake changed the order of the agenda to discuss Project Tammy during the executive session of the meeting. Mr. Blake called upon Mr. Bannantine to present the proposed Enron South America ("ESA") transactions. Mr. Bannantine began his presentation, a copy of which is filed with the records of the meeting, by discussing how the proposed transactions would be impacted if Project Summer was completed. He then stated that ESA was proposing three transactions, including: 1) the RioGen Merchant Plant, 2) financing related to the Cuiaba Integfated Energy Project ("Cuiaba"), and 3) a buyout of Transredes' interest in Cuiaba. He began with the RioGen project and stated that ESA had the opportunity to build capacity in a power market that was short power. He stated that the RioGen project was to build, own, and operate a 355-megawatt skid mounted merchant power plant near Rio de Janeiro, Brazil. He noted that the transaction would be structured to minimize the downside risk while retaining significant upside potential. He noted that Petrobras, the national oil and gas company of Brazil, was willing to provide a minimum investment return guarantee in order to increase its sales of natural gas and to obtain a minimal participation in the 004402663 To EC Finance Committee Meetin- (H005-01102 ============= Page 10 of 104 ============= upside of the power plant. He reviewed the Brazilian market fundamentals and he noted that ESA was projecting that an energy shortage would occur during the next three to five years thereby driving up the price of power. He presented an overview of the transaction structure and he stated that the project was structured to give the Company the maximum flexibility and upside potentiall while providing a guaranteed return on its investment. He noted that the plant would provide a full payback in five years even if it were not utilized. He discussed the assumptions that were used in the project analysis and the economics of the project. He stated that ESA was seeking approval for the remaining $119 million of project costs, with final review and approval delegated to Messrs. Lay or Skilling after the comp e ion o e ini ive documents, Company's LM6000 turbines. Following a discussion, upon motion duly b n r_ B f€ r p y_ the pro osals were approved for recommendation to the Board. Mr. Bannantine then discussed the transaction related to the financing of the Cuiaba project. He stated that ESA was seeking approval for commitments required to support a $365 million funding of limited recourse project financing provided by the Overseas Private Investment Corporation and Kreditanstalt fur Wiederaufbau and to obtain approval for the Company to also provide Transredes' (a partner in the project) share of h the support until Transredes' Cuiaba interest was sold to Shell Cuiaba Holdings Ltd. and Shell Gas (Latin America) B.V. (together with their affiliates, "Shell") or a combination of the Company and Shell. He updated the Committee on the status of the Cuiaba project and reviewed the details of the $365 million in guarantees. He requested that the Committee approve the Company's share of the loan guarantee commitments and authorize the Company to provide up to $46 million of loan guarantee commitments on. behalf of Transredes. Following a discussion, upon motion duly made by Mr. Savage, seconded by Mr. Chan, and carried, the proposals were approved for recommendation to the Board. Mr. Bannantine then discussed a proposal , for the Company to participate on an equal basis with Shell in the purchase of Transredes' interest in Cuiaba. He stated that the Company desired to maintain a 50% or greater voting control of Cuiaba to protect the upside value associated with additional Cuiaba projects and he noted that purchasing the additional interest would allow the underlying investment to eventually be sold with a control premium in place. He reviewed the proposed deal structure and detailed the Company's current and proposed ownership in the individual Cuiaba assets. He presented an investment analysis, noted that the Company would be paying a control premium when compared to the analysis performed by the Company's Risk Assessment and Control group, E0004402664 '0 Finance Committee Meeting :H005-01103 ============= Page 11 of 104 ============= and stated that if Project Summer were completed the additional Cuiaba investment would be treated as a purchase price adjustment. He requested that the Committee recommend to the Board that the authority' to approve a capital expenditure of $59.7 million to purchase 50% of Transredes' interest in the Cuiaba project be delegated to Messrs. Lay and Skilling. Following a discussion, upon motion duly made by Mr. Meyer, seconded by Mr. Ferraz, and carried, the proposal was approved for recommendation to the Board. Koenig, Lammers, 1 ..7 7 nracAnt FPr ient Tammy. Mr. I~i1.._CT(fCC [`CC~+aPvrr rvri `c. c~.o~7-tea T-. ~_ n,. ._~.. Causey stated that the Company was proposing the formation of a _new company to serve as an intermediate financing vehicle for the Company. He noted that the new company, Enron Finance Partners, LLC ("EFP"), would be created to own certain of the Company's assets. He discussed how transactions would be conducted between the Company and EFP, EFP's plans to raise capital through third parties, and how the capital would be utilized. He stated that the proposal included the formation of EFP, the contribution of certain operating assets into EFP, the assumption by EFP of $1.047 billion of the Company's intermediate and long-term debt, and the sale of $500 million of preferred securities in EFP to outside investors. Following a discussion, upon motion duly made by Mr. Meyer, seconded by Mr. Belfer, and carried, the proposal was approved for recommendation to the Board. There being no further business to come before the Committee, the meeting was adjourned at 5:00 p.m., C.D.T. Secretary APPROVED: Chairman H:\a Minutes\2000 Minutes\080700F.doc E0004402665 O Finonro f.nmmi"nn Meeting Mr. Blake called for an executive session at 4:50 p.m., C.D.T., to s Project Tammy and Messrs. Bannantine, Buy, Glisan, Gorte, H005-01104 ============= Page 12 of 104 ============= Agenda Item 2 =XH005-01105 ============= Page 13 of 104 ============= Enron Corp lO Chief Financial Officer 9eprt October 6, 2000 E0004402667 9 Finance Committee Meeting =XH005-01106 ============= Page 14 of 104 ============= Targeted Key Financial Ratio EXH005-01107 5 4 3 2 13 78 1994 1995 1996 1997 1998 1999 2000P 'c" Funds Flow Interest Coverage i "s, Interest Coverage 55% +"'° 49.6 49.2 47.1 46.0 42.0 45% 40.4 44.2 44.6 42.8 8 39 41.9 41.0 . 38.5 35% I 25% °- 26.0 25.3 °...~ " 21.5 15% 19.9 °` 14.7 15.5' 11.6 5% 1994 1995 1996 1997 1998 1999 2000P To Ell Obligations/Total Capital +- DI V B/S Capital ®' FF !/Total Obligation E00044 2668 j 4~0 " 10 Finance Committee Meeting ============= Page 15 of 104 ============= Stock Trading Port Ii Mark-to-Market Ba ic. ENE Position - Thousands f S fares 1/1/00 Purchases Sal bs 0 16,250 (I6,25p) EGF Equity Position Limits V @ R Notional Open Limit ($MM) $10.00 $300.00 Current Position ($MM) $0 $0 1 1 Notes: Positic reflect Include 9/20/00 0 imits exclude ENA position, which is n EN {, equity book position report iO% o JEDI if an open position E000440P..669 O Finance Committee Meeting EXH005-01108 ============= Page 16 of 104 ============= Stock Purchase Act vi Treasury Share 1/1/00 - 9/20/00 (000's except share pri e) Date ENE Shares Avg. Price Total 0 Authorization' Activity 15,000,000 - i ISubject to Jim Derrick's approval E 12 Amount 0 Finance Committee Meeting =XH005-01109 ============= Page 17 of 104 ============= Interest Rate Exposur r 25, 000, 000 559,712 5,9 3,979 1,757,963 0 20,000,000 - _ - t 4. i } i I i 15,000,000 - 244,836 2,861,468-~ 6,896,423 10, 000, 000 iF 510,000 1,806,845 i 5,000,000 - 16 93 II 7, 5 0 - r - ---~ - -r--- - 7 Projects Prepays CP STD Other LTD Leases NE Notes: Lia ilities 1. Current CP Balance of $2.9B represents 41% of floating rate debt. Fix/floating mix ex-CP is 79/21 2. EGF goal of 80/20 fix/fit composition. 13 E $22,417,972 0) r rn C6 N 0) (0 990,000) Hedges Total o Floating p Fixed /IPI ~10~ O~ Finance Committee Meeting :XH005-01110 ============= Page 18 of 104 ============= =XH005-01111 10.5% 9.9% 10.0% 9.5% 9.0% 8.5% 8.0 7.5% 1996 Cost of Capital*', 1997 1998 1999 * Calculated using historical CAPM Model 10 2000 20 2000 14 ECO( % Change from last report Debt ( 4.68 (0.50) Equity 11.17 (0.21) W ACC 9.65 (0.30) UST 3 r 5.90 (0.50) Uom m Despit the decrease in interest rates, The WAC remained steady because the weight pg of the Equity component increa jed with the rise in the stock price. Finance Committee Meeting 10.0% 10.0% ============= Page 19 of 104 ============= Cost of Capital` 20.0% 19.5% 19.0% 17.7% 18.5% 17.2% 18.0% 17.5% 17.0% 16.5% 16.0% 14.70/6 15.5% 15.0% 14.5 14.0% 13.5 12 13.0% 12.5 12.0% 11.5% 11.0% 10.5% 10.0% 1996 1997 1998 1999 1Q 2000 2Q 2000 r r , E C 0044 * Calculated u sing Current Estimate of Equity Cost I 15 EXH005-01112 Cai :nts 2673 Finance Committee Meeting I ~' ============= Page 20 of 104 ============= Enron Corp. Re-Offer Spr j ~rads 230.0- 210.0- 190.0- 170.0- 150.0- N CL '~ 130.0- 110.0- L CL (J) 90.0- 70.0- 50.0- 30.0 to N C)) d N 0C) d N C)) M d to to r- 00 rn E 16 :XH005-01113 p131/98 7/25/00 1/99 12J31197 12/31/96 `C m m 4)1 4) 4) to 0 O r N t") i 674 Finance Committee Meeting ============= Page 21 of 104 ============= EXH005-01114 7.0 6.5 6.0 0 ~_ 5.5 0- 5.0 4.5 4.0 i i U.S. Treasury Yield Qurve 12/31/96 12/31/99 09/20/00 12/31/97 O O T N M cts .' L CO A L M E00044102675 17 12131/98 441~ >OR) Finance Committee meeting ============= Page 22 of 104 ============= U.K. Yield Curv 8.0- 7.5- 7.0- 12/31/96 12/31197 6.0 o 1, ol 5.5 5.0 09/20/00 i 4.5 12/31/99 12/31/98 4.0 N N L L L L L L L L L L L L L +~+ t0 (0 R 01 t0 N c0 l0 t0 N 01 01 C C O O d O d W O d O d O d d O O ~' A A >+ ~+ ~ A >. A A >. ~+ A r N M to w M O O to O O 0 T T N M M to E00044( 2676 18 ti~ a 0 Finance Committee Meeting =XH005-01115 ============= Page 23 of 104 ============= Brazil Yield Curv 0 19.0 12/31198 18.0 17.0 16.0- 15.0- 14.0- 09/20/00 13.0- 12/31/96 I 12.0 -' 12/31/99 11.0 12/31/97 10.0- 9.0- 8.0- 7.0- 6.0- a 5.0- 4.0 L L L L I L' W M In O t1) O O r r N M E00044 2677 O,, O 19 Finance Committee Meeting =XH005-01116 ============= Page 24 of 104 ============= x 0 0 cn 0 v Spread O O s j N N O O m O (.7l O CTI O O O O O C 03/04/1999 , I 3 04/04/1999 05/04/1999 - ~ M< 06/04/1999 07/04/1999 cn ao 07 08/04/1999 C CL CD 09/04/1999 10/04/1999 I o 11/04/1999 c i -0' D 12/04/1999 Q- CD 01/04/2000 3 02/04/2000 m C) a 03/04/2000 O x 04/04/2000 05/04/2000 06/04/2000 T 7 d 7 A 3 O~ m m m 07/04/2000 08/04/2000 09/04/2000  0: !V x 3 ============= Page 25 of 104 ============= E0004402679 21 Fy Finance Committee Meeting EXH005-01118 ============= Page 26 of 104 ============= Private Equity Strateg $70,000 $60,000 $50,000 m O $40,000 y} $30,000 $20,000 •Continued significant capital investment by Enrn •Energy and communications investments typic tlly d not generate significant cashflow and earnings for 1-3 years •Limited cash flow to service additional debt •Limited earnings to cover dilution of additional ;quit •Result: Enron must syndicate its capital invest ents in order to grow 23,798 21,132 15,414 17,242 18,811 $10,000 13,815 11,504 11,966 13,239 9,849 10,072 10,312 $U 1990 1991 1992 1993 1994 1995 V-+ -Total Assets & Combined Assets of Unconsolidated Affiliates r 22 XH005-01119 27,690 16,137 1996 / 60,364 51,475 33,381 29,350 197 1998 1999 ,/Total Assets 0 Finance Conuninee Meeting ============= Page 27 of 104 ============= Rationale for LJM Structu • New FASB consolidation rules . Better ability to manage risk positions (non-q ffili4te status) Better ability to manage financial flexibility 23 E00044q;2681 *&,O Finance Committee Meeting =XH005-01120 ============= Page 28 of 104 ============= Agenda Item 3 E0004402682 EXH005-01121 ============= Page 29 of 104 ============= LJM1 and LJM2 Summary ~ =XH005-01122 • LJM1 • Formed in June, 1999, with $16 million of e cuity. • Hedged Enron investment in Rhythms Vet 'onnections resulting in a gain of approximately $175 million for Enron. Purchased minority interest in Cuiaba ;o th it Enron could deconsolidate the project. • LJM2 • Formed in December, 1999, with $394 • Invested $403 million in 21 transaction kl &--o v~o.,,_') E00044 24 milli pn of equity. O Finance Committee Meeting i/~ ============= Page 30 of 104 ============= Conflicts of Interest LJM creates a conflict of interest for EVP/ 'F0 of'Enron • Negotiates investments in Enron transacts ns/b siness for LJM. Receives value from LJM if fund performs ell. .t,L Allocates time to LJM matters. .x i.. . °, . + A Conflict largely mitigated 4 I • Board resolution does not relieve A.Fasto i of f duciary E t." responsibility to Enron. OOC or Board can ask A. Fastow to resign fro LJM at any time. • R. Causey/R. Buy/J. Skilling approve all E ron LJM transactions. Annual audit committee review of LJM (Fe rua y). LA` Legal department responsible for maintain ng udit trails/files on - all transactions. • Review of A. Fastow economic interest in nr and LJM presented to J. Skilling. E0004402684 • No obligation for Enron to transact with LJ . r., 25 Finance Committee Meeting U XH005-01123 ============= Page 31 of 104 ============= LJM3 • Follow-on private equity fund to LJM1 and LJM2 • Purpose: Alternative, optional source of private E to manage its investment portfolio risk and finan~ • Structure to be substantially similar to LJM21 • Finance Committee/Board of Directors action re • Ratify decision of Office of Chairman to waive Co order to allow A. Fastow involvement as General E00044026 26 quity for Enron :ial flexibility. uested: e of Conduct in partner of LJM. my 0 Finance Committee Meeting =XH005-01124 ============= Page 32 of 104 ============= Agenda Item 2 RATIFICATION OF DETERMINATION (Suggested Form of Resolutions) WHEREAS, Andrew S. Fastow serves as the Executive Vice President and Chief Financial Officer of the Company; WHEREAS, Mr. Fastow has the opportunity to participate in the formation of an investment partnership (the "Partnership") that would not be affiliated with the Company; WHEREAS, it is anticipated that Mr. Fastow will serve as the managing partner/manager of the Partnership; ti WHEREAS, it is anticipated that the Partnership will invest in, among '; other things, energy and communications-related businesses and assets, including businesses an asse s o e ompany; ~ _ WHEREAS, the Partnership, as a potential ready purchaser of the Company's businesses and assets or as a.potential contract counterparty, could provide liquidity, risk management, and other financial benefits to the Company; WHEREAS, the Board has evaluated two similar previous investment partnerships in which Mr. Fastow has served as the managing partner/manager and has concluded that the existence of such investment partnerships, and Mr. Fastow's involvement therein, has been beneficial to and in the best interests of the Company; WHEREAS, the Office of the Chairman of the Company has determined, for the foregoing reasons, that Mr. Fastow's participation as the managing partner/manager of the Partnership will not adversely affect the interests of, the Company; - -------------- NOW, THEREFORE IT IS RESOLVED, that the Board hereby adopts and ratifies the determination by the Office of the Chairman pursuant to the Company's Code of Ethics (Conflicts of Interests, Investments, and Outside Business Interests of Officers and Employees) that participation of Mr. Fastow as the managing partner/manager of the Partnership will not adversely affect- the interests of the Company; and RESOLVED FURTHER, that the proper officers of the Company and its counsel be, and each of them hereby is, authorized, empowered, and directed (any one of them acting alone) to take any and all such further action, to amend, execute, and deliver all such further instruments and documents, for and in the name and on behalf of the Company, under its corporate seal or otherwise, and to pay all such expenses as in their discretion appear to be necessary, proper, or advisable to carry into effect the purposes and intentions of this and each of the foregoing resolutions. E0004402686 0AECM\Por Man\Board Meeting\B0D UHM-0OWM 3 resolution.doc :H005-01125 d.~ Finance Committee Meeting ============= Page 33 of 104 ============= Enron Corp '; Treasurer Report October 6, 2000 E0004402687 28 ~AO (R) v Finance Committee Meeting :XH005-01126 ============= Page 34 of 104 ============= Enron Corp. Liquidity Report As of September 20, 2000 ($000) Overnight 2-30 Days 31-60 Days 61-90 jDays 91 + Days Total Commercial Paper & Uncommitted Lines 1,011,777 1,011,777 Bank Facilities B HF 18,000 18,000 Accounts Recievable 190,000 190,000 W hitewing 301,000 301,000 Shelf Registration - Debt 1,000,000 1,000,000 Shelf Registration - Equity' 1,275,000 1,275,000 Merchant Portfolio Monetizations (as of:03/31/00) Public Equity 1,162,458 1,162,458 Debt Instruments 220,524 220,524 Private Equity 2,025,720 2,025,720 Total 1,219,777 3,738,458 220,524 - 2,025,720 ( 7,204,478 ' Reflects 15mm shares at $85 per. share. (R) 29 EC0044 )2680 1 Finance Committee Meeting :XH005-01127 ============= Page 35 of 104 ============= Impact on 2000 Plan Balance Sheet Transportation and Distribution (126) Wholesale Energy Business (733) Retail Energy Services (295) Enron Broadband Services (425) Enron NetWorks 0 Other (475) Enron Global Finance I 0 1 (2054) Variance from I an 2nd Current Estimate Contingenill Asset Sales Financial less Items Bus, Sensi nit ~ivities Investments ( 186) 0 I 0 I (1398) (933) I 450) 'h 108 (75) 0 (224) 0 200) (10) 0 250) (557) 0 0 0 (200) i i 0 (2267) 17- (1208) j, 900) (186) (2781) 33 (424) (260) (557) (200) (4375) i ~,fy O Finance Committee Meeting ============= Page 36 of 104 ============= Board Plan Variance f - Business Unit Variance - Finance Contingencies - Shortfall - EGF Vehicles - Asset Monetizations - FAS 125 - Total Shortfall ($3.167 billion ($1.208 b'Ilion 7--- ($4.375 b `I l i on $1.05 billion:', $1.821 billion $1.504 illio r-- -0- E0004402690 31 ~~ CRS Finance Committee Meeting :XH005-01129 ============= Page 37 of 104 ============= Finance Ac tivity June through Decernb Number of To Be Month Transactions Closed I$V® June 2 July 1 August 2 September 7 October 8 November 9 December 7 12 24 E0004402691 32 :XH005-01130 or ium 630 290 575 2, 525 2 900 2815 2:650 / 12,385 *O~R) Finance Committee Meeting ============= Page 38 of 104 ============= Enron Corp. Active Letters of Credit by C (ooo°s) 9/20/00 Bids $ 33,653 Debt 56,687 Portland General 0 Leases 13,175 Performance 449,449 Trade 155,046 EOTT 118,905 Other Third-Party 5,500 Other 28,676 12/31/99 $ 5,968 52,946 0 15,604 522,006 76,269 150,310 24,078 80,071 Grand Total $ 861,091 $ 927,25 C 33 E00044 :XH005-01131 pry 12/31/98 $ 81,493 26,605 2,711 171329 114,440 1,184,103 39,929 173,163 18,909 $156585682 F Finance Committee Meeting ============= Page 39 of 104 ============= Enron Corp. Guarantee Portfolio (000's) 9/20/00 12/3'1/99 Trade (Payment & Performance) $19,424,180 EOTT Trade 494,790 Swap Agreements (Master & Individual) 11,243,684 Projects (Non-Debt) 4,466,558 Debt Consolidated Subsidiaries 2,892,635 Unconsolidated Subsidiaries 337,746 Grand Total $38,859,593 \Lt 34 :XH005-01132 $17,31 ,817 44 x,375 7,14 ,443 4,75 ',470 2,151,303 337,746 $32,15 1,154 E0004402693 12/31/98 $12,553,735 352,346 4,756,369 2,912,781 1,241,291 565,808 $22,382,330 Finance Committee Meeting ============= Page 40 of 104 ============= Rating Summa Rating Agency Long Term Fitch IBCA/Duff & Phelps BBB+ Moody's Baal R and ((Japan) A- Standard & Poors BBB+ 35 =XH005-01133 E0004402694 m ~ercial P 'per F-?/D-2 pi Outlook Stable Stable Stable Stable Finance Committee Meeting ============= Page 41 of 104 ============= Agenda Item 4 ECO04402695 EXH005-01134 ============= Page 42 of 104 ============= Enron Corp Chief Risk Officer Re October 6, 2000 i f 9 E0004402696 36 0 ti~® Finance Committee Meeting EXH005-01135 ============= Page 43 of 104 ============= Credit Update EXH005-01136 E0004402697 37 4 Fy~o 0 Finance Committee Meeting ============= Page 44 of 104 ============= r r C c, _y. r ~. n Top 25 Credit Exposu s December 31, 199 Jun f 30, 2000 August 31, 2000' pe of Credit E-Ratings Counterparty Name In $MMs I j$MMs In $MMs Trade 4 TXU Europe Energy Trading Ltd. 51 8 1,452 1,462 Trade 2 The Chase Manhattan Bank 6 159 523 Trade 5 Sithe/Independence Power Partners, L.P. 3, 5 307 313 Trade 5 Sithe/Independence Power Partners, L.P. Tracking Account 1 1 212 229 Trade 2 Bonneville Power Administration 6 162 163 Merchant © East Coast Power 1 2 158 158 Trade 5 Williams Energy Marketing & Trading Company A 114 149 Trade 4 Reliant Energy Resources Corp. 1~ 8 166 143 Merchant ®American Coal Tranche I 1 3 133 133 Trade 4 Canadian Natural Resources 14 124 130 Merchant Mariner Combined Debt N A 114 114 Trade 2 Merrill Lynch Capital Services, Inc. N A 57 114 Trade 4 Reliant Energy Services, Inc. 18 56 98 Trade 2 Koch Energy Trading, Inc. N A 89 93 Trade 3 Sempra Energy Trading Corp. 1 N/A 92 Trade 2 Florida Power & Light Company 11 16 149 90 Trade 4 Petro-Canada Oil and Gas 49 74 84 Trade 4 American Electric Power Service Corporation N A 62 •83 Trade 3 Duke Energy Trading and Marketing, L.L.C. t 1 N/A I 81 Trade 4 Dynegy Power Marketing, Inc. N A N/A 81 Trade 3 AEP Energy Services, Inc. N :A N/A 76 Trade 4 Merchant Energy Group of the Americas, Inc. N 'A N/A 11 74 Trade 2 J. Aron & Company N A N/A 66 Trade 3 NSTAR Companies A N/A 58 Trade 5 Avista Corporation 'A N/A 57 Trade 8 Calpine Fuels Texas Corporation 2 N/A N/A Trade 8 Midland Cogeneration Venture Limited Partnership I5 WA N/A Trade 3 British Gas Trading Limited 44 ! N/A N/A Trade 3 Brooklyn Union Gas Company , 19 N/A N/A Trade 2 City of Tallahassee S8 N/A N/A Trade 5 Commonwealth Edison Company 16 N/A N/A Trade 4 California Power Exchange Corporation 1 5 N/A N/A Merchant 8 Enron Wind Corp. Lake Benton II E000440269$ 1 19 N/A N/A Trade 5 Tractebel Energy Marketing, Inc. !A 85 N/A Trade 2 Koch Petroleum Group, L.P. /A 66 N/A Trade 4 Yorkshire Electricity Group plc (A 62 N/A Trade 4 United Illuminating Company 53 62 N/A Trade 4 Southern Company Energy Marketing, L.P. W A 58 N/A Trade 3 Pacific Gas & Electric Company 954 54 N/A Trade 2 The Power Authority of the State of New York ___ 57 52 N/A l Transactions new to "Top 25" list I Non-investment Grade Credit Exposures August 31, 2000 data is estimated. Top 25 Total Other Credit Exposures c j Total Credit Exposure 38 5 956 664 037 701 Finance Committee Meeting =XH005-01137 ============= Page 45 of 104 ============= Credit Reserve Historical Co~npOrison ($MM) ~ 380 360 Actual 340 - -- - - Required* 320 -- 300 280 260 - 240 -- 220 -- 200 -- `~~ r « 180 160- ` e 140 -- 120 100 po' po' Op 00 00 5P C§b pob SP 0§°b 5P 0P pO * Required Reserve: Amount of reserve required for existing portfolio after simulating 39 r~ ,~ \I J I w w .r { r r e a V e y Op ~ pp 00 pO p0 O E Its and; assuming 50% recovery F~~o v Finance Committee Meeting P =XH005-01138 ============= Page 46 of 104 ============= l~ Foreign Exchange ProjectUpdate =XH005-01139 EC00440270O 40 /*, ~10* >0~ Finance Committee Meeting ============= Page 47 of 104 ============= Foreign Exchange Project Objective Identification, measurement and reporting of foreign currency icon Pmic exposure for Enron worldwide. Project Timeline I i Merchant and Strategic Trading land Iher =XH005-01140 Asset Review Target Completion Activity ReviFw Target Completion I 4'ooiplete d ftl"y/ 2000 R *Other Includes: CAL ME, APACHI, EES, EBS, EE&CC, EWC and ENA. 41 Phase IV December, 2000 _ Phase III October, 2000 Phaso 11 - eon-tpleto(l t-t t95"I, 2000 ler Exposure r 5 E~irope Phase IV December, 2000 'ypo Finance Committee Meeting E000440270 ' Elex WktroJ} ============= Page 48 of 104 ============= =XH005-01141 16 14 12 10 8 6 4 2 0 Enron Europe Net Notional Position by Project and 'Cur ~, as of August 31, 2000 ($MM) Total Europe Exposure $35MMf i N British Pound (GBP)  Hungarian Forint (HUF) U Polish Zloty (PLN) ency P,.UwKP -46A rWA- A L'IJF, ILI r OPET OSI Torpy ETOL Octagon Eni.rgovil Nowa Sarzyna $30 MM 42 E0004402 702 i 1 Fy~o Finance Committee Meeting ============= Page 49 of 104 ============= Enron Europe Net Notional Position by Type as of August 31, 2000 ($MM) Total Europe Exposure $35MM  Net Income  TransactionhTranslation  P&L 40  Investment CT) 30 1 1 Finance Committee Meeting ============= Page 50 of 104 ============= Net Notional Position by Currency an Region as of August 31, 2000 ($MM) $2,775 Total Exposure I! Korean /on Other f i 1% Indian Rupee $321 $26 $104 11% 4% British Pound n 2,500 2,000 1,500 1,000 500 0 =XH005-01143 South America South Korea India 44 Europe E0004402 tipO Finance Committee Meeting ============= Page 51 of 104 ============= Enron Sensitivity Analysis by Region for the four months ending December 31, 2000 ($MM) 200 100 1 1 0 i (4) (100) 2000 Budgeted Impact (200) (69) (300) (400) (500)- (600)- South America  CTA Impact P&L Impact Other: South Korea, India an Eu  CTA Impact P&L Impact 2 (9) 10% Devaluation from Plan (290) EOO04402705 45 4 -(17) 30% Devaluation from Plan (627) 10% Appreciation above Plan 199 ,2 y~o 0 Finance Committee Meeting =XH005-01144 ============= Page 52 of 104 ============= EES Status Re E0004402706 46 it ti~ co 0 Finance Committee Meeting EXH005-01145 ============= Page 53 of 104 ============= Total Value Created =XH005-01146 EES offers energy cost savings through a cc lower commodity prices and consumjptio 47 E000440??707 ®ES Customer gross argin Savings mbination of i reduction. 4 *0(, Finance Committee Meeting ============= Page 54 of 104 ============= Commodity Position Sumrnai as of August 31, 2000 REGULATED NET OPEN POSITIONS Gas (55 Bcf) Power (79 TWHrs) VaR immateria * Includes commodity from outsourcing transactions. 48 ECO DEREGULATED ET OPEN POSITIONS Gas (0.2 Bcf) Power (5 TWHrs) VaR $4 MM t Finance Committee Meeting :XH005-01147 ============= Page 55 of 104 ============= Outsourcing Transactiains + Outsourcing + Transactions Demand Side Management ("DSM* t) Future Up~,ell Potential) 4 Commodity Price Risk Management Total Value Created a *DSM = Consumption reduction from l'iEn gy Asset Capital Expenditures and more efficient perations. :XH005-01148 Commodity Transactions E0004402109 49 c Fy ~~ Finance Committee Meeting ============= Page 56 of 104 ============= :XH005-01149 100 90 - 80 70 60 N 0 50 2 40 30 I Energy Asset Capital Exper'dit as of August 31, 2000 Step 1 - Project estimation and modeling -+-Step 2 - Project development and approval by Enron Step 3 - Project approval by customer -k Step 4 - Project implementation (actual / forecasted) ar 20 ~ ~ rr 10 00 0 - Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sip-00 • Improvements have been made in developing projects and ob~,tainir • Actual project implementation lags original projections • Capital has been approved for the following technologies: Lighting 34% Compressed Air 14% Chillers / Cooling 13% All Others 39% 50 E0004402710 res A,k u (A„c.. 9 n Wo . rr Yr i Oct 00 Nov-00 Dec-00 > A , I customer approvals ! ' 40 C l Finance Committee Meeting ============= Page 57 of 104 ============= Market Risk Up E0004402711 51 te Finance Committee Meeting EXH005-01150 ============= Page 58 of 104 ============= Table of Contents o Risk Profile o Risk Profile Grouped by Commodity a o VaR Backtesting o Parallel Shift Stress Testing o Limit Violations o Loss Notifications 0 Policy Changes EC 52 ?712 jegion &000 Finance Committee Meeting =XH005-01151 ============= Page 59 of 104 ============= Risk Profile as of August 31, 2000 YTD P&L YTD P&L = $1.6 B ($MM) ~ ' 700 750 600 433 450 298 300 111 150 54 45 29 11 6 4 4 (2) (11) (51) 0 (150) NA NA UK EES Fln'l Liquids EMG(1) Metals Cross SA A u s No is SA Cont Eur Gas Power Power Comm Gas Po er Po er Power Power Gas YTD Average VaR ($MM) 10 (29) (21) (11) (3) (3) (6) (2) (7) (3) (0.6) 0 (10)- (20) (30) 11 (40) (50) NA NA UK EES Fin'l Liquids EMG(1) Metals Cross SA Gas Power Power Comm Gas Return on VaR YTD 186% 159% 211% 261% 147% 60% 94% 23% 19% 51% 5(% Limit Utilization 65% 53% 66% 66% 26% 72% 18% 82% 57% 28% 1 % YTD (1) Emerging Businesses (EMG) include Weather, Coal, Emissions Credits, Paper, Lumber, and Bandwidth E00044024 13 53 YTD Average VaR = $39 MM I () ((),1) (1) (3) Enron n on VaR YTD 322% Utilization YTD 52% SA Cont Eur Power Power Gas % nil nil nil % 7% 32% 43% f Finance Committee Meeting =XH005-01152 ============= Page 60 of 104 ============= =XH005-01153 Risk Pi as of Augus Commodi YTD P&L ($MM) 1,000 830 800 659 600 400 200 0 Comparison I YTD P&L = $1.6 B YTD Average VaR YTD Average VaR = $39 MM ($MM) (24) (30) (3) (8) (6) 0 (10) (20) (30) (40)- (50) Power Gas Financial Other(l) Liquids Return on VaR YTD 266% 173% 147% 47% 60% (1) Includes Cross Commodity, Metals, Weather, Coal, Emissions Credits, Paper, Lumber, 54 -of i le t3152000 Busine ss U p it Comparison - YTD P&L r YTD P&L = $1.6 B ($ 0M) 1,135 52 1,000 750 Soo 255 250 113 111 19 0 North E rope Global EES Industrial America Markets Markets YTD Average VaR D Average VaR = $39 MM ($MM) (36) (13) (7) (3) (1) 0 (10) (20) (30)- (40). (50) North E urope I Global EES Industrial America I Markets Markets Return on VaR YTD 243% 49% 1 133% 261% 109% and Bandwidth EO00440 I 714 y~0 Finance Committee /(R0 Meeting Power Gas Financial Other(1) Liquids ============= Page 61 of 104 ============= Value-At-Risk Backtesti ng Backtesting Aggregate ENRON VaR -1/4/00 - 1311 j0 ($MM) El Paso Pipeline 225 Curve Shift P&L VaR ----VaR Limit Explosion August 21-30 175 125 75 25 (25) (75) (125) (175) (225) 8~~ gg~~~~g~~~~~80 8$ 88888°08°0opop 0 C O 0 0 0 0 0 0 O 0 0 O O p 0 0 0 0 N N N N N N 0N N N N _N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N 4 4 _ _ rn rn N ~~ M o0 N rn rn N M oo M oo N M oo M oo N ~1 t= N 1 cv r N ^^ c` N N [~1 -N N M N N .. .-. /~ a a M m M M M f1 `t 7 vi „' n .n v\-, v`-i 3 3 r r n t`~ °° o0 od 03 0~ E00044 2715 4~2 `~ 55 Finance Committee Meeting =XH005-01154 ============= Page 62 of 104 ============= Stress Testing 5% & 25% Parallel Price Shift as of August 31, 2000 Worst Case Exposure - 5% Parallel Shift Worst Case Exposure ($MM) ($MM) UK Power 116 Power-West ~ 36 European Gas .17 NA Gas 0 20 Power-East - 19 Global Liquids j 8 Paper 1 4 Nordic Power , 7 Continental Power 16 Coal 14 UK Power Power-West European Gas ~ 131 NA Gas 101 Power-East _ 100 Global Liquids = 70 Paper .41 Nordic Power • 33 Continental Power .29 Coal 121 OUP • DOWN - 25°/d'f Parallel Shift 87 E000440P716 56 629 Finance Committee Meeting :XH005-01155 ============= Page 63 of 104 ============= .N_ =XH005-01156 July & August 2000 Violations by Portfolio VaR ® Position [] Maturity/Gap Comparison 2000 and 1999 Q VaR ® Position [] Maturity/Gap 10. 9 s 6- 5- 4- 3 2- 1- 0-" Limit Violations as of August 31, 2000 July €1999 -j/ ust Ey o Finance Committee Meeting July August 2000 57 ============= Page 64 of 104 ============= i Loss Notifications as of August 31, 2000 7 6- 5- July & August 2000 4- Notifications by Portfolio 3 2- 1 0 EES Comparison 2000 and 1999 :XH005-01157 I UK Gas Global Cross Enron ENA B Liquids Commodity Corp. Electricity Total* 20 18 16 14 12 10 8 6 4 2 0 * CEO Loss Notification > 56.25 MM (75% of VaR) Loss of $60.29 MM on July 5, 2000 Loss of $72.95 MM on August 29, 2000 * BOD Level Loss Notification >J0% of Vat Loss of $193.5 MM on August 30, 2000 July August 2000 T-- ~ July 58 E000440'2718 so ENA Gas August Ni999 Metals *49(,R) Finance Committee Meeting ============= Page 65 of 104 ============= Summary of Policy Change Requested Changes to Current Policy: I. We are recommending full Board approval of the following amendments to the Risk janagement Policy: • Limit increases to existing Commodity Groups within the Trading P Proposed r. _ t Enron Corp. Aggregate VaR Limit $100 MM North American Natural Gas Net Open Position Limit No Change Rolling 12-Month Position Limit No Change VaR Limit $60 MM Continental Electricity Net Open Position Limit 20 Twh Rolling 12-Month Position Limit 20 Twh VaR Limit No Change Southern Cone Electricity Net Open Position Limit 3.5 Twh Rolling 12-Month Position Limit 3.5 Twh VaR Limit $5 MM Coal and Freight Net Open Position Limit No Change Rolling 12-Month Position Limit No Change VaR Limit $4 MM 59 :XH005-01158 )Ho: T MM iMM Current $60 MM 300 Bcf 350 Bcf $40 MM 15 Twh 15 Twh $4 MM 3 Twh 2 Twh $2 MM 15 MM MT 15 MM MT $2 MM 41Q o O Finance Committee Meeting ============= Page 66 of 104 ============= Summary of Policy Chanjge~ Requested Changes to Current Policy (continued): • New Commodity Groups: Proposed Discretionary VaR VaR Limit $25 MM Enron Energy Services Net Open Position Limit None Rolling 12-Month Position Limit None VaR Limit $5 MM II. Changes to the Risk Management Policy to set guidelines for allocations of the Disc Ill. The following Commodity Group has obtained limits under the Interim Policy: Steel Trading Proposed Net Open Position Limit 100,000 Net Tons Rolling 12-Month Open Position Limit 200,000 Net Tons VaR Limit $1 MM 60 E Teni $151IMM $5 tom Current None None fy VaR (Appendix III). 2720 Finance Committee Meeting XH005-01159 ============= Page 67 of 104 ============= i EXH005-01160 Chief Risk Offil Supplement October 6, 20( j -e 721 ============= Page 68 of 104 ============= Enron Corp. Transaction Appro~al TRANSACTIONS APPROVED IN 2000 THROUGH RISK ASSESSMENT & CONTROL (RAC) DEAL SIZE PROVING $MM UNIT ORIGINATING < 5 ENTITY TRANSACTION REVIEW < 20* Request for: REGION / BUSINESS Capital Expenditure INVESTMENT < 25* VALUATION or PRICING Conforming < 75* Risk Adjusted Capital PORTFOLIO 75+ RE G W ION/BUSINESS OUP HE DLESALE OOC E E-OOC/CRO" E E-CEO/COO ENE-BOD Revised 10-7-00 64 TRANSACTIONS- *i i 39% f 25 TRANSACTIONS- i1 i 15% 34 TRANSACTIONS- ~~ 20% t 35 TRANSACTIONS- 21% i 8 TRANSACTIONS - ~~ 5% (>$500,000) REVIEW URTOTA CONFORMING 166 TRANSACTIONS i 100% A GL BAL' FUNCTIONS t 5ROUP HEAD , GLOBAL FUNCTIONS < 25* ENE.000/CRO ** ------------ *1 <75* FNE-CEO/COO ------------ * r , i 75+ ENE-BOD ------------~ i < 10* E -OOC/CRO ** 1- 5 TRANSACTIONS - *i 50% NON-CONFORMING < 25* NE-CEO/COO F- 3 TRANSACTIONS - i 30% -CE I i i 25+ ENE-1301) TRANSACTIONS - 20% i r---- i Deal Approval Sheet With All Signatures SUBTOTAL WIN-CONFORMING 10 TRANSACTIONS 100% ----------------------------------------------------- --------------------- - * Transaction Deal Approval Sheets will be distributed to the ENE-BOD (Finance C mmitte e) after approval. ** As delegated by the ENE-OOC, the ENE-CRO has approval authority. IOTA TRANSACTIONS 176 y~ D E0004402722 Finance Committee Meeting rocess EXH005-01161 ============= Page 69 of 104 ============= Annualized VaR versus Annualized VaR  Tradin P&L~ $2,500 2,053 $2,000 - $1,500 0 I 1,029 E $1 000 , 620 712 541 383480 620 $500 - 251 3 5 33 136 1995 1996 1997 1998 1999 2000(l) Return on VaR: 1874% 397% 125% 284% IR99% 331% (1) Through September 30, 2000 2 E0004402723 Finance Committee Meeting EXH005-01162 ============= Page 70 of 104 ============= Annualized VaR as a Percent of Tr di 'g P&L Cw 90% 80%~ - ! <; 80% 70% 60% - 50% 40% ° 35% 34 1/0 - 30% 30/ 25% ° 20% 10% 5% 0% l-- - - - ~- --r 1995 1996 1997 1998 1 X99 2000(l) () Through September 30, 2000 E0004402 724 a I Finance Committee Meeting 1- =XH005-01163 ============= Page 71 of 104 ============= Average Daily VaR and VaR Limit as a Prc Fnt of Market i Capitalization EXH005-01164 Av Daily VaR as % of Market Ca -- VaR Lim i~,t as ° P of Market Cap -- r 0 60% . 0 50% 1 . 0 40% . 0 30% 4600 'good . 20% 0 I . j 10% 0 . 0 00% . 1995 1996 1997 1998 1 ?99 2000(l) ($MM) Market Ca 4,839 5,519 6,615 Avg Daily VaR: 2 9 24 VaR Limit: 15 20 36 9,574 16 36 22 46 H 60 100 (1) Through September 30, 2000 E0004402725 04 n Finance Committee Meeting ============= Page 72 of 104 ============= Required Returns on VaR VaR Limit (daily): VaR Limit (annual): $100 MM $1.6 B Expected P&L based on: - S & P Historical Returns - Historical Enron Performance (1998, 1 199) Expected VaR to support 2001 Budget: - S & P Historical Returns - Historical Enron Performance (1998, 19,199) 5 E0004402!726 $1.0 B $3.7 B $268 MM $ 73 MM ° W Finance Committee Meeting EXH005-01165 ============= Page 73 of 104 ============= Why Do We Want Discretionary Va i • EnronOnline • Enron Global Markets • Enron Net Works • Enron Industrial Markets • Enron Broadband Services r V r 6 EC i 727 Finance Committee Meeting EXH005-01166 ============= Page 74 of 104 ============= 8ZL~limit.Q_cmmnacedtatheir- resneetivP_-- actual amounts and will be signed off by the Commodity Group Manager of the position(s) and the head of the commercial support group responsible for their preparation, before any subsequent trading occurs. The President of Enron Corp. and Enron Corp. Chief Risk Officer shall designate individuals who are authorized to approve the Daily Position Report on behalf of Enron Corp. After approval, a consolidated Daily Position Report shall be distributed to the Chairman, the President, the Chief Information, Administrative & Accounting Officer and the Chief Risk Officer of Enron Corp. and others as designated by the President or the Chief Risk Officer of Enron Corp. C. Stress and Scenario Testing. On a monthly basis, or as markets dictate, designated Enron Business Units shall formulate and examine the effects of extreme changes in the market parameters relevant to exposures and positions. Results of these tests should be made available to the Enron Corp. Chief Risk Officer, or his designee(s). D. Valuation. On a monthly basis, or as markets dictate, designated Enron Business Units shall provide evidence of verification of all market parameters used in the calculation of risk metrics and profits and losses. This should be made available to the Enron Corp. Chief Risk Officer, or his designee(s). E. Transaction Approvals. Only those employees designated by the Enron Corp. Chief Risk Officer or his designee(s) will be authorized to enter into Transactions on behalf of Enron. The Chief Risk Officer must also approve and maintain a record of those employees responsible for the individual Commodity Groups (Commodity Group Manager) as specified in Appendix I, Appendix II and Appendix III. All Transactions must be entered into in compliance with current or future policies, prevailing at the time transactions are contemplated, of the Credit Group, Market Risk Management Group, Legal Department, and other relevant groups, as determined by the Enron Corp. Chief Risk Officer. F. Brokerage Accounts. Designated Enron Business Units are authorized to open trading accounts with clearing brokers to facilitate the conduct of their business. All openings or revisions of trading accounts with a broker or brokers will be reviewed and approved by the Enron Corp. Chief Risk Officer or his designee(s). The Enron Corp. Chief Risk Officer or his designee(s) will also notify the brokers of the names of personnel authorized to trade futures, options or other contracts on regulated exchanges if the account has been designated for this purpose. G. Calculation of the Net Open Position by Commodity Group. For purposes of monitoring the Net Open Position Limits, as specified in Section IIIA.. all Positions within a Commodity Group shall be aggregated into a reference Benchmark Position assigned to each group. Subject to approval by the Enron Corp. Chief Risk Officer, certain Positions within a Commodity Group may be authorized to have those Positions designated to a second Commodity Group for use as Cross-Commodity Hedges. If designated for this purpose, the relevant Position will be reported and monitored in the second Commodity Group for the purposes of limit monitoring. Affiliate positions are excluded from the Net Open Position calculation for purposes of limit monitoring. O:\ERMS\CONTROLS\POLICY\PMicy 2000\10-06-00 Pnluy Ammend 2dac mava^ !ovc„ =XH005-01174 E0004402735 Finance Committee Meetin ============= Page 82 of 104 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential VI. Policy Amendment Authority A. Portfolios, Commodity Groups and Positions. Subject to the authorization of the Board of Directors, the Enron Corp. Chairman, the President of Enron Corp. and the Enron Corp. Chief Risk Officer, additional Portfolios may be created and additional Commodity Groups may be added within existing Portfolios. The related limits will be created or revised accordingly. The President of Enron Corp., in conjunction with the Enron Corp. Chief Risk Officer, can authorize additional Positions within the existing Commodity Groups, provided that such Positions can be aggregated within the limits of a currently authorized Commodity Group. Any amendment that authorizes additional Positions should be communicated to the Enron Corp. Chairman and the Board of Directors. B. Position Measurement Parameters. Any changes to parameters used in the aggregation and measurement of Positions must e approve y e - - W, Benchmark Positions, VaR parameters, Maturity/Gap Risk periods, conversion ratios, volatility factors and correlation factors. Any substantive change will be communicated to Enron's Board at the next regularly C. Interim Policy for New Commodity Groups. The President of Enron Corp. and the Chief Risk Officer of Enron Corp. may approve positions in new Commodity Group(s) prior to ratification by the Enron Corp. Board of Directors, subject to the following constraints: i) the new positions do not increase the respective Portfolio limits and ii) meet the criteria in the New Commodity Group requirements specified in Appendix II. D. Discretionary VaR. The President of Enron Corp. and the Chief Risk Officer of Enron Corp. may temporarily allocate "Discretionary VaR" to other Commodity Groups in the Trading Portfolio under the guidelines described in Appendix III. E. Limit Changes and Other Policy Amendments. Any modification of limits or other amendments, supplements or updates to this Policy, unless covered by Sections VI A, VI B, VI C, or VI D, must be either (i) approved by the Enron Corp. Board of Directors or (ii) approved by the Enron Corp. Chairman or President and ratified by the Enron Corp. Board of Directors at the next regularly scheduled Board of Directors' meeting. VII. Miscellaneous Employee Trading. No employee of any Enron Business Unit may engage in the trading of any Position for the benefit of any party other than an Enron Business Unit (whether for their own account or for the account of any third party) where such Position relates to (i) any financial instrument, security, financial asset or liability which falls within such employee's responsibility at an Enron Business Unit or (ii) any other commodity, included in any Commodity Group. Employee Review of Policies. An employee of any Enron Business Unit participating in any activity or transaction within the coverage of this Policy shall sign, on an annual basis or upon any material revision to this Policy, a statement approved by the Enron Corp. Chief Risk Officer that such employee (i) has read this Policy and the Enron Corp. Trading Policies, (ii) understands such Policies, and (iii) has and will comply with such Policies. Supersedes Prior Policies. This Policy supersedes and replaces all previous Policies of Enron Corp. approved by the Enron Corp. Board of Directors concerning risk management or trading, including the Enron Corp. Risk Management Policy and Addendums approved by the Enron Corp. Board of Directors on December 14, 1993, which was last amended on May 7, 1996. This Risk Management Policy was approved by the Enron Corp. Board of Directors on October 1, 1996, and as permitted hereunder it has been amended as of the date reflected on the first page hereof. Compliance with Policy. All Business Units and their relevant employees should comply with this Policy. Dispensation for non-compliance should be sought from the President of Enron Corp., the Enron Corp. Chief Risk Officer or their designee(s). Willful or deliberate non-compliance or falsification of risk metrics or profits and losses referred to by this Policy will be regarded as gross misconduct. ~0 E0004402736 :XH005-01175 ============= Page 83 of 104 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential VIII. Definitions "Affiliate Position" shall mean the Position between a Designated Enron Business Unit and any other Enron Business Unit ("Affiliate Transactions"), and any such other Transaction designated as a hedge of any Affiliate Transaction, in accordance with the Affiliate Policy. "Benchmark Position" shall mean the Position within a Commodity Group into which all other Positions within the same Commodity Group can be converted using price volatility and correlation based conversion factors. Such conversion factors shall be established and authorized by the Enron Corp. Chief Risk Officer, in conjunction with the President of Enron Corp. "Commodity Group" shall mean a collection of Positions having sufficient relationship and correlation (as "Cross-Commodity Hedge" shall mean a Position within a certain Commodity Group that is suitably used as a hedge -nom on.~t er Positi n wi in a d;fferent Commodity C'. 1,n (i f-. Nnnir l Gas position used t hedge a Electricity position). The suitability and approval of Cross-Commodity Hedges for each Position for purposes of limit measurement shall be reviewed and approved by the Chief Risk Officer of Enron Corp. or his designee(s). "Cumulative Loss" shall mean a sum of Daily Losses for the last consecutive five days. Upon occurrence of a Cumulative Loss Limit violation, Cumulative Loss calculation is reset and begins with the Daily Loss following the day on which the violation took place. "Daily Loss" shall mean the loss in value of any Commodity Group (other than the Affiliate Position) on a daily basis, exclusive of originations and prudence. The Daily Loss will be calculated using the mark-to-market method on a net present value basis. "Designated Enron Companies" shall mean Enron Corp. and such other Enron Companies as are designated for the specific relevant purpose under this Policy by the Enron Corp. Chief Risk Officer and the President of Enron Corp., acting jointly. "Enron Business Unit(s)" shall mean Enron Corp. and any entity controlled, directly or indirectly, by Enron Corp., (including internal groups created for the purposes of trading, or aligned according to, the commodities as set out in Appendix III), or any entity directly or indirectly under common control of Enron Corp. For this purpose, the criteria for establishing "control" of any entity include but are not limited to, ownership of more than fifty percent (50%) of the voting power of such entity. "Maturity/Gap Risk" shall mean the risks related to non-parallel changes of forward prices or interest rates. For purposes of this Policy, the Maturity/Gap Risk related to commodity Positions with forward prices shall be measured using a rolling total of the net open position per period, which may be modified based on the market structure of the underlying Position and pending authorization of the Chief Risk Officer of Enron Corp. (see Appendix I). "Net Open Position" shall mean the aggregate of the open Positions in a Commodity Group on a Benchmark Position equivalent basis. "Position" shall mean, collectively, the risk components (including, but not limited to, price risk, basis risk, index risk, credit risk and liquidity risk) of all commodities, financial instruments, securities, equities, financial assets or liabilities which have been authorized for trading in the Enron Corp. Risk Management Policy, any of the Enron Corp. Policies or approved for trading through any amendments to this Policy. "Market Parameters" shall mean market spot and forward prices/curves, market spot and forward volatility, correlation (where appropriate), market interest rates, spot foreign exchange rates (where appropriate). E0004402737 OdERMSICONTROLSWOLICY(Poncy !wmiU.4I( u Mlwy nmmcnu ~.uoe rinonoc Commr1- XH005-01176 ============= Page 84 of 104 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential "Daily Position Report" shall mean hard or soft copy report including, but not limited to the following, for each major commodity and price curve traded, and for all positions regardless of financial accounting treatment: The amounts by which the mark-to-market value of the portfolio can change for small (or unit) changes in all "market parameters", as a term structure (i.e. by time "bucket") and on a net aggregate basis. For portfolios with option or non linear risks, the concentration of sensitivities (delta, gamma, vega) according to expiry date and strike price ("strike concentration"). The VaR for the portfolios, according to Enron's approved methodology. "Potential Exposure" shall mean the potential change in value of a Position or Commodity Group resulting from changes in, but not limited to, market prices, interest rates, currency rates, counterparty credit condition, liquidity, funding and settlement risk. ransactions shall mean, co ecttve y, orwar s, futures, swaps, options, and any other derivative or cash market instruments creating a Position. a u -a - t z n' i' r r rrr3= Enron Corp. adopted VaR methodology at the 95% confidence interval using a 1-day time horizon. Any recalibration or modification of the VaR methodology or parameters that take into account observed or anticipated changes in market factors or developments in VaR technologies must be approved by the Enron Corp. Chief Risk Officer or his designee(s). Fy E0004402738 'pp rinnncc Committs' ^^°' KHO05-01177 ============= Page 85 of 104 ============= ENRON CORP. RISK MANAGEMENT POLICY 1'rolxietary and ( Iliidintial Appendix I Commodity Group Benchmark Position Net Open Position Limit w laturit I / Gap Risk Limit Valk Limit TRADING PORTFOLIO $100 MM Discretionary VaR $25 MM North American Natural Gas NYMEX Henry Hub Equivalents 300 Bcf 350 Bcf Rolling 12-Month) $60 MM Global Products NYMEX WTI Equivalents 12.5 Mil Bbl III Mil Bb (Rolling 12-Month) $8 MM North American Electricity Electricity Equivalents 90 Twh 25 Twh ( ollin 12-Month) $50 MM Metals & Minerals LME Copper Futures E uiv. 375,000 MT 60 D,000 M f' (Rolling 12-Month) $8 MM Coal & Freight U.S. Eastern Coal Equivalents 15 MM MT 15' MM M r-(Rollin 12-Month) $4 MM Pulp & Paper Pul ex NBSK (Pulp) Futures E uiv. 300,000 MT 30 ),000 M r (Rolling 12-Month) $3 MM Weather Derivatives Maximum USD Exposure $100 MM N/A $3 MM Emission Allowances SO2 Credits 1,000,000 Credits 1,00 ,000 Cr its (Rollin 12-Month) $3 MM * European Natural Gas UK NBP Gas Equivalents 60 Bcf 0 Bcf ( Rolling 12-Month) $7.5 MM * UK Electricity UK Electricity Equivalents 35 Twh 15 Twh ( ollin 12-Month) $10 MM Nordic Electricity Nordic Electricity Equivalents 20 Twh 0 Twh ( EZollin J 12-Month) $5 MM Continental Electricity Continental Electricity Equivalents 20 Twh ..0 Twh ( Rolling , 12-Month) $4 MM Australian Electricity Electricity Equivalents 3 Twh 6 Twh ( ollin 12-Month) $3 MM Japanese Electricity Japanese Electricity Equivalents 4 Twh 4 Twh ( ,ollin 12-Month) $4 MM Southern Cone Natural Gas Natural Gas Equivalents 35 Bcf 20 Bcf ( ollin T 12-Month) $2 MM Southern Cone Electricity Electricity Equivalents 3.5 Twh a.5 Twh ( Rolling 12-Month) $5 MM Financial Instruments $3 MM Interest Rate USD Notional Equivalent @ AA Libor $100,000 / by _ U SD 50,0 0 / by (<= 2 years) $3 MM (combined Interest Rate/FX) Foreign Current USD Spot Rate Notional Equivalents $100 MM N/A Equity Trading Market Value in USD $100 MM N/A $6 MM Debt Trading Market Value in USD $250 MM N/A $2 MM Enron Broadband Services N/A N/A N/A $2 MM Enron Energy Services N/A N/A N/A $5 MM MERCHANT PORTFOLIO Market Value in USD N/A N/A N/A CAPITAL PORTFOLIO $10 MM Enron Companies Market Value in USD $300 MM N/A Other S&P Equivalents $200 MM N/A - See Temporary Limits - Appendix III XH005-01178 vp--- - A. 70 E000440 )739 ============= Page 86 of 104 ============= :XH005-0117 ENRON CORP. i I Appendix II RISK MANAGEMENT POLICY Prolxietar)• anLI Confidential INTERIM POLICY LISTING: Commodity Group Benchmark Position Net Open Position Maturity / G ap Risk ~..imit VaR Limit Expiration Limit Limit Lumber Board Feet 22 Mil Board Feet 22 Mil Board Fe t $0.25 MM 11/01/00 Enron Credit Maximum Exposure in USD $100 MM "/A $1 MM 2/10/01 Colombia Electricity Colombia Electricity Equivalents 0.5 Twh 0.75 Twh (Ro lling 12 Month) $0.45 MM 11/01/00 Steel Trading Hot Rolled Coil Steel Equivalents 100,000 MT 200,( 00 MT $1 MM 3/01/01 Advertising Swaps Cost per Point (CPP) Equivalents 782 CPP 78 CPP $1 MM 12/01/00 Livestock Trading Future Contract Equivalents 1,000 Contracts 1,000 'ontracts ', $0.75 MM 10/01/00 Live Cattle Futures (1 Contract = 40,000 lbs.) Lean Hogs Futures (I Contract= 40,000 lbs.) Feeder Cattle Futures (I Contract = 50,000 lbs.) Frozen Pork Bellies Futures (I Contract = 40,000 lbs.) Grain Trading Future Contract Equivalents 1,000 Contracts 1,000 Contracts / $0.5 MM 10/01/00 Corn Futures (l Contract= 5,000 bushels) Soybean Futures (1 Contract = 5,000 bushels) Wheat Futures (l Contract = 5,000 bushels) _ Soft Commodities Future Contract Equivalents 2,000 Contracts 2,000 Contracts ,' $0.75 MM 10/01/00 Sugar Futures (I Contract = 112,000 lbs.) Coffee Futures (I Contract = 37,500 lbs.) Cocoa Futures (I Contract = 22,046 lbs. Or 10 MT) INTERIM POLICY REQUIREMENTS FOR NEW COMMODITY GROUP: i a) Approval by the President and the Chief Risk Officer of Enron Corp. b) Reported to the Enron's Board at the next Board meeting c) Does not increase the applicable Portfolio limit (see Appendix I) d) Position and P&L become a part of the daily reporting requirements e) Monthly review with Senior Risk Manager and Chief Risk Officer of Enron Corp. f) Does not exceed limits in New Commodity Group Parameters, as listed below New Commodity Group Parameters: Maximum Net Open Positions: 1OBCF Equivalents Maximum Time/Product Spread Position: 20BCF Equivalents Maximum Daily Loss Limit: $500,000 Maximum VaR $1 MM E00044 )2740 Maximum Term of Interim Policy 6 Months a 71 ============= Page 87 of 104 ============= I ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Conlidentiul TEMPORARY POLICY LISTING: Appendix III Commodity Group Benchmark Position Net Open Position Limit Maturity / sap Ris Limit VaR Limit Expiration Date DISCRETIONARY VaR $25 MM NA Cross Commodity Trading $5 MM 12/31/00 EUROPEAN NATURAL GAS UK NBP Gas Equivalents 260 Bcf 90 Bcf (Roll ing 12 onth) $7.5 MM 12/31/00 UK ELECTRICITY UK Electricity Equivalents 85 Twh 15 Twh (Ro lin 12- onth) $18 MM 12/31/00 DISCRETIONARY VaR - ALLOCATION POLICY: Discretionary VaR: $25 million Discretionary VaR will be allocated under the following guidelines: a) Approval by the President and the Chief Risk Officer of Enron Corp. b) Reported to the Enron's Board of Directors at the next Board meeting c) Does not exceed VaR limits in the existing Commodity Groups by more than 100% d) Does not impact the respective Commodity Group position limits e) Loss Notification requirements will apply at the new Value-at-Risk level going forward f) Requestor must provide a justification/explanation for a limit increase g) Remains in effect for a period designated by the Chief Risk Officer E0004402741 O:~L•RM.CK'f1M'Itlll_M(N.ICYWAky ?IMNMIO•IIMMIAiky Allm d!Ax 72 XH005-01180 vV~ u ============= Page 88 of 104 ============= Agenda Item 5b E0004402742 :XH005-01181 ============= Page 89 of 104 ============= Transaction Approv E0004402743 73 process 4~+&Oo Finance Committee Meeting EXH005-01182 ============= Page 90 of 104 ============= /'Al Summary of Policy Chan e Added $20MM approval authority for Wholesale C $25MM a proval authority for CRO ac.; del gated by the OOC Adde C( Updated Region / Business Group Heads for rec Pnt reorganizations or changes in assignments ,tI E0004402744 74 ; CID 441~ >0 Finance Committee Meeting :XH005-01183 ============= Page 91 of 104 ============= Enron Corp. Transaction Approval Revised 10-7-00 RISK ASSESSMENT DEAL S & CONTROL MM (RAC) APPROVING UNIT REGION/BUSINESS GROUP HEADS WHOLESALE OOC END-OUC/CRO '• EWE-CEO/COO ENE-6( D i i ----W i i t i i (>$500,000) REVIEW i i A t i 2 GLOBAL FUNCTIONS i < GROUP HEAD t ~ < 25* `GENE OOC/CRO'", ----h t GLOBAL FUNCTIONS ' '5 t < 75* 75+ ENE-BOD ----t < 10* ENE-OOC/CRO!.','' - - - -Pi i NON-CONFORMING <25* ENE-CEO/COO ----P~ i i 25+ ENE-BOD - - - -~~ Deal Approval Sheet With All Signatures i ~- -------------------------------- ---- ------- --------------- ------ Transaction * Deal Approval Sheets will be distributed to the ENE-BOD (Finance ,ommitt e) after ap proval. ** As delegated by the ENE-OOC, the ENE-CRO has approval authority. 4 75 EC0' 4402745 Finance Commie meeting rocess ORIGINATING < 5 ENTITY TRANSACTION Request for: REVIEW < 20* INVESTMENT REGION/ BUSINESS * Capital Expenditure VALUATION < 25 10 or PRICING Conforming < 75* Risk Adjusted 7 Capital PORTFOLIO 75+ 10 :XH005-01184 ============= Page 92 of 104 ============= Approval Process for Originated Contractual Transactions Revised 10-7-00 ORIGINATION AND STRUCTURING GROUPS ORIGINATED TRANSACTION* *Characteristics: -Non-standard documentation *Deal results in violation of existing limits RISK ASSESSMENT & CONTROL (RAC) COMMODITY VaR POSITION RISK CAPITAL $ INVESTMENT (IF ANY) RISK RAC TRANSACTION A )JUST ID APPROVAL RESERVE 'APITA PROCESS CREDIT RISK PV8 SAVINGS GUARANTEE E00044 2746 76 Finance Committee Meeting :XH005-01185 ============= Page 93 of 104 ============= 0 Ice* & Transaction Approval Process DEFINITIONS Revised 10-7-00 REGION/BUSINESS Jim Bannantine - South America Rebecca McDonald - Asia/Africa GROUP HEADS Sanjay Bhatnagar - India Jeff McMahon - EIM Diomedes Christodoulou - South America Lou Pal - EES Dave Delainey - North America Ken Rice - EBS Andy Fastow - EGF Jeff Sherrick - EGEP Kevin Hannon - EBS John Sherriff - Europe Stan Horton - GPG Greg Whalley - Enron Net Works Mike McConnell - EGM Tom White - EES GLOBAL FUNCTIONS Larry Izzo - EE&CC GROUP HEAD WHOLESALE OOC Chairman of Wholesale Operations Approval defined as Mark Frevert ENE-OOC Enron Corp. Office of Chair Approval defined as Ken Lay, Jeff Skilling or Joe Sutton ENE CEO ~_ Enron Corp. Chief Risk Officer Approval defined as Rick Buy ENE-CEO or COO Ken Lay or Jeff Skilling ENE-BOD Enron Corp. Board of Directors Executive Committee between Board Meetings DEAL Capital Expenditure Net to Enron Funding Vehicle exposure included in Enron exposure RAC Risk Assessment and Control Group at Enron Chief Risk Officer, responsible for RAC activities Capital Expenditure All major corporate commitments by Enron and any of its subsidiaries Acquisitions/Divestitures (Merchant Asset Divestitures exceeding $500 MM and Strategic Assets Divestitures exceeding $200 MM require Board Approval) Disposal of Assets Providing a guarantee of obligations of unaffiliated third parties Providing debt, subordinated debt, equity or partnership capital A commodity or financial position that results in an exposure outside of Board Approved Limits Risk Adjusted Capital The aggregation of exposure in a transaction that results from commodity positions, credit and guaranties; such exposure translated to an equivalent amount of capital Conforming Routine non-budgeted Capital Expenditure within the general business lines of Enron Capital Expenditure made in an industry where Enron has established expertise Capital Expenditure made in a country where Enron has established a local presence and is currently conducting business RAC Group will determine if Conforming Non-Conforming Capital Expenditure outside the general business lines of Enron Capital Expenditure in an industry where Enron has little or no expertise Capital Expenditure made in a country where Enron has no local expertise Capital Expenditure made in a country where the overall exposure to the country is excessive Capital Expenditure made to an entity or within an industry that would result in excessive exposure to that entity or industry RAC Group will determine if Non-Conforming EREC (Enron Renewable Energy Corp.) transactions are deemed Non-Conforming Merchant Portfolio Limit The sum of all Merchant transactions less any syndicated amounts The numerical limit is set forth in the most recent Enron Risk Management and Trading Policy E0004402747 n KHO05-01186 ============= Page 94 of 104 ============= Agenda Item 5(b) TRANSACTION APPROVAL PROCESS (Suggested Form of Resolutions) WHEREAS, the Board of Directors of the October 12, 1998 adopting the Enron Corp. "Transaction Approval Process") which provide approval of Capital Expenditures (as defined in minutes) and (ii) a process for prior transactions reviewed for performance and results; and Company approved resolutions on Transaction Approval Process (the for (i) a process for review and the revised policy attached to these involving Capital Expenditures to be _ WHEREAS, the Board of Directors of the Company approvedd amendments to the ransactionprova rocess a mee i g - , 1999, February 7t and 8t', 2000 and May 2, 2000; WHEREAS, it would be in the best interest of the Company to amend the definitional provisions of the Transaction Approval Process in order to reflect the recent changes in assignments and reorganization of Enron Corp. into regional business units and global functions and to reflect amendments to both Approving Units and approval limits with respect to Deal Size; NOW THEREFORE BE IT RESOLVED, that the Company revise the Transaction Approval Process to that attached to these minutes and as set forth in these resolutions; RESOLVED FURTHER, that the revised Transaction Approval Process is adopted and approved, that a copy of the revised policy be attached to the minutes as Exhibit A, and that the persons, officers and Approving Units identified therein shall perform the responsibilities as specified; for the purposes of this policy a certification by the President, the Chief Financial Officer, the Treasurer, the Chief Risk Officer (or his or her designee), or any Senior Vice President to the effect that this policy has been complied with in connection with any transaction involving Capital Expenditures shall be conclusive evidence of compliance and may be relied upon by all persons interested in or participating in such transaction, including (without limitation) the officers signing transactional documents on behalf of the Company and attorneys issuing legal opinions with respect to the transaction; RESOLVED FURTHER, that the revised Transaction Approval Process shall not apply to the approval process for guarantees except as to those guaranteeing the obligations of unaffiliated third parties. The approval process for all other guarantees shall continue as described in the Company's existing "Policy for Approval of Guarantees, Letters of Credit, Letters of Indemnity, and Other Support Arrangements", and shall be reviewed by the Finance Group and the Risk Assessment and Control Group; E0004402748 TAP resolution 100600.doc C ~~O rinanoo Committoo M"' <1-1005-01187 ============= Page 95 of 104 ============= RESOLVED FURTHER, that the Chairman of the Board and Chief Executive Officer, the President and Chief Operating Officer, the Vice Chairman, the Executive Vice President and Chief Risk Officer, the Executive Vice President and Chief Financial Officer, the Vice President, Finance and Treasurer, any Vice President of the Company, or any other person authorized by the Board to act on behalf of the Company be, and each of them hereby is, authorized and empowered to negotiate, enter into, execute, and deliver on behalf of the Company any agreements and documentation in connection with any transaction involving Capital Expenditures which has been approved in accordance with the revised Transaction Approval Process and as the officers executing such agreements shall approve, such approval to be conclusively evidenced by such execution; and RESOLVED FURTH , t at a ac ions ere o ore n - -- - - Board and Chief Executive Officer, the President and Chief Operating Officer, the Vice Chairman, the Executive Vice P esi e Chief 'sk Officer, the Executive Vice President and Chief Financial Officer, the Vice President, Finance and Treasurer or any Vice President, in the name and on behalf of the Company, related to or in connection with transactions of the type contemplated by the new review process attached to these minutes but which originated prior to these resolutions, including, without limitation, the execution and delivery of any instruments or other documents as any such officer shall have deemed necessary, proper, or advisable, are hereby adopted, ratified, confirmed, and approved in all respects. Z E000 4402749 ~. TAP resolution 100600.doc ~Q finance uommmee ninatI KHO05-01188 ============= Page 96 of 104 ============= 0 N N O O O U W 5c EXH005-01189 ============= Page 97 of 104 ============= AGENDA ITEM NO. 5c EQUITY DERIVATIVES AUTHORIZATION WHEREAS, the Company desires to enter into and has entered into equity derivative transactions from time to time relating to the Common Stock of the Company, including, but not limited to swap transactions, forward sales and/or purchases, and options (the "ENE Equity Derivatives Transactions"), which are or may be in addition to obligations or contingent obligations to issue shares of Common Stock of the Company relating to project financings; and NOW, THEREFORE, IT IS RESOLVED, that the Company be, and it hereby is, authorized to enter into ENE Equity Derivative Transactions from time to time, subject to - G the limitations contained in these resolutions, and on such terms as are approved by the Chairman of the Board, the President, the Vice Chairman, any Vice President, any Managing Director, the Chief Financial Officer, the Treasurer, "I or any Deputy Treasurer of the Company (each an "Authorized Officer") and that such transactions heretofore entered into on behalf of the Company are ratified and approved; RESOLVED FURTHER, that the Company is authorized and directed to execute and deliver any agreements evidencing or relating to ENE Equity Derivative Transaction(s) and to observe and perform in full all of the obligations, conditions, covenants, and other terms set forth in or contemplated by any agreements relating thereto as the same may be amended from time to time; RESOLVED FURTHER, that each Authorized Officer be, and each such officer hereby is, authorized in the name and on behalf of the Company to take or cause to be taken such action as such officer may deem necessary or desirable in connection with the performance by the Company of its obligations under any agreement, document, or instrument contemplated by these resolutions to which the Company is or will become a party; E0004402751 c 0 00 Finannn Cnmmittan Meath KHO05-01190 ============= Page 98 of 104 ============= RESOLVED FURTHER, that each Authorized Officer be, and each of them hereby is, authorized in the name and on behalf of the Company, under its corporate seal or otherwise, to negotiate, execute, deliver, amend, perform, and consummate such agreements, instruments, or documents, however designated, as such officer may deem necessary or desirable to carry out the purpose and intent of the resolutions herein, in such form(s) as shall be approved by the officer executing the same, such approval to be conclusively evidenced by the execution thereof by such officer; RESOLVED FURTHER, that the maximum number o shares of Company Common Stock for which ENE Equity time shall not exceed 50 million shares; RESOLVED FURTHER, that up to an aggregate of 20 million shares of Company Common Stock are hereby authorized to be issued pursuant to ENE Equity Derivatives Transactions and up to an aggregate of 20 million shares of Company Common Stock are hereby authorized to be reacquired pursuant to ENE Equity Derivatives Transactions; T co RESOLVED FURTHER, that an aggregate of 20 million shares of Company Common Stock are hereby reserved for issuance in settlement of any or all of the ENE Equity Derivatives Transactions referred to above in the event the Company elects to make settlement in shares of Company Common Stock; RESOLVED FURTHER, that the Company is authorized to issue such shares of Common Stock of the Company in settlement of ENE Equity Derivatives Transactions, as deemed appropriate, and to offer and sell any such shares delivered in settlement of any ENE Equity Derivatives Transaction and that upon any such issuance in accordance with the terms of the subject ENE Equity Derivatives Transaction, such shares of Common Stock shall be validly issued, fully paid and non-assessable; RESOLVED FURTHER, that if registration of shares of the Company's Common Stock is appropriate in connection with any ENE Equity Derivative Transaction, the officers of the E0004402752 r,nance uommluee Ivleol KH005-01191 ============= Page 99 of 104 ============= Company be, and they hereby are, authorized and directed, for and in the name and on behalf of the Company, to cause to be prepared, executed, and filed with the Securities and Exchange Commission (the "Commission") one or more Registration Statements and/or post-effective amendments to previously filed Registration Statements, including exhibits thereto (collectively, the "Registration Statement"), and such amendments and post-effective amendments to any Registration Statement or supplements to the Prospectuses constituting a part thereof, relating to the registration under the Securities Act of 1933 of the Common Stock of the Company relating to the ENE Equity Derivative ransaction s whenever same are appropriate; and the proper officers of the Registration Statement to be executed and filed in such form as the officers executing such Registration Statement shall approve, such approval to be conclusively evidenced by such execution; RESOLVED FURTHER, that the officers of the Company be, and they hereby are, authorized and directed to file such amendments or supplements to the Registration Statement(s) referred to above, and to take any or all other action or to do or cause to be done any or all other things as may appear to them to be necessary or advisable in order to cause such Registration Statement(s), as amended, to become effective and otherwise to effect the registration under the Securities Act of 1933 of the appropriate amount of Common Stock of the Company relating to an ENE Equity Derivative Transaction which are covered by such Registration Statement; RESOLVED FURTHER, that if it is deemed necessary or advisable by the officers of the Company that the Common Stock issuable upon settlement of an ENE Equity Derivative Transaction be qualified or registered for sale under the applicable Blue Sky Laws or securities acts of any jurisdiction, or that a filing be made in any jurisdiction to secure or obtain an exemption from qualification or registration, the officers of the Company are each authorized to perform on behalf of the Company any and all such acts as any one or more of them may deem necessary or advisable in order to comply with such laws of such jurisdiction, and in connection therewith, to E0004402753 Finance Committee meet,, XH005-01192 ============= Page 100 of 104 ============= execute and file all requisite papers and instruments and to make any and all payments of filing, registration or other fees, costs and expenses, and to take any and all further action in connection with the foregoing which any one or more of them shall deem necessary or advisable; RESOLVED FURTHER, that if the officers of the Company determine that it is desirable for the Company to do so, the Company may make application to the New York Stock Exchange, Inc. and one or more other national securities exchanges for listing of the Company Common --Stock - to e issue in -connection wi e _ Derivatives Transactions; that the Chairman of the Board, the Vice airman o the R and the President, any Executive nr Senior Vice President, any Vice President, the Treasurer or any Deputy Treasurer of the Company be, and they hereby are, authorized and directed to execute and deliver any applications, documents, or agreements, to take any and all actions, to appear before such exchanges if necessary, to appoint any banking or other institution as an agent of the Company for any purpose, and to do so or cause to be done any and all things as may appear to them to be necessary or desirable in order to effect such listing; °0 RESOLVED FURTHER, that the execution by any officer of the Company of any papers and instruments or the performance by any one or more of them of any act in connection with the foregoing resolutions shall conclusively establish their authority therefore from the Company and the approval and ratification by the Company of the papers and instruments so executed and the actions so taken; RESOLVED FURTHER, that the actions of the officers and employees of the Company acting under the supervision of the officers heretofore taken on behalf of the Company in connection with the above resolutions and the actions contemplated thereby, are, in all respects, confirmed and ratified, and the officers of the Company, together or individually, may take any and all action and do any and all things, or direct the taking of such action or the doing of such things by employees of the Company acting under the supervision of the officer(s) as may be deemed by any of them to be necessary or advisable to effectuate the ENE E0004402754 rl a,, t con,n,fucc Moot XH005-01193 ============= Page 101 of 104 ============= Equity Derivatives Transactions, and the taking of any and all such actions and the performance of any and all such things in connection with the foregoing shall conclusively establish their authority from the Company and the approval and ratification by the Company; and RESOLVED FURTHER, that the proper officers of the Company and its counsel be, and each of them hereby is, authorized, empowered, and directed (any one of them acting alone) to take any and all such further action, to amend, execute, and deliver all such further instruments and documents, for and in the name and on e a o- the Company, under its corporate seal or otherwise, and to pay all such expenses as in their discretiGn appear te-be nee6GG-`Y, proper, or advisable to carry into effect the purposes and intentions of this and each of the foregoing resolutions. I* co E0004402755 O Finance uommn,ee H1ect KH005-01194 ============= Page 102 of 104 ============= Agenda Item 6 E0004402756 EXH005-01195 ============= Page 103 of 104 ============= Other Busine E0004402757 'p® Finance Committee Meeting 85 =XH005-01196 ============= Page 104 of 104 ============= Adjourn m 0 0 0 .p 0 N v 00 86 Finance Committee Meeting EXH005-01197