=============
Page 1 of 123
=============

EXH011-00989

GOVERNMENT
EXHIBIT
  1239
  Crim. No. H-04-25 (S-2)

  Enron Corp. audit and Compliance Committee
  :;;'
October 12, 1998


=============
Page 2 of 123
=============

INTEROFFICE MEMORANDUM

ROUTED TO:

Rex R. Rogers
Peggy B. Menchaca

October 30, 1998

DATE ROUTED:

  j-zrc2 g
)ZI 40,11114- 1 (- ?'~. -M

RE: Minutes of the meeting of the Compensation and Management Development
Committee of the Board of Directors of Enron Corp., held on October 12, 1998.

  Attached for your reading pleasure and editorial expertise are the minutes of
captioned meeting. Please edit and route to the next name on the list, indicating the date
routed.

Thanks for your help.

  -42n~~-4
Peggy B. Menchaca

Comments, please:
Philip J. Bazelides
Ed Coats

\corp\n i&anaaoc

E C 000050955

EXH011-00990


=============
Page 3 of 123
=============

INTEROFFICE MEMORANDUM

October 28, 1998

ROUTED TO: DATE ROUTED:

Rex R. Rogers ~_.
James V. Derrick, Jr. t~
Peggy B.Menchaca

RE: Minutes of the meeting of the Audit and Compliance Committee of the Board of
Directors ofEnron Corp., held on October 12, 1998

  Attached for your reading pleasure sand editorial expertise are the minutes of
captioned meeting. Please edit and route to the next name on the list, indicating the date
routed.

Thanks for your help.

  Peggy B. Menchaca

Comments please:
Robert H. Butts
Richard A. Causey
Ed Coats ~ '
rninuana.doc

EC 000050956

EXH011-00991


=============
Page 4 of 123
=============

y'~o

Dr. Robert K. Jaedicke, Chairman
Mr. Ronnie C. Chan
Mr. Joc H. Foy
Dr. Wendy L. Gramm
Lord John Wakeham
Mr. Bruce G. Willison

Gentlemen and Dr. Gramm:

Peggy B. Menchaca
Vice President and Secretary

  Enron Corp.
P. 0. Box 11$S
  Houstun, TX 77251 1 188
(71.3) 853-6474
November 4, 1998 Fax (723) 853-2534

  Enclosed for each of you is a draft of the minutes for the Enron Corp. Audit and
Compliance Committee meeting held on October 12, 1998. If you have any additions,
corrections, or changes you care to suggest on the draft of minutes enclosed, please call
me at (713) 853-6424, or drop me a line at the above address.

Thanks for your time.

Enclosure

11:1Audtran.doc

  Sincere ,

Natural gas. Electricity. Endless possibilities TM

EC 000050951

EXH011-00992


=============
Page 5 of 123
=============

INTEROFFICE MEMORANDUM

October 28, 1998

ROUTED TO: DATE ROUTED:

Rex R. Rogers
James V. Derrick, Jr.
Peggy B. Menchaca

/8-3,o - /VI

RE: Minutes of the meeting of the Audit and Compliance Committee of the Board of
Directors of Enron Corp., head on October 12,199F,

  Attached for your reading pleasure and editorial expertise are the minutes of
captioned meeting. Please edit and route to the next name on the list, indicating the date
routed.

Thanks for your help.

Comments please:
Robert H. Butts
Richard A. Causey
Ed Coats

mintrana.doc

  Peggy B. Menchaca

EC 400056958

EXH011-00993


=============
Page 6 of 123
=============

ARTHUR
ANDERSEN

May '11, 1998

:1rtlull Arid rsrn 1.I.I'

Dr. Kenneth L. Lay
Chairman of the Board and
  Chief Executive Officer
Enron Corp.
1400 Smith Street
Houston, Texas 77002

Dear Dr. Lay:

Sit~ 1:~tX1
711 [.o,eisiana Street
I 1nuston TX 77002-2786
713 237 2323

We are pleased to have been appointed as independent public accountants of Enron Corp. and
subsidiaries (Enron or the Company) for the year ending December 31,1998. In connection
with our appointment, we would like to confirm our understanding of the services we will
provide.

Our work is to consist of an audit of the consolidated balance sheet of Enron at December 31,
1998 and of the related consolidated statements of income, cash flows and changes in
shareholders' equity accounts for the year then ending. We will also audit and issue separate
auditor's reports on the 1998 financial statements of certain subsidiary companies, listed at
Exhibit 1, where stand-alone financial statements for such companies are necessary to comply
with the rules and regulations of the Securities and Exchange Commission (SEC), the Federal
Energy Regulatory Commission (FERC) or to meet other obligations. The objective of our audits
is to provide you with our auditor's report expressing an opinion on the financial statements
referred to above.

Our work is also to consist of an examination, in accordance with standards established by the
American Institute of Certified Public Accountants, of management's assertion that the system
of internal control of Enron Corp. for the year ending December 31, 1998, was adequate to
provide reasonable assurance as to the reliability of financial statements and the protection of
assets against unauthorized acquisition, use or disposition based upon current standards of
control criteria. Upon completion of our examination, we will provide you with our report on
the assertion referred to above.

Audit Responsibilities and Limitations

We will conduct ourr audits in accordance with generally accepted auditing standards.
Accordingly, we will examine, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assess the accounting principles used and significant estimates
made by management, and evaluate the overall financial statement presentation.

Generally accepted auditing standards require that we obtain reasonable, rather than absolute,
assurance that the financial statements are free of material misstatement, whether caused by
error or fraud. Accordingly, a material misstatement may remain undetected. Also, an audit is
not designed to detect error or fraud that is imrxmaterial to the financial statements. However,

EC 000650959

EXH011-00994


=============
Page 7 of 123
=============

ARTHUR
ANDERSEN

Dr. Kenneth L. Lay
Page 2
May 11, 1998

we will bring to your attention any material misstatements and any fraudulent or illegal acts of
which we become aware during our audit. Pursuant to professional standards, in the unusual
event that we are unable to complete the audit or are unable to form or have not formed an
opinion, we may decline to express an opinion or decline to issue a report as a result of the
engagement.

Our audit and examination will include obtaining an understanding of the system of internal
control over financial reporting and safeguarding of assets, testing,, and evaluating the design
and operating effectiveness of the system, and such other procedures as we consider necessary
in the circumstances. While an effective internal controls structure reduces the likelihood that
errors or irregularities (including misappropriation of assets), may occur and remain
undetected, it does not eliminate that possibility. Also, projections of any evaluation of the
internal control system to future periods arc subject to the risk that the internal control system
may become inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate. Accordingly, and because we use selective
testing in our audit and examination, we cannot guarantee that deficiencies in the design or
operation of the internal control system, if present, will be detected. However, we will design
our examination of management's assertion regarding the internal control system to provide
reasonable assurance of detecting material weaknesses. Material weaknesses are conditions in
which the design or operation of one or more elements of the system in internal control does
not reduce, to a relatively low level, the risk that errors or irregularities, in amounts that would
be material in relation to the financial statements, may occur and not be detected within a
timely period.

Our audit and examinations are not designed to detect whether any systems are Year 2000
compliant. Further, we have no responsibility with regard to the Company's efforts to make its
systems, or any other systems (such as those of the Company's vendors, service providers or
any other third parties), Year 2000 compliant or provide assurance on whether the Company
has addressed or will be able to address all of the affected systems on a timely basis. This is the
responsibility of management. However, we will make inquiries of management regarding the
Year 2000 issue, consider management's assessment of the potential impact of the Year 2000
issue on the current year's financial statements and our audit or examination, and discuss or
otherwise be satisfied that senior management and the audit committee are apprised of any
observations we have relative to its Year 2000 remediation plan.

Management's Responsibilities and Representations

The financial statements are the responsibility of the Company's management. Management is
also responsible for (1) maintaining effective internal control over financial reporting and the
safeguarding assets, (2) identifying and ensuring the Company complies with the laws and
regulations applicable to its activities and (3) making available to us all financial records and
related information and personnel with information of relevance to our work.

EC 000050060

EXH011-00995


=============
Page 8 of 123
=============

ARTHUR
ANDERSEN

Dr. Kenneth L. Lay
Page 3
May 11, 1998

As required by generally accepted auditing standards, we will make specific inquiries of
management and others about the representations embodied in the financial statements and
about the effectiveness of internal control. Those standards also require that we obtain from
certain members of management a representation letter covering such matters. The results of
our audit tests and examination procedures, the responses to our inquiries and the written
representations constitute the evidential matter we intend to rely upon in forming an opinion
on the financial statements and on management's assertion regarding internal control.

Also, under professional standards, in order for us to examine and report on management's
assertion about the effectiveness of an entity's system of internal control, management must
make an assertion regarding the effectiveness of the system of internal control. While we'uiay
assist management in accumulating evidence to enable them to make such an assertion,
management is responsible for establishing and maintaining an effective system of internal
control and for evaluating its effectiveness.

Other Services

In addition to our audits, we will review, in accordance with professional standards, the
quarterly financial information to be included in the Company's reports to be filed with the
SEC, except that, unless requested by the Company, we will not issue a report or obtain a
representation letter from management. Our reviews will consist principally of applying
analytical procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. These procedures are substantially less in scope than an audit
made in accordance with generally accepted auditing standards and, accordingly, they do not
provide any assurance that we will become aware of errors, fraud or illegal acts that would be
disclosed in an audit. At the completion of each review, we will discuss the results with
management.

Fees and Billing Arrangement

Our charges for the services described above have been previously agreed to by management
and reviewed with the Audit Committee of the Board of Directors. Billings for such services
will be made on a periodic basis during the year based on a schedule agreed upon by
management. Of course, we will also be available to provide other accounting, tax or business
advisory services as requested by Enron management throughout the year. Our charges for
such services will be based upon the level of staff and time required to complete the
assignment, plus out-of-pocket expenses.

Other Matters

Arthur Andersen LLP represents that the Firm and its personnel are independent of Enron
pursuant to the rules and regulations of the American Institute of Certified Public Accountants
(AICPA) and the SEC, as such term is utilized by the AICPA and the SEC.

EC 000050961

EXH011-00996


=============
Page 9 of 123
=============

ARTHUR
ANDERSEN

Dr. Kenneth L. Lay
Page 4
May 11,1998

The working papers prepared in conjunction with our audits are the property of our Firm,
constitute confidential and proprietary information and will be retained by us in accordance
with our policies and procedures.

If you intend to publish or otherwise reproduce the financial statements together with our
report (or otherwise make reference to our Firm) in a document that contains other information,
you agree to provide us with a draft of the document to read and comment on before it is
printed and distributed.

Any additional services that you may request, and that we agree to provide, will be the subject
of separate written arrangements.

We look forward to our continued involvement with Enron and assure you that this work will
be given our closest attention.

Very truly yours,

ART R A EN LLP
By
  David B. Duncan

Agreed and Acknowledged by:
Richard A. Causey
Senior Vice President, Chief Accounting, Information
and Administrative Officer
Enron Corp.

Copy to: Mr. Richard A. Causey
Dr. Robert K. jaedicke
Mr. Ronnie C. (Ian
Mr. Joe H. Foy
  Dr. Wendy L. Granun
Lord John Wakeham
Mr. Bruce G. Willison
Mr. Jeffrey K. Skilling

EC 000050962

EXH011-00997


=============
Page 10 of 123
=============

ARTHUR
ANDERSEN

Exhibit 'l

  Enron Corp.
Stand-Alone Financial Statement Audits
December 31,1998

Enron Corp.

Transportation and Distribution
Northern Natural Gas Company
Transwestern Pipeline Company
Portland General Electric

Fale Safe Incorporated
Trojan Nuclear Plant
Boardman Coal Plant
Enron Communications, Inc.

Exploration and Production
Enron Oil & Gas Company
Enron Oil U.K. Limited

Wholesale Energy Services
San Juan Gas Co, Inc_
  Electricidad hnron de Guatemala, S.A.
Enron Europe Limited Group and Company
Enrici Power Marketing Limited
  Enron Europe Liquids Processing
Enron Gas Processing (Europe) Limited
  Enron Power Construction Limited (Croup and Co.)
Enron Power (Europe) Limited
  Enron Power Operations Limited (Group and Co.)
Trenron Limited
  Enron Europe Construction Limited
Enron Gas Construction Limited
Teesside Power Holding Limited
Enron Power Trading Limited
  Enron Capital & Trade Resources Limited
Enron Petrochemicals BV
Wallerscote Power Operations Limited
Teesside Gas Transportation Limited
  Enron Europe Power 1 Limited (Group and Co.)
Enron Europe Power

't'ype of Report Issued

SEC Form 10-K

Audit Report
FERC Form 2
Audit Report
FERC Form 2
SEC Form 10-K
Audit Report
FERC Form T
Audit Report
Audit Report
Audit Report
Audit Report

SEC Form 10-K
Audit Report

Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report

Et 444054963

EXH011-00998


=============
Page 11 of 123
=============

ARTHUR
ANDERSEN

Exhibit 1

  Enron Corp.
Stand-Alone Financial Statement Audits
December 31, 1998

Entity	Type of Report Issued
Wholesale Energy Services (cont.)	Audit Report
Enron Europe Power 2 Limited	Audit Report
IPG Power	Audit Report
Enron Engineering Services	Audit Report
Enrou Sutton Bridge Operations & Maintenance Limited	Audit Report
Wallerscote Operations & Maintenance Limited	Audit Report
Teesside Gas Processing Limited	Audit Report
Enron Gas Processing (UK) Limited	Audit Report
Falco UPG Limited	Audit Report
LPG Falco Limited	Audit Report
Enron Europe Operations Limited	Audit Report
Enron Direct Limited	Audit Report
Enron Sutton Bridge Limited	Audit Report
Sutton Bridge Power	Audit Report
Sutton Bridge Financing Limited	Audit Report
Kent Power Limited	Audit Report
Sutton Bridge (Generation) Limited	Audit Report
Bretton Power	Audi t Report
Enron Power Operations Teesside	Audit Report
Enron Gas and Petrochemicals Trading Limited	Audit Report
Enron Sutton Bridge 2 Limited	Audit Report
TGT Finance	Audit Report
Bretton Holdings (One) Limited	Audit Report
Sutton Bridge Investors 3	Audit Report
Enron Shareblock Limited (Group and Co.)	Audit Report
Enron 1(P1 Limited (Group and Co.)	Audit Report
E=on KP2 Limited	Audit Report
Enron Europe (Sites) Holdings Limited (Group and Co.)	Audit Report
Enron Europe (Sites) No. 2 Limited	Audit Report
Rassau Power Limited	Audit Report
Enron Europe Power Holdings	Audit Report
Enron Engineering Services	Audit Report
Flotilla Power Limited	Audit Report
Flotilla Power (UK) Limited	Audit Report

EC 000050964

EXH011-00999


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Page 12 of 123
=============

Dr. Robert K. Jaedicke, Chairman
Mr. Ronnie C. Chan
Mr. Joe H. Foy
Dr. Wendy L. Gramme
Lord John Wakeham
Mr. Bruce G. Willison

NOTICE OF MEETING OF THE
AUDIT AND COMPLIANCE COMMTJTEE
ENRON CORP.
Monday, October 12, 1998

  A meeting of the Audit and Compliance Committee of the Board of
Directors of Enron Corp. will be held at the time and place and for the purpose
indicated below:

DATE: October 12, 1998

HOUR: 4:00 p.m. (C.D.T.)
PLACE: 50M Dining Room
Enron Corp.
  Houston, Texas

SUBJECT: Such matters as may be properly brought before
the meeting.

,Dated September 16, 1998.

  Peggy B. Menchaca
  Vice President and Secretary

cc: Mr. Kenneth L. Lay
Mr. Jeffrey K. Skilling
Mr. Richard B. Buy
  Mr. James V. Derrick, Jr.
Mr. Richard A. Causey
Mr. Andrew S. Fastow

%CorpAAudnot.doc

EC 000050955

EXH011-01000


=============
Page 13 of 123
=============

r -

  EC OOOD5~966

EXH011-01001


=============
Page 14 of 123
=============

AUDIT COMMITTEE MEETING

OCTOBER 12, 1998

Endless possibilities.

CONFIDENTIAL

EC 000050961

EXH 011-01002


=============
Page 15 of 123
=============

,4y-,.e e2~~ 'A', - -:~~ ,-z, /~ -

  61 j Z,'O 1,, 4, 1A 17

  y

  f/L

  LG~'~y
aw

  ` Integrity I Communication Excellence

Form 000-0466 (3/58)

EC 000050968

EXH011-01003


=============
Page 16 of 123
=============

Co

  F" 297;Ez~~
t

  12

  a~

Form 000-U466 (M98y

  Respect Integrity ; Communication Excellence `

  EC 000050969

--XH011-01004


=============
Page 17 of 123
=============

form 000-0466 (3198)

  Respect Integrity 1 Communication Excellence
  EC 000050970

EXH011-01005


=============
Page 18 of 123
=============

Dr. Robert K.laedicke, Chairman r/
Mr. Ronnie C. Chan '
Mr, Joe H, Foy v
Dr. Wendy L. Gramm - A
Lord John Wakeham Y'
Mr. Bruce G. Willison V'

Agenda
Meeting of the Audit Committee of the
  Board of Directors
f Enron Corp.
14 11 1';)
4.00 p. m.(C.D.T), October 12,1998
50M Dining Conference Room
Enron Corp.
  Houston, Texas

  f S,Ci JJ~i
~~htnn5~~~1
2PC'

  ~`~xrPe~s~Gtti

  Approve minutes of meeting Audit Conunittee held on May 4, 1
Jacdickc. --

  Update on Arthur Andersen's 1998 financial and internal control udi
Duncan, Arthur Andersen LLP, and Mr. Causey. 4a-6 t
Review of Crisis Management Procedures - Mr. Causcy.,
  -i h
  pdate on status of Portland General Electric decommissioning of its
Facility-Messrs. %Tloc and Quenn`oz.

  _
/Update on Enron's risk management activities - Mr. Buy.

  Executive Sessions.

  Representatives of Arthur Andersen LLP
Representatives of Management. 914t-t-42-e-4-e-
7. Other Business.

  8. Adjournment.c

- Dr.

Nuclear

_ 5r-

  t

i

n 000050971

EXH 011-01006


=============
Page 19 of 123
=============

Agenda Item I
  s.

ce
C"
co
Mp
Cs
0
a
G.~
LU

Fxl-In1 1 _n1 nn7


=============
Page 20 of 123
=============

DRAFT

  MJ MUTES
MEETING OF THE AUDIT COMMITTEE
OF THE BOARD OF Dl RECTORS
ENRON CORP.
  May 4,1998

  Minutes of a meeting of the Audit Committee ("Committee") of the Board of
Directors of Enron Corp. ("Company"), noticed to begin at 3:30 p.m., but actually begun
at 3:45 p.m., C.D.T., on May 4, 1998, at the Enron Building in Houston, Texas.

All of the Committee members were present, as follows:

Robert K. Jacdickc, Chairman
Ronnie C. Chan

Joe H. Foy
Wendy L. Granun
John Wakeham
Bruce G. Willison

  Directors Kenneth L. Lay and Jeffrey K. Skilling, Messrs. Robert H. Butts,
Richard B. Buy, Richard A. Causey, James V. Derrick, Jr., and Theodore R. Murphy, and
Mesdames Rebecca C. Carter and Peggy B. Menchaca, all of the Company, and Messrs.
David Duncan, Thomas 11. Bauer, and D. Stephen Goddard, all of Arthur Andersen LLP
("Arthur Andersen"), also attended the meeting. Mr. Joseph C. Dilg of Vinson & Elkins,
L.L.P. joined the meeting in progress as noted below.

  The Chairman, Dr. Jaedicke, presided at the meeting, and the Secretary, Ms.
Menchaca, recorded the proceedings.

  Dr. Jaedicke called the meeting to order, and Mr. Skilling reviewed recent
organizational changes. He introduced Mr. Buy, Vice President and Chief Risk Officer,
and Mr. Murphy, Vice President of Risk Assessment and Control Group, and noted that
Ms. Carter had moved into Enron Capital Management as Vice President and would have
responsibility for the credit agencies.

  Dr. Jaedicke noted that a draft of the minutes of a meeting of the Committee held
on February 9, 1998, and a draft of the minutes of a joint meeting of the Audit and
Finance Committees held on February 9, 1998, had been distributed to the Committee
members. He called for any corrections or additions. There being none, upon motion
duly made by Mr. Foy, seconded by Mr. Chan, and carried, the minutes of the meeting of

EC oaO 50973

EXH011-01008


=============
Page 21 of 123
=============

the Committee held on February 9, 1998, and the joint meeting; of the Audit. and Finance
Committee held on February 9, 1998, were approved as distributed.

  Mr. Duncan began the report on the 1998 financial reporting audit plan. He
reviewed the schedule for communication to the Committee and reviewed the Arthur
Andersen client service team for each of the key operations of the Company. He reported
on ongoing high priority financial reporting risk areas, and he called upon Mr. ]3nuer,
who reported on 1998 specific financial reporting risk areas. Ile discussed developments
in accounting literature and answered questions from the Committee. A copy of Mr.
Duncan's report is filed with the records of the meeting.

  Mr. Causey reported on significant current activities in business risk management.
He stated that Mr. Buy had been elected as Vice President and Chief Risk Officer. He
noted that the business risk manager concept had been implemented at all operating
groups and was meeting regularly. He reported that the "Year 2000" plan execution was
proceeding as scheduled and that a Company-wide Standard Accounting Plan design and
implementation project would begin rune 1. Mr. Causcy next reported on the status of
the 1998 Audit Plan by business risk area. A copy of Mr. Causey's report is filed with the
records of the meeting.

  Mr. Duncan presented a summary of fees charged by Arthur Andersen in 1997 and
1996 for its recurring audits, accounting consultation, and other consulting services, a
copy of which is filed with the records of the meeting. He answered questions from the
members of the Committee.

  Mr. Skilling reviewed in detail proposed amendments to the Enron Capital and
Trade Corp. ("ECT") Risk Management Policy (the "Policy"), a copy of which is filed
with the records of the meeting. He noted that upon approval, the Policy would transition
to a Company-wide policy. Mr. Buy joined in the presentation, following which a
discussion ensued. Messrs. Skilling, Buy, Murphy, and Lay and Ms. Carter responded to
questions presented by the Committee. Following the discussion, upon motion duly made
by Dr. Gramm, seconded by Mr. Foy, and carried, the Policy was approved for
recommendation to the Board of Directors,

  Mr. Causey updated the Committee in detail concerning the Year 2000 systems
plan. He reported on the Company's internal systems, imbedded chips, and other external
issues addressed in the plan. He indicated that he would keep the Committee informed on
the Company's progress.

2

EC 000050974

EXH011-01009


=============
Page 22 of 123
=============

Mr. Derrick excused himself from the meeting and Mr. Dilg was invited into the
meeting. Mr. Dilg stated that Vinson & Elkins had been retained to look at any possible
conflict issue that could exist by virtue of the marriage of Mr. Derrick and Ms. Carriti
Patman, a partner at the law firm of l3racewell & Patterson. He described the research
that he had done and stated his opinion that no such conflict issues exist. Mr. Dilg
answered questions from the Committee, and the Committee complimented the depth of
the report and the initiation of the study by Mr. Derrick.

Mr. Dilg excused himself from the meeting.

  There being no further business to come before the Committee, the meeting was
adjourned at 4:55 p.m., C.D.T.

Secretary

APPROVED:

Chairman

3

EC 000050975

EXH011-01010


=============
Page 23 of 123
=============

Agenda Item 2

to
0
0
o
0
0
0
C.3
Lii

EXH011-01011


=============
Page 24 of 123
=============

ARTHUR
ANDERSEN

May 11, 1.998

Dr. Kenneth L. Lay
Chairman of the Board and
  Chief Executive Officer
Enron Corp.
1400 Smith Street
Houston, Texas 77002

Dear Dr. Lay:

Arthur Andersen 1 IJ'

Suite 1300
'1111.ouisianu Street
Houston 7X 77002-2786
7132372323

We are pleased to have been appointed as independent public accountants of Enron Corp. and
subsidiaries (Eru'on or the Company) for the year ending December 31,1998. In connection'
with our appointment, we would like to confirm our understanding of the services we will
provide.

Our work is to consist of an audit of the consolidated balance sheet of Enron at December 31,
2998 and of the related consolidated statements of income, cash flows and changes in
shareholders' equity accounts for the year then ending. We will also audit and issue separate
auditor's reports on the 1998 financial statements of certain subsidiary companies, listed at
Exhibit 1, where stand-alone financial statements for such companies are necessary to comply
with the rules and regulations of the Securities and Exchange Commission (SEC), the Federal
Energy Regulatory Commission (FERC) or to meet other obligations. The objective of our audits
is to provide you with our auditor's report expressing an opinion on the financial statements
referred to above.

Our work is also to consist of an examination, in accordance with standards established by the
American Institute of Certified Public Accountants, of management's assertion that the system
of internal control of Enron Corp. for the year ending December 31, 1998, was adequate to
provide reasonable assurance as to the reliability of financial statements and the protection of
assets against unauthorized acquisition, use or disposition based upon current standards of
control criteria. Upon completion of our examination, we will provide you with our report on
the assertion referred to above.

Audit Responsibilities and Limitations.

We will conduct our audits in accordance with generally accepted auditing standards.
Accordingly, we will examine, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assess the accounting principles used and significant estimates
made by management, and evaluate the overall financial statement presentation.

Generally accepted auditing standards require that we obtain reasonable, rather than absolute,
assurance that the financial statements are free of material misstatement, whether caused by
error or fraud. Accordingly, a material misstatement may remain undetected. Also, an audit is
not designed to detect error or fraud that is immaterial to the financial statements. However,

EC 000050977

EXH011-01012


=============
Page 25 of 123
=============

ARTHUR
ANDERSEN

Dr. Kenneth L. Lay
Page 2
May 11, 1998

we will bring to your attention any material misstatements and any fraudulent or illegal acts of
which we become aware during our audit. Pursuant to professional standards, in the unusual
event that we are unable to complete the audit or arc unable to form or have not formed an
opinion, we may decline to express an opinion or decline to issue a report as a result of the
engagement.

Our audit and examination will include obtaining an understanding of the system of internal
control over financial reporting and safeguarding of assets, testing and evaluating the design
and operating effectiveness of the system, and such other procedures as we consider necessary
in the circumstances. While an effective internal controls structure reduces the likelihood that
errors or irregularities (including misappropriation of assets), may occur and remain
undetected, it does not eliminate that possibility. Also, projections of any evaluation of the
internal control system to future periods are subject to the risk that the internal control system
may become inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate. Accordingly, and because we use selective
testing in our audit and examination, we cannot guarantee that deficiencies in the design or
operation of the internal control system, if present, will be detected. However, we will design
our examination of management's assertion regarding the internal control system to provide
reasonable assurance of detecting material weaknesses. Material weaknesses are conditions in
which the design or operation of one or more elements of the system in internal control does
not reduce, to a relatively low level, the risk that errors or irregularities, in amounts that would
be material in relation to the financial statements, may occur and not be detected within a
timely period.

Our audit and examinations arc not designed to detect whether any systems are Year 2000
compliant. Further, we have no responsibility with regard to the Company's efforts to make its
systems, or any other systems (such as those of the Company's vendors, service providers or
any other third parties), Year 2000 compliant or provide assurance on whether the Company
has addressed or will be able to address all of the affected systems on a timely basis. This is the
responsibility of management. However, we will make inquiries of management regarding the
Year 2000 issue, consider management's assessment of the potential impact of the Year 2000
issue on the current year's financial statements and our audit or examination, and discuss or
otherwise be satisfied that senior management and the audit committee are apprised of any
observations we have relative to its Year 2000 remediation plan.

Management's Responsibilities and Representations

The financial statements are the responsibility of the Company's management. Management is
also responsible for (1) maintaining effective internal control over financial reporting and the
safeguarding assets, (2) identifying and ensuring the Company complies with the laws and
regulations applicable to its activities and (3) making available to us all financial records and
related information and personnel with information of relevance to our work.

EC 000050976

EXH011-01013


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=============

ARTHUR
ANDERSEN

Dr. Kenneth L. Lay
Page 3
May 11, 1998

As required by generally accepted auditing standards, we will make specific inquiries of
management and others about the representations embodied in the financial statements and
about the effectiveness of internal control. Those standards also require that we obtain from
certain members of management a representation letter covering such matters. The results of
our audit tests and examination procedures, the responses to our inquiries and the written
representations constitute the evidential matter we intend to rely upon in forming an opinion
on the financial statements and on management's assertion regarding internal control.

Also, under professional standards, in order for us to examine and report on management's
assertion about the effectiveness of an entity's system of internal control, management must
make an assertion regarding the effectiveness of the system of internal control. While we may
assist management in accumulating evidence to enable them to make such an assertion,
management is responsible for establishing and maintaining an effective system of internal
control and for evaluating its effectiveness.

Other Services

In addition to our audits, we will review, in accordance with professional standards, the
quarterly financial information to be included in the Company's reports to be filed with the
SEC, except that, unless requested by the Company, we will not issue a report or obtain a
representation letter from management. Our reviews will consist principally of applying
analytical procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. These procedures are substantially less in scope than an audit
made in accordance with generally accepted auditing standards and, accordingly, they do not
provide any assurance that we will become aware of errors, fraud or illegal acts that would be
disclosed in an audit. At the completion of each review, we will discuss the results with
management.

Fees and Billine Arranl;ements

Our charges for the services described above have been previously agreed to by management
and reviewed with the Audit Committee of the Board of Directors. Billings for such services
will be made on a periodic basis during the year based on a schedule agreed upon by
management. Of course, we will also be available to provide other accounting, tax or business
advisory services as requested by Enron management throughout the year. Our charges for
such services will be based upon the level of staff and time required to complete the
assignment, plus out-of-pocket expenses.

Other Matters

Arthur Andersen LLP represents that the Firm and its personnel are independent of Enron
pursuant to the rules and regulations of the American Institute of Certified Public Accountants
(AICPA) and the SEC, as such term is utilized by the AICPA and the SEC.

EC 000050979

EXH011-01014


=============
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=============

ARTHUR
ANDERSEN

Dr. Kenneth L. Lay
Page 4
May 11,199E

The working papers prepared in conjunction with our audit$ are the property of our Firm,
constitute confidential and proprietary information and will be retained by us in accordance
with our policies and procedures.

If you intend to publish or otherwise reproduce the financial statements together with our
report (or otherwise make reference to our Firm) in a document that contains other information,
you agree to provide us with a draft of the document to read and comment on before it is
printed and distributed.

Any additional services that you may request, and that we agree to provide, will be the subject
of separate written arrangements.

We look forward to our continued involvement with Enron and assure you that this work will
be given our closest attention.

Very truly yours,

ART R A ~FN LL.P
By
  David B. Duncan

Agreed and Acknowledged by;
P--~ el -
Richard A. Causey 1
Senior Vice President, Chief Accounting, Information
and Administrative Officer
Eruon Corp.

Copy to: Mr. Richard A. Causey
Dr. Robert K. Jaedicke
Mr. Ronnie C. Chan
Mr. Joe H. Foy
  Dr. Wendy L. Grarntn
Lord John Wakeham
Mr. Bruce G. Willison
Mr. Jeffrey K. Skilling

EC 000050980

EXH011-01015


=============
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ARTHUR
ANDERSEN

Exhibit 1

  Enron Corp.
Stand-Alone Financial Statement Audits
December 31, 1998

Entity pe of Report Issued

Enron Corp. SEC Form 10-K

Transportation and Distribution

Northern Natural Gas Company	Audit Report
	FERC Form 2
Transwestern Pipeline Company	Audit Report
	FERC Form 2
Portland General Electric	SEC Form 10-K
	Audit, Report
	FERC Form I
Fate Safe Incorporated	Audit Report
Trojan Nuclear Plant	Audit Report
Boardman Coal Plant	Audit Report
Eiuon Communications, Inc.	Audit Report

Exploration and Production	
union Oil & Gas Company	SEC Form 10-K
Enron Oil U.K. Limited	Audit Report
Wholesale Energy Services	
San Juan Gas Co, Inc.	Audit Report
)s1ertricidad Enron de Guatemala, S.A.	Audit Report
Enron Europe Limited Group and Company	Audit Report
Enrici Power Marketing Limited	Audit Report
Enron Europe Liquids Processing	Audit Report
Enron Gas Processing (Europe) Limited	Audit Report
Enron Power Construction Limited (Group and Co.)	Audit Report
Enron Power (Europe) Limited	Audit Report
Finron Power Operations Limited (Group and Co.)	Audit Report
Trenron Limited	Audit Report
Enron Europe Construction Limited	Audit Report
Enron Gas Construction Limited	Audit Report
Teesside Power Holding Limited	Audit Report
Enron Power Trading Limited	Audit Report
Enron Capital & Trade Resources Limited	Audit Report
h nron Petrochemicals BV	Audit Report
Wallerscote Power Operations Limited	Audit Report
Teesside Gas Transportation Limited	Audit Report
Enron Europe Power I Limited (Group acid Co.)	Audit Report
Enron Europe Power	Audit Report

EC 000050981

EXH011-01016


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ARTHUR
ANDERSEN

Exhibit 1

  Enron Corp.
Stand-Alone Financial Statement Audits
December 31, 1998

Entity

Wholesale Energy Services (cont.)
Enron Europe Power 2 Limited
IPG Power
  Enron Engineering Services
  Enron Sutton Bridge Operations & Maintenance Limited
Wallerscote Operations & Maintenance Limited
Teesside Gas Processing Limited
  Enron Gas Processing (UK) Limited
Falco UPG Limited
  UPG Falco Limited
  Enron Europe Operations Limited
Enron Direct Limited
Enron Sutton Bridge Limited
Sutton Bridge Power
Sutton Bridge Financing Limited
Kent Power Limited
Sutton Bridge (Generation) Limited
Bretton Power
  Enron Power Operations Teesside
Enron Gas and Petrochemicals Trading Limited
Enron Sutton Bridge 2 Limited
TGT Finance
  Bretton Holdings (One) Limited
Sutton Bridge Investors 3
Enron $hareblock Limited (Group and Co.)
Enron KPI Limited (Group and Co.)
Enron KP2 Limited
  Enron Europe (Sites) Holdings Limited (Group and Co.)
Enron Europe (Sites) No. 2 Limited
  Rassau Power Limited
  Enron Europe Power Holdings
Enron Engineering Services
Flotilla Power Limited
  Flotilla Power (UK) Limited

Type of Report Issued

Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report "'
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audi t Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report
Audit Report

EC 000050982

EXH011-01017


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=============

j fT1fl1

EC 000050983

EXH011-01018


=============
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=============

a
c
c

.P-4
v)'

  ARTHUR Likelihood PlenrooE-ffort
ANDERSEN ..."'~ "pot status
Q

a~
w

EXH011-01019


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=============

 Business Risk Manager Roles Operating Well; Control Database
Nearing Completion

 Previously Noted "Blocking and Tackling" Areas Receiving
Focus

  Extensive In-Process Systems Activities Ongoing
'7 Y2K *Security

`~SAP
~''Trading

'Recovery

 Remote Location Risk Assessment Enhancements

 Policy and Standard Development Activity in Legal and
Environmental Areas -- ~%

M
C7
0
0
Q
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C1

  012Ve
  ~
ARTHUR
ANDERSEN '

EXH 011-01020


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 Start-Up Costs SOP and Related Company Activities

 Monetization - R~ ulemakin Monitoring Activities
 Acquisition Related Activities

 Continued Evolution of Mark-to-Market and

Fair Value Methodologies

 Recent SEC Initiatives

M ARTH
C= ANDERSEN
00
M

EXH 011-01021


=============
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=============

Levitt Speech
Five Popular Earnings Management Practices

 "Big Bath" restructuring charges
 Creative Acquisition Accounting

 Miscellaneous "Cookie Jar Reserves"
 Materiality

  Revenue Recognition

m
C)
CD
0
0
Q
fjo
-3

EXH 011-01022


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=============

AA - Arthur Andersen

SEC PracUcelo8. SEC Staff Views
SEC Staff Speeches, Various
  The Numbers Game, Arthur Levitt, Chairman

SPCH.T.1998.Levitt.

REMARKS BY CHAIRMAN ARTI TUR LEVTI"T
SECURITIES AND EXCHANGE COMMISSION
THE "NUMBERS GAME"
NYU CENTER FOR LAW AND BUSINESS,

NEW YORK, N.Y.
SEPTEMBER 28,1998

Thank you very much. Dean Daly, Dean Sexton and to everyone gathered this evening, thank you for
welcoming me tonight I am honored to be here on such an auspicious evening for both NYU and Bill
Allen.

The creation of the Center for Law and Business recognizes an important truth: we cannot continue to
view the worlds of business and law as parallel but separate Universes. And NYU could not have
selected a more qualified or thoughtful individual than Bill as its first director. His leadership of the
Delaware Court of Chancery -- acknowledged as the nation's most influential arbiter of corporate law -
confirmed his reputation as a great thinker who effortlessly bridges the worlds of law and business. I've
heard from friends on Wall Street that it's a far less stressful experience to hear Bill lecture in front of a
classroom than from his former seat on the bench.

Seven months ago, l expressed concerns about selective disclosure. Through conference calls or
embargoed press releases, analysts and institutional investors often hear about material news before it is
made public. In the interval, there is a great deal of unusual trading. The practice had been going on for a
long time. And, while everyone was aware of it, and most were extremely uncomfortable with it, few
spoke out. As the investor's advocate, the SEC did and we will continue to do so.

Well, today, I'd like to talk to you about another widespread, but too little-challenged custom: earnings
management This process has evolved over the years into what can best be characterized as a game
among market participants. A game that, if not addressed soon, will have adverse consequences for
America's financial reporting system. A game that runs counter to the very principles behind our
market's strength and success.

Increasingly, I have become concerned that the motivation to meet Wall Street earnings expectations may
be overriding common sense business practices. Too many corporate managers, auditors, and analysts
are participants in. a game of nods and winks. In the zeal to satisfy consensus earnings estimates and
project a smooth earnings path, wishful thinking may be winning the day over faithful representation.

As a result, I fear that we are witnessing an erosion in the quality of earnings, and therefore, the quality of
financial reporting. Managing may be giving way to manipulation; Integrity may be losing out to
illusion.

Many in corporate America are just as frustrated and concerned about this trend as we, at the SEC, are.
They know how difficult it is to hold the line on good practices when their competitors operate in the gray
area between legitimacy and outright fraud.

EC 000050988

EXH 011-01023


=============
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=============

A gray area where the accounting is being perverted; where managers are cutting corners; and, where
earnings reports reflect the desires of management rattier than the underlying financial performance of
the company.

'T'onight, I want to talk about why integrity is financial reporting is under stress and explore five of the
more common accounting gimmicks we've been seeing. Finally, I will outline a framework for a financial
community response to this situation.

This necessary response involves improving both our accounting and disclosure rules, as well as the
oversight and function of outside auditors and board audit conunittees. I am also calling upon a broad
spectrum of capital market participants, from corporate management to Wall Street analysts to investors,
to stand together and re-energize the touchstone of our financial reporting system: transparency and
comparability.

This is a financial conununity problem. It can't be solved by a government mandate: it demands a
financial community response.

THE ROLP OF FINANCIAL REPORTING IN OUR ECONOMY

Today, America's capital markets are the envy of the world. Our efficiency, liquidity and resiliency stand
second to none. Our position, no doubt, has benefited from the opportunity and potential of the global
economy. At the same time, however, this increasing interconnectedness has made us more susceptible to
economic and financial weakness half a world away.

The significance of transparent, timely and reliable financial statements and its importance to investor
protection has never been more apparent. The current financial situations in Asia and Russia are stark
examples of this new reality. These markets are learning a painful lesson taught many times before:
investors panic as a result of unexpected or unquantifiable bad news.

If a company fails to provide meaningful disclosure to investors about where it has been, where it is and
where it is going, a damaging pattern ensues. The barrel between shareholders and the company is
shaken; investors grow anxious; prices fluctuate for no discernible reasons; and the trust that is the
bedrock of our capital markets is severely tested.

THE PRESSURE TO "MAKE YOUR NUMBERS"

While the problem of earnings management is not new, it has swelled in a market that is unforgiving of
companies that miss their estimates. I recently read of one major U.S. company, that failed to meet its
so-called "numbers" by one penny, and lost more than six percent of its stock valve in one day.

I believe that almost everyone in the financial community shares responsibility for fostering a climate in
which earnings management is on the rise and the quality of financial reporting is on the decline.
Corporate management isn't operating in a vacuum. In fact, the different pressures and expectations
placed by, and on, various participants in the financial community appear to be almost self-perpetuating.
This is the pattern earnings management creates: companies try to meet or beat Wall Street earnings
projections in order to grow market capitalization and increase the value of stock options. Their ability to
do this depends on achieving the earnings expectations of analysts. And analysts seek constant guidance
from companies to frame those expectations. Auditors, who want to retain their clients, are under
pressure not to stand in the way.

ACCOUNTING HOCUS-POCUS

EC 000050989

EXH 011-01024


=============
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=============

Our accounting principles weren't meant to be a straitjacket. Accountants are wise enough to know they
cannot anticipate every business structure, or every new and innovative transaction, so they develop
principles that allow for flexibility to adapt to changing circumstances. That's why the highest standards
of objectivity, integrity and judgment can't b e the. exception. They must be the rule.

Flexibility in accounting allows it to keep pace with business innovations. Abuses such as earnings
management occur when people exploit this pliancy. Trickery is employed to obscure actual financial
volatility. This, in turn, masks the true consequences of management's decisions. These practices aren't
limited to smaller companies struggling to gain investor interest, It's also happening in companies whose
products we know and admire,

So what arc these illusions? Five of the more popular ones I want to discuss today are "big bath"
restructuring charges, creative acquisition accounting, "cookie jar reserves," "immaterial" misapplications
of accounting principles, and the premature recognition of revenue.

"Big Bath" Charges

Let me first deal with "Big Bath" restructuring charges.

Companies remain competitive by reg uhnrly assessing the efficiency and profitability of their operations.
Problems arise, however, when we see large charges associated with companies restructuring. These
charges help companies "clean up" their balance sheet - giving them a so-called "big bath."

Why arc companies tempted to overstate these charges? When earnings take a major hit, the theory goes
Wall Street will look beyond a one-time loss and focus only on. future earnings.

And if these charges are conservatively estimated with a little extra cushioning, that so-called
conservative estimate is miraculously reborn as income when estimates change or future earnings fall
short.

When a company decides to restructure, management and employees, investors and creditors, customers
and suppliers all want to understand the expected effects. We need, of course, to ensure that financial
reporting provides this information. But this should not lead to flushing all the associated costs -- and
maybe a little extra - through the financial statements.

Creative Acquisition Accounting

Let me turn now to the second giuunick.

In recent years, whole industries have been remade through consolidations, acquisitions and spin-offs.
Some acquirers, particularly those using stock as an acquisition currency, have used this environment as
an opportunity to engage in another form of "creative" accounting. I call it "merger magic."

I am not talking tonight about the pooling versus purchase problem. Some companies have no choice but
to use purchase accounting -- which can result in lower future earnings. But that's a result some
companies are unwilling to tolerate.

So what do they do? They classify an ever-growing portion of the acquisition price as "in-process"
Research and Development, so -- you guessed it -- the amount can be written off in a "one-time" charge
removing any future earnings drag. Equally troubling is the creation of large liabilities for future
operating expenses to protect future earnings - all under the mask of an acquisition.

EC DOWN

EXH 011-01025


=============
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=============

Miscellaneous "Cookie jar Reserves"

A third illusion played by some companies is using; unrealistic assumptions to estimate liabilities for such
items as sales returns, loan losses or warranty costs. In doing so, they stash accruals in cookie jars during
the good times and reach into them when needed in the bad times.

I'm reminded of one U.S. company who took a large. one-time loss to earnings to reimburse franchisees for
equipment. That equipment, however, which included literally the kitchen sink, had yet to be bought.
And, at the same time, they announced that future earnings would grow an impressive 15 percent per
year.

"Materiality"
Let me turn now to the fourth gimmick - the abuse of materiality - a word that captures the attention of
both attorneys and accountants. Materiality is another way we build flexibility into financial reporting.
Using the logic of diminishing returns, some items may be so insignificant that they are not worth
measuring and reporting with exact precision.

But some companies misuse the concept of materiality. They intentionally record errors within a defined
percentage ceiling. They then try to excuse that fib by arguing that the effect on the bottom line is too
small to matter. If that's the case, why do they work so hard to create these errors? Maybe because the
effect cart matter, especially if it picks up that last penny of the consensus estimate. When either
management or the outside auditors are questioned about these clear violations of GAAP, they answer
sheepishly, "It doesn't matter. It's immaterial."

lit markets where missing an eansiiigs projection by a penny can result in a loss of millions of dollars in
market capitalization, I have a hard time accepting that some of these so-called non-events Simply don't
matter.

Revenue Recognition

Lastly, companies try to boost earnings by manipulating the recognition of revenue. Think about a bottle
of fine wine. You wouldn't pop the cork on that bottle before it was ready. But some companies are
doing this with their revenue - recognizing it before a sale is complete, before the product is delivered to
a customer, or at a time when the customer still has options to terminate, void. or delay the Sale.

ACTION PLAN

Since U.S. capital market supremacy is based on the reliability and transparency of financial statements,
this is a financial community problem that calls for timely financial community action.

Therefore, I am calling for immediate and coordinated action: technical rule changes by the regulators
and standard setters to improve the transparency of financial statements; enhanced oversight of the
financial reporting process by those entrusted as the shareholders' guardians; and nothing less than a
fundamental cultural change on the part of corporate Management as well as the whole financial
community.

This action plan represents a cooperative public..private sector effort. It is essential that we work together
to assure credibility and transparency. Our nine point program calls for both regulators and the
regulated to not only maintain, but increase. public confidence which has made our markets the envy of
the world. I believe this problem calls for immediate action that includes the following specific steps

EC 000050991

EXH 011-01026


=============
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=============

Improving the Accounting Framework

First, I have instructed the SEC staff to require well-detailed disclosures about the impact of changes in
accounting ussurnplions. This should include a supplement to the financial statement showing beginning
and ending balances as well as activity in between, including any adjustments. This will, I believe, enable
the market to better understand the nahire and effects of the restructuring liabilities and other loss
accruals.

Second, we ate challenging the profession, through the AICPA, to clarify the ground rules for auditing of
purchased R&D. We also are requesting that they augment existing guidance on restructurings, large
acquisition write-offs, and revenue recognition practices- It's bone for the accounting profession to better
qualify for auditors what's acceptable and what's not.

Third, I reject the notion that the concept of materiality can be used to excuse deliberate misstatements of
performance. I know of one Fortune 500 company who had recorded a significant accounting error, and
whose auditors told them so. But they still used a materiality ceiling of six percent earnings to justify the.
error. I have asked the SEC staff to focus on this problem and publish guidance that emphasizes the
need to consider qualitative, not just quantitative factors of earnings. Materiality is not a bright line cutoff
of three or five percent. It requires consideration of all relevant factors that could impact air investor's
decision.

Fourth, SEC staff will immediately consider interpretive accounting guidance on the do's and don'ts of
revenue recognition. The staff will also determine whether recently published standards for the software
industry can be applied to other service companies.

Fifth, I am asking private sector standard setters to take action where current standards and guidance are
inadequate. I encourage a prompt resolution of the EASB's projects, currently underway, that should
bring greater clarity to the definition of a liability.

Sixth, the SEC's review and enforcement teams will reinforce these regulatory initiatives. We will
formally target reviews of public companies that announce restructuring liability reserves, major
write-offs or other practices that appear to manage earnings. Likewise, our enforcement team will
continue to root out and aggressively act on abuses of the financial reporting process.

Improved Outside Auditing in the Financial Reporting Process

Seventh, I don't think it should surprise anyone here that recent headlines of accounting failures have led
some people to question the thoroughness of audits. I need not remind audiiois they are the public's
watchdog in the financial reporting process. We rely on auditors to put something like the good
housekeeping seal of approval on the information investors receive. The integrity of that information
must take priority over a desire for cost efficiencies or competitive advantage in the audit process- High
quality auditing requires well-(shied, well-focused and well-supervised auditors.

As I look at some of the failures today, I can't help but wonder if the staff in the trenches of the profession
have the training and supervision they need to ensure that audits are being done right. We cannot permit
thorough audits to be sacrificed for re-engineered approaches that are efficient, but less effective. I have
just proposed that the Public Oversight Board form a group of all the major constituencies to review the
way audits are performed and assess the impact of recent trends on the public interest.

Strengthening the Audit Committee Process

EC 000050992

EXH 011-01027


=============
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=============

And, finally, qualified, corn mifted, independent and tough- minded audit conunit[ees represent the most
reliable guardians of the public interest. Sadly, stories abound of audit committees whose members lack
expertisee in the basic principles of financial reporting as well as the mandate to ask probing questions. In
fact, I've heard of one audit committee that convenes only twice a year before the regular board meeting
for 15 minutes and whose duties are limited to a perfunctory presentation.

Compare that situation with the audit committee which incets twelve times a year before each board
meeting; where every member has a financial background; where there are no personal ties to the
chairman or the company; where they have their own advisers; where they ask tough questions of
management and outside auditors; and where, ultimately, the investor interest is being served.

The SEC stands ready to take appropriate action if that interest is not protected. But, a private sector
response that empowers audit committees and obviates the need for public sector dictates seems the
wisest choice. I am pleased to announce that the financial community has agreed to accept this challenge.
As part eight of this comprehensive effort to address earnings management, the New York Stock
Exchange and the National Association of Securities Dealers have agreed to sponsor a "blue- ribbon"
panel to be headed by John Whitehead, former Deputy Secretary of State arid retired senior partner of
Goldman, Sachs, and Ira Milistein, a lawyer and noted corporate governance expert. Within the next 90
days, this distinguished group will develop a series of far-ranging recommendations intended to
empower audit committees and function as the ultimate guardian of investor interests and corporateo
accountability. They are going to examine how we can get the right people to do the right things and ask
the right questions.

Need for a Cultural Change

Finally, I'm challenging corporate management and Wall Street to re-examine our current environment. I
believe we need to embrace nothing less than a cultural change. For corporate managers, remember, the
integrity of the numbers in the financial reporting system is directly related to the long-term interests of a
corporation, While the temptations are great, and the pressures strong, illusions in numbers are only that
- ephemeral, and ultimately self-destructive.

To Wall Street, I say, look beyond the latest quarter. Punish those who rely on deception, rather than the
practice of openness and transparency.

CONCLUSION
Some may conclude that this debate is nothing more than an argument over numbers and. legalistic terms.
I couldn't disagree more.

Numbers in the abstract are just that -- numbers. But relying on the numbers in a financial report arc
livelihoods, interests and ultimately, stories: a single mother who works two jobs so she can save enough
to give her kids a good education; a father who labored at the same company for his entire adult life and
now just wants to enjoy time with his grandchildren; a young couple who dreanis of starting their own
business. These are the stories of American investors.

Our mandate and our obligations are clear. W e must rededicate ourselves to a fundamental principle:
markets exist through the grace of investors.

Today, American markets enjoy the confidence of the world. I low many half-truths, and how much
accounting sleight-of-hand, will it take to tarnish that. faith?

EC 000050993

EXH 011-01028


=============
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=============

As a former businessman, [ experienced all kinds of markets, dealt with a variety of trends, fads, fears,
and irrational cxnberances_ I learned that some habits die hard. But, more than anything else, I learned
that progress doesn't happen overnight and it's not sustained through short nits or obfuscation. it's
induced, rather, by asking hard questions and accepting difficult answers.

For the sake of our markets; for the sake of a globa.tized economy which depends so much on the
reliability of America's financial system; for the sake of investors; and for the sake of a larger commitment
not only to each other, but to ourselves, T ask that we join together to reinforce the values that have
guided our capital markets to unparalleled supremacy. Together, through vigilance and trust, I know, we
can succeed.

Thank you.

01998 Arthur Andersen, All Rights Reserved.

EC O o 3994

EXH 011-01029


=============
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=============

'~ Agenda Item 3
  41
,

EXH011-01030


=============
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=============

Top Ten Kidnap Countries

r"
C)
0
4
a,

  Country Total Since 1997 Total Enron Presence
1991

Colombia	3808	887	E
Brazil	517	62	E
Pakistan	439	-	E
Philippines	445	56	E
Mexico	517	237	E
USA	194	23	E
Guatemala	169	8	E
Venezuela	105	24	E
India	88	7	E
Ecuador	53	-	- &.-~

1

EXH011-01031


=============
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=============

Demands

  Cash 92%

  Publicity 2%

  Release of Prisoners 2%

r" F-
  Welfare/other 4%
Q

EXH 011-01032


=============
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=============

Kidnaps of Foreign Nationals from 1992
Demands (US$ Equivalent)

C'1>
C=
0
0
C'
0
Ca

UP to 50,000

50,001-100,000

100,001-500,000

500,001-1,000,000

1,000,001-2,000,000

2,000,001-5,000,000

5,000,000+

0 10 20 30 40 50 60

3

EXH011-01033


=============
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=============

Kidnaps of Foreign Nationals from 1992
Payments (US$ Equivalent)

  I1

d
COP

EXH 011-01034

UP to 50,000

50,001-100,000

100,001-500,000

500,001-1,000,000

1,000,001-2,000,000

2,000,001-5,000,000

5,000,000+

0 5 10

15 20


=============
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=============

Aj
d
I
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4

Ending of Negotiations by % Since 1991

Release w/o

Payment
4%

Rescue

  27%

Released after

Payment
19%

Outcome Unknown

28%

Escape
4%

Death

18%

5

EXH011-01035


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=============

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Ending of Expatriate Kidnaps b y % Since 1991

Rescue
14%

Outcome Unknown
28%

  71.1

Released after
Payment
  49%

Escape
3%

Death
6%

6

EXH 011-01036


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=============

Legal Preparations
Commissioned Report of Kidnap Laws in High
Risk Countries

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  "Kidnap Legislation"
I Level of Threat
  I Relevant Legislation
  I Practical Applications
Brazil
  Colombia
Ecuador
Guatemala
Mexico
Venezuela
India
  Philippines

(April 1997)

EXH 011-01037


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=============

Organizational Preparation

Decision Making Authority, 0,o 7-e-

  Crisis Management Committee - (Kidnapping -- Extortion -- Death Threats)i~~

Objectives:
Minimize Death & Injuries
  Terminate incident as Quickly as Possible
Prevent Minor Incident From Becoming Major !
Return to Normal Operations Quickly ti

Kidnappings:
Safe Return of Victim

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Incident Management) ;Outside Consultan

Team

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EXH011-01038


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=============

Training Preparations
I Crisis Committee Simulations

t 20 January 1998
t 2 February 1996

I Crisis Committee Chairman Briefing Session

1 Scheduled (6 November 1998)

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0 Crisis Committee Chairman Alternate

I Briefing (5 May 1998)
a Background

I Former National Intelligence Officer for
Counterterrorism ~ --~-  9

EXH011-01039


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=============

Consciousness Raising &
Dissemination of Information

  I too.;

  Crisis Committee Chairman Memo to Country Managers
(22 June 1998)
  Scheduled Talk on Kidnappings at Management
Conference (18/19 November 1998)
  Expat Briefings (by Corporate Security)
International Bulletin (Weekly, 250 Addressees, by
Corporate Security)
  Briefing Books for Travelers (135, by Corporate Security)
Travel Security Briefings (Corporate Security)
  Avoiding Kidnapping & Hostage Survival Videos
(Consultant)

EXH 011-01040


=============
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=============

Insurance

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EXH 011-01041


=============
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=============

Agenda Item 4

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EXH 011-01042


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=============

S TROJAN NUCLEAR PLANT
  DECOMMISSIONING PROJECT 1998 FALL UPDATE

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EXH 011-01043


=============
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=============

  DECOMMISSIONING PERSPECTIVE

Industry
Trojan Was First Large (>1000MW) US Operating Reactor to Shutdown Early Based on
Economics

~- Question at that Time was When to Proceed with Decommissioning
y Economics Favored Early Decommissioning

Nuclear Regulation
r
y NRC Decommissioning Rule Did Not Exist at Shutdown. Was Effective August 28, 1996

Oregon Regulation
y Oregon Administrative Rules Related to Decommissioning Implemented June 28, 1994
y Rate Case UE-88 in 1995 Allowed 100% Recovery of Decommissioning Costs, 87% Recovery
of Investment

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EXH 011-01044


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=============

  TROJAN DECOMMISSIONING STRATEGY

Project Management
  r
  y PGE Would Project Manage the Decommissioning
f Area by Area Decommissioning Cost Estimate

r Detailed Work Breakdown Structure

  Project Management Infrastructure

Labor Costs
  Performance Incentives for Decommissioning Contractor and Employees
  f Special Labor Arrangements Permit Non-Skilled Labor to Perform Decommissioning
Activities

Radioactive Waste Disposal Costs
  Radioactive Waste Disposal Rates are Low and Fixed through 2001

Motivation and Retention
  i- Trojan Incentive Plan Tied to Key Decommissioning Milestones

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EXH 011-01045


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=============

Transition Period

Large Component
Removal Project

ISFSI
Implementation

Reactor Vessel
Removal Project

Decontamination
& Dismantlement

  Final Radiation
r M Survey
c)

C= Non-Contaminated
29 Building
C= Demolition

  DECOMMISSIONING SCHEDULE I

'zz~7~

EXH 011-01046

1992 1993 19941995 1996 1997 1998 1999 2000 2001 2002 2003 12018 2019 2020


=============
Page 59 of 123
=============

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2022
2021
2020
2019
-2018
2017
-2016
2015
2014
-2013
2012
-2011
-2010
2009
2008
2007
2006
-2005
2004
2003
2002
2001
2000
-1999
1998
-1997
1996
1995
-1994
1993

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=============

  DECOMMISSIONING POTENTIAL COST INCREASES

ISFSI Loading Delayed Due to Protracted Regulatory Approvals or Fabrication Delays

  Potential Increase: $8-10 Million per Year
Expedite Resolution of Regulatory Issues
Provide Close Oversight of Fabricators

  Award Basket Fabrication to Multiple Vendors
  Implementation of Modular Spent Fuel Cooling System Facilities Acceleration of

Additional Decommissioning Activities

Reactor Vessel And Internal Removal Project is Delayed or Disapproved

  Potential Increase: $1-15 Million

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  Expedite Resolution of Regulatory Issues

  Maintain Containment Building Activities Off of the Decommissioning Project
Critical Path. If Segmentation Is Required, Contract Award and Fabrication of
Tooling Must Commence In Early 1999

EXH 011-01048


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=============

cam-'

  DECOMMISSIONING POTENTIAL COST INCREASES

Spent Fuel On-Site Beyond 2018 Due to USDOE Delays
i Potential Increase: $3-5 Million Per Year

  Support High Level Waste Legislation Reform
  Prompt USDOE to Provide Priority Acceptance of Spent Fuel From Permanently
Shutdown Reactors

  Pursue Litigation/Settlement with USDOE to Compensate PGE for Increased Costs
y Seek Rate Recovery if Costs are Not Recovered From USDOE

Radwaste Disposal Costs Escalate

  Potential Increase: $1-5 Million

  Current Prompt Decon Strategy Disposes of Radwaste While Rates are Low and Rate
Increases are Regulated
  Mitigate Impact by Improving Waste Package Density, Volume Reduction and Material
Decontamination

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MARSSIM Final Termination Survey Technical Debate Slows Survey Process

A- Potential increase: $1-5 Million

  Delay Surveys to End of Project
Seek NEI Support to Resolve Issues

EXH 011-01049


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=============

cam'

  DECOMMISSIONING POTENTIAL COST DECREASES

ISFSI Operating Costs Lower Than Estimated
  > Potential Savings: $1 Million Per Year for up to 20 Years
> May be Offset by DOE Delay in Accepting Fuel

Embedded Pipe Decontaminated and Not Physically Removed

  Potential Savings: $1-40 Million
> Due to Change to Dose Pathways Site Release Criteria

Non-Radiological Decontamination Less Expensive than Budget

  Potential Savings: $1-8 Million
  Due to Change to Dose Pathways Site Release Criteria

Building Demolition Costs Less than Projected

  Potential Savings: $1-6 Minion
  More Efficient Demolition Techniques Employed

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EXH011-01050


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=============

REACTOR VESSEL AND INTERNALS REMOVAL PROJECT
STRATEGY

Radiation Exposures Reduction
  Occupational Workers 56%
Transportation Workers 92%
Burial Site Workers 96%
General Public 96%

Increased Transportation Safety by Reducing Shipments From 50 Unrestricted Truck
Shipments to I Controlled Barge/Land Shipment

Reduces Risk of Cutting Operations 1) Personnel Contaminations, 2) Airborne Problems,
3) Generation of Radioactive Wastes and 4) Plant Cleanup Concerns

Reduces Costs by $15 Million

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Removes Concern of Long Term Storage of Greater Than Class C (GTCC) Waste; Eliminates
GTCC Waste Disposal Costs

Capitalizes on Similarity of Large Component Removal (LCR) Project ~.

EXH011-01051


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=============

REACTOR VESSEL AND INTERNALS REMOVAL PROJECT
RISKS

Project Approval Delayed; Legal Challenges Impact Project

31- Use Multiple Shifts, Overtime, Parallel Activities to Recover Delay Time

Unable to Meet August 1999 Shipment Date

y Store Reactor Vessel Outside of Containment Building to Allow Dismantlement and
Decontamination of Refueling Cavity and Refueling Water Storage Tank. Make Reactor
Vessel Shipment In July 2000,

Project Disapproved by Washington Department of Health, Oregon Office of Energy or Nuclear
Regulatory Commission

J1_ Determine Basis of Disapproval and Revise Project Approach or Provide Additional
Information

y Proceed With Alternative Cutting Up of Reactor Vessel Internals, One Piece Disposal of
Reactor Vessel and Storage of Greater Than Class C Waste On-Site

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EXH 011-01052


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=============

INDEPENDENT SPENT FUEL STORAGE INSTALLATION
(ISFSI) STRATEGY

Provide Lowest Fuel Management Costs Until USDOE Accepts Spent Fuel for Repository

  "Dual Purpose System"- Licensed for Storage & Transportation (Unique). Fuel is
Packaged and Licensed for Shipment

  Capital Investment Offset by Lower Dry Storage O&M (Approximate Differential $6
Million Per Year)

Protect PGE Against Further Delays in USDOE Geologic Repository Development

Allows Full-Scale Dismantlement and Decontamination

System Has No Moving Parts

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EXH011-01053


=============
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=============

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  INDEPENDENT SPENT FUEL STORAGE INSTALLATION
I (ISFSI) RISKS

BNFL Fuel Solutions Does Not Perform Satisfactorily
PGE Provides Management and Direction
BFS Forfeits Incentives

  BFS Breech of Contract; PGE Continues Project With Own Resources

ISFSI Approval Delayed Past April, 1999
  Continue Remaining Decommissioning Work In Fuel Building
Expedite NRC!State Project Approval

Fabrication Delays Impact Fuel Loading Operations
t Utilize Two Basket Fabricators

  Provide Full Time In-Shop PGE Engineering and QC Oversight

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EXH 011-01054


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=============

cam-'

INDEPENDENT SPENT FUEL STORAGE INSTALLATION
(1SFSI) RISK (Contd)

State of Oregon Does Not Permit Prompt Decommissioning of Spent Fuel Pool Due to NRC Delays
in Review and Approval of Part 71 Transportation Application

  Continue Remaining Decontamination Work
  Expedite NRC Approvals of Transportation Certificate of Compliance

NRC Requires Ultrasonic Inspection of Basket Closure Welds vs. Surface Inspection
r Trojan Would Develop UT Inspection Technology Prior to Use

Fuel Loading Delays Experienced
  Minimized through Readiness Reviews, Pre-Operational Test Program
Potential Reduced by Lessons Learned Program, Site Visits to Other Plants

r All Critical Equipment Has Redundancy
  Increase Resources (Crew Size, Number of Crews)

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EXH011-01055


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=============

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  TROJAN NUCLEAR PLANT
DECOMMISSIONING INTRODUCTION

EXH 011-01056


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=============

  TROJAN

Plant Owners
  i Portland General Electric (67.5%)
30. Eugene Water and Electric Board (30%).

  Pacific Power and Light Company (2.5%)
t BPA has Joint Billing Agreement with EWEB for Its Ownership Share

Location: 634 Acres including industrial Areas, Recreational Park and Office Buildings
Adjacent to the Columbia River, 42 Mites North of Portland

Size: 1130 Mwe (Net)
Type: 4-Loop Westinghouse PWR 3423 MW (th)
History

	Construction Start:
	Received Operating License:
	Initial Criticality:
	y Commercial Operation:
	Permanent Shutdown:
	Possession Only License
cs	
o	Cons
C=	Electrical Generation : $83.5 Billion KWh
	

February 1970
November 1975

December 1975

May 1976
January 1993
May 1993

EXH 011-01057


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=============

  TROJAN (Contd)

Reason for Premature Retirement:

  Least Cost Planning Process Conducted in 1990 and 1992
Plentiful, Low-Cost Natural Gas Supplies
  A Regional Surplus of Inexpensive Hydroelectric Power
Reduced Expectations of Plant Reliability
  Escalating Steam Generator Inspection and Repair Costs
  Regulatory Uncertainty Regarding the Safety of the Steam Generators

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EXH011-01058


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=============

  DECOMMISSIONING REQUIREMENTS

DECOMMISSIONING is the Removal of Radioactivity to a Level that Permits Release of the
Property for Unrestricted Use and Termination of the License

DECON Is the Prompt Removal or Decontamination of Facilities to a Level that Permits Release for
Unrestricted Use Shortly After Cessation of Operations

SAFSTOR is Where the Facility Is Placed and Maintained in a Dormant Condition and
Decontamination and Dismantlement is Deferred up to Sixty Years

PGE Selected the DECON Alternative due to:

  Lower NPV Cost ($435 Million vs. $490 Million for "Wet SAFSTOR 2018")
~- Reduced Risk to Escalations in Radioactive Waste Disposal Costs or Future Unavailability
of a Disposal Site
  Minimizes the Duration of Low-Level Radioactive Waste at the Site

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PGE Selection of DECON Alternative Reviewed and Approved by the Oregon Office of Energy

PGE Selection of DECON has been Reviewed by the Nuclear Regulatory Commission per
Approval of the Trojan Decommissioning Plan

EXH011-01059


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=============

cam-'

Transition Period

Large Component
Removal Project

ISFSI
Implementation

Reactor Vessel
Removal Project

Decontamination
& Dismantlement

rn	Final Radiation
	Survey
C=
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0
c	
Non-Contaminated
	Building
CA	Demolition

  DECOMMISSIONING SCHEDULE

EXH 011-01060

1992 1993 19941995 1996 1997 1998 1999 2000 2001 2002 2003 ~ 2018 2019 2020


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Page 73 of 123
=============

  DECOMMISSIONING STATUS

Licensing
Decommissioning Plan (D-Plan) Approved by NRC and Oregon Office of Energy
= Post Operating License (POL) Issued by NRC
  Permanently Defueled Technical Specifications (POTS) Issued by NRC

  RVAIR Project NRC Approval Expected in October 1998
ISFSI Part 72 License Expected in April 1999

= State Rulemaking in Progress for Site License Termination Criteria
Site Termination Survey Plan Being Reviewed by NRC
  License Change Amendments to Reflect Fuel in Dry Storage Submitted to NRC
License Termination Scheduled for 2002
Activities
Steam Generators, Pressurizer, RCS Piping and Pumps Removed

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Y Completed All RVAIR Project Field Activities Supporting Grouting
= ISFSI Components On-Site November 1998 to Support Pre-Operational Testing
= Spent Fuel Pool Cooling by Modular Air Cooled System
= Equipment Removal 65% Complete
Commenced Embedded Pipe Remediation
~- Preparing for Surface Decontamination Phase

EXH 011-01061


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=============

cam-'

  DECOMMISSIONING TRUST FUND

> Trojan Co-Owners Separately Collect and Maintain Funds for the Decommissioning of the
Plant

> T
  Trust Fund per 10CFR50.75. BPA, as a Governmental Agency, Self-Guarantees their
Decommissioning Funds and Pays Expenses on an On-Going Basis

  Per 1995 PUC Order Related to the 1993 General Rate Request the Company is Authorized to
Collect $14M Annually Through 2011 from Customers for Decommissioning Costs

  Because Trojan was Shutdown Prematurely, the Trust Funds Currently Contain only a Portion
of the Total Amount Needed for Prompt Decommissioning

21- Prior to Commencing DECON, Each Co-Owner Must Secure a Financial Assurance Mechanism,
and it Must be Maintained Until Termination of the Part 50 License

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> Co-Owner's Trust Fund Balance is Projected to be Reduced to a Point Where it will be
C Necessary to Provide Bridging Funds to Complete Activities

EXH 011-01062


=============
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=============

DECOMMISSIONING COST ESTIMATE
(1997 Dollars - PGE SHARE)

Radiological Decommissioning
  Large Component Removal $12,095,143
RX Vessel & Internals Removal $17,480,961
Building Decontamination

  Containment $ 8,149,230
Fuel/Auxiliary Building $14,148,300
Outside Structures $ 1,2119,111
LLRW Disposal $19,724,105
Staff $35,126,249
Corporate Overheads $21,939,946
Materials/Services/PI ant Mods $17,581,905
Site Termination Survey $12,770,015
$160,2114,965

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EXH 011-01063


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=============

  DECOMMISSIONING COST ESTIMATE

  Dry Fuel Storage
  1SFSI Project $37,173,794
1SFSi Operations $47,211,248
ISFSI Decommissioning $ 5~, ;300874
  $89,685,916

Non-Radloloqical Decommissionin

  Remediatlon $ 9,579,1 17
Building Demolition $23,700,859
Materials $ 363,392
Staff $ 2,381,476
  $36,024,843

Finance
Letter of Credit $ 496,000
Bridge Loan $11,169,000

c $11,665,000

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EXH 011-01064


=============
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=============

  v

Quantities of Radwaste Activity (Ci)
y Structures 0.031
  Systems 1070.52
Activation 4,200,000.0

Projected Radiation Exposure Person-Rem1
y Steam Generators 138
  Reactor Vessel and Internals 50
y Dismantlement 336
y Fuel Management 9
  Fuel Transfer to ISFSI 58
~- Total 591

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Volume (Cf1
22,502
19,220
10,374

EXH 011-01065


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=============

  I
SITE RADIOLOGICAL RELEASE CRITERIA

Current Site Release Criteria
  Surface Contamination: 5000 dpmll00cm2 (RG1.86)

  Direct Radiation:

  Soil/Groundwater:

5 MicroRem1Hr above Background
<15 mRemlYr

Proposed Site Release Criteria

  Restrict Dose to an Average Member of the Public Following Unrestricted Release of a
Site to a Maximum Total Effective Dose Equivalent (TEDE) Limit of 25 Mrem Per Year for
Residual Radioactivity that is Distinguishable from (Natural and Anthropogenic)

Background.

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EXH 011-01066


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=============

REACTOR VESSEL AND INTERNALS REMOVAL PROJECT
OVERVIEW AND ALTERNATIVES

Shipment of Reactor Vessel with Internals Installed

  Prepare as Own Shipping Package
Remove from Containment

  Transport from Trojan to the US Ecology Facility

}- Disposal at US Ecology Disposal Site

Alternatives

  Segment Reactor Vessel Internals
  Storage of Highly Activated Material in ISFSI
Shipment of Remainder for Disposal
Y Whole or Segmented Removal of Reactor Vessel for Disposal

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EXH 011-01067


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=============

REACTOR VESSEL AND INTERNALS REMOVAL PROJECT
STRATEGY

Radiation Exposures Reduction

  Occupational Workers 56%
- Transportation Workers 92%
r Burial Site Workers 96%
r General Public 96%

Increased Transportation Safety by Reducing Shipments From 50 Unrestricted Truck
Shipments to One Controlled Barge/Land Shipment

Reduces Risk of Cutting Operations 1) Personnel Contaminations, 2) Airborne Problems,
3) Generation of Radioactive Wastes and 4) Plant Cleanup Concerns

Reduces Costs by $15 Million

  Removes Concern of Long Term Storage of Greater Than Class C (GTCC) Waste; Eliminates
GTCC Waste Disposal Costs

C
Q
  Capitalizes on Similarity of Large Component Removal (LCR) Project
W
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EXH 011-01068


=============
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=============

STATUS

Licensing
Submitted Safety Analysis Report and License Application to NRC
f Responded to Requests for Additional Information (RAIs)

  Submitted Revised Safety Analysis Report (SAR) to NRC

  Staff Position Paper Submitted to Commissioners Oct 05, 1998

]I- 10 Day Review Period

  Transportation Safety Plan Submitted to Oregon Office of Energy (OOE)
Decommissioning Plan Change Reflecting RVAIR Submitted to OOE
  V.- EFSC Vote Expected Oct 16, 1998
Submitted Exemption Request to US DOT

r Radiological Dose Pathways Analysis Submitted to Wash Dept of Health
  Y WDOH Technical Evaluation Report Written, Executive Approval Expected October 1998

Activities
All Major Contracts (Heavy Haul, Packaging, Large Pipe Cutting, Heavy Lift) Awarded
Containment Opening Enlarged

  Interior Concrete Cutting Completed

o CRDM Removed
  Barge Constructed and Launched
2 T Grouting Procedures Finalized

EXH 011-01069


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=============

REACTOR VESSEL AND INTERNALS REMOVAL PROJECT
RISK MITIGATION

Engineering Analysis Will Also Support One Piece Reactor Vessel Shipment Without Internals

Grouting of Reactor Vessel Will Only Be Conducted After Receiving Regulatory Approvals

Option of Cutting Up the Reactor Vessel Always Maintained

All Major Contracts Allow PGE Termination Without Penalty

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EXH 011-01070


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=============

  v

Reactor Vessel
Height:
Diameter:

= Wall Thickness:
Penetrations:
Weight:

42'6"
17'1" at Head Flange
21'10" at Nozzles
5 318" 10 1/2"
148

633.6 Tons

Reactor Vessel Package
Welded Closures
  Filled with Low Density Cellular Concrete (LDCC)
I - 5" Shielding
  < 200 MR Contact, < 10 MR at 2 Meter

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= 950 Tons (w/o Impact Limiters)
r 8000 FT3
  Plastic Foam Impact Limiters
1020 Tons Fully Loaded

EXH 011-01071


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=============

CRDM
PENETRATIONS

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OUTL

NOZZ

FLANGE
MONITORING TUBES

2" THICK
SHIELD

INLET
`~ NOZZLES

5" THICK

SHIELD

INCORE
PENETRATIONS

'RATION

EXH 011-01072


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=============

  v

1998	
October	
Washington Dept of Health Approval of Burial	10104
= Oregon Energy Facility Siting Council Approval of DSAR	10116
Y Oregon EFSC Approval of Transportation Safety Plan	10116
= NRC Staff Recommendation of Transportation	10114
= NRC Issue Approval in Federal Register	10128
= PGE Review and Approval of Transportation Procedures	10122

November

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} Install and Tension RV Head Studs	11102
= Drain Water from Reactor Vessel	11109
Y US DOT Approval of Exemption Request	11116
= Complete Erection of LDCC Grout Plant and Grout Chiller	11123
= Mobilize RV Nozzle Cutting Contractor	11130
December	
= Complete Grouting of RV	12110
= Complete Cutting RV Nozzles	12121

EXH 011-01073


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=============

REACTOR VESSEL AND INTERNALS REMOVAL PROJECT
SCHEDULE (Contd)

1999
January
  Mobilize RV Package Prep Contractor 01103
r Start Welding of Reactor Vessel Closure Plates 01104
Mobilize Heavy Lift Contractor 01111
  f Commence Barge Slip Dredging 01115

February

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  Commence Fabrication of Cradle Assembly 02/01
Complete Barge Slip Preparations 02128
March
  ~- Install Down Ender, Rails and Tall Tower Lift Device 03111
Begin Reactor Vessel Lift 03129
Commence Installation of Reactor Vessel Shielding 03129
April
  Complete Down Ending of Reactor Vessel 04128
May
  Commence US Ecology Burial Trench Excavation 05110

EXH 011-01074


=============
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=============

  v

  9(

1999
June

Complete Closures and Shielding of RV	06103
Transporter and Haul Route Load Test	06103
Decontaminate and Coat Reactor Vessel	06107
RV Lowered on Transporter	06/17
Complete US Ecology Burial Trench Construction	06121
July	
} Complete Installation of Reactor Vessel Tie-Downs	07112
> Washington DOH Approval of Burial Site	07128
Transport RV to Barge Slip, Load on Barge	07129
> Transport RPV to US Ecology	07131
August	
> Place RV in Burial Trench	08105

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EXH 011-01075


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=============

INDEPENDENT SPENT FUEL INSTALLATION (ISFSI)
PROJECT BACKGROUND AND OBJECTIVES

Dry Fuel Storage System

Y Dual-Purpose (Storage and Transportation) System Chosen for Trojan

  Allows for Ultimate Removal of Spent Nuclear Fuel from Trojan Without the Need to
Return to Spent Fuel Pool and with no Further Handling of Fuel

Objectives

- Safely Store Trojan Spent Fuel
> Facilitate Decommissioning
> Align with DOE Fuel Strategy (MPG)
y Minimize Trojan O&M
  Prepare Trojan Spent Fuel for DOE Acceptance

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EXH 011-01076


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=============

INDEPENDENT SPENT FUEL STORAGE INSTALLATION
(ISFSI) STRATEGY

Provide Lowest Fuel Management Costs Until USDOE Accepts Spent Fuel for Repository

  "Dual Purpose System"-Licensed for Storage and Transportation (Unique). Fuel is
Packaged and Licensed for Shipment

  Capital Investment Offset by Lower Dry Storage O&M (Approximate Differential
$6 Million Per Year)

Protect PGE Against Further Delays in USDOE Geologic Repository Development

Allows Full-Scale Dismantlement and Decontamination

System Has No Moving Parts

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EXH 011-01077


=============
Page 90 of 123
=============

INDEPENDENT SPENT FUEL STORAGE INSTALLATION
(ISFSI) STATUS

Licensing
Submitted Safety Analysis Report and License Application to NRC
Responded to Is' & 2nd Requests for Additional Information (RAls)
Submitted Revised Safety Analysis Report (SAR) to NRC
  NRC Technical Review Concluded

  Safety Evaluation Report Expected Approval by April 7999

Activities
> Steam Reforming and Fuel Debris Capsule Loading Completed
  Spent Fuel Pool Fuel Inspections Completed
> Concrete Storage Pad & Access Road Constructed

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  Transfer Stations Constructed
Security Fences and Systems Installed
Procedure Drafts Completed
  Vacuum Drying Equipment On-Site
Robotic Weld Equipment On-Site
Selected ISFSI Staff Specialists
  Impact Limiters Constructed and On-Site
Basket Prototype Constructed

EXH 011-01078


=============
Page 91 of 123
=============

cam-'

INDEPENDENT SPENT FUEL STORAGE INSTALLATION
(ISFSI) PROJECT RISK MITIGATION

BNFL Fuel Solutions Contract

  Design Engineering Fixed Price
y BNFL Assumes Full Cost of Transportation License
Fixes the Price of the Metal Baskets

  Equally Shares Costs Associated With Design Changes Occurring During Fabrication
Allows PGE Cancellation Without Penalty
  Allows Takeback of Workscope Without Penalty
Allows Lease Not Purchase of Transportation System
Has Long Term (50Years) Warranty
~- Allows PGE to Have All Design Documents to Complete Project if BNFL is Unable to
Perform

  Requires BNFL to Maintain Part 71 License
Phased Authorization of Project Activities

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EXH 011-01079


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Page 92 of 123
=============

  v

Transfer Cask
  Loaded (wet wlfuel) 105 tons
Height 16 feet
Width 9.5 feet

Basket

  Loaded (wet w/fuel) 43 tons
Height 15 feet
T Width 5.5 feet

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Concrete Cask
  t Loaded (wet w/fuel) 145 tons
Height 17.5 feet
Width 11 feet

Storage Pad 170 feet x 105 feet

EXH011-01080


=============
Page 93 of 123
=============

INDEPENDENT SPENT FUEL STORAGE INSTALLATION (ISFSI)
CONCRETE CASKS

rtacr I Ir.

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INNER CAST
LSNEE

ArR PAD CHARNEL

AIR OUTLET

BASKET

AIR INLET

EXH011-01081


=============
Page 94 of 123
=============

a F .10/

  v

1998	
October	
- OOE Issues Staff Report and Public Notice	10104
= Award Initial Basket Fabrication Purchase Order	10105
> Commence Fabrication of Overpack	10105
r Failed Fuel Cans Released for Fabrication	10109
> Basket Prototype Shipped from Hi Tech	10115
= OOE Conducts Public Workshop	10128
= Commence Construction of 1111 Concrete Cask	
10/29	
= Installation of Impact Limiters Completed	10/29
November	

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  = Transfer Cask and Yoke On-Site 11105
NRC Design Review Complete, Start Safety Evaluation Report 11112
All Auxiliary Equipment On-Site 11/12
  > Commence Pre-Op Component Testing 11/15
Complete Cure of 151 Concrete Cask 11128
December
  OOE Hearing on ISFSI Rule 12114

EXH 011-01082


=============
Page 95 of 123
=============

  a (Z

  v

1999	
January	
Y Weld Procedures and Equipment Available	01102
Complete ISFS1 Readiness Audit	01104
Commence tat Basket Fabrication	01120
EFSC Vote on Rulemaking	01125
Complete Pre-Op Test Runs	01125
February	
10- BNFL Complete and Submit Drop Test Report to NRC	02109
March	
Y NRC Part 72 License Issues	03103
State Rulemaking Complete	03104
~- Commence NRC Pre-Op Test Program	03129

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April
  First Basket On-Site 04101
Implement ISFSI Security System, Start 24 Hour Coverage 04107
>- Commence Fuel Loading 04/12

EXH011-01083


=============
Page 96 of 123
=============

OVERVIEW OF THE STATUS OF THE DECOMMISSIONING
OF THE
  TROJAN NUCLEAR PLANT

Strictly Private and Confidential

  Attached is an Executive Summary (Summary) overviewing a meeting held on July 8,
1998 among representatives of Enron and Portland General Electric Company during which
the decommissioning of the Trojan Nuclear Plant was critically reviewed and discussed.

  The Summary and the documents referenced therein were prepared at the request and
under the direction of counsel, arc confidential and proprietary in nature, and are afforded
protections tinder the attorney-client privilege. In order to maintain the confidential and
privileged nature of the Summary and referenced documents, please do not copy, disseminate
or discuss the Summary with any other person.

  Please review the Summary prior to the meeting of the Audit Committee. An overview
of the Summary and other current aspects of the decommissioning will be presented during
the meeting.

EC 000051049

EXH 011-01084


=============
Page 97 of 123
=============

Personal & Confiidential
Subject to the Attorney-Client Privilege

  TROJAN NUCLEAR PLANT
ACTION PLAN AND UPDATE TO FINAL HGP, INC. REPORT

EXECUTIVE SUMMARY
(July 8, 1998)

  erv'ew

  On July 8, 1998, representatives of Enron Corp. ("Enron") and its subsidiary, Portland
General Electric Company (PGE"), met in Portland, Oregon to discuss the Final Report issued
on March 17, 1998 by HOP, Inc. ("HGP Report"), covering HGP's engagement by Enron to
critically review the status of the decommissioning of the Trojan Nuclear Plant ("TNP") from the
period July 19, 1996 through October 22, 1997.

  Enron had initially engaged HGP to conduct a thorough due diligence review of TNP in
conjunction with the merger between Enron and Portland General Corporation which was
consummated effective July 1, 1997, As a result of that engagement, HGP issued a
"Preliminary Due Diligence Report" on July 19, 1996. The HGP Report serves as an update and
supplement to HGP's preliminary report.

The following persons attended the meeting in Portland:

Al Alexanderson Peggy Fowler Walt Pollock
Jim Derrick Ken Harrison Steve Quennoz
Robert Eickenroht Doug Nichols Jack Urquhart

Presentation of the Reports

  Walt Pollock and Steve Quennoz presented a detailed review of the status of the
decommissioning of TNP, including an update of the events which had occurred since HGP
completed its review on October 22, 1997 and issued the HGP Report. Their presentation
 included providing copies to each attendee of (I) a report prepared under their direction entitled
"HGP's Final Report - Enron/PGE Monitoring Project." dated July 7,1998 (the "Enron/PGE
Report"), and (ii) a report prepared by Arthur Anderson entitled "Project Management Review -
Trojan Nuclear Plant," dated May 1998 (the "AA Report"). Mr. Pollock and Mr. Quennoz
presented in detail the Enron/PGE Report, compared its findings to the HGP Report, and briefly
summarized the findings of Arthur Andersen in the AA Report. Following presentation of each
matter in the Enron/PGE Report, the attendees discussed the findings of the Reports and the
alternatives available to address the matters noted in such Reports.

  The AA Report had been commissioned by PGE to review the information, accounting,
financial and cost control procedures utilized by PGE in the decommissioning on an
independent basis to confirm or deny certain matters disclosed in the HGP Report.

Page 1 of 4

EC 000051050

EXH011-01085


=============
Page 98 of 123
=============

Personal & Contrdentrol
Subject to the Attorney-Client privilege

Summary of the Reports

  While reference is made to the Reports for a complete description of the matters covered
during the meeting, in summary the Enron/PGE Report and the AA Report reflected favorably on
the status of the decommissioning and covered five general areas:

 Facts or circumstances which had changed since the date of completion of HGP's
review of TNP, including the status of the Reactor Vessel and internals Removal
("RVAIR"), the Independent Spent Fuel Storage Installation ("1SFSI") and Sierra
Nuclear Corporation ("SNC").

 Differences in strategy surrounding choices which EnronIPGE had made with
respect to taking or omitting to take certain actions suggested by the HGP Report.
 The adoption of critical review, monitoring and oversight procedures for on-going
decommissioning activities.
 Procedures for enhanced communication to regulatory authorities, intervenors,
co-owners of TNP and the public, and documentation of same.
 Procedures for enhanced communication to senior Enron management, including
the Chairman, President, Enron Board of Directors and/or Audit Committee-

  In particular, Mr. Pollock and Mr. Quennoz confirmed the following matters during their
presentation:

The establishment of a single dedicated nuclear decommissioning executive (Steve
Quennoz, Site Executive) and the designation of senior Enron management to
oversee the decommissioning process.

2. With TNP management assistance, BNFL completed the acquisition of SNC in
April 1998, alleviating the questionable financial and quality control issues
surrounding SNC.

3. That the cask design for Trojan has been accepted by BNFL as the premier storage
design far spent nuclear fuel. BNFL is currently undertaking to correct deficiencies
previously encountered by SNC in the manufacture of casks of an earlier design.

4. The development of an area-by-area cost estimate and scheduling system
(including tracking, forecasting, scheduling, analysis and reporting) and specific
analysis of the effect of any delays in the decommissioning schedule on the
decommissioning budget. Integration of the cost and scheduling systems is
expected to be complete in August, 1998.

5. The curtailment of any efforts to utilize TNP personnel to market decommissioning
expertise to other Enron projects which would jeopardize the resources available for
decommissioning at TNP.

Page 2 of 4 EC 000051051

EXH 011-01086


=============
Page 99 of 123
=============

Personal & Confidential
Subject to the Attomey-Client Privilege

6. The decision to utilize Enron/PGE personnel for decommissioning in lieu of
subcontracting the decommissioning on a turnkey basis. Enron/PGE believes that it
currently has the expertise, resources and ultimate responsibility to conduct the
decommissioning of TNP. Subcontractors will continue to be utilized for selected
decommissioning activities.

7. The documentation of major risks and mitigation plans, including from a prudency
and third party exposure perspective. Extensive documentation (including both
decision making and technical/engineering) is available to support Enron/PGE
decommissioning activities from both a prudency and third party exposure
perspective, including its on-going activities and judgments made with respect to
RVAIR, ISFSI and SNC. The documentation process will be revised to develop
action plans on significant risk issues identified during monthly project status
meetings, with monitoring of their implementation. The Electric Power Research
Institute, an independent industry group with nuclear experience, also will conduct a
review of TNP during late 1998.

8. The conduct of on-going high level quarterly and annual reviews by Enron
management and the establishment of a process for inviting continuing criticism at
TNP aimed at improving the efficiency and safety of the decommissioning process.
These procedures will be employed In lieu of the Trojan Oversight Committee, which
had provided oversight of PGE decommissioning activities to Enron during the
pending Enron/PGC merger.

9, The extensive nature of communications to industry experts, government officials,
intervenors, co-owners of TNP and the public with respect to RVAIR, ISFSI, SNC
and the final closure plan, and the decision to pursue same on a multi-level (rather
than heavy-handed NRC) approach.

W. A detailed review of the Trust Fund established for the decommissioning has been
undertaken, including (i) an analysis being performed by Arthur Andersen to review
on an annual basis decommissioning cost estimates against Trust Fund deposits
and (Ii) an evaluation by Enron/PGE of the earned value of decommissioning
expenditures against the adequacy of funds in the Trust Fund. The Trust Fund is
also reviewed quarterly by Enron/PGE and audited annually by Arthur Andersen.

ifronal Recommendations

  In addition to those matters noted in the Enron/PGE Report, the following additional
recommendations were made and discussed at the meeting,

At least three times each year, senior Enron management and other Enron
representatives will meet with representatives of PGE on the status of the
decommissioning.

 On a semi-annual basis, Enron senior management from Portland will meet with the
Chairman and President of Enron to brief them on the status of TNP.

Page 3 of 4 EC 000051052

EXH 011-01087


=============
Page 100 of 123
=============

Personal & Confidential
Subject to the Attorney-Client Privilege

On an annual basis, Enron senior management from Portland will brief the Enron
Board of Directors and/or the Audit Committee on the status of TNP, with
presentation materials. All presentation materials will have legal review prior to
distribution of same-

 Enron/PGE will further define a set of measurable targets for the decommissioning,
including individual responsibility and timelines for implementation/performance.
Written contingency plans wilt be established for directing changes irti
implementation of certain major decommissioning activities (e.g., RVAIR and ISFSI),
and benchmarks wilt be established to define and measure the triggering events for
Implementation of such plans.
 Outside nuclear counsel for Enron will be updated on the status of the
decommissioning (including RVAIR, (SFSI and SNC) and he and/or Enron
management will orally inform HGP of the intended course of action with respect to
matters noted in the HGP Report and discussed at the meeting.

The meeting adjourned following reiteration of the preceding recommendations.

relcken m&alpge-nuke\rojan1 b. doe

EC 000051053

Page 4 of 4

EXH011-01088


=============
Page 101 of 123
=============

Agenda Items `

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EXH011-01089


=============
Page 102 of 123
=============

Capital Risk Management

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EXH011-01090


=============
Page 103 of 123
=============

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Agenda

  Objectives and Priorities
 Fair Value Merchant Portfolio Composition
Fair Value Merchant Portfolio Position Report
 Merchant Portfolio Process
  Risk Book Architecture

  Proposed Limit Structures
ENE Buy and Sell Bands
EOG Buy and Sell Bands

g9o

EXH011-01091


=============
Page 104 of 123
=============

Objectives and Priorities

Objectives:

- Transform Enron investments into a portfolio of liquid positions which
can be more actively managed and financed

Implications:

-- Merchant asset "risk books" with manageable exposures
- Daily mark-to-market of merchant assets
- Limit structures and risk management policy for merchant assets

Priorities:

- Current fair value assets by October Board meeting
 ECT Merchant Assets
   Selected International Assets
 Enron Stock Books
--- "Non strategic" assets by year end
 International Assets
   Tranches (carve outs) from regulated businesses

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EXH 011-01092


=============
Page 105 of 123
=============

Fair Value Merchant Portfolio Composition
As of 09/30/98:

Gross Fair Value Merchant Portfolio

Syndications
Net Fair Value Merchant Portfolio

Net Portfolio:
By Asset Class
(millions)

  $2.22 Billion

= <$0.55 Billion
= $1.67 Billion

Net Portfolio:

By Industry
(millions)

Cash from
Fledges: $$40

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EXH011-01093

  Enron Stock
  Books: $52 Cash: $40


=============
Page 106 of 123
=============

Fair Value Merchant Portfolio Position Report

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Fair Value Merchant Portfolio

Public-US	S 139,433,266	$ 9,174,878	$	(26,486,745) $	122,121,399
Privates - US	S 726,417,237	$ 26,541,982	$	(5,195,097) $	747,764,122
Public-Canada	$ 17,199,496	$ 97,082	$	(2,961,168) $	14,335.411
Public-UK	$ 1,756,772	$ -	$	(1,141,227) $	615,545
Privates-UK	$ 14,035,000	$ 13,700,674	$	688,000 $	28,423,674
Privates-Thailand	$ 12,028,710	$ -	$	- $	12,028,710
Public - Andean Pact/Southern Cone	$ 140,700,000	$ -	$	(12,440,000) $	128,260,000
Private-Andean PactSouthem Cone	$ 3,945,000	$ -	$	(1,136,000) $	2,809,000
Total Equity	$1,055,515,481	S 49,514,616	$	(48,672,236) $ 1,056,357,861
Hedges					
US E&P			$	34,749,294 $	34,749,294
S&P			$	2,694,117 $	2,694,117
Canadian E&P			$	526,653 $	526,653
UK			$	280,001 $	280,001
Andean Pact/Southern Cone			$	285,832 S	285,832
Currency			$	942,000 $	942,000
Total Hedges			$	39,477,897 S	39,477,897
Equity Portfolio Net of Fledges			$	(9,194,339) $ 1,095,835,758
Structured Credit	$ 516,539,027			$	516,539,027
Enron Stock Books			$	52,760.647 $	52.760,647
Total Fair Value Merchant Portfolio	$1,572,054,508	$ 49,514,61fi	$	43,566,308 $ 1,665,135,43

J

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EXH 011-01094


=============
Page 107 of 123
=============

Enron Corp.
Merchant Portfolio Process

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	Z ran C
MCiTB~D	Business Unfts			Bank Markets
	
Deal Approval	
tJo		
Liquidity	Capital
I Markets
Deal Price				Request Cash	
wlw

Business Units	- Approved
i
RAC Deal	
Yes
Merchant	
Merchant	
Syndication	

Funds
		Asset?	Portfolio	Desk	
Now Deal						Assets	Assets	i
								Private
		Prlcln				Cash	Liquidity	Placements
		t					Request	
		informa
ion						f
						
4		Insurance
						
! 10		Markets
						Treasury	
						
	- -
Books*	
Swaps		-----
 ---._. t _.._.~.	
Business Unit	RAC		Merchant Portfolio		
 Constructs the	 Investment Review and		 Strategic			

Deal	
Structuring Assistance		
Direction on of	Debt	EguLty	
 Builds the Initial	 Deal Anal cs
l~		Investments	--		
Valuation Model	 Prices Idiosyncratic		a Buy/Sell/Hold		
 Negotiates and	Risk		Decision		
Closes the Deal	 Obtain Prices From		 Deal		
	Capital Books		Restructuring		
	 Populate Capital Books		 Business Unit		
	 Transaction Approval		Approval		
	 Coordination of		 Monitoring		
	Management and		Asset		
	Board Approval		Performance		

  The Books will be responsible for the following:

  Execution, Curve Development and Maintenance, Risk Hook
Management, Market Views

y9o

EXH011-01095


=============
Page 108 of 123
=============

Risk Book Architecture

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Characteristics
  Merchant Portfolio
Quarterly revaluation
No market risk ' --- - ---"
Asset specific valve changes Systematic Risk Transfer

Characteristics
Daily MTM i
  Commodity Interest Rate Currency Equity
Net open positions
Basis risk --- '
  Necessary to
No new authorities establish new
authorities

  Credit
To be integrated with the
existing Trade Credit Portfolio;
reserves established

  `9
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EXH 011-01096


=============
Page 109 of 123
=============

Proposed Limit Structures

Merchant Portfolio:

- Total Notional Dollar Limit (after syndication)

 Current Exposure = $1.67 Billion
 Proposed Limit = $2.0 Billion

Equity Portfolio:

- Net Open Position and VAR limits

  Current Open Proposed Net Open
  Benchmark Position Position Limit V@R Limit
Enron Companies $ Notional $305 Million $300 Million $10 Million
Other $ Notional $150 Million $200 Million $10 Million

Trading Portfolios:

  - No changes

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EXH 011-01097


=============
Page 110 of 123
=============

ENE Buy and Sell Bands

	$70-	
	$60-	
		4
503
	$50	
x		
	$40	
W
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$30	
0
		Authorization Date
		1210"1
	S20-	
	$10-	

  Sell Target
  541
NE Pric
  401/4
Buy Target

1 1	1 1/,	1 1/ 1,	1/ 1	1 1  .	I// 1	./ 1 1	/ 1 1 /	1 ,	/ I I I I-
		1			CO		O	40	CO w
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* Beginning Band Prices Escalated at A S&P 500 times 13 ENE

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EXH011-01098


=============
Page 111 of 123
=============

EOG Buy and Sell Bands

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  $35
  130
$30 l

  $25
  Sell Target 21'l
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  IA OG Price
~ $15 AuthorIzation Date 12108197

  $10 s
$5

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* Beginning Band Prices Escalated at A E&P Basket times !3 EOG

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EXH011-01099


=============
Page 112 of 123
=============

Market Risk Update

October 12, 1998

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EXH011-01100


=============
Page 113 of 123
=============

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Table of Contents

C1 Objectives
a Risk Profile

a Limit Violations

o Policy Changes

2

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EXH011-01101


=============
Page 114 of 123
=============

Objectives

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U Provide overview of risk in the trading portfolios
o Inform the Board of any limit violations

o Summarize and discuss policy changes

o Provide opportunity to address policy issues

3

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EXH 011-01102


=============
Page 115 of 123
=============

Risk Profile

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YTD P&L - As of 9/25/98
($000y)

  200,000
  157,642
150,000

  100,000
50,000 0

  GAS
RoV@R 142%

[1=9169~4 TD $17,09 QTD = $60YTD = $502,202

127,895
  10],790
  73.830

POWER
92%

Average V@R - September `98
($000s)

  0
(5,000)
(10,000)
(15,000)

  M M 33,408
  7,637
EURO TRADING TREASURY (2) LIQUIDS EMG(1)
  53% - 28% 64%

Average V@R = $19,466,000

(14,160)
GAS POWER EURO TRADING TREASURY (2) LIQUIDS

(1) EMG includes Emission Credits, Coal Trading, Paper, and Weather. 4
(2) Treasury includes Financial Instruments (US Interest Rate, Foreign Currency. UK Interest Rate) and Securities Trading.

EMC, (1)

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EXH011-01103


=============
Page 116 of 123
=============

690190000 33

CA

  0

  a
5/9/97
5/22/97
6/5/97
6/18/97
7/x/97
1/16/97
7/29/97
8/11/97
8/22{41
9/5/97
9)19/97
1x/2/97
10/15/9/
10/18/97
11 /10/97
11,74/97
12/9/97
12/22/97
1/9/98
1123/98
7/x/98
2/25/98
3/12/98
4/Zr9fl
4/17/98
5/1/98
5/14/98
5/29/98
6/12/98
6/26/98
7/10/98
7/23/98
8/7/98
8/20/98
9/2/98
9/16/98

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Page 117 of 123
=============

Limit Violations

As of 9/34/98

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	VIOLA71ONS	MAX		A LL VSOW1OI'6 NO111CA110ir
Limas LailtMioant	1D	1D		CR0	COO	CEO	YC
GG-ENRON							
Position							
Maturity Gap							
VOR ($36,000,000)							
P&L Loss							
Daily (510,000000)	4	($19,434,000)		4	4	2	
5 DayRoling (${5,000.000)	a	($18,126,000)		2	3	2	
	7			7	7	4	
1VA GAS ('J							
Position 150 bcf							
Maturity Gap 180 bcf	1	(133)		1	I	I	
V O R (S2Q000,000)							
Daily Lass							
Daily ($5,000,000)	4	($14,647,000)		4	4	2	
5 Day RoUmg ($10,000,000)	5	($19,541,0W)		1	5	2	
	10			10	10	5	
NA POWER							
Position 25 MM MW}							
Maturity Gap 15 MM M WH							

-
V OR							
Dai1y Loss							
Daily ($5.000000)	5	($10,909,000)		5	5	1	
5 Day Rolling ($(0,000000)	5	($14,136,000)		5	z		
	10			10	6	1	
GLOBAL LIQUIDS							
(
Positiz 12.5 MM bbl							
Maturity Gap 15 MM bbl							
V @R ($8 000000)							
Daily Loss							
Daily ($5.000,000)							
5 Day Ra1ing (310, X LlX )							

(1) FC = "Finance Committee"
(2) The maturity gap violation occurred prior to the position limit increase (8/10/98 from 120 bcf to 180 bcj)
6

  y9
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EXH011-01105


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Page 118 of 123
=============

Limit Violations
As of 9/30/98

	VIOLATIONS	Nil	A LL VIOLATIONS NOU0CATION
Yg
Inndts UmltAnwwt	7D		CRO	GOD	t~0	Ica)
EUROPEAN GAS						
Position 45 bcf						
Mar-triy Cap W be f	2	51 bof	2			
V@R ($7.500.000)						
Daily Loss						
Daily ($5,000,000)						
5 Day Rolling (S 10,000,000)						
	2		2			
EUROPEAN POWER						
Poskion 10 MM MWH						
Maturity Cap 10 MM M WH						
V@R						
Daily Loss						
Daily ($5,000,000)	I	($7,405.000)	1	1		
5 Day Rolling ($ L0 000,000)						
	1		1	1		
EMERGING MARKETS (2						
300,P30 audits 115 MM Tans 1
Posaion
M						
150,000 Metic Tons I S LOO
M						
Maturity Cap						
V @R						
Daily Loss						
Daily t$5900,00 I)						
5 Day Robng (510,000,000)						
TREASURY						
Posiion -						
Maturity Gap -						
V@R -						
Daily Loss						
Daily ($S,000.OODy						
5 Day RtIIiig ($IQ000 X30)						
TOTAL	30		30	26	10	

rn
C,
0
c
a
0

(1) FC = "Finance Committee"
(2) Both maturity gap violations occurred prior to the maturity gap limit increase (8/10/98 from 30 bcf to 60 bcf)
7

y9
0

EXH 011-01106


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Page 119 of 123
=============

Policy Changes

0 Limit violations to Chairman of the Audit Committee

* Updates to the Audit Committee at all regular Board
meetings

U New commodities approved under interim policy

o Argentine Electricity
o Australian Electricity

CII

C"
0

8

y'Po

EXH 011-01107


=============
Page 120 of 123
=============

MINUTES
MEETING OF THE AUDIT AND COMPLIANCE COMMITTEE
OF THE BOARD OF DIRECTORS
ENRON CORP.
  October 12,1998

  Minutes of a meeting of the Audit and Compliance Committee
("Committee") of the Board of Directors of Enron Corp. ("Company"), noticed to
begin at 4:00 p.m., but actually begun at 4:15 p.m., C.D.T., on October 12, 1998,
at the Enron Building in Houston, Texas.

The following Committee members were present, constituting a quorum:

Dr. Robert K. Jaedicke, Chairman
Mr. Ronnie C. Chan
Mr. Joe H. Foy
Lord John Wakeham
Mr. Bruce G. Willison

  Committee member Dr. Wendy L. Gramm was absent from the meeting.
Directors Norman P. Blake, Jr., Ken L. Harrison, Kenneth L. Lay, Jeffrey K.
Skilling, and John A. Urquhart, Messrs. Brad Alford, Robert H. Butts. Richard B.
Buy, Richard A. Causey, James V. Derrick, Jr., Robert D. Eickenroht, Andre
LeGallo, Ted Murphy, Walter E. Pollock, and Stephen M. Quennoz, and
Mesdames Peggy Y. Fowler and Peggy B. Menchaca, all of the Company or
affiliates thereof, Messrs. Thomas H. Bauer, David Duncan, and D. Stephen
Goddard, all of Arthur Andersen LLP ("Arthur Andersen"), also attended the
meeting. Messrs. Blake, Harrison, LeGallo, Pollock. Skilling, and Quennoz and
Ms. Fowler joined the meeting in progress as noted below.

  The Chairman, Dr. Jaedicke, presided at the meeting, and the Secretary. Ms.
Menchaca, recorded the proceedings.

  Dr. Jaedicke called the meeting to order and noted that a draft of minutes of
the meeting of the Committee held on May 4, 1998, had been distributed to the
Committee members. He called for any corrections or additions. There being
none, upon motion duly made by Mr. Foy, seconded by Mr. Chan. and carried. the
minutes of the meeting of the Committee held on May 4, 1998. were approved as
distributed.

ECh015474433

EXH011-01108


=============
Page 121 of 123
=============

Mr. Duncan began the review of the 1998 financial and internal control
audits. He distributed a copy of Arthur Andersen's letter to the Company
confirming the arrangements for its services during 1998, a copy of which is filed
with the records of the meeting. He updated the Committee on the status of the
1998 business risk audit plan and highlighted current activities. Mr. Causey joined
in the report and discussed the extensive systems activities that were in process.
Mr. Bauer discussed the enhancements developed for remote location risk
assessment.

  Mr. Duncan reviewed significant current activities in the financial reporting
area. He discussed the status of monetizations, and Mr. Causcy noted that Enron
Capital Management expected a successful completion of its objective to have an
estimated $700 million monetized prior to year-end. Mr. Duncan also reviewed
start-up costs and related company activities, acquisition related activities,
continued evolution of mark-to-market and fair value accounting methodologies,
and recent Securities and Exchange Commission ("SEC") initiatives. He
distributed a copy of the speech given by Arthur Levitt, chairman of the SEC, on
September 28, 1998, a copy of which is filed with the records of the meeting. Mr.
Causey commented on the five earnings management practices referred to by Mr.
Levitt in his speech and how such comments related to the Company's reporting
practices.

  Messrs. Causey and Duncan discussed matters relating to 1998 Financial
Accounting, including a contract associated with the acquisition of Portland
General Electric Company. Messrs. Duncan and Goddard discussed the issue in
detail and Arthur Andersen representatives answered questions from the
Committee. A copy of Mr. Duncan's report is filed with the records of the
meeting.

  Messrs. Blake, Skilling. and LeGallo joined the meeting during the previous
discussion.

  Mr. Causey presented a review of the Company's crisis management
procedures. He noted the top ten countries in the world for kidnappings. the
demands made, and results of negotiations from 1992 to date in each of the
countries names. He discussed legal preparations, such as commissioning the
Report of Kidnap Laws in high-risk countries, and also outlined the organizational
and training preparations. He discussed the level of communication to country
managers in an effort to disseminate the information necessary to promote
awareness in each country where the Company had operating subsidiaries. He
reviewed insurance coverage. Messrs. LeGallo and Derrick joined in the

2

EChO15474434

EXH011-01109


=============
Page 122 of 123
=============

discussion and answered questions from the Committee members. A copy of Mr.
Causey's report is filed with the records of the meeting.

  Mr. LeGallo left the meeting following the crisis management report, and
Messrs. Alford, Harrison, Pollock, and Quennoz and Ms. Fowler joined the
meeting.

  Mr. Harrison presented an overview of the status of the decommissioning of
the Trojan Nuclear Plant ("Trojan") by PGE. He introduced Messrs. Alford.
Pollock, and Quennoz and Ms. Fowler and distributed two booklets related to the
decommissioning effort, copies of which are filed with the records of the meeting.
He called upon Mr. Pollock to begin the 1998 update. Mr. Pollock noted that
Trojan was the first large nuclear plant to shut down early due to economics. He
noted the state and federal regulations in effect at the time the plant was shut
down. He reviewed the decommissioning strategy developed by PGE and called
upon Mr. Quennoz to present the status of the decommissioning schedule.

  Mr. Quennoz reviewed the decommissioning schedule, which covered the
period 1992 through 2020. He reviewed expenditures and the estimated balance of
the Decommissioning Trust Fund at the end of the year. He discussed potential
cost increases and decreases. He explained the reactor vessel removal project
strategy and risks, and he discussed the independent spent fuel storage installation
strategy and risks. A thorough discussion ensued, and the PGE team answered
questions from the Committee members. Mr. Urquhart stated that he had
examined the program and had visited the project site. He noted that he intended
to return in November with Mr. Lawrence Izzo, president of Enron Engineering
and Construction Company. In response to a question by Mr. Lay. Messrs.
Harrison and Quennoz estimated a 70% chance of bringing the decommissioning
project to close within the budget outlined. Dr. Jaedicke noted that the status of
the project would be reported to the Committee on an annual basis.

  Following the report, Messrs. Alford, Harrison, Pollock, and Quennoz. and
Ms. Fowler left the meeting.

  Mr. Buy began the update on the Company's risk management activities.
He presented a risk profile analysis and valuation in each of the trading portfolios.
He discussed limit violations as of September 30, 1998, and noted changes to be
recommended to the Finance Committee of the Board with regard to the
Company's Risk Management Policy. He stated that he would present updates on
market risks and limit violations to the Committee at all of its regular meetings. A
copy of Mr. Buy's report is filed with the records of the meeting.

3

EChO15474435

EXH011-01110


=============
Page 123 of 123
=============

Dr. Jaedicke called for an executive session with Arthur Andersen, and all
non-Committee members were excused from the meeting with the exception of
Ms. Menchaca. During the executive session, the Committee asked the
representatives of Arthur Andersen if they had additional information to bring
before the Committee, and the representatives responded that they did not. Mr.
Goddard noted that Arthur Andersen's relationship with the management of the
Company fostered involvement of Arthur Andersen at early stages of major
projects and early diagnosis, which was beneficial to both parties.

  Secretary

  3
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4

ECh015474436

  There being no further business to come before the Committee, the meeting
was adjourned at 5:45 p.m.. C.D.T.

APPROVED:

  A&~& QW&kc-
Chairman

pbm\minutos1101298A.doc

EXH011-01111