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	    CORPORATION

  S   ENPON

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      Houston, Texas.

      October 23, 2OO1~

  9   All; Employee Meeting

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							 1   EXHIBIT      I
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 1   PROCEEDINGS

 2   KEN LAY: Good morning.  Good morning..  There it

 3   is. We've got a packed house again, and we appreciate that.

 4   But I think we've got an overflow crowd outside.  And some of

 S   you apparently because of fire marshals and other people

 6   like that may have to go back to your desks and watch this on

 7   the webcast:  But I'm'sofry again we didn't have quite enough

 8   spa6e, but this is the biggest place we've got close by.

 9   Probably in more normal circumstances I would hav~

 10  had a few more words to say about September the eleventh

 11  because it

 12  obviou~ly has changed our world forever, probably forever.

 13  And horiendous acts of terrorism, needless loss of lives, I

 14  think we1ve now seen who the true heroes in our country are.

 15  And again, men and ~women of character and people

 16  willing to run into burning buildings and give their lives

 17  for other people or try to save other people.   Somebody commented

 18  recently that I think we're looking to that event aftd the

 19  very courageous. behavior during that event for heroes a lot

 20  more than w&re looking at Hollywood today, and that's

 21  probably not All bad.

 .22 But, of course, today we're going to talk ~bout

 23  Enron because just like America's under attack by terrorism,

 24  I think we're under attack.   And we're going to talk about

 25  that today.

 26  I said we, in my phojiemail and my e-mail 'we do have a loL

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 1 to talk about.  I've-been reading y6ur questions.   You

 2 particularly want to hear more about UN, the related party

 3 transaction which involved our chief financial officer.   And,

 4 of course, now v~e've 90t the SEC inquiry, informal inquiry,

 S underway.  And I'm going to talk about all of that.  And I'm

 S going to try to talk about anything else you want to talk

 7 about in the 0 and A.

 8 I will say that there are going to be some limitations

 9 given we do have the SEC request.   And that!s what it is

 10 right now, a request for some information. But certainly out

 11 of events like this you have lawsuits and other things that

 12 occur.  And so I may, .1 and others in the audience might have

 13 limitations on some specific details. But we're going to be

 14 as candid as we can~

 15 But before I discuss this I think it important that

 16 you hear an abbreviated -- of course, recently we've had a

 17 much larger and abbreviated presentation on our third quarter

 18 results from Greg Whalley, out president and chief operating

 19 officer.  These results were, in fact, very strong as the

 20 company co&inues tc*perform at a very high level.

 21 But after Greg concludes his 10 or 15 minute -

 22 presentation on the highlights of our third quarter results;

 23 then I'm going to jump back in to talk about UJMafld soma

 24 other matters and, of course, to take your questions.

 25 So Greg, if you'd do that, please.

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 1   (Applause)

 2   GREG WHAI,LEY:  Okay, good morning. I want to thank

 3   everybody for coming today. And 4 do want to address our

 4   third quarter results.  I'll try to be quick, there are a lot

 5   of issues to get to.  It shouldn't take me more than about ten

 6   minutes. Despite the fact that we've done some resegmenting

 7   and some incremental disclosures on dur business, which we

 8   will, by the way, continue on through the end of the year as

 9   we t=y to provide balance sheets and allocated capital by

 10  these segments, we still can characterize them, at least for

 11  the time being, in these three broad groups -- the

 12  transportation distribution group, wholesale services group

 13  and the jetail services group.

 14  The overall performance of the company was to

 15  report a net income increase of thirty five percent over the prior

 16  over the relative quarter in the prior year. As you look at

 17  the numbers, the transportation distribution numbers, which

 18  includes natural gas pipelines, Portland General and the

 19  global assets, reported an IBITof eighty seven million forthe

 20  quarter compared to a hundred and
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 21  seventy six million for the same period a year ago.

 22  The primary results for the decline had to do with

 23  the earnings off of Portland General and had to do with

 24  purchased power to serve-their load, which had declined in

 25  value. We'll answer questi~ns on that to the extent

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 1  necessary. The wholesale services business also reported

 2  substantial earnings growth. Growth iii IBIT of twenty eight

 3  percent to seven hundred fifty four million for the third quarter

 4  of two thousand and one compared to the five hundred and-eight

 5  nine for the prior year.   This increase is attributed to

 6  extremely strong growth throughout the business segment,

 7  especially in the energy businesses in-Enron Americas.

 B  The retail services business also reported positive

 9  quarterly IBIT of seventy one million, a hundred and sixty three

 10 percent increase over a year ago.

 11 The profitability continues to accelerate very quickly in the

 12 business and ~e're.vety pleased with those results.

 13 Enron's broadband segment reported a loss of eighty

 14 million, which is, substantially ~xceeded the prior year.  And

 15 we'll address some of the issues associated with broadband.

 lS En total we had a total IBIT of seven hundred and seventy three

 17 Million resulting in a net income of three hundred and ninety

 18 three million.  There were ndn-recurring items written off of

 19 about one point oh one billion dollars.  Two hundred and eight

 20 seven million-dollars of the write-down was related to the sale of

 21 Azurix and the write- down of certain Azurix's assets in North

 22 America. A hundred and eighty three million was associated with*

 23 Enron broadband services primarily associatedwith severance

 24 costs, write-down of inventory costs as well as the write down of

 25 content. Five hundred fottj four million related to investments

 26 primarily in new power and other btoadband investments and

 27 technology iiestments in the underlying of the facility that held

 28 them. -

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   1   To talk mare specifically in transportation

   2   distribution. Our natural gas pipeline system is one of the

   3   largest and most cost-effective in North America. Total

   4   conbined it m&ans approximately fifteen percent of the total

   5   natural gas in the United States with a peak capacity of

   6   about ten point eight BCF a day.

.7     The outlook for the pipelines is excellent. Gas

* B    demand in the United States continues to grow primarily due

   9   to new gas-fired power generation. Ahd a majority of our

   10  capacity is contracted under, long-term contracts and no new

   11  rate cases until the end of two thousand and three.

   12  We do continue to expand into high-growth markeLa

   13  to a total of approximately two point two BCE a day into Florida
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   14  by two thousand and three. Transwesterri is also expanding in

   15  Arizona and California. As well as Northern Border is finding new

   16  markets with more gas-fired power generation.                 4

   17  The growth in this business and the cashflow in

   18  this business is very strong and stable and provides a solid

   19  base of cashf lows for the corporation.

   20  T do want to talk about global assets. The largest

   21  assets as listed' here are Elektro in Brazil, Dabhol in India

   22  and Cuiaba also in Brazil. You can see the asset mix by

   23  location. We have talked bver a period of time about scaling

   24  back these assets.

   25  The global assets group has been moved in with Stan

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 1    Horton, who's been managing our assets on the pipe1ine~side

 2    for some time. Hopefully we'll be able to make them more

 3    efficient, reduce the cost and increase the IBIT that we

 4    actually get out of these assets.

 S    As to asset dispositions, we have this quarter

 6    closed a nufiter of transactions which -- or inked a

 7    number of transactons where we should be receiving the cash

 S    in the near future to include the power plant assets in

 9    Puerto Rico, gas distribution assets in South America, ENPS

 10   that's in India and Portland General.  And to the extent we

 11.  want to talk about balance sheets later~ we'll talk a little

 12   bit hiore about that.

 13   suffice to say, lust to address that issue up

 14   front, de~pit~ the downgrade or the review for downgrade by

 15   Moodys, there are sufficient inked transactions to

 16   take our debt to total cap ratio after these asset sales to a

 17   level that's lower, in tact, than they were before we took

 18.  the write-offs.

 19   I want to talk about the wholesale services group,

 20   which has experienced substantial growth. Just to give you a

 21   couple ofgeneral items, physical settlements were up sixty five

 22   percent. Income before interest and taxes was up twenty eight

 23   percent. We had substantial increase in physical settlements,

 24   substantial increase in transactions and cur franchise in

 25   energy wholesale markets in North America continues to:

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  1   increase its lead in terms of physical volumes settled,

  2   financial settlements and transactions completed.  And it

  3   continues to extend that.

  4   In Europe we've also begun to have some substantial

  S   penetration on the continent with the number of transactions

  6   increasing. An& we're hoping toexpand that business well

  7   into the future.   lathe new markets, which we. can talk about

  S   at some time and I'd like to get everyone together for--

  9   separate groups together for presentations on the maikets

  10  that we're getting into, we're having substantial penetration

  11  in getting some real traction on some of the new markets that

  22  we're moving into.   The results were very strong, and I

  13  expect them to &ontinue. In the retail services business income

  14  before interest ~nd taxes was up substantially to a hundred and

  15  seventy one million, seventy one million actually being done in

  16  this quarter.

  17  Were having significant penetration in this market and

  18  significant growth in a number of newtransactions, especially as

  19  we take ,the model in the United States for the large consumer

  20  complete out-sourcing and begin migrating that to Europe.  And we

  21  take the sma2l~ consumer model established with Enrbn Direct in

 * 22 Europe and begin applying it in the United States.     -

  23  The number of customers that we're achieving th~re.

  24  is beginniAg to grown and our ability to penetrate downstream

  25  to further expand oUr presence in the, energy markets in the

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 1   United States~ is absolutely critical to our continued growth

 2   and our ~trong position in franchise in both North American

 3   energy as well as European energy. Very pleased with these

 4   results. We're looking for stronggrowth into the future.

 S   Enron brdadband services -- were missing a couple of

 6   slides, okay.  Enron broadband services was not the best

 7   quarter. W& have had some difficulty there related to the

 8   continued deterioration of the credit quality in the industry

 9   and certain consolidation there reducing the number of

 10  counterparties:to be trafisacted with and the number of

 11  credit-worthy counterparties which can be transacted with in the

 12  future.

 13  As such, we've stated a quarter agb that we would begin

 14  scaling down this operation.  We've done so, and well

 15  continue to try and size this operation to fit whatever

 16  opportunity is available in the future.  We would expect

 17  that in some period of time there would, in fact, be a

 18  substantial business available jA broadband and bandwidth

 19  intermediation as well as network services around.that.

 20  Given the current condition. of the telecom industry

 21  it's unclear at what point that will occur and we'll have to

 22  scale this business~ down to a size where we can maintain the

 23  option tomove into that business in the future.  We are

 24  considering all alternatives available to try to preserve this

 25  option to participate in the market which could be growing and

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	      A

 1  expanding at some point in the future.

 2  with those as results we'll be happy to answer

 B  questions on those results later.   And I will turn the

 4  presentation over to Mr. Lay.

 5  KEN LAY:   Did you say anything at all about New Point?

 6  GREG WHALLEY:   What's that?

 7  KEN LAY:   Did you say anything at all about New Power?

 8  GREG WIIALLEY:  Yeah.

 9  KEN LAY:   You did?

 10 GREG WHALLEY:   Yeah, ~ou missed it.

 11 KEN LAY:   Thank you, Greg.

 12 As you can of course see, the underlying fundamentals of

 13 our businesses are very-strong, in deed the strongest they've

 14 ever been.  But regrettably, that's not what Wall Street is

 15 focusing on~ and I doubt that's what you're focusing on.

 16 And let me say right up front, I am absolutely

 17 heartbroken about what's happened, both the- last few months

 18 andmore importantly the last several days.   Having said

 19 that, and I'll say this probably once more, maybe twice more

 20 today, what was done a couple of years ago was done very

 21 appropriately.

 22 It was approved or reviewed and approved by inside

 23 auditors and accountants and outside auditors and inside and

 24 outside lawyers and, of course,- the Board of Directors and

 25 all the appropriate procedures- were put in place- to; in fact,

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		    1   make sure that Enron and its shareholders' best interest was

		    2   served. It was appropriately disclosed.

		    3   But certainly the one thing I think nobody

		    4   understood two years ago was how difficult it was to explain

		    S   it, the perception of it. And certainly if we knew back then

		    6   what we knew today we~wouldn't have done it. And we'll never

		    7   do it again anything like it.

		    8 . Now, let me start off by giving just a little bit

		    9   of hfltory because I think we need to put this and everything

		    10  else this year in some kind of context.  I was fortunate to

		    11  be involved in forming the modern day Enron in nineteen eighty

		    12  five when two large pipeline companies, Internorth in Omaha,

		    13  Nebraska and Houston Natural Gas here in Houston were merged

		    14  together. We've had difficulties since nineteen eighty five. As a

		    15  matter of fact, the merger was Concluded in July of eighty five.

		    16  The day after Christmas in eighty five the Peruvian armed forces

		    17  marched in and took control of one of our largest assets, an

		    18  off-shore oil and gas operation. One of the company's largest

		    19  incomC producers and one of the company's largest cashf low

		    20  producers was expropriated.

		    21  In nineteen eight six, oil and gas prices collapsed from

		    22  anywhere from two-thirds to three-quarters, we had a very

		    23  high debt to total cap ratio, about seventy percent, over seventy

		    24  percent. And then we had a couple otraiders come in andt~

		    25  to buy us. And we had a difficult time finding any other

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 1   good alternatives. Now, we finally worked that through and

 2   got rid of them and moved ahead.

 3   Tn nineteen eighty seven we had a rogue oil trader in New York.

 4   believe there were two of them, a trader and the treasurer.

 S   And, indeed, they went way beyond the limits that were

 6   imposed on them exposing the company. And those exposures

 7   were so great that they could have taken the company down.

 S   And it took us three weeks to unravel those.

 9   Now, that's right in the middle also when there's a

 10  lot of gunfire in the Persian Gulf, to unravel those in such

 11  a way that we could, in tact, protect the corripany. And we

 12  still took about a hundred and eighty million dollar write-off

 13  when the company was pretty small.

 14  Nineteen ninety seven we had a big gas contract in the North Sea
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 15  that in fact had gotten out of the money tecause of some

 16  changes in policies in Great Britain. And we took a very

 17  large write-off on that, I think about six hundred and fifty

 18  million. But let me say in each and every case the. company

 19  has come back and its come back stronger than it was before

 20  these incidents.  And that's exactly what J think is going to

 21  happen here. And in the intervening years since nineteen eighty

 22  five we've transformed what was basicalli a very traditional,

 23  regulated, natural gas pipeline company with some other energy

 24  assets into today what is the world's largest prdvider of natural

 25  gas and electricity and recognized generally, although a

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 1   little tarnished right now, as the preeminent company in our

 2   space.   And, in deed, we will return that that preeminence

 3   and w&1l take that tarnish away with a little time.

 4   And as sad as the current market price is, and

 S   certainly I've lost a substantial portion of my het worth and
	      S

 6   my family's net worth, at current prices the market value is

 7   about seventeen or eighteen billion~dollars. It was two billion

 8   when we started in eighty five.
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 9   But I also know that many of you who were a lot

 10  wealthier six to nine months ago are now concerned about the

 11  college education for your kids, maybe the mortgage on your

 12  house, maybe your retirement.  And for that I am incredibly

 13  sorry. - But we're going to get it back.

 14  Let me get into the LJD4 issue and then I'll share

 15  with you some ways we can reduce the pain and hopefully

 16  restore Enron to its greatness, which I am fully committed to do.

 17  UN.   Fir~t, what was it?  It was primarily a

 18  private equity fund formed by Andy Fastow with Enrons

 19  approval.   Again, afte= all the necessary approvals.  It was

 20  formed in order to provide Enron an additional source of

 2l~ equity funding for proj acts and investments that would not

 22  otherwise be avaiiable to the company and with a management

 23  structure that could provide reasonably quick approval of

 24  projects and investments because of Andy's familiarity with

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  1    these projects and with the company.

  2    But you should know Enron did not have to offer any

  3    projects to.LJN. It had to be in the company's best interest
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  4    to offer theprojects and investments to LJD4. Transactions

  S    were offered to UN only when it was in Enron's and its

  6    shareholders' best interest and because it was fully

  7    recognized from the beginning by Enron management and Board

  8    that there was an inherent conflict of interest in Andy
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  .9   investing in tON, along with a number of significant other
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  10   investors I mi~ht add< major banks.

  Ii   And being general mahager of tON at the same time,

  12   he was CFO of Enron, the Enron Board put in place specific

  13   controls and procedures to protect Etron and its

  14   shareholders.' interest.

  15   I have reconfirmed over just the last few days that

  16   these controls and procedures have been adhered to. Both the

  17   structure of tON as well as the controls and procedures were

  18   approvedThy Enron's accountants and our outside auditors, our

  19   inside and outside lawyers and, of course, approved by the

  20   Board and then, of course, subsequently appropriately disclosed

  21   in all of our SEC filings far over two years.      -

  22   I know there's a lot of speculation about Andy's~

  23   involvenient. As I said, management and the Board recognized-

  24   there was a potential conflict bf interest. It was because

  25   of this that some vety strict governance and control

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  1   procedures were put in place to make sure th6 best'interest

  2   of Enton and its shareholders were always protected>   And

  3   despite what you've read in the Wall Street Journal and

  4,. probably elsewhere, I'm sure that, in fact, these interests

  5   have been protecte&.

  6   I and the. Board are also sure that Andy has

  7   operated in the most ethical and appropriate manner possible.

  8   But I will say here today in Andy's presende that if anything

  9   comes up indicating to the contrary then a totally different

* 10  decision would be made,~ just like it would for ajaybody else

  11  in a senict management job.

  12  Let me make a few comments about the S~C

  13  investigation.   This is what is referred to as an informal

  14  inquiry.  It is voluntary.   Its a voluntary request for

  15  information, what i~- technically is..  It is not considered a

  16  material event, and thus, not necessarily discloseable.

  17  In deed, about eighty percent of the companies that

  18  receive these informal requests do not disclose them.   And we

  19  did not have to.  But~given the white hot spotlight on Enron,

  20  and it is whit~ hot spotlight, we decided we should disclose

  21  it ana the Board agreed last Friday.

  22  This inquiry will take a lot of time on the part of

  23  our acdountants and lawyers and others.    But it will finally

  24  put these issues to rest.   This is the final and best arbitor

  25~ to put these issues that have been talked about to rest.

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 1  Now, what does all this mean for the future?

 2  First, although the financial structures were approved by the

 3  inside and outside lawyers and all the rest of that, they

 4  just created way too much noise and way too bad a perception.

 S  And thus, I and I'm sure several others are very sorry that

 6  this incredibly complicated thing ever happened and the

 7  damage it's done to our image.

 8  But more than being sorry, going forward we will be

 9  much more interested in simplicity.   As I've said many times

 10 over the last several days, vanilla is just fine, vanilla is

 11 just fine.   Now, not to discourage creativity and innovation.

 12 That's what we're all about as a company, but don't get too

 13 fancy, don't get too complicated.

 14 Also as you know, Andy disposed of his management

 15 and economic interest in June of this year.  So he's no

 16 longer involved in UN and LITh is no longer a related

 17 party vehicle.  In our third quarter report just one week

 18 ago, and, of course, not it seems like a lifetime ago, we

 19 terminated a number of arrangements in which IJJN had some

 20 involvement, some investment.  And again, these vehicles also

 21 made sense at the time they were entered into but do not make

 22 sense now.   So we terminated them, so there are no similar

 23 vehicles now in the company.

 24 We also need to realize that although these

 25 vehicles may have made a lot of sense when they were set up,

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 1  many of the investments did not work out well.  And that was

 2  a bigger problemhere than the fact that the structures were

 3  set up. And, of course, among those new power company,

 4  broadband and technology, other technology stocks, as part of

 5  that transaction, that termination, that early termination we did,

 6  in fact, take a reduction in e~iity of one point two billion

 7  dollars that was talked about explicitly on the conference call

 8  Tuesday morning.  There was no attempt to conceal that.

 9  That again, was something that did not have to be

 10 disclosed until the 100 was filed in mid-November.   But

 11 again, in the interest of trying to get everything out, we

 12 put it in the conference call.  And then, of course, a couple

 13 of days later it got beat up because we. didn't more

 14 prominently highlight.it.

 15 But that also resulted in about a sixty two hfillion share

 16 reduction in our diluted share account, which obviously is a

 17 big positive for shareholders.

 18 Now, let me conclude by saying a few other things

 19 that may be of some interest.  I'll start of f. with bonuses.

 20 Is that of any interest?  And, I know there's been some concern

 21 about it.   If we make our targets on a recurring basis, if we

 22 make our targets, bonuses will be full, full amount based

 23 upon recurring earnings.

 24 And we, Greg and I have already, and Mark, have

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 1  already gone through this with th&compensation committee and

 2  the Board, and they totally agree.   They also agree 'that

 3  we've got to do whatever is necessary to retain our talent,.,

 4  particularly in these turbulent times, because our talent is

 5  our franchise.  And we will do everything we can to make sure

 6  that that talent is protected.

 7  These are very turbulent and Very tough times.   And

 8  I expect we still have quite a bit more to come.   I will do

 9  everything I ban to turn it around.   certaihly our nianagernent

 10 committee and NDs who met yesterday morning for about three

 11 hours came out of that room unified.   And, in fact, they're

 12 going to do everything they can to turn it around.   Its okay

 13 to be mad.   It's okayto be frustrated .It' a okay to kind of

 14 feel the world's not fain   And probably all of those are

 15 very legitimate sentiments right now.

 16 But the company is doing well despite the rumors,

 17 despite th~ speculation.  The company is doing well both

 18 financially and bperationally.  And, in fact, we expect it to

 19 continue doing well.  Our liquidity is fine.   As a matter of

 20 fact, it's better than fine; it's strong.  V~e went through

 21 that on the conference call this morning.  And our balance

 22 sheet is strong even with the write-off.

 23 As Jeff said,' with the transactions that are

 24 alreadV under contract, indeed, by year end next year the

 25 balance sheet will have a lower debt to total cap ratio than

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    4

 1  it did before this write-off.  And it will be the strongest

 2  balance sheet that certainly we've had since the merger in eighty

 3  five.  I don't know how far back you might go to find a~ stronger

 4  one. But now is our testing time.   These are tough

 5  times.  Wilt we measure up to the challenge or will we not?

 6  Tru& character is born in times of crisis.  I commented earlier

 7  about the true heroes that we saw on September the eleventh.

 S  That was real character.   But true character is born

 9  in times of crisis.   We need to show our character as an

 10 organization.  And I will say also, this may be good news and

 11 may be bad news, that .1 am here until the Board throws me out

 12 or until we restore Enron to its greatness that most of us

 13 have experieftced.

 14 (Applause)

 15 And flow let~me askyou to do the same:  Commit

 16 yourself that you're going to redouble everything you do.

 17 You're going to fodus harder.  You're going to work harder.

 18 You're goiiig to be more committed than you've ever been

 19 before.  And we will come through this and we will be

 20 str6nger and better on the other side.  And we will again be

 21 recognized by everyone as the greatest company in the energy

 22 business.~

 23 Thank you.

 24 (Applause)

 25 All right, were down to questions.    And I've got a

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 1  few up here.   But now1 I think there's usually    you've got

 2  cards.   I hope people have been jotting down some thoughts or

 3  will jot down some thoughts.  And I've got, of course, Greg

 4  and I've got really the whole mana~ement team here in front.

 S  So I think we can answer -- among us hopefully we can answer

 6  most of them.

 7  (Question read)   "In two sentences can you please

 8  define Enron's business strategy?"

 9  I probably could do it in even one sentence.  But

 10 basically our business sttategjr today is to identify energy
			    -A
 11 and. commodity markets where iqe think we could apply our

 12 skills, includin~ obviously our intellectual capital, our

 13 skills and, in fact, become the lead participant in those

 14 markets.

 is And; of course, we have extended that beyond energy

 16 as you well know into things like pulp and paper and lumber

 17 and, of course, coal and many other areas.  And thus far that

 18 business model is working very well, very well.   We've had

 19 some really great successes in areas outside of our

 20 traditional electricity and natural gas businesses.  And I

 21 think ~qe'll continue to tee other successes.

 22 Now, I kndw there's been a lot of interest, and I'm   A

 23 not going to answer this one today, but there's been a lot of

 24 interest :in the company's vision and whether, in tact, we

 25 need a new vision.  And I can't answer that today.  That's

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 1   going to be something that the management committee is going

 2   'to give a lot of thought to over the next few weeks. And there's,

 3   we will see because we are becoming quite a differeiit company.

 4   But, indeed, whatever the vision is we will be the premier

 5   company iii ehat space. And I think we've got some good ideas

 6   on that.

 7   (Question read)   'Having worked for ten years and

 S   showing very little in my 401(k) and Enron being my primary

 9   stock, is there any speculation in the future to guarantying

 10  a pension for those that .have put in ten to twenty years or more?"

 ii  Of course, you have the regular pension as it is.

 12  And 401(k)s are supplemental to that.  And, in deed, I think

 13  we do have some optiohs where you can put up to five percent of

 14  your salary into investments, into retirement-type

 15  investments and earn on that kind of a ten year federal funds --

 16  not ahh ahh the bond rate, ten year government bond rate.

 17  So those that want to kind of be risk averse in

 18  this environment after the last few months can, in fact, at
 *   -

 19  least get cash in .and.pretty good return on that cash over

 20  some period of time to be supplemental to your retirement

 21  too.

 22  Now from the standpoint of Enron stock, we're going

 23  to bring it back.   We're going to bring it back. We're going~

 24  to do everything we can to get it back as quickly as we can.

 25  But we're goinyto bring it back    There are a lot of
						   *

			       21



					   r

 1  believers out there as well as a lot of disbelievers.

 2  (Question read)   "Our. group recently requested

 3  permission to start working on the Enron-approved nine eighty

 4  flexible work schedules."  And T'mxgoing to summarize this a

 S  little bit.   "But after only three weeks the vice president

 6  of our group decided that we could not continue on the nine eighty

 7  schedules.  Since our group was extremely happy with the

 8  schedule, we were very disappointed when* it was taken away,

 9  even when it appeared to Ee working successfully."

 10 Well, we do give individual working groups a lot of

 11 flexibility in setting things such as hours and work

 12 schedules as well as how they organize the space where they

 13 work and so forth.   But in that case I would suggest first

 14 that go talk to your supervisor.   And, you know,

 15 communications is another one our values.

 16 And in the alternative or in addition to that, we've

 17 got Cindy Olson, who is now head of among other things

 18 employee relations and really responsible for trying to take

 19 care of concerns and problems among other people, but

 20 concerns and problems of employees.   So that will give you

 21 still one more avenue.

 22 (Question read)   "Recently a Merrill Lynch report

 23 upgraded Enron stock to a good long-term investment.  Part of

 24 this is a result of Enron's efforts to minimize debt.  Will

 25 minimizing debt be the Enron strategy over the near term, and

			     - 22



1    will this mean a moratorium of long-term investments and
	   +

2    large' capital assets like power plants?~

3    We'll continueto look for good investments in

4    power plants, pipelines, gas distribution systems. We will

S    look a lot less aggressively for those in developing

6    countries.  And we've already made that decision a long time

7    ago.   We're going to de-emphasize these big infrastructure

8    projects in developing countries.  We're going to sell a lot

9    of those off.  Greg gave you a list there of where they are,

10   at least regionally.

11   But certainly :we will still continue to make good

12   investments in our core businesses wherever we need to make

13   those where we see are the good opportunities.  And the core

.14  business, basically wholesale, retail and pipelines.

15   Now, that can also include LNG facilities in some

16   cases.   We're developing a large LNG facility off the shore

17   of Florida.  And we're going to build a pipeline into Florida

18   to bring that into the U.S.  That can also include other

19   related type investments.  And, of course, increasingly now

20   we're looking at things like pulp mills and paper mills and

21   some other things if we get these new businesses moving.

22   Let me make another comment.  I made this yesterday

23   I think at the managing directors' meeting.  fltit clearly some

24   of our big investments have notpaid off.   Some of that was

25   shown in the third quarter results.  Some of that's shown

			       23



	 'C

		    1   with the very low return we're getting from many of our large

		    2   internationaL assets in developing countries.

		    3   I think if w&re to be faulted, first of. all, I

		    4   also made the point that we weren't in the wholesale business

		    S   a little over ten years ago. And now that's an enormous and

		    E   highly profitable business. And, of course, we weren't in

		    7   the retail business as little as about five years.  And we

		    B   think V~e have a business model there today where that can be

		    9   a huge and highly <profitable business.  Of course, we weren't

		    10  on line two years ago. And, of course, that has become a

		    11  very key part of our success in wholesale.

		    12  So we've had failures. Ne~ve also had successes

		    13  along the way.  Ne need more successes and probably fewer

		    14  failures. But I think if we've made a mistake in some of

		    15  these new ideas and koe don't want to cut off creativity or

		    16  innovation.  vie probably threw too much capital at them too

		    17  soon. I think the truly great company of the future is

		    18  g6ing to be the one that can be really nimble.  They can

		    19  change direction quickly.  They can be creative and

		    20  innovative.  But they are very disciplined in not committing too

		    21  much capital to move new concepts, new ideas, new businesses

		    22  to pan out.  And I hope we can all take that to heart as we

		    23  kind of look forward in our businesses.

		    24  (Question read)  "Despite the lowest interest

						  24



 1  rates1' -- I'm kind of waiting until we get the cards up here

 2  from the ~floor because I think those are more current.  Not

 3  more current but I'll take this next one,

 4  Greg, I mi~ht ask ~ou to come up here too and take a few of these.

 S  And Mark, do you want to come up too?   I always kind of like to

 6  sea, I lik&to have somebody to kind of lay the tough ones of t on.

 7  Here, you c~n take that one.  I'll answer this next

 B  one here on the sheet first and I'll sift through these.

 S  (Question read)  "Despite the last interest ~rates

 10 on treasuries in my lifetime, Enron's internally reported
								p

 11 cost to capital remains very high.   What tangible steps has

 12 the executive committee taken to reduce the huge default

 13 premium built into our debt's price? Andy?

 14 ANDY FASTOW:  (Inaudible)

 15 KEN LAY: Yeah, in internal.  I think it is.

 16 ANDY FASTON:   Is this on?

 17 KEM LAY:   There you go..

 18 ANDY FASTOW:   Okay.   Is thia working? Okay.  I

 19 think the relevant cost of capital Ehat everybody should be

 20 looking at for any investment they're making  what is the

 21 cost of capital that compensates Enron for the risks that

 22 Enron will then own when they make the investment.

 23 It is irrelevant in my opinion what our weighted

 24 avera~e cost of capital is, ~hat our cost of equity is or

 25 what our marginal cost of debt is.   If we are not going to

 26 get compensated for the risks that we're buyin9, then we

			      25



	   1   shouldn't be making the investment.

	   2   So-I think that's why the RAC proc~ss,

	   3   which is probably the best point to evaluate that, is so

	   4   important.  But it's up to any commercial person as well

	   S   who's making an investment to make this evaluation

	   S   themselves.  It's not enough to.just.say, "I have an opportunity,

	   7   and I'm going to make this investment if it gets approved."

	   8   I think everyone has to take responsibility for

	   9   making that determination that, in fact, when we make an

	   10  investment the assumptions we use when we make that

	   11  investment are going to come true.  And so did that answer

	   12  the question?

	   13  KEN LAY: okay. Thank you,. Andy.

	   14  GREG WALIjEY: (Question tead) "Will EBS continue or

	   15  will broadbaAd continue as a market for Enron?" As well as

	   16  three or tour questions regarding the outsourcing of it, et.

	   17  cetera.

	   18  Yes, at this point in time we are considering whatever

	   19  strategic alternatives are available.  We believe that

	   20  over time there should be the establishment of a viable and

	   21  vibrant bandwidth and broadband marketplace. I will saythat

	   22  there ~re tertain areas of undertainty in the company, and

	   23  this is certainly one where we're going to have to cohtinue

	   24  to evaluate that market as we go forward.

 4                                    1*

					26



		    1   Needless to say, as we've moved over the course of

		    2   the past six to nine months the continued deterioration in

		    3   that industry has extended out the date at which we believe

		    4   there would be such a market established.  And we'll continue

		    5   to try md size our organization appropriately to make sure

		    6   that w&re not spending too much money in that regard and

		    7   going forward.

		    A   We'll make all of these decisions as we go but as

		    9   you can see from the credit quality and the continued

		    10  deterioration of the company in the telecom space, it is

		    11  pretty dire out there in the telecom space, and we'll

		    12  continue to evaluate all of our options. Some m&re broadband?

		    13  KEN LAY:  (looking at question cards) If you don't want to; not

		    14  yet. why don't you take one of yours?

		    15  MARK EREVERT   A couple of questions here.

		    16  (Question read)   "What is my recourse, my real

		    17  recourse, when my super4isor does not respect my team ideas

		    18  and threatens to redeploy us if we do not do what he asks?"

		    2.9 well first of allr you know, you probably ought to talk to that

		    20  supervisor and see if you can work it out yourself.   But it

		    21  looks like that mIght not be possible here.  So as Ken said,

		    22  you did have recourse in a couple of different ways.

		    23  Talk to your HR rep.  If that doesn't lead to any sort of

		    24  solution or towards any solution, Cindy and her team are

		    25  available.  And, *you know, we're free in the office of the

		    26  chairman aTho, are very available to talk to people if you

						  27



 1  have problems with supervisors and problem&with the

 2  dryanizational structure there.

 3  So a number of recourses.  And we do want to

 4  identify those types of supervisors that are providing that

 5  feedback because that's just not something we're going to

 6  tolerate.   It's not consistent with our values.  And we'll

 7  take care of those problems as they arise.

 B  KEN LAY:   Alot of these I think I'm going to need

 9  to handle.   Like this on&

 10 (Question read). "I would like to know'if you are

 11 on crack."   I'll come back with the answer. "If so, that

 12 wouldtexplain a lot.  If not, you may want to start because

 13 it's going to be a longtime before we trust you again."

 14 I think thatrs probably not a vety happy employee.

 15 And that's understandable.  I mean, I'm sure a lot of you

 16 have some hatred.  Though I'm not on crack.  It might have been

 17 a lot easier to take the last few days if I was.

 18 (Question ready  "In the past we have made certain

 19 projections regarding our stock price based on different

 20 Enron business valuations.  Based on the outlook today what

 21 do you think is a fair price for our stock?"

 22 Well, let me say that probably the lowest valuation

 23 out th~re,> and this is one that just came out recently from

 24 John Olson who is over at Sanders here in Houston, but he is

 25 a well-respected analyst, a very respected analyst.  His

			      2s



		  1.

		    1   price is forty two dollars a share. And we have others as high

		    2   still as eighty dollars a share or more.

		    3   My personal view, if you kind of look at what would

		    4   be fair given our performance but also given what's happened

		    S   to broadband, what's happened to the markets, what's

		    6   happened to multiple compression, everything else and, you

		    7   know, take into account some other uncertains like Dabhol and

		    8   california, I think certainly we ought to be somewhere in the

		    9   fifties.  That wouldbe kind of a fair value today.  You might

		    10  even be able to argue for something in the low sixties.

		    11  But indeed, if we can get these uncertaintie&

		    12  removed and get tack to somewhat more normal markets, that

		    13  doesn't mean we can't get back~up to the eighties or nineties in

		    14  the not-too-distant future.  But we've got to first kind of get

		    15  through this mess now. Yeah?

		    16  ENPON EMPLOYEE:  (Tnaudible)How is this different from Jet f

		    17  knowing that.the investment structures were falling apart, walked

		    18  around the company knowing that he was selling his own

		    19  personal shares and his options and, saying that Enron plans

		    20  to go to a hundred per share (inaudible)?

		    21  MR. LAY:  That's fair. That's very fair.  And Jeff

		    22  did have some very aggressive numbers out there, including at

		    23  the analysts' meeting in January. But I will also say teally

		    24  up to the first quarter, even into the first quarter, I mean,

		    25  even then it appe~red that everything was ofl.track to keep it

		    2~  in probably'the seventies or eighties at least. I would havebeen



		   1    surprised if anybody had been talking about the fifties,

		   2    certainly n6t forties.

		   3    But there has been quite a shift including

		   4    September eleventh.  I mean, we've had an ehonnous shift in

		   S    psychology, among other things, over the last several months.

		   6    Now, we've got a lot of Enron-specific issues to deal with.

		   7    And we started dealing with some of those a week ago with the

		   8    write-offs.

		   9    And I think with that we had three major

		   10   uncertainties still.left.  You've got broadband and that's oh

		   11   the books net today for about six hundred million dollars, not an

		   12   unreasonable valuation.  You can always justify something

		   13   less thah that. We've got California where we are -- we think

		   14   fully reserved, could be more than adequately reserved.

		   15   And again, the regulatory decisions, the

		   16   settlements, et cetera out there are beginning to move our

		   17   direction.  And then you've got India. And we're doing both.

		   18   We're still working to try to get a settlement out of India.

		   19   But at the same token, we're aggressively pursuing all of our

		   20   legal remedies. And just like theyXqere in ninety five those are

		   21   very significant.

		   22   So yeah, we've got to solve our internal issties.

		   23   But if we keep performing like we've been performing, we can get

		   24   this stock value back.  Now, I don't want to be unrealistic abouw

		   25   you know getting it you know back to eighty in three rtonths or

						 30



 *1

 1  six months.  But we can certainly get it back into the forties

 2  or fifties.  And then, of course, fromthere we'll see how the

 3  market is doing and everything else is going.

 4  Let me just run through a few if you don't mind.

 S  (Question read)  "In the past we have made certain"

 6  -- I've got that one.

 7  (Question read)  "Any layoffs planned for Enron

 8  Houston office?"

 9  And let me say, no.  I mean,   I say no. We can, we always

 10 have attrition.  And probably the workforce is coming down a
		 4

 11 little bit right now and it has been this whole year:. And I

 12 would expect that to. continue.   But there are no big,

 13 significant layoffs planned in any group that i'm aware of.

 14 So I think it's mainly just & matter that we'll  keep fine-tuning

 15 the workforce and try tounake sure that you've always got it

 16 right just like they are in Europe' right now except they've

 17 gotmore significant attrition and layoffs over there.   But

 18 just trying to make.sure we've got the cost structure right.

 19 These are tough titt& and we're going to have to make sure
				      I,
		       -   .          4
 20 that we're just as efficient and effective as we can be.  You want

 21 to take one?

 22 GREG WALLEY:   There's one question that came up a

 23 number of times I undetstand because of how it was written up

 24 in a report that had to do with --

 25 -- what was the IR strategy and the reason for not

			      31
					   .4



4

   1  Including the one point two billion dollar hit directly to equity

   2  in the release.   I know Ken addr~ssed this point already. And I

   3  want to say also that given the difficulties that -- the

   4  comments that have been made, I wish we had put it in the

   5  release~   There was no requireMent to place it in the release.

   6  It was in that, the designing an earnings release we designed a

   7  release about earnings.   In reading the earnings release we

   8  attempted to track down in the conference call every one of

   9  the questions that would be asked about those earnings; which

   10 included this write-down of one point two billion in equity.

   11 And there was no strategy, conspiracy or anything

   12 to not place this one point two billion equity in the release.   We

   13. thought it was appropriately ~laced in the conferenc&call.

   14 KEN LAY:   Mark?

   15 MARK FREVERT:  A couple more questions here.

   16 (Question read)   "In the future looking forward to

   17 two tho4sand two, would Enron start to decrease benefits such as

   18 severance pay, vacation, medical, dental and office space?"

   19 I think we did have a revision to the severance

   20 policy last year just to get us more in line with what other

   21 companies are paying severance-wise.   So there ~houldn'tbe

   22 any changes going forward there.  Really no plans to

   23 decrease vacation.  T:m sure that's what people are concerned

   24 about.   So I. think we'll continue forward on that basis.

				32



   1   As far as the medical and dental premiums, I think right now Enron

   2   pays for about ninety five percent of the overall cost

   3   of the benefits to employees.  And the company norm in

   4   the industry is about eighty pet~ent.   I think we recently

   5   announced that this year we were going to maintain that payout

   6   from the company covering about ninety five percent of the medical

   7   and dental costs.

   8   But. the next year and the tolloidng years we're

   9   going to look to shift a little bit more of that back to the

   10  employees;   So we wanted to give you a year'~ notice.  Didn't

 * 11  want to do it in this type of environment, but we will be

   12  shifting some additional costs to the employees over the next

   13  several years starting with the two thousind three plan.

 - 14  And as far as office space goes, ]Ydon't think

   15  there's really any changes there.  I think everybody -- you

   16  know, some of you have seen the new building..,  we are moving

   17  to a very open floor plan concept.   I think that's working

   18  very well.   We haven't heard a lot of complaints here

   19  recently.

   20  And the second question,  (question read) "What are

   21  some of the new markets that Enron is considering venturing~

   22  into?"

   23  We've already made a great head start, as Greg

   24  mentioned, in a number of areas.  I think our European

   25  business continues to be very strong.   That's a relatively

				 33



	 S

	   1   new business over the last few years for'Enron.  And moving

	   2   aggressively into new markets in continental Europe in both

	   3   gas and power.

	   4   A lot of the businesses that Mike Mcconnell and his

	   S   team are focused on in global markets show tremendous

	   S   promise also.  Our weather business is taking off. Our coal

	   7   business is growing very rapidly.  Were making good progress

	   8   in our food and products area.  And a number of other

	   9   bu~inesses in Mike's shop I think are showing some

  *        10  tremendous potential going forward.

	   11  Another area that we have very high hopes for is

  *        12  Jeffrey Mann's (phonetic) and Ray Thowen's

	   13  industrial markets group.   That's the effort that really for

	 * 14  the first time i~ trying to take our whol~sa1e business model

	   15  and extend it into new non-energy markets.  And they're getting

	   15  very good traction iti the paper and pulp businesses, very

	   17  good traction in the steel business.  And we think those will

	   18  be significant businesses going forward for it.

	   19  And all those businesses, I mentioned, are

	   20  alicady profitable.   So we're not going to~ have the same

	   21  issues that. weve had with broadband and retail early on in

	   22  terms of incurring big losses versus the same periods of

	   23  time.  So I think as these businesses kick in we're going to

 *         24  see some tremendous upside as far as earnings go.  -

	   25  1~N LAY~   (Question read)  "Given Enron's current
 *    I

				       :34



	 credibility issues with the investment community, shouldn't

	 Enron till its top management positions from outside the

	 company, I. guess outsource management or bring in other

	 management?

	 That's a fair question.   That's a fair question.

	 Let me say,  I think, in fact, we've got a very strong senior

	 leadership group.  As I said we met yesterday as a group yesterday

	 morning for about three hours.  lAid make a comment to them

	 yesterday in reference to your question I think it was.  But, you

	 know, this management team wasn't probably as good as it appeared

	 a year ago.   But it's sure not as bad as it appears today.

	 And, in deed, this is the team --

	 (Applause)

	 -- but this is the team that can lead this company

	 forward.   And as you saw earlier in Greg's presentation, the

	 operations, the financial performance and the operations are

	 superb and strong, particularly strong for a recessionary

	 economy.   Few, if any, coijipanies our size can show that

	 kind of performance.   we do have some credibility issues and

	 theyrenot brand new.

	 They've had some time to, you kno4t, to percolate

	 here.  And we're addressing them as best we can.  We

	 addressed a few more this morning and we'r~ going to keep

	 addressing them until they're all gone.  And then, of course,

	 they'll go onto the next target and start attacking that

				    35

      1

      2

      3

      4

      S

      6

      7

      8

      9

 *    10

 *    12

 *    13

      14

      15

 *    16

      17

      18

      19

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      21

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      24

      25



 1  target.

 2  (Question read)  "will Mr. Fastow and his partners

 3  get to keep the money or perhaps should they consider finding

 4  a better place for it, for example, investing in Enron stock

 5  or funding the Enron families who lose their jobs as a

 6  consequence df out ~stock falling?"

 7  (Applause)

 8  I think i'll answer that for Andy.  .1 expect, first

 9  of all, what he does with that money is his own business.

 10 will say Andy did buy some shares here not too long ago to show

 11 his, at le~st his confidence in the company.  But, indeed,

 12 whatever happened on the other side of that wall was, in tact, as

 13 I said,  it was approved.  And whatever happened on the other

 14 side of that wall was up to Andy and his partners.

 15 (Question read)  "Are we ripe for a takeover or

 16 merger?"

 17 certainly the price is low enough, the price i~ low

 18 enough.   And I'm sure that even at a pretty good premiums to

 19 this price there's sortie people that might have some interest.

 20 We've not been contacted.  But, indeed, another reason to

 21 try to get this all turned around.

 22 And I think that when we talked about this two

 23 months ago,  I mean, the problem that many companies have is

 24 that they understand that the value of Enron is in its

 25 intellectual capital.  And that goes up and down the

			       36



       1   elevator every day. And so unless it's a company that

       2   believes they can maintain or sustain this culture and keep

       3   this talent base, they would be buying an empty suit.

       4   So we'll see.  But we'll deal with that if and when

       S   it happens.  Right now we just iteed to be thinking about how

       6   we just continue tb make the company stronger. I'll take one

 *     7   more, Greg, and I'll let you>

       8   1 think that's the s~me thing.

 *     9   .(Question:read) "what is the status of the parking subsidy?"

       10  You know, were getting down to something maybe -- what is

       11  th~ status of the parking.subsidy? Anybody on the front row

       12  know? Parking subsidy.  We've stumped the whole group.   Mark

 *     13  Frevert said "Not ehough.."

 *     14  UNIDENTIFIED MALE:  fifty dollars a month like it always has been.

       15  KEN LAY:  Always been? It's fifty dollars a month.  Now,

       16  there's a good, clean, crisp answer, fifty dollars a month.

       17  All right, Gr~g.

 *     18  GREG WHALLEY:  Urn, do you want to (inaudibleY another

       19  one. (Inaudible) No, go ahead.

       20  KEN LAY:  (Inaudible) (Question read) "What other Enron

       21  employees ate invested in L~fl1?"

       22  -To my knowledge, none .Irnean, at least when you

 *     23  were invested in.LJD4 you were the only, only person, only Enron

       24  employee that invested in UN.

       25  ANDY FASTOW:   Michael Kopp~r who is no longer an employee at Enron

       26  and he's at LJM (Inaudible - ho mike.)

				    37           -



								    :4

								t.

     KEN LAY~    Michael Kopper now has an interest?

     ANDY FASTOW:      He's no longer at Enron.

     KEN LAY:    ~He's no longer at Enron. But he now,

     now has an investment in LJM.

     SCHWIEGER:      (unintelligible) about LJM. Did the partnership

     have anything at risk, did they loose money?

     :ICEN LAY:  *,Ah, I think they could. You want to answer that?

     SCHWIEGER:      We lost one point two billion dollars, so what did

     the partnership loose?

     KEN LAY:    Now, we didn't lose 6ne point two billion dollars.

     Now,- let's       let's not -- not confuse those two. Ah --

     SORWIEGER:      Well, we. adjusted our equity in the investment

     that was a guarantee tar the partnership.

     KEN LAY:    We adjusted our equity.   But We also took

     fifty tiv6 -- I mean, as tar as the diluted share count, we took

     fifty five million dollars, or fifty five million shares, out of

     the diluted share account as well as canceling a -- a note

     receivable.

     SCEWIEGER:      Allright let me repeat the first question:

     How could the partnership~*~loose money?   And then, two,

     if it did not loose money, how do you convince the lawyers

     of that, isn't that like giving away money?

     MR. LAY:    At Boy.   I mean, it -- it was risk capital oA the

     other side, including th~ banks.

     SCHWTEGER:      We guaranteed the other side, how tould --

     MR. LAY:    We didn't guaranty it.

				  38

						he was at Enron and

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.3

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 1  SCHWTEGER:  How dbuld they loose mondy?

 2  KEN LAY:   We didn't guaranty it. I mean, it was risk capital.

 3  SCHWThGER:  Ho~could they loose money?.

 4  KEN LAY:   Well, I suppose if the investments were bad they lost

 B  some money too.  Of course, they invested in a lot of differ~nt

 6  entities.

 7  (Question read)  "Are there any more off-balance

 8  sheet special SPVs like Raptor or funds like UN that need to

 9  be written down?  Was this one point two billion dollar write-down

 10 all or are there more hidden problems?"

			  *

			     39



									  N fl

 1  Well first, again, this one point two billion dollar was not a

 2  write-down.  There wasn't a problem.  It was a mftter of --

 3  Rick, do you want to explain that?  Let's get our chief accounting

 4  officer up here to explain that.

 S  RICK CAUSEY:   The adjustment to equity, the one point two

 S  billion dollar adjustment to equity, related to an increase, in

 7  fact, of equity that we had recorded associated with shares

 S  that we were committed to deliver in future that we never

 9  delivered.   So once the -- we were going to deliver shares in the

 10 future.   We recorded an increase in equity appropriately to

 11 reflect th&t, that commitment.  When that commitment was

 12 terminated as a part of terminating these, that

 13 increase in equity was reversed.

 14 As Ken said, it was actually sixty two million shares that

 15 were reflected in our third quarter fully diluted share

 16 calculation.   It goes down by sixty two million shares. Our third

 17 quarter diluted share number was around nine hundred twelve

 18 million shares. -Our fourth quarter number will be around eight

 19 hundred fifty million shares reflecting that decrease.

 20 And so the one point, just to be clear again, the one point two

 21 billion reduction in equity did not relate to losses we took or

 22 certainly losses we covered related to I~M, rather related to

 23 shares we will never issue but we had reflected as

 24 pc5tentially issuable when we set these up.

 25 GREG WALLEY:   (Question read)  "Arewe.going to

			     40



 1  provide balance sheets on the various businesses to Wall Street?"

 2  I made that comment earlier.  And we are going to

 3  attempt at* the end of this year and perhaps going forward on

 4  an annualized basis to provide a balance sheet breakdown by

 S  business segment.

 6  Now, that involves some pretty detailed things as

 7  far as attributing long-term debt that's on the balance sheet

 B  to the various segments, assessing how much leverage is~there

 9  and how much equity is there.  But it is something that

 10 people want on incremental disclosure to be able to look at

 11 return on capital, return oh equity associated with the

 12 v&rious businesses.  Weregoing to try to break that down

 13 and give that incremental disclosure.

 14 Also, a question about the survey results, several

 15 questions about the lay-it-on-the-line survey and actions

 16 that are being taken;  We did put out amemorandum the other

 17 day talking about som&of the actions that are being taken.

 18 We are making some modificationsto the P1W.

 19 We do believe, as we stated in the memorandum that

 20 went out on e-mail, that we do believe thAt a relative

 21 evaluation of people for the purposes of determining what

 22 skillsets you have, the quality of the talent base you have,

 23 what management gaps that you may have is absolutely

 24 critical.

			     41



							   I

 1   We do know that it has led to some discomfort in

 2   how the prodess was handled, and we're looking at how we can

 3   make that a little bit easier. And as we've said, the

 4   process that we're asking for at this point in time requires

 S   the identification of the top and bottom ten percent. And I

 6   believe we're only asking that themandatory delivery o*f that

 7   occur once a year.

 8   To the extent the business unit finds the need to

 9   do something g~reater than that, that will be up to the heads

 10  of the various businesi units. There will be more

 11  information coming on this.  If y6u want some more

 12  information on what's going on regarding the results, please

 13  speak to dindy Olson.

 14  MARK FREVERT: A couple more questions here

 15  (Question read)  "Please explain why we are

 16  redeploying American citizens and leaving foreign nationals

 17  employed in the U.S."

 18  As far as redeployment goes, I think redeployment

 19  is really driven almost exclusively by business unit needs.

 20  If we're oversized or overstaffed, or our businesses aren't

 21  performing well, we're going to moire people out of those. So it

 22  really has nothing to do with whether somebody's an American or a

 23  foreign national.

 24  We're redeploying people in some of our U.S.

 25  businesses.  We're also redeploying people in our European

			       42



    iv

 1  business.  And some of you read about some of the cut-backs

 2  that are going on in Europe.  That's really a normal course

 3  of business cut-back.   We are trying to cut about five to ten

 4  percent of the overall employee base because certain

 5  businesses just weren't going to generate the returns thaCwe

 6  had expected.

 7  So we cut back a little bit there,   Virtually all

 8  of those employee cut-backs were done voluntarily.   I think

 9  we had over three hundred people that accepted the voluntary

 10 severance plan, which means that virtually nobody is going to be

 11 asked to move out that didn't want to.

 12 So I think it's important also to keep in mind that

 13 as we continue to grow we are a global company.   We've got

 14 tremendoustalent in Europe.   We've got tremendous talent in

 15 North America, in our South American operations, our Asian

 16 operations.   And we're always going to want to move people

 17 around.

 18 -So hopefully we're going to continue to have people  -

 19 >from Europe and SouthAmerica in North America and vice-a-.

 20 versa.   I think that's going to be a real key to continuing to

 21 grow on a global basis.

 22 Second question,  (question read)  "Please comment

 23 on considerations given to repricing employee options."

 24 I think we talked about this a little bit before.

 25 It's really not something that we would cbnsider, or the

			       43



 1  board would consider or the Camp. committee would consider.

 2  We think there's other ways we dan continue to get equity out

 3  into people's hands and help people share in the upside as

 4  the stock price rebounds.

 5  But repricing options would destroy credibility

 6  entirely with our shareholder base, our outside investorst

 7  And it's just h6t something we could really do at this time

 8  or probably in the future either.

 9  And then finally (question read)   "Any truth to the
		 4

 10 rumor that the christmas party will be a company7wid~ event

 11 at Enron field?"

 12 Yes.

 13 KEN LAY:   And let me say on the stock option

 14 question, of course this year we had a special one-year stock

 15 option award.  And we have not made anV decisions for next

 16 year.   Wellucertainj.y look at cit. But hopefully the next

 17 year it will become a lot legs of an issue.  I think we got

 18 time for just a few more.

 19 (Question read)  "You say that earnings are strong       -

 20 and we are performing well, but how much of this is actuallyt

 21 realized?   Are we. going to be more conservative in the* future

 22 in determining the fair value of some of our transactions and

 23 investments?"

 24 We've gone through.this~ and for the most part we   - -

 25 think we've been pretty conservative.   NOW, in some cases, of

			      44



1    course, we've been surprised later.  But I think the more

2    important question is whether we can get cash tracking the

3    earnings closer. And certainly we're working hard on that.

4    And I think, infact, we will get there.   I mean, this year a

5    lot of improvements have been made, and I think in future

6    years i~ will.

7    (Question read)  "Street.com referenced two trusts, one a bill{on

8    dollar trust, two point, another two point four billion trust and

9    asked how we were going to cover those liabilities.  And our

10   response has been asset sales.  How are we going to improve

11   our debt into, agset, debt ratio of asset sales recoVering

12   these trusts?"

13   Well as a matter of fact, the two trusts they're

14   referring to have a bunch of assets in them> And thpse

15   assets are primarily energy assets including large     -

16   power plants with long-term contracts behind them, long-term

17   power purchase agreements behind them.  And, indeed, based

is   on the valuations, - the most recent valuations, those assets

19   are adequate to cover those trusts. And those are public trusts.

20   it mean all of the, and that's not like

21   UN and that's not like some dfcthe others.  But, indeed, it

22   shows how some people are using various places to try to get

21   people thinking about things that.  We had a ~uestion like that on

24   the conference call this morning.

.25  Now,  I think thC calculation there was if they all

			      45



 1  went to zero and had to fund them, which is two extre~e

 2  examples, then, in fact, you've got to issue another -- I

 3  forget what the number was this motning, but it's probably about

 4  twelve or fourteen percent of equity, which, you know, is quite a

 5  bit.  flut that's if everything went to zero:  And, of course,  it

 6  we did, if we, At both those triggers that we don't think will

 7  trigger, happened.

 S  That's the eighty dollar stock option.

 9  (Question read)   'According to financial reports Enron execs have

 10 redeemed over seven hundred millidn dollars in stock options in

 11 the past twelve months, and most of those executives are no

 12 longer with the company.  This is an example of executive

 13 compensation out of control, and leaves little incentive

 14 for those employees who actually have to work.

 15 (Applause)

 16 "The stock price" etcetera, et cetera,   "arc we

 17 going to reconsider compensation?"

 18 Easically the compensation    first of all, the

 19 compensation is not something we pull out of the air.  I

 20 mean, it's based on a lot of analysis done by outside

 21 consultants on comparing positions, comparing compensation,

 22 what it takes to kind of attract those kind of people in

 23 those kinds of positions and retain them.

 24 Now, insome cases, including the last two or three

 25 years, our stock price went up significantly more than

 26 probably was assumed in the models.   And it was also true.

			      46



 1  with a lot of other companies, I might add.  So compensation

 2  wa~ somewhat/greater than was expected.

 3  And as to whether they cash in or not, that's an

 4  individuals choice.  But we will continue to be competitive

 5  but we're not trying to be reckless.  And certainly the comp.

 S  committee is looking at that all the time to make sure that

 7  it is reasonable.

 B  (Question read)  "What is the status of resolving

 S  the dispute with India regarding the Dabhol project?"

 id I think I answered that.  But I'm going to add one

 11 more thing.  The prime minister of India is coming to the

 12 U.S. to meet with President Bush *in November, I think it's

 13 November ninth.

 14 And so, again, there's a great push on their side

 15 to see if they can get it resolved between now and November ninth.

 16 Now, I've not seen them do much of anything of consequence in

 17 two or three weeks.  I'm not really expecting much.  But at

 18 least we're back at the table and trying to see what we can do.

 19 (Question read)  "Analysts have been complaining

 20 that Enron's balance sheet looked enigmatic for some time now.

 21 Related party transactiohs added more mystery to their work.

 22 How are we going to restore our reputation on Wall Street?

 23 What steps are we going to take?'

 24 I think the steps like we took last week of early

			      47



 1  termination of the Raptor event~.   Try to be just as

 2  transparent and candid with Wall Street as we can as we were

 3  this morning for about an hour on the conference call and

 4  just keep answering their questions.

 5  Now, we don't have any more vehicles like R~ptOr.

 S  We don't have any more vehicles like UN.     We don't have any

 7  telated party transactions.  We're just trying to clean it

 8  up.  As I said, vanilla is just fine, vanilla-is just fine.

 9  (Question read)  "How should our bonuses this year

 10 compare With last year?"

 11 If on a recurring basis and a target basis we did

 12 better last year, odds are you will geta little bit better

 13 bonus if you performed outstandingly.  But we need to -- I'm

 14 sorry?

 15 UNIDENTIFIED MALE 3:  (Inaudible)

 16 KEN LAY: In any event,  I want to go back to what I talked

 17 about before.  These are tough times, and there's plenty of

 18 understanding as to why some people are hostile.   And you

 19 have a reason to have some concerns.   Weve all been damaged.

 20 We've all been attacked both individually and as a company

 21 and as a group.

 22 But what I would ask you to do is recommit to the

 23 company and do the very best. job you can in whatever group

 24 you're in and we will come through this..  As I said

 25 earlier, we will come throu~h this stronger.   This is a time

 26 that will. build some character, and tough'times always build

			      48



 1   character. 'But we will come through it, and we will be even

 2   a greater company on the other side.

 3              So thanks very much.

 4              (Applause)

 5,             (The meeting was concluded.)

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