============= Page 1 of 109 ============= CONFIDENTIAL 1 ~ 'pK Yji„" II ~ w. XH003-01124 Endless possibilities. TM 1 Finance Committee Meeting EOO04401810 May 1, 2000 I Committee Members I 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 GOVERNMENT EXHIBIT 137 Crim. No. H-04-25 (S-2) ============= Page 2 of 109 ============= m C) 0 0 .A 0 00 Agenda EXH003-01125 ============= Page 3 of 109 ============= AGENDA Meeting of the Finance Committee of the Board of Directors of Enron Corp. 2:30 p.m. (C.S.T.), May 1, 2000 Boardroom, Enron Building Houston, Texas 1. Approval of February 7, 2000 Finance Committee Minutes Mr. Winokur 2. Chief Financial Officer Report Mr. Fastow A) Project Raptor - Approve for Recommendation to the Board B) Treasurer and Deputy Treasurers Nomination Discussion 3. Treasurer Report Mr. McMahon A) Incremental Debt Authority - Approve for Recommendation to the Board 4. Chief Risk Officer Mr. Buy A) Revision of Transaction Approval Process - Approve for Recommendation to the Board B) Revision to the Risk Management Policy - Approve for Recommendation to the Board C) Quarterly Risk Update - Merchant Portfolio Summary - EES Review - Foreign Exchange Project - Market Risk Update 5. Other Business 6. Adjourn E0004401812 d Finance Committee Meeting See Addendum for Deal Approval Sheets approved between Board meetings .4,.0 EXH003-01126 ============= Page 4 of 109 ============= Agenda Item I E0004401813 EXH003-01127 ============= Page 5 of 109 ============= Enron Corp Finance Committee Minutes May 1, 2000 E00044018'14 Finance Committee Meeting 04/00 FXH003-01128 ============= Page 6 of 109 ============= DRAFT MINUTES MEETING OF THE FINANCE COMMITTEE OF THE BOARD OF DIRECTORS ENRON CORP. FEBRUARY 7, 2000 Minutes of a meeting of the Finance Committee ("Committee") of the Board of Directors of Enron Corp. ("Company"), held pursuant to due notice at 2:30 p.m., C.S.T., on February 7, 2000 at the Enron Building in Houston, Texas. All of the Committee members were present, 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 Ferraz Pereira Mr. Frank Savage Mr. John A. Urquhart Directors Kenneth L. Lay, Charles A. LeMaistre, and Jeffrey K. Skilling, Messrs. Richard B. Buy, Andrew S. Fastow, David B. Gorte, Mark E. Koenig, Jeffrey McMahon, Theodore R. Murphy, and Joseph W. Sutton, and Ms. Rebecca C. Carter, all of the Company or affiliates thereof, also attended the meeting. Messrs. Kurt S. Huneke and J. Mark Metts, of the Company or affiliates thereof, 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 minutes of the meeting of the Committee held on December 13, 1999 had been distributed to the Committee members, and called for any corrections or additions. There being none, upon motion duly made by Mr. Belfer, seconded by Mr. Savage, and carried, the minutes of the meeting of the Committee held on December 13, 1999 were approved as distributed. In E0004401815 Finance Committee Meeting e4/Uu EXH003-01129 ============= Page 7 of 109 ============= Mr. Winokur called upon Mr. Fastow to present the Chief Financial Officer's report. Mr. Fastow presented the Company's current and projected key financial ratios and stated that funds flow continued to be the primary focus. He reviewed the stock trading portfolio, including recent transactions involving the Company's stock, and the Company's cost of capital over the last three years. He commented on the Company's borrowing spreads and noted that recent issuances had brought new lenders to the Company. He discussed the Global Finance Group's 2000 goals including creating a merchant investment hedging vehicle to reduce downside earnings exposures, outperforming the BBB+ Bond Index, and providing a platform for increased capital velocity to achieve the return on equity target. A copy of Mr. Fastow's presentation is filed with the records of the meeting. Mr. Winokur called upon Mr. McMahon to present the Treasurer's report. Mr. McMahon reviewed the liquidity report and noted that when the recent equity shelf registration becomes effective later this month it would add an additional $450 million of liquidity. He reviewed the year-to-date investments, status of capital commitments by business unit, active letters of credit ("LOC"), and guarantee portfolio. He stated that increases in performance LOC and the trade guarantee portfolio were due to increased trading in the Italian electricity market and outsourcing contracts by Enron Energy Services, LLC, respectively. He reviewed the Company's rating by each rating agency and noted that Moody's a Investor Services had recently put the Company on "review for upgrade" status. A copy of Mr. McMahon's report is filed with the records of the meeting. 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 proposed Enron Corp. Credit Risk Management Policy and noted that the purpose of the policy was to outline the guidelines by which the Company's Credit Risk Management Group assesses, manages, and controls credit risk. Following a discussion, upon motion duly made by Mr. Belfer, seconded by Mr. Urquhart, and carried, the proposed Enron Corp. Credit Risk Management Policy was approved for recommendation to the Board. Mr. Buy then proposed that certain revisions be made to the Enron Corp. Transaction Approval Process to reflect recent changes in the organizational structure of the Company. Upon motion duly made by Mr. Blake, seconded by Mr. Savage, and carried, the proposed revisions to the Enron Corp. Transaction Approval Process were approved for recommendation to the Board. E0004401816 Finance Committee Meeting 04/00 =XH003-01130 ============= Page 8 of 109 ============= Mr. Buy distributed the Market Risk Update report, a copy of which is filed with the records of the meeting, and called upon Mr. Murphy to present the report. Mr. Murphy reviewed the 1999 profit and loss ("P&L") and value-at-risk ("VAR") by commodity group. He discussed the returns each commodity group had earned compared to the VAR it had taken and stated that the business provided a very steady stream of earnings throughout the year. He gave an overview of the VAR backtesting and stress testing performed to test the accuracy of the VAR calculation and the exposure under a "worst case" scenario of 5%-25% shifts in commodity prices. He reviewed limit violations during 1999 and noted that violations had significantly decreased from earlier in the year and primarily related to P&L rather than position or VAR. He presented two charts displaying VAR as a percentage of market capitalization and of net income for the Company, financial institutions, and other energy companies and commented on how the Company's risk profile impacted the comparisons. He then discussed the impact that trading losses had had on certain companies' stock prices. Mr. Murphy then distributed proposed changes to the Enron Corp. Risk Management Policy ("the Policy"), a copy of which is filed with the records of the meeting. He stated that based on the current business activity the Company was recommending an increase in the bandwidth trading limits. He stated that the Office of the Chairman had approved the current bandwidth trading limits through the Interim Policy section of the Policy and they included open position, loss, and VAR limits. Mr. Skilling joined Mr. Murphy in answering questions from the Committee regarding how the industry is evolving and how the limit structure for bandwidth trading should be established. Following a discussion, it was decided that VAR limits were the most applicable for bandwidth trading and upon motion duly made by Mr. Blake, seconded by Mr. Belfer, and carried, the proposed bandwidth VAR trading limits were approved for recommendation to the Board. Mr. Buy then distributed a handout relating to the Foreign Exchange Project ("the Fx Project"), a copy of which is filed with the records of the meeting. He stated that the Company's Risk Assessment and Control and Corporate Accounting groups were working with Arthur Andersen LLP's Derivatives and Treasury Risk Management groups on a project to identify, measure, and report the Company's foreign currency economic exposure. He noted that the Fx project team had selected one of the Company's investments as a pilot project due to the investment's size and complexity and the volatility of the local currency. He noted that the Fx project team planned to report on the outcome of the study at the May 2, 2000 Committee meeting. He then discussed the additional investments that would be analyzed in the Fx project and the targeted completion dates. Messrs. Huneke and Metts joined the meeting. E C 004401817 Finance Committee Meeting 01100 Ln EXH003-01131 ============= Page 9 of 109 ============= Mr. Winokur called on Mr. Sutton for other business to be discussed by the Committee. Mr. Sutton stated that the Company was proposing a buyout of the minority interest in Enron Renewable Energy Corp. ("EREC") and he called upon Mr. Huneke to discuss the proposal. Mr. Huneke gave a brief history of EREC and noted that the earnings growth over the last three years was primarily driven by an acquisition of a German company. He discussed the investment considerations going forward and the projections of growth for the wind industry throughout the world. He commented on the improvements in the technology used by EREC and noted that it was on the verge of being able to compete with combined-cycle gas turbines. He discussed environmental events that will impact EREC, including the extension of a production tax credit in the U.S., states that are sponsoring renewables initiatives, certain European and Asian initiatives, the synergies between EREC and the Company, and the risks EREC faces. He discussed.the terms of the proposed buyout and the economic impact on the Company. Following a discussion, upon motion duly made by Mr. Blake, seconded by Mr. Meyer, and carried, the proposed buyout of the minority interest in EREC was approved for recommendation to the Board. There being no further business to come before the Committee, the meeting was adjourned at 3:35 p.m., C.S.T. Secretary APPROVED: Chairman H:\a Minutes\2000 Minutes\2070OF.dm E0004401818 *0 Finance Committee Meeting 04/00 EXH003-01132 ============= Page 10 of 109 ============= Agenda Item 2 E0004401819 EXH003-01133 ============= Page 11 of 109 ============= Enron Corp Chief Financial Officer Report May 1, 2000 E0004401820 7 Finance Committee Meetin< 04/00 EXH003-01134 ============= Page 12 of 109 ============= Key Financial Ratios 5 4 3 2 1 1994 EXH003-01135 8 1995 1996 1997 1998 1999E 2000P ~• Funds Flow Interest Coverage ' Interest Coverage V E0004401821 8 55% +0`o 49.6 49.2 47.1 46.0 42.0 45% 44.2 ~ 40.3 ~6 42.8 ~ 41 9 . 39.8 41.0 ° 35% 38.6 25.6 26.0 19 9 .... 21.5 15% 0 Y . 14.7 ,,...._..:..::._ 0 15.5 11.6 5% 1994 1995 1996 1997 1998 1999E 2000P Total Obligations/Total Capital ~° Debt/ B/S Capital FFO/Total Obligation e~ R Finance Committee M ting 04/00_~ ~iD ============= Page 13 of 109 ============= stock Trading Portfolio Mark-to-Market Basis Position - Thousands of Shares 1/1/00 Purchases Sales 4/17/00 ENE 280 12,574 (10,813) 2,041 EOG - - EOTT ' AZX ' f C,`..-_ lL , E0004401822 Finance Committee Meetinc_ 9 04/00 EXH003-01136 ============= Page 14 of 109 ============= Stock Purchase Activity Treasury Shares 1/1/00 - 4/17/00 (000's except share price) Date ENE Shares Avg. Price Total 0 - 10 E0004401823 Amount 0 4.$O~ Finance Committee Meetini 04/00 EXH003-01137 ============= Page 15 of 109 ============= Cost of Capital* 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% E0004401824 * Calculated using CAPM Model EXH003-01138 11 ~~ o O Finance Committee Male 04/00 1996 1997 1998 1999 1Q 2000 ============= Page 16 of 109 ============= Enron Corp. Borrowing Spreads 4/17/00 230.0 210.0 190.0 170.0 N 150.0 130.0 i 110.0 CL 90.0 70.0 50.0 30.0 L L L L L L L L L (D W N M d Ln cn N. CO as o T E0004401825 12 EXH003-01139 L L L W 4) 4) LO N M 18 19 )7 )6 Finance Committee Meetini 04/00 ============= Page 17 of 109 ============= U.S. Treasury Yield Curve EXH003-01140 7.0 6.5 6.0 ~_ 5.5 0- 5.0 4.5 4.0 12/31/96 12/31/99 4/17/00 12/31/97 4 12/31/98 . C (A (n L L (O L (4 L (0 L (U L (U 0 E r N M tl) O (O M (D E0004401826 13 '00 0. Finance Coinmittee Meetin 04/00 ============= Page 18 of 109 ============= U.K. Yield Curve 8.0 7.5 7.0- 12/31/96 12/31/97 6.0 o- 5.5 5.0- 4.5- 4.0- U) U) L L L L L L L L 0) t) C) C) C 0) 0) (D r N C) of U) CO I- 00 0 0 M $500,000) REVIEW ' I 1 1 GLOBAL FUNCTIONS _ i ' < 2 GROUP'HEAD - ii 1 .~ I GLOBAL FUNCTIONS < 25* ENE OOC I I. ' ; < 75* --J ENE-CEO/COO - - - -N 1 ;C 75+ ENE-BOD ---*1 t I 1 ' ENE-OOC ---- v <10* 1 1 I NON-CONFORMING ' 1 < 25* ENE-CEO/COO - - - ~~ 1 t 1 ' 25+ ENE-BO'D --- 1 I Deal Approval Sheet With All Signatures ' * '--------------------------------------------------------------------------- Transaction Deal Approval Sheets will be distributed to the ENE-BOD (Finance Committee) after approval by the ENE-OOC. E0004401 o62 Finance Committee Meetir 44 04100 EXH003-01176 ============= Page 54 of 109 ============= Approval Process for Originated Contractual Transactions Revised 5-2-00 RISK ASSESSMENT & CONTROL (RAC) COMMODITY VAR POSITION RISK ORIGINATION AND STRUCTURING GROUPS CAPITAL $ 10, INVESTMENT (IF ANY) RISK ORIGINATED ADJUSTED TRANSACTION* CAPITAL CREDIT RESERVE RISK *Characteristics *Non-standard documentation *Deal results in violation of PV8 SAVINGS existing limits GUARANTEE E0004401863 =XH003-01177 45 RAC TRANSACTION APPROVAL PROCESS O Finance Committee Meetin 04/00 ============= Page 55 of 109 ============= Enron Corp. y~ Transaction 0 Approval Process DEFINITIONS Revised 5-2-00 REGION/BUSINESS Jim Bannantine - South America Stan Horton - GPG GROUP HEADS Cliff Baxter - North America Mike McConnell - Enron Net Works Sanjay Bhatnagar - India Jeff McMahon - Enron Net Works Diomedes Christodoulou - South America Rebecca McDonald - Asia/Africa Dave Delainey - North America Lou Pal - EES Andy Fastow - EGF Ken Rice - EBS Mark Frevert - Europe Jeff Sherrick - EGEP Kevin Hannon - EBS John Sherriff - Europe David Haug - Caribbean/Middle East Greg Whalley - Enron Net Works Joe Hirko - EBS. Tom White - EES GLOBAL FUNCTION Kurt Huneke - Asset Operations GROUP HEADS Larry Izzo - EE&CC ENE-OOC Enron Corp. Office of Chairman Approval defined as Ken Lay, Jeff Skilling or Joe Sutton ENE-CEO or COO Ken Lay or Jeff Skilling dam:.. 2 ENE-BOD Enron Corp. Board of Directors ~- i;+ + 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 activiti ' Capital Expenditure All major corporate commitments by Enron and 6n*-446- -subsidiaries` Acquisitions/Divestitures (Divestitures exceeding 500 MM require Board Approval) ; Disposal of Assets s 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 E0004401864 a EXH003-01178 ============= Page 56 of 109 ============= Agenda Item _ TRANSACTION APPROVAL PROCESS (Suggested Form of Resolutions) -1 WHEREAS, the Board of Directors of the Company approved resolutions on October 12, 1998 adopting the Enron Corp. Transaction Approval Process (the "Transaction Approval Process") which provides for (i) a process for review and approval of Capital Expenditures (as defined in the revised policy attached to these minutes) and (ii) a process for prior transactions involving Capital Expenditures to be reviewed for performance and results; and WHEREAS, the Board of Directors of the Company approved amendments to the Transaction Approval Process at .meetings held on February 8, 1999, August 10, 1999 and February 7t' and 8`h, 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 further reflect the reorganization of Enron Corp. into regional business units and global functions and to reflect a change in the definition of capital expenditures as it relate to divesitures; 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; 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 Executive Vice President, Finance and Treasurer, any Vice President of the Company, or any other percnn authorized by the Board to act on behalf of the Company be, and each of them hereby is, E0004401865 4 Fluauuv Guuuui(tw MaWiy '"Pr EXH003-01179 ============= Page 57 of 109 ============= authorized and empowered to negotiate, enter into, execute, and deliver on behalf of the Company any agreements and documentation in connection with any transaction involving Capital Expenditures which has been approved in accordance with the revised Transaction Approval Process and as the officers executing such agreements shall approve, such approval to be conclusively evidenced by such execution; and RESOLVED FURTHER, that all actions heretofore taken by the Chairman of the Board and Chief Executive Officer, the President and Chief Operating Officer, the Vice Chairman, the Executive Vice President and Chief Risk Officer, the Executive Vice President and Chief Financial Officer, the Executive 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. E0004401866 rinance %.ominucee meenng 01100 EXH003-01180 ============= Page 58 of 109 ============= Agenda item 4b E0004401867 FXH003-01181 ============= Page 59 of 109 ============= Interoffice Memorandum To: The Finance Committee of the Board of Directors From: Jeff Skilling and Rick Buy Subject: Changes to the Risk Management Policy Date: May 1, 2000 We are recommending full Board approval of the following amendments to the Risk Management Policy. The limit changes below will not affect the Enron Corp. Aggregate VAR limit, which will remain at $60 MM. New Commodity Group: Japanese Electricity Net Open Position Limit Rolling 12-Month Open Position Limit VAR Limit Current Proposed None None None The following limit increases to existing Commodity Groups: Australian Electricity Net Open Position Limit Rolling 12-Month Open Position Limit VAR Limit Pulp & Paper Net Open Position Limit Rolling 12-Month Open Position Limit VAR Limit Equity Trading Net Open Position Limit VAR Limit 4Twhi 4 Twh '+r $4 MM f Y' & 1._J ~v i r j Current Proposed 1 Twh 2 Twh $2 MM 150,000 MT 150,000 MT $1.5 MM $50 MM $4 MM ~; t J 3 Twh 6 Twh $3 MM 300,000 MT 300,000 MT $3 MM $100 M $6-MMf" E0004401868 Respect Integrity Communication Excellence ^I _rl Form 000.4891 (7/92) - ~J EXH003-01182 Department: Risk Assessment and Controls ============= Page 60 of 109 ============= The Finance Committee of the Board of Directors May 1, 2000 III. The following Commodity Groups under the Interim Policy are seeking permanent limit structures and limit increases: Current Proposed Southern Cone Electricity Net Open Position Limit 1 Twh 3 Twh Rolling 12-Month Open Position Limit 1.5 Twh 2 Twh VAR Limit $1 MM $2 MM Southern Cone Gas Net Open Position Limit 10 Bcf 35 Bcf Rolling 12-Month Open Position Limit 20 Bcf 20 Bcf VAR Limit $0.75 MM $2 MM IV. Change the wording in the Risk Management Policy to clarify the difference between position limit violations and loss notification requirements. E0004401869 Your r 6rsonal Dast Makas Cnron Dost u Form 000-16Q 1 (6/02) Cammunicata- racts Ara rritnJly Dattar, raster, Simpler EXH003-01183 ============= Page 61 of 109 ============= ENRON CORP. RISK MANAGEMENT POLICY Approved by Enron Corp. Board of Directors Approved: October 1, 1996 Amended: December 8, 1998 Amended: May 3, 1999 Amended: August 10, 1999 Amended: October 20, 1999 Amended: December 14, 1999 Amended: February 7, 2000 Amended: May 2. 2000 Proprietary and Confidential I. General Authorization Enron Corp. is authorized to execute Transactions and manage these Transactions within the authorized Portfolios in support of its businesses. All Transactions covered by this policy must be conducted in compliance with all Enron Corp. policies, as each may be amended, supplemented or restated from time to time (collectively the "Enron Corp. Policies"). II. Portfolios Designated Enron Companies are authorized to enter into Transactions which create Positions for Enron Corp. and its affiliates, other Enron Companies or their respective customers within the authorized Commodity Groups and limits, specified in Aaaendix II. These Positions are managed in the following Portfolios: A. Trading Portfolio - designed to capture and manage risks related to physical delivery of energy and other commodities, to provide related risk management services, to take advantage of market arbitrage opportunities and to manage positions within the approved limits. This portfolio includes commodity transactions, financial instruments and securities transactions. B. Merchant Portfolio - designed to capture and manage merchant investments in public and private companies, consistent with Enron Corp.'s core competencies within the approved limits. This portfolio includes equity, "equity- like," debt and "debt-like" investments in the public and private sector. C. Capital Portfolio - designed to accommodate active management of the market sensitive exposures embedded in the Merchant Portfolio and to provide greater liquidity for Enron's merchant investment activities within the approved limits. D. Energy Investment Portfolio (EIP) - designed to capture and manage certain large open Positions domestically and internationally, that have been entered into as an offset or anticipatory hedge to originated physical positions within the approved limits. Positions within the EIP are reviewed regularly by the Enron Corp. Chief Risk Officer and the President of Enron Corp., who together are responsible for policies concerning the suitability of Transactions within EIP, monitoring guidelines, risk measurement standards and Transaction approval requirements. III. LimitsPosition and Loss Notification Requirements Generally, Enron Companies' business activities are subject to a combination of limits. These limits include, but are not limited to, Net Open Position -limits, Maturity/Gap Risk-Iimirts, and Potential Exposure limits and Loss notifications, as appropriate for the type of business activity under consideration. Limits will be applied at the Commodity Group and Portfolio level, as appropriate. A. Net Open Position Limits. Enron Companies' activities are subject to the Net Open Position limits at the Commodity Group level, as specified in Appendix I. B. Maturity/Gap Risk Limits. Enron Companies' activities are subject to the Maturity/Gap Risk limits at the Commodity Group level, as specified in Appendix I. E0004401870 O'\ERMAC(1N'I'kQI ti\NOI.I('Y'JY/'~ V'.JiwJ15-III.INk I'otkv AmmenJintnl+.J~x4iA[ifH~1i CiN+R(~6tANHhIG FI+ICY/+'ntiey+U?-~2ik!a'k'diei"^"e 'JH~em'"^^''1°` 04RS/?INl(%>M1NSF3liM7 •IZ. x1 PM+F-tk7,i,~1 EXH003-01184 ============= Page 62 of 109 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential C. Potential Exposure Limits. Enron Companies' activities are subject to potential exposure analysis using stress- testing and scenario analysis, as directed by the Enron Corp. Chief Risk Officer, and limits based on VAR, calculated daily or as appropriate to the business activity under consideration at the Portfolio level and at the Commodity Group level. D. Regulated Exchange Limits. Enron Companies may be subject to limits imposed by regulated exchanges on which they transact. Enron Companies shall comply with any such limits imposed on them, as such limits may be modified from time to time. E. Loss Notifications. Daily and Cumulative Losses resulting from Enron Companies' activities are subject to the reporting requirements, as specified in Section IV.C. E_ IV. Limit Violation/Loss Notification Requirements Notwithstanding the other provisions of this Policy, any violation of limits must be reported to the Enron Corp. Chief Risk Officer. Such report should be made prior to entering into a Transaction if there is a sufficient reason to believe that a limit violation will occur. Requirements for limit violation notifications, each accompanied by an explanation for all limit violations and a recommended course of action for Net Open Position, Maturity/Gap Risk and Value-at-Risk limit violations, will be as follows: A. Net Open Position Limits; Maturity/Gap Risk Limits. If the limit violation is equal to or in excess of five percent (5%) of the applicable limit, the Enron Corp. Chief Risk Officer shall promptly communicate the occurrence to the President of Enron Corp. If the limit violation is equal to or in excess of ten percent (10%) of the applicable limit, the Enron Corp. Chief Risk Officer shall promptly communicate the occurrence to the Chairman of Enron Corp. B. Value-at-Risk Limits. If the aggregate VAR limit is exceeded or if the VAR for any Commodity Group or Portfolio is equal to or in excess of five percent (5%) of the applicable limit, the Enron Corp. Chief Risk Officer shall promptly communicate the occurrence to the President of Enron Corp. If the aggregate VAR or the VAR for any Commodity Group or Portfolio is equal to or in excess of ten percent (10%) of the applicable limit, the Enron Corp. Chief Risk Officer shall promptly communicate the occurrence to the Chairman of Enron Corp. C. Loss Li sNotifications. If at any time the aggregate Daily Loss or the Daily Loss in any Commodity Group or Portfolio is equal to or in excess of 50% of the respective VAR limit as approved, by the Board of Directors, the Enron Corp. Chief Risk Officer shall promptly communicate the occurrence to the President of Enron Corp. If at any time the aggregate Daily Loss or the Daily Loss in any Commodity Group or all Commodity Groups in the aggregate is equal to or in excess of 75% of the respective VAR limit as approved by the Board of Directors, the Enron Corp. Chief Risk Officer shall promptly communicate the occurrence to the Chairman of Enron Corp. If at any time the aggregate Cumulative Loss or Cumulative Loss in any Commodity Group or Portfolio is equal to or in excess of 75% of the respective VAR limit as- approved by the Board of Directors, the Enron Corp. Chief Risk Officer shall promptly communicate the "occurrence to the President of Enron Corp. If at any time the aggregate Cumulative Loss or Cumulative Loss in any Commodity Group or Portfolio is equal to or in excess of the respective VAR limit as approved by the Board of Directors, the Enron Corp. Chief Risk Officer shall promptly communicate the occurrence to the Chairman of Enron Corp. Cumulative Loss violations are not reported for events, -for which a respective Daily Loss- ,ialatienn has been previously reported. D. Finance Committee of the Board of Directors Notification. The Chief Risk Officer shall communicate to the Chairman of the Finance Committee violations of the Aggregate VAR Limit of 15% or greater and violations of the aggregate Daily Loss _Limit in excess of the respective VAR Limit. These and other limit violations and Loss <7:\tltM$\CC)NTkOI. \YC)LICY\1'1'19 N,~licN115-UI-IO. P,yl_; AinmenJmcn~r.~l~nEkU;RM}i\GG>PGFRF }rF 6F61F•.14~J~i+,+lky+l/2-Ut;-bli Puli~w-A«ia nN+hwl.-Ftixxi:due sn_Iex xtktttxO s.(5L 44 JAhM E0004401871 :XH003-01185 ============= Page 63 of 109 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential Notifications and a summary of Enron's market risks will be reported to the Audit Committee of the Board by the Chief Risk Officer of Enron Corp. at all regularly scheduled Audit Committee meetings. V. Operations and Controls A. Segregation of Duties. Enron Companies shall keep segregated from the business groups or individuals entering into Transactions each of the following, activities: recording and aggregation of Transactions; preparation, issuance and verification of Enron Corp. or third-party documentation; reporting of Positions and Commodity Group information; review of the reasonableness of prices and models, periodic validation of prices from independent market sources; monitoring of limits; physical and/or financial settlement of Transactions; reconciliation of accounts; and preparation of financial statements. B. Position Reporting. Designated Enron Companies shall prepare and distribute a daily report ("Daily Position Report") showing Commodity Group Net Open Position, profit or loss, potential exposure and any other parameters as may be required by the President or the Chief Risk Officer of Enron Corp. The Daily Position Report will also report various limits compared to their respective actual amounts. 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. The 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. Transaction Approvals. Only those employees designated by the Enron Corp. Chief Risk Officer or his designee will be authorized to enter into Transactions on behalf of Enron Companies. The Chief Risk Officer must also approve and maintain a record of those employees responsible for the individual Commodity Groups as specified in Appendix I and Anoendix III. All Transactions must be entered into in compliance with current or future policies, prevailing at the time transactions are contemplated, of the Structuring Group, Credit Group, Legal Department, Risk Controls Group and relevant groups. D. Brokerage Accounts. Designated Enron Companies 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 designees. The Enron Corp. Chief Risk Officer or his designees 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. E. Calculation of the Net Open Position by Commodity Group. For purposes of monitoring the Net Open Position Limits, as specified in 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. 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. Qa:IthlS\CON'I'It01.51F'oLICY\1191Pulinlf -111•INA:VUlieuAmn•i mans.Jis4YJil(+~kSK;.^"".,-°,"' ( .:>-~t»„~,,, »,-1»»~J:J,~ E0004401872 EXH003-01186 ============= Page 64 of 109 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential B. Position Measurement Parameters. Any changes to parameters used in the aggregation and measurement of Positions must be approved by the Enron Corp. Chief Risk Officer. This includes, but is not limited to, the 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 scheduled Board of Directors' meeting. 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. Limit Changes and Other Policy Amendments. Any modification of limits or other amendments, supplements or updates to this Policy, unless covered by VI A, VI B, or VI C, 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 Company may engage in the trading of any Position for the benefit of any party other than an Enron Company (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 Company or (ii) any other commodity, included in any Commodity Group. Employee Review of Policies. An employee of any Enron Company 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. Any violation of this Policy by an employee shall be grounds for immediate termination. 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, 1,993, 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. VIII. Definitions "Affiliate Position" shall mean the Position between a Designated Enron Company and any other Enron Company ("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 approved by the Enron Corp. Board of Directors) that allow for aggregation into a Benchmark Position. "Cross-Commodity Hedge" shall mean a Position within a certain Commodity Group that is suitably used as a hedge for another Position within a different Commodity Group (i.e. Natural Gas position used to hedge an Electricity 0:~FHMS(CON-I'(tOI.S\POI.ICY\IN)) F ,Ikydu-(I-(i( POW, A u-Wnwn(.J.KAidiNW7ri(-ENHa2AL~1!'Pu,<-.-.T--.d-.=,1 -(%4JO-P~;e, E0004401873 !6J&11.(.UX)4A-QQW IMP 1640M XH003-01187 ============= Page 65 of 109 ============= ENRON CORP. RISK MANAGEMENT POLICY Proprietary and Confidential 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. "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 Compan (y ies)" shall mean Enron Corp. and any entity controlled, directly or indirectly, by Enron Corp., or any entity directly or indirectly under common control of Enron Corp. For this purpose, "control" of any entity means ownership of fifty percent (50%) or more 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). I "Net Open Position" shall mean the aggregate of the open Positions in a Commodity Group on a Benchmark Position equivalent basis. tR "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. "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. "Transactions" shall mean, collectively, forwards, futures, swaps, options, any combination of these instruments and any other derivative or cash market instruments creating a Position. "Value-at-Risk" shall mean the Potential Exposure related to a Commodity Group or Position calculated using the Enron Corp.. adopted VAR methodology at the 95% confidence interval using a 1-day time horizon. Any recalibration or modification of the VAR methodology or parameters that take into account observed or anticipated changes in market factors or developments in VAR technologies must be approved by the Enron Corp. Chief Risk Officer or his designee. i (>:V:ItM5d:UN'I'IIOI,tiJ'OLICYi199N WdicYni.01-IBk Policy AunncnJnttna.~kxC liHN4ti'd f).4"FRHh.S"„ W-W-P.Iwq Ax n ,xrtes-hixxl.k~e - ECO0440'1874 _X I KHO03-01188 ============= Page 66 of 109 ============= ENRON CORP. Appendix I RISK MANAGEMENT POLICY Proprietary and Confidential Commodity Group Benchmark Position Net Open Position Limit Maturity /Gap Risk Limit VAR Limit TRADING PORTFOLIO $60MM North American Natural Gas NYMEX Henry Hub Equivalents 300 Bcf 350 Bcf (Rolling 12-Month) $40MM Global Products NYMEX WTI Equivalents 12.5 Mil Bbl 15 Mil Bbl (Rolling 12-Month) $8 MM North American Electricity Electricity Equivalents 18'`~~' 1-M"` Twh 15 M l-M`1lTwh (Rolling 12-Month) $40 MM Metals & Minerals LME Aluminum Futures E uiv. 100,000 MT 100,000 (Rolling 12-Month) $2 MM Coal U.S. Eastern Coal Equivalents 15 MM MT-em- 15 MM MTns (Rolling 12-Month) $2 MM -- H Pulp & Paper Pulpex NBSK (Pulp) Futures Equiv. !501 300.000 MTTns -154E-0(J0300,000 AMT (Rolling 12-Month) $1,53 MM Weather Derivatives Maximum USD Exposure $100 MM N/A $3 MM Emission Allowances S02 Credits 1,000,000 Credits 1,000,000 Credits (Rolling 12-Month) $3 MM European Natural Gas UK NBP Gas Equivalents 60 Bcf 90 Bcf (Rolling 12-Month) $7.5 MM UK Electricity UK Electricity Equivalents -3585 Mil MWuTwh 15 Ml1-MWHTwh (Rolling 12-Month) $-I-0-18 MM Nordic Electricity Nordic Electricity Equivalents 10 Mi' W44Twh 10 "N14-,?` Twh (Rolling 12-Month) $3 MM Continental Electricity Continental Electricity Equivalents 10 Min: "Twh 10 Mil-MWI4Twh (Rolling 12-Month) $3 MM Australian Electricity Electricity Equivalents -1---3 M+1 MW ITwh 2-6 Mil M 1T wh (Rolling 12- Month) $2- 3 MM a panese Electricity Ja anese Electricit E uivalents 4 Twh 4 Twh ,'4 MM Southern Cone Natural Gas Natural Gas Equivalents 35 Bcf 20 Bcf (Rolling 12-Month $2 MM Southern Cone Electricity Electricity E uivalents 3 Twh 2 Twh (Rollin g 12-Month $2 MM Financial Instruments $3 MM Interest Rate USD Notional Equivalent @ $-l-00.0 0100,000 / by USD 50,000 / by (<= 2 years) $MM comb in d AA Libor Interest Rate/Fa Foreign Currency USD Spot Rate Notional Equivalents $100 MM N/A Equity Trading Market Value in USD $50- 100 MM N/A $4-6 MM Debt Trading Market Value in USD $250 2 MM N/A $2-2 MM Enron Broadband Services NY Route Bat lwidtJ v NIA -E enn - LA-D- MenfhsN/A MERCHANT PORTFOLIO Market Value in USD N/A N/A N/A CAPITAL PORTFOLIO Enron Companies Market Value in USD $300 MM N/A $10 MM Other S&P Equivalents . $200 MM N/A $10 MM ENERGY INVESTMENT PORTFOLIO NYMEX Henry Hub Equivalents 200 Bcf 40 Bcf (Rolling 12-Month) E0004401875 56 Respect Integrity Communication Form (100-469-I (7/92) =XH003-01189 Excellence ============= Page 67 of 109 ============= ENRON CORP. RISK MANAGEMENT POLICY INTERIM POLICY REQUIREMENTS FOR NEW COMMODITY GROUP: 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: Maximum Time/Product Spread Position: Maximum Daily Loss Limit: Maximum VAR Maximum Term of Interim Policy 1OBCF Equivalents 20BCF Equivalents $500,000 $1 MM 6 Months E0004401876 Appendix II Proprietary and Confidential Respect Tnteerity Con. 57 ionlscellenee~'-trot I onal-IDesf-14takes Gnrun-ILest L;ttnimunieetr- Fuels-Are -7 1Frietxll Better,-Faster-;Simpler XH003-01190 ============= Page 68 of 109 ============= ENRON CORP. RISK MANAGEMENT POLICY INTERIM POLICY LISTING: Commodity Group Appendix III Proprietary and Confidential hmark Position Net Open Position Limit Maturity / Gap Risk Limit VAR Limit Southern Natural Go eots -1-A-Be€ 20 Bet=(-P ii ;_ '-,? 4; :t#4 MM Southern Cone-h'leetrieit-y E'c tr-iek), Ugtti*a}ertts, -i-Mil-M-V I4 '.5-. 5 Mil N a _ Month) $4-MM Lumber Board Feet 22 Mil Board Feet 22 Mil Board Feet $0.25 MM Enron Credit Maximum Ex osure in USD 10-0M M N/A $-I M M E0004401877 Respect Form000.469-1 (7/92) !XH003-01191 Integrity 58 Communication Excellence ============= Page 69 of 109 ============= Agenda Item 4c EO004401878 I rvi inn4 n4 10Y) ============= Page 70 of 109 ============= E . Merchant Portfolio Summary E0004401879 0 Finance Committee Meeti 59 04/00 EXH003-01193 ============= Page 71 of 109 ============= Enr~n'i Assets by Region as of December 31, 1999 Strategic $23.9 Bn Merchant 9.5 Bn Total $33.4 Bn J Asia/Africa Strategic $1.0 Bn Merchant 0.1 Bn Total $1.1 Bn America Strategic $2.9 Bn Merchant 0.2 Bn Total $3.1 Bn No significant changes since Dec. `99 Board Meeting EXH003-01194 Caribbean/ South Middle East Strategic $1.0 Bn Merchant 0.3 Bn Total $1.3 Bn E0004401880 60 l~ ============= Page 72 of 109 ============= Merchant Portfolio as of December 31, 1999 Credit Offsets $519 MM $562 MM Credit JV Interests Equity $45 MM JV Interests M xss3" s- H $111 MM $348 MM I $340 MM Merchant Hedges $O MM $40 MM E0004401881 Gross Portfolio Syndications $10.38 Bn $0.91 Bn = $10.70 Bn $1.05 Bn 61 I!i,mhers in italics represent amounts at Sent ember 30. 1999 EXH003-01195 Net Off - Balance Sheet Portfolio $1.76 Bn Condor $0.67 Bn $ 55 MM - $364 MM ONO H $1.70'~Bn $305 MM I 1 I I I I I I 1 1 1 I 1 1 i Net On - Balance sheet Portfolk $7.71 Bn $8.98 Bn r 1 1 I 1 1 I I 1 I I I I 1 I 1 I I 1 I I I I 1 I I 1 I I I 1 I I I I I 1 I I I 1 ~O Finance Committee Meetii 04/00 Total Net Portfolio $9.47 Bn $9.65 Bn ============= Page 73 of 109 ============= Merchant. Portfolio After Syndication as of December 31, 1999 Debt :ruments Net Portfolio $9.47 Bn $9.65 Bn Equity Instruments Private Equity' $1.78 Bn $1.26 en Hedge Fund $0.03 Bn $0.02 Bn Public Equity $0.60 on Enron Stock & Puts $0.82 Bn $0.51 Bn $0.53 Bn E0004401882 Net Portfolio $9.47 Bn $9.65 Bn t~ Finance Committee Meetii 62 04/00 Numhers in italics represent amounts at September 30, 1999 EXH003-01196 ============= Page 74 of 109 ============= -Debt Instruments as of December 31, 1999 Total Credit Exposure: $5.40 Bn Portfolio Performance Pi 2% "E-Ratings" represent Enron's Internal Credit Rating System. 1 = AAA. Numbers in italics represent amounts at September 30, 1999 63 8% 21% 12% E0004401883 a 1-5 Investment Grade 6-8 BB+/BB/BB-  9-10 B+/B/B-  11-12 All C & D Rating., O Finance Committee Mee 04/00 EXH003-01197 ============= Page 75 of 109 ============= I . Top 25 Credit Exposures December 31, March 31, Type of Credit E-Rating s Counterparty Name 1999 2000 " Merchant 2 Deutsche Bank N/A 1,950 Trade 4 Eastern Power & Energy Trading Limited 598 1,050 Trade 5 Sithe/Independence Power Partners, L.P. 315 303 Trade 4 Reliant Energy Resources Corp. 178 181 Trade 5 Sithe/Independence Power Partners, L.P. Tracking Account 171 180 Merchant 6 East Coast Power 142 142 Trade 2 Florida Power & Light Company 106 133 Merchant 7 American Coal Tranche I 133 133 Merchant 8 Enron Wind Corp. Lake Benton II 119 119 Trade 2 Bonneville Power Administration 76 117 Trade 5 Canadian Natural Resources Ltd. 94 109 Trade 4 Reliant Energy Services, Inc. 38 95 Trade 4 Yorkshire Electricity Group PLC N/A 83 Trade 4 United Illuminating Company 63 73 Trade 4 Petro-Canada Oil and Gas 49 70 Trade 3 Sempra Energy Trading Corp. 51 70 Trade 2 BP Oil Supply Company N/A 68 Trade 2 The Chase Manhattan Bank 46 63 Trade 2 The Power Authority of the State of New York 57 56 Trade 7 Aquila Energy Marketing Corporation N/A 55 Trade 1 Swiss Re Financial Products Inc. N/A 44 Trade 8 Calpine Fuels Texas Corporation 52 41 Trade 4 Talisman Energy Inc. N/A 41 Trade 2 Mobil Oil Corporation N/A 40 Trade 3 British Gas Trading Limited 44 38 Trade 4 California Power Exchange Corporation 35 N/A Trade 5 Commonwealth Edison Company 36 N/A Trade 2 City of Tallahassee 38 N/A Trade 3 Brooklyn Union Gas Company 39 N/A Trade 8 Midland Cogeneration Venture Limited Partnership 45 N/A Trade 3 Pacific-Gas & Electric Company 54 N/A Trade 3 Duke Energy Trading and Marketing, L.L.C. 61 N/A Top 25 Total 2,640 5,254 Other Credit Exposures 2,755 Total Credit Exposure 5,395 Transactions new to "Top 25" list from Sept. '99 data 4 Transactions new to "Top 25" list since Dec. '99 data ECOO44O1 Q A Finance Committee Meet DASH signed in March '0 0, deal closed in April '00 64 04/00 "' Mar-31-00 data estimated =XH003-01198 ============= Page 76 of 109 ============= TXU Europe Energy Trading Ltd. Formerly known as Eastern Energy & Power Trading Ltd. Exposure Summary TXU Corp. S&P: BBB+ Negative Moody's: Baal Credit exposures are associated with 15 year and 19 year virtual power station transactions. Organization Highlights TXU Europe Group PLC S&P: BBB+ Negative Moody's: Baal.. EXH003-01199 TXU Europe Energy Trading Ltd. Not Rated (ENE Counterparty) Eastern Electricity PLC' S&P: BBB+ Negative Moody's: A3 E0004401885 TXU Europe Group PLC, the holding company for TXU Corp's activities in Europe, has provided capped guarantees to Enron • Eastern Electricity PLC, its main operating subsidiary, is one of the major UK Regional Electricity Companies. • Aggressively financed acquisitions coupled with a period of declining power prices has resulted in the recent negative outlook from S&P. Mitigation Efforts An Enron Team is actively pursuing credit risk mitigation opportunities. Finance Committee Meet 65 04/00 ============= Page 77 of 109 ============= Debt Instrument Performance Non-Performing Asset Detail Net Net Carry Carry Dec-31-99 Mar-31-00 * Region Country E-Ratings Transaction Industry Sector ($MM's) ($MM's) North America United States 11 Ecogas Energy: Gas Processing 14.04 16.56 North America United States 11 Badak Gas Marketing, Inc. Oil & Gas: E&P 8.44 8.44 North America United States 12 Hughes Rawls Oil & Gas: E&P 9.41 8.06 North America United States 11 Industrial Holdings Oil Field Services 7.12 7.12 North America United States '12 North American Energy Conservation Energy Marketing 3.51 3.51 North America Canada 12 Merit Energy Ltd. Oil & Gas: E&P 2.17 2.1 7 North America United States 12 Gasco Distribution Gas: LDC 1.72 1.72 North America Thailand 12 NSM Steel 0.00 0.00 North America United States 12 Repap Enterprises Paper/Pulp 24.99 SOLD North America United States 11 TriPoint Oil Field Services 4.65 SOLD Total Non-Performing Credit: 76.05 47.58 Total Credit Exposure: 5,395.00 Non-Performing Percentage: 1 % New to "Debt Instrument Performance" list from Sept. `99 data New to "Debt Instrument Performance" list since Dec. `99 data * Mar-31-00 data estimated 66 E0004401886 4 Finance Committee Meetii 04/00 EXH003-01200 ============= Page 78 of 109 ============= E Credit Reserve Historical Comparison ($MM) 270 250 230 210 190 170 150 130 110 90 Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 * Required Reserve: Amount of reserve required for existing portfolio after simulating defaults and assuming 50% recovery. 67 E0004401887 EXH003-01201 Finance Committee Meet 04100 ============= Page 79 of 109 ============= Equity Investment Portfolio as of December 31, 1999 Equity Portfolio $4.07 Bn Oil & Gas $978 MM 24% - Power $1,556 MM 38% ENE Stock & Puts $512 MM 13% f- Pipeline $114 MM 3% 4_ ` Coal Oth $52 MM er ` $54 MM 1 % 1 /o Utility Services Steel Telecom Paper & Pul $165 MM o $54 MM $435 MM $150 AIM 4/0 1% o 11./0 4% E0004401888 EXH003-01202 Geographic Region Asia/Africa $124 MM 3% South America $174 MM 4% 68 Euro$1,109%M- 27% f one Caribbean/ Middle East $283 MM 7% India 0% Finance Committee Me( 04/00 Industry ============= Page 80 of 109 ============= Equity Investment Performance as of December 31, 1999 Equity Portfolio $4.07.Bn E0004401889 Numbers in italics represent amounts at September 30, 1999 EXH003-01203 69 ti~fl Finance Committee Mee 04/00 $251 MM $164 MM 6% 4% 5% 2% ============= Page 81 of 109 ============= C Equity Investment Performance Troubled Asset Detail Net Net Carry Carry Dec-31-99 Mar-31-00 * Region Country Transaction Asset Book Industry Sector ($MM's) ($MM's) North America United States Kafus/CanFibre Private Paper/Pulp 110.90 76.07 North America United States CGas Private Oil & Gas: Exploitation 25.89 27.98 North America United States EnSerCo Offshore Private Oil Field Services 5.88 5.88 North America United States Inland Resources, Inc. Public Oil & Gas: A&D 4.18 5.10 North America United States Queen Sands Resources, Inc. Public Oil & Gas: A&D 5.06 4.82 North America United States Sierra Well Service Private Oil Field Services 4.02 4.11 North America United States Crown Energy Public Other 3.02 3.02 North America United States Eugene Offshore Holdings LLC Private Oil & Gas: Exploitation 3.93 2.55 North America United States Brigham Exploration Company Public Oil & Gas: E&P 1.36 2.12 North America United States Costilla Energy, Inc. Public Oil & Gas: Exploitation 0.00 0.00 North America United States Hughes Rawis Private Oil & Gas: E&P 0.00 0.00 North America United States Lyco Private Oil & Gas: E&P 0.00 0.00 North America United States Ho an Private Oil & Gas: A&D 0.00 0.00 Total Troubled Equity 164.24 131.65 ITotal Equity Exposure: 4,070.00 ITroubled Percentage: 4% New to "Equity Investment Performance" list from Sept. `99 data 'V R No new additions to "Equity Investment Performance" list since Dec. `99 data E0004401890 Q * Mar-31-00 data estimated Finance Committee Mee 70 04/00 EXH003-01204 ============= Page 82 of 109 ============= Bottom 10 Investments Dec-31-99 Mar-31-00 Carrying Carrying Value Value * Remarks Investments With issues Riverside plant producing less than optimal volumes and under. performance Kafus/CanFibre standards; Kafus Industries, LTD needs working capital of approximately (Equity & Debt - ENA) 196.20 166.02 $20 MM to remain economically viable. Cypress Exploration Efforts to restructure deal with an investment banking firm through the (Working Interest Operator - ENA) 54.72 57.24 creation an LLC have fallen through. Ecogas Debt in default; ENA has assumed interim accounting control, financial (Private Equity & Debt - ENA) 46.05 48.57 planning and construction oversight. CGas ENA has elected to exit the asset through a sale of the Company. Offers (Private Equity - ENA) 25.89 27.98 received to date have not been satisfactory. Brigham Exploration Company Shell Capital infused $15 MM for 2000 cap-ex requirements and ENE (Common Equity & Debt - ENA) 28.74 27.42 warrants were re-priced from $3.50/share to $2.313/share. Bonne Terre Exploration Results to date disappointing. Return on asset heavily dependent on the (Limited Liability Company - ENA) 16.42 16.20 results from the Cameron Parrish project in south Louisiana. Hughes Rawls (Membership Interest & Sr Loan- ENA) 9.41 8.06 ENA is reviewing options to exit investment. Industrial Holdings PriceWaterhouseCoopers has been retained to to assist Company in (Term Loan - ENA) 7.12 7.12 recapitalizing its balance sheet. EnSerCo Offshore ENA is aggressively attempting to market the rig and is pursuing personal (Rig collateral from Sr Term Loan-ENA) 5.88 5.88 guarantees. Queen, Sand Resources, Inc. ENA continues to seek investors willing to purchase the remaining equity (Public Equity - ENA) 5.06 4.82 position. Total 395.49 369.31 New to "Bottom Ten" list from Sept. '99 data No new additions to "Bottom Ten" list since Dec. '99 data * Mar-31-00 data estimated EOO04401891 71 Finance Committee Meetii 04/00 =XH003-01205 ============= Page 83 of 109 ============= Top 10 Investments Dec-31-99 Mar-31-00 Carrying Carrying Value Value ** ($MM's) ($MM's) Remarks !Mariner Energy* (Private Equity/ Convertible & Revolving Debt - ENA) 339.97 377.13 IPO or other monetization strategies being explored. East Coast Power LLC* ECP recently exchanged Series A Senior Notes for substantially identical (Equity - ENA) 275.61 279.27 Series B Senior Notes, which are freely tradable and increase liquidity. !Rhythms NetConnections* (Common Stock - EBS) 255.00 213.10 Return on investment through 3/31/00 was 644%. Hanover Compressor Hanover was up 40.9% for 1999 and has increased 47% YTD through (Common Stock - ENA) 100.22 150.99 3/31/2000. Quanta Services* Quanta was up 28% in 1999 and has increased 140% YTD through (Convertible Debt - ENA) 62.05 126.96 3/31/2000. Quanta was sold to a third party in April 2000. First World Communications, Inc.* Monetized common stock to a qualified institutional buyer prior to IPO in Q1 (Common Stock & Warrants-ENA) 149.15 52.13 2000. Remaining carrying value represents warrant value. Papier Masson Ltee (Common Stock - ENA) 23.85 23.36 For 1999, production was above plan and costs were below budget. Black Mountain Power Debt which has equity call for a 15% partnership interest in Saguaro Power (Term Loan - ENA) 14.2() 18.41 Company. UtiliQuest, LLC UtiliQuest has identified several additional acquisition prospects and is at (Private Equity - ENA) 18.97 16.41 various stages of negotiations with these companies. Sycamore Networks, Inc. Sycamore was up 328% in -1999 since its IPO date of 10/21/99 and has (Common Stock - EBS) 11.55 14.51 increased 26% YTD through 3/31/2000. Total 1,250.57 1,272.27 New to "Top Ten" list from Sept. '99 data No new additions to "Top Ten" since Dec. '99 data * Represents investments which were monetized through FAS 125 transactions since Dec. '99 Board Meeting ** Mar-31-00 data estimated E0004401892 EXH003-01206 72 0 Finance Committee Meetu 04/00 ============= Page 84 of 109 ============= Merchant Equity Investments -Fair as of December 31, 1999 ($MM) M 7" 6/99 9/99 12/99 ENE Stock & puts 6/99 9/99 12/99 Public Equity * Includes write-ups and write-downs Market Value 6/99 9/99 12/99 6/99 9/99 12/99 Private Equity Physical Assets E0004401893 rJ% 73 Finance Committee Meet 04/00 =XH003-01207 ============= Page 85 of 109 ============= 1. EES Review 74 EXH003-01208 E0004401894 tifid Finance Committee Mee 04/00 ============= Page 86 of 109 ============= Modeling Approach d RAC models the EES Base Case `o. RAC has not modeled upside potential: - Upsell (Owens Corning, General Cable, etc.) - O&M - Commodity Price Methodologies will be incorporated to quantify: - Base level economics _ - Consistent appraisal of upside potential • Upsell estimate • O&M potential • Commodity price volatility E0004401895 Finance Committee Mee 75 04/00 EXH003-01209 ============= Page 87 of 109 ============= Commodity Position Summary .a Commodity WHOLESALE . NOP* = Short' 7.65 TWh Stress Testing VAR (overnight) = $3MM Exposure - 5% Parallel Shift 1@ fi1 MIL Regulated Wholesale EXH003-01210 REGULATED NOP* = Short 39.6 TWh 4 d Finance Committee Mee 04/00 0 5 10 15 20 25 30 76 ============= Page 88 of 109 ============= Credit Quality of Counterparties Total Credit MTM Exposure: $196 MM** Total Credit Reserve: $13 MM as of March 31, 2000 * "E-Ratings" represent Enron's Internal Credit Rating System. 1 = AAA. ** Excludes Capital and Accounts Receivable risk. 77 E - Ratings *  1-5 Investment Grade 6-8 B B+/B BIB B- ®9-10 B+l B/B- 0 11-12 All C & D Ratings E0004401897 41 ~io Finance Committee Meet 04/00 , EXH003-01211 11% 9% ============= Page 89 of 109 ============= Foreign Exchange Project ECO04401898 78 EXH003-01212 Finance Committee Meeti 04100 ============= Page 90 of 109 ============= Foreign Exchange Project EXH003-01213 Objective Identification, measurement and reporting of foreign currency economic exposure for Enron's worldwide merchant and strategic asset activity. Project Timeline Target Completion Date ------------------------------ Phase III Other December, 2000 ----------------------- Europe x n`~ Phase 11 August, 2000 la & South` Kor ~P. ~.: ------------- 9~ Phase 1 May, 2000. Elektro __ ..~ „ . o.. E0004401899 ~~ O Finance Committee Meet 79 04/00 i ============= Page 91 of 109 ============= FX Exposure Methodology Identify Exposure Interview Regional Personnel Review 'Financial Statements •Debt Instruments 'Contracts 'Hedges 'Other Collects and consolidates exposures Data is classified by risk type 'Inflation 'Transaction and Translation 'Investment 'Net Income Data Collection Tool (RAC Developed) Template that provides for consistent collection of Project and Market Data Reported quarterly by Region ~' Reporting E0004401900 Aggregate exposures by Project, Region or Currency Exposures are measured by •Notional 'Budgeted/Financial Impact (ENE calendar year) 'Sensitivity Analysis Finance Committee Meet 80 04/00 EXH003-01214 ============= Page 92 of 109 ============= EAioA South America Net Notional Position by Project as of December 31, 1999 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 i non Elektro CEG Gaspart Reais Exposure - 99% 81 Copel Riogas E0004401901 Transredes Other - 1 % Finance Committee Meet 04/00 EXH003-01215 ============= Page 93 of 109 ============= Enron South America Net Notional Position by Type as of December 31, 1999 2,500 2,000 1,500 1,000 500 0 2,000 1,500 ation* t Income rnsactionRranslation* 1,000 Festment 500 EC0p4401902 0 Enron South America *Exposure may be mitigated in part by a Tariff Adjustment. =XH003-01216 Total South America $2,277 2,500 82 - Exposure k Exposure y Finance O Committee Meet 04/00 Enron South America ============= Page 94 of 109 ============= Enron South America Reais Market Data EXH003-01217 2.20 2.00 1.80 1.60 1.40 1.20 1.00 6/30/98 X Denotes Purchase of Elektro's Interest A) Initial Equity Purchase. of 46% B) Employee Share Purchase of 5% C) CESP Share Purchase of 48% 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00 E0004401903 O Reais closed on 3/31/00 at 1.736. Enron's South America 2000 plan was based on a beginning of year and end of year rate of 1.91 to 2.05 respectively. In January 2000, the rates were revised to reflect a more current view of the market of 1.79 to 1.88. O On March 28, the Central Bank cut overnight lending rate from 19% to 18.5%. O Analysts predicting 6.0% - 7.5% inflation for 2000 compared to 9% for 1999. 83 Finance Committee Meet 04100 ============= Page 95 of 109 ============= Enron South America Reais Sensitivity Analysis for the twelve months ending December 31, 2000 ($MM) =XH003-01218 700 600 500 400 300 200 100 0 Assumes 5% Devaluation Assumes Devaluation in addition to Budget Impact *Estimated incremental P&L losses to be recognized during 2000 - no immediate P&L impact. 84 Finance Committee Meet 04/00 t 2000 Budget Impact , , 10% Devaluation 30% Devaluation 50% Devaluation , ============= Page 96 of 109 ============= Market Risk Update E0004401905 85 O Finance Committee Meet 04/00 EXH003-01219 ============= Page 97 of 109 ============= Table of Contents 0 0 0 0 0 0 0 Risk Profile Value-At-Risk Backtesting Parallel Shift Stress Testing Limit Violations Loss Notifications Trading Value-At-Risk Comparison Policy Changes E0004401906 EXH003-01220 86 14~ &490 Finance Committee Meet 04/00 ============= Page 98 of 109 ============= i Risk Profile as of March 31, 2000 YTD Average V @ R r YTD Average VCR = $25 MM~ ($MM) 5 (5) (3) (2) (5) (8) (15) (12) E0004401907 (19) (25) EUROPE NA-GAS NA-POWER FINANCIAL LIQUIDS EMG (1) Return on VCR YTD 223% 95% 48% 137% 65% 86% Limit Utilization YTD 32% 31% 47% 37% 68% 17% (1) Financial includes Equity, Debt, and IR/FX. Does not include U.S. and U.. K. Drift. (2) Emerging Businesses (EMG) include Southern Cone, Australia, Emission Credits, Coal, Paper, Lumber, Bandwidth, and Weather. 87 EXH003-01221 YTD P&L YTD P&L = $377 MM ($MM) 133 125 - 93 100 - 71 75 50 - 36 28 16 25 0 (25) EUROPE NA-GAS NA-POWER FINANCIAL (1) LIQUIDS EMG (2) ============= Page 99 of 109 ============= X I 0 0 w N N N ~. 0 1/5/1998 2/5/1998 3/5/1998 4/5/1998 5/5/1998 6/5/1998 7/5/1998 8/5/1998 9/5/1998 10/5/1998 11/5/1998 12/5/1998 1/5/1999 2/5/1999 3/5/1999 4/5/1999 5/5/1999 6/5/1999 7/5/1999 8/5/1999 co 0 00 9/5/1999 10/5/1999 11/5/1999 12/5/1999 1/5/2000 2/5/2000 s 3/5/2000 m ~.1 4/5/2000 A W n C m 3 3 tQ I z c o m N Z c 0`D O ~..~. -. `0 ============= Page 100 of 109 ============= Stress Testing 5% & 25% Parallel Price Shift as of March 31, 2000 Worst Case Exposure - 5% Parallel Shift ($MM) UK Power (1) Power-West NA Gas Power-East Paper Continental Power European Gas Global Liquids 60.._....._.__.._._.._._.....___..._ ___ _ .W __ 139 39 023 021 18 14 14 13 Nordic Power 1 Imup ® DOWN. Worst Case Exposure - 25% Parallel Shift ($MM) UK Power (1) 299 696 Power-West 194 NA Gas 108 Power-East _ 107 Paper  52 Continental Power ' 22 European Gas ' 20 Global Liquids ' 12 Nordic Power 17 (1) Larger figure includes Project Repeat (the sale of Sutton Bridge) which closed on April 5, 2000 89 E0004401909 Finance Committee Meal 04/00 =XH003-01223 ============= Page 101 of 109 ============= L Violations by Portfolio Q Position ® Maturity/Gap oV@R Q1 Comparison 2000 and 1999 RDsition o Maturity/Gap oV@R EXH003-01224 Limit Violations Quarter Ended March 31, 2000 6 ,. - K 4 r j 2 Financial Trading Global Liquids Capital Portfolio Australia Pbw er 10 °x 8 " 6 i 4 A 2 " January February March January February March 01-2000 Q1 -.1999 E0004401910 90 4 nce Committee Meetii 04100 ============= Page 102 of 109 ============= Loss Notifications Quarter Ended March 31, 2000 Notifications by Portfolio 4 2 0 Financial Trading Q1 Comparison 2000 and 1999 EXH003-01225 10 8 6 15- 0 10-1 6 5 s January February March January February March Q1 - 2000 Q1 -1999 91 E0004401911 0 Finance Committee Meet! 04100 Global Emerging Continental European UK Pbw er Southern Capital Liquids Businesses Fbwer Gas Cone Gas POW olio ============= Page 103 of 109 ============= Trading Value-At-Risk Comparison (1999) VCR as a Percentage of Market Capitalization (1) 0.11%0.11% 0.10% 0.09% 0.09% VCR as a- Percentage of Net Income (1) 3.61% 3.47% ® . 3.29% 0.06%.0.06% 1.44%1.41% 0.04% 1.22% 11101/001% 0.82% 0.73%0.67% 0.30% C_ m v n _v c__? ° o ° o m (D w o 0 ,~ . y ro N . 3 3 °' 3 m c,_n, -a N ~, N (D ~O C (a 91) 0 0) r-P `~ M 0 (D $8 $31 $5 $39 $29 $32 $12 $11 $32 $30 1999 Average V@R (in Millions) (1) V @ R is normalized to a 95% confidence interval and one-day holding period E0004401912 92 EXH003-01226 ============= Page 104 of 109 ============= Policy Changes Requested Changes to Current Policy: Current Proposed o Equity Trading Net Open Position $50 MM $100 MM VAR Limit $ 4MM $ 6MM O Australian Electricity Net Open Position 1 TWh 3 TWh Rolling 12-Month Open Position Limit 2 TWh 6 TWh VAR Limit $2 MM $3 MM O Pulp & Paper Net Open Position 150,000 MT 300,000 MT Rolling 12-Month Open Position Limit 150,000 MT 300,000 MT VAR Limit $1.5 MM $3 MM Requested Changes from Interim Policy to Permanent Policy: Current Proposed 0 Southern Cone Electricity Net Open Position 1 TWh 3 TWh Rolling 12-Month Open.Position Limit 1.5 TWh 2 TWh VAR Limit $ 1 MM $2 MM 0 Southern Cone Gas E0004401913 Net Open Position 10 Bcf 35 Bcf Rolling 12-Month Open Position Limit 20 Bcf 20 Bcf VAR Limit $0.75 MM $2 MM 93 Finance Committee Mee 04/00 =XH003-01227 ============= Page 105 of 109 ============= 11 - Policy Changes New Commodity Group: Current Propose- d-0 Japanese Electricity Net Open Position None 4 TWh Rolling 12 - Month Open Position Limit None 4 TWh VAR Limit None $4 MM Actions Taken Since February 7, 2000 Board Meeting: Previous O UK Electricity Net Open Position 35 TWh Rolling 12 - Month Open Position Limit 15 TWh VAR Limit $10 MM O Credit Trading - (Interim Policy) Net Open Position (Maximum Exposure) None VAR Limit None E0004401914 94 New 85 TWh No Change $18 MM $100 MM $ 1MM d Finance Committee Meetir 04/00 EXH003-01228 ============= Page 106 of 109 ============= Agenda Item 5 E0004401915 EXH003-01229 ============= Page 107 of 109 ============= c;. Other Business E0004401916 95 Finance Committee Meet 04/00 EXH003-01230 ============= Page 108 of 109 ============= Agenda Item 6 E0004401917 =XH003-01231 ============= Page 109 of 109 ============= Adjourn E0004401918 96 $ io~ Finance Committee Meeti 04/00 =XH003-01232