—_——— — ——
From: Carleton, Norman
Sent: Wednesday, March 21, 2001 10:47 AM
To: Barber, Francine
Subject: FW: Bankruptcy Reform Mark-up Hearing
---Original Message:
From: Huffman, Lucy
Sent: ‘Thursday, February 15, 2001 12:18 PM
To: Carleton, Norman
Subject: RE: Bankruptcy Reform Mark-up Hearing
thanks. if you have time ,a couple of questions:
[(b)(5)}
Original Message-=--"
From: Carleton, Norman
Sent: ‘Thursday, February 15, 2001 11:19 AM
To: Huffman, Lucy
Subject: FW: Bankruptcy Reform Mark-up Hearing
—-—Origival Message--—
From: Carleton, Norman
Sent: Thursday, February 15, 2001 10:07 AM
Tor Hemmends Donald; DeMarco, Edward; Eilts, Dina; Huffman, Lucy; Mcinemey, Roberta; Constantine, Bieri; Husgnes, Gerry; Stewart,
ware
Cer Tishuk, Brian; Robbies, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; MoGivern, Tam; Nickoloff, Peter; Schultheiss,

Heicihnne; Gross, Jared
Subject: RE: Bankruptcy Reform Mark-up Mesring

((b)(5)}

02945

01300000001554


LA: Firxee Ohoh2

U.S. Launches
Wide Criminal
Probe of Enron

inquiry: The Justice
Department is forminga
task force of prosecutors,
The breadth of the
investigation is ‘like the
Microsoft case,’ one
source says.

By )OSH MEYER
amd NANCY RIVERA BROOKS
‘TUMES STAFF WRITERS

Justice officiats took Ube rare
step of disclosing the existence of
the criminal investigation, saying
they will create a task forne a de~
petmest headquarters that will

f in federal prosecutors from
Houston, New York, Sam Francisco
other places” to

lal sabd,

“We usually dom’ discuss Inves-
tigations, but thes is a case of rai-
‘ional significance,” said the Jus
ce Department official, speaking
on condition of anonymity.

“M is luke the Microsoft case in
that regurd—a national case,”
added Une official, referring to the
high-profile civil antitrust probe of
the Redmond, Wash-based soft-
ware gust. “Because of the diver-
sity of [Enron's corporate) offices,
we wanted to centraline the investi-
gation in ceder to coordinate ef
forts on ull fronts.”

"The mvestigation signals further
trouble for Houstoerbased Baron,
once the world’s largest CnerRy

=

Until Its recent troubles, Enron
and its chairman, Kenneth Lay,
were fixtures in Washington.

trading farm. Enron, a darling of
‘Wall Street, saw its value plummet
iy fost a few weeks last year, cuba
ating Dec, 2 m the largest bank-
ruptcy filing in U.S. history.
Enron's collapse threw thou
sands of people out cf work and
cost them—and investora—billions:

miniarators. But top company €x-
ecutives previously had sold their
company shares at hefty profits.

Justice Department officials said
they wast to know whether there
is any criminal culpablliky on the
part of corporate officers and oth-
‘ers. The paints of inquiry will in-
clude whether the company knew
nk bat never disclosed
them aed whether key fimancial re
cords were altered. as well at other
potentially Megal acts, the dupart-
ment offscial sai

‘The head of accounting fiem Ar-
thur Andersen, Enron's auditor,

MMe —>

Page 6 Thursday, January 10, 2002

01300000000127


FINANCIAL REVIEW

CONTENTS

Fa)

2

MANAGEME HON AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERAT

FINANCIAL RISK MANAGEMENT

INFORMATION REGARDING FORWARD
OOKING STATEMENTS

MANAGEMENT'S RESPC
FINANCIAL REPORTING

REPORTS Of INDEPENDENT PUBLIC
ACCOUNTANTS

INSIBALITY FOR

ENRON CORP. AND
ONSOLIDATED INCC

IBSIDIARIES
© STATEMENT
ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME

z

ENRON CORP. AND SUBSIDUAR'
CONSOLIDATED BALANCE SHi

ENRON CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
CASH FLOWS

ENRON CORP. AND SUBSIDUVRICS
CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS’ EQUITY

ENRON CORP. AN
NOTES TO THE ¢
FINANCIAL STA’

SELECTED FINANCIAL AND CREDIT
INFORMATION (UNALIDITED

SUBSIDIARIES
SOLIDATED
MENTS

02768

01300000001377


Lay joined the Union of Concerned Scientists and environmental groups in calling for curbs on
carbon in the atmosphere. The Clinton administration was supportive, but this year the Bush
administration reneged on a campaign pledge to impose limits on greenhouse gas emissions ftom
coal-buming power plants,

A multimillion-dollar lobbying campaign in Congress to secure legislation requiring states to
institute retail electricity deregulation fared even worse.

Enron hired former New York representative Bill Paxon, a leading conservative, to run
Americans for Affordable Electricity, which commissioned studies and recruited business
support for deregulation. But the legislation never made it out of a congressional subcommittee,
At the same time, Enron was growing restive over the slow pace of deregulation in the wholesale
electricity market, the core of its business. Large parts of the country, especially the Southeast,
were still monopolized by regulated utilities that limited the opportunity for trading gas,
electricity and energy derivatives.

Political Pragmatism

Enron's political pragmatism was demonstrated in the 1998 New York Senate election, when it
dropped its support of the Republican incumbent, Alfonse M, D'Amato, after Democrat Schumer
endorsed Enron's goal of wholesale deregulation, sources said. Lay reciprocated by hosting
several fundraisers for Schumer, and Enron's political action committee contributed $7,500 to the
Schumer campaign.

The company's lobbying team expanded along with its political spending. It outgrew the two-
person operation that existed in 1989 and began to reflect Enron's interest in everything from
pipeline safety and derivatives trading to Overseas Private Investment Corp. loan guarantees. By
last year, its lobbying expenses exceeded $2 million a ycar and covered a raft of big-name
consultants, such as former Montana governor Marc F. Racicot, the new Republican National
Committee chairman, and former top aides to House Majority Leader Richard K. Armey (R-
Tex.) and House Majority Whip Tom DeLay (R-Tex.)

The hazards of Enron's efforts to connect with both parties were evident last year, when shortly
before the November election, the company picked a Clinton administration Treasury official,
Linda Robertson, to run its Washington office.

A perturbed DeLay, whose campaign and related funds had reccived more than $100,000 from
Enron and Lay, briefly "excommunicated" Enron, a House source said. Robertson was not
invited to a series of meetings of electricity lobbyists held in DeLay's office last July, though an
Enron official did finally attend the sessions.

Enron had more success when Congress overwhelmingly approved legislation last year
containing a provision precluding the Commodity Futures Trading Commission (CFTC) from
regulating Enron's trading in energy derivatives, These instruments are traded largely between
electricity dealers and big wholesale consumers, which use them to hedge against price swings
that could adversely affect their businesses.

01300000000082


Busiress Segrnents:

Tramporunion Retest Corporate
ond Whalesate Energy Broadband aed
(Qe eretiiore) Distribution ___Serwioes Sorvecs Services Cohort Totat_ a
200
Unatfitrted rowornses 4 sa.742 33,276 sae2e + «0 $ si? $100,789
Intenegment revenues!) 23 4,628 mTM . (2622) .
otal revenues 5 26 15 cy (2.086) oa
Depreciation. depletion and amortization me “a 6 7 ne ass ~
Operating income (hess) 586 eee 38 « am 18a
Equity in cornings of urcomatietatec ecpaity affiliates s as eo ‘ (40s) o
Gains on sates Of asuats aed investeants 26 a rd . = 18
Gain on the issuance of stock by FNPC, Ine . : 121 : - 121
Interest incorme 6 m 5 a Fa] 22
‘Other income. net n a : om 7)
Income (low) before imerest, wninonity
Interosts and income tae m2 2280 165 sec 615) 2.402
Caphal expencitures ae 1,280, 70 + 125 2301
identifiable asets 1509 43920 43 1a aa07 20,208 -
Investments in anc actewrens ta
uncomplidated equity affaiones m4 aon wo ed 378 5.296
Totad assets 38283 Mish 34370. 3337 $3579 $ 65,203,
Traraporttion Retail
and wWhotemle —— Ermegy
{io mations) Destrbution Services Services Total
1999
Unattinated rovers (4 sz 335,501 1518 sean
Imersegmont rerencn ans 2) 786 283 .
Total reverum, 7a. 287 jaor Be (540) Cra
Depreciation, depiction and amortization 247 238 EJ 33 o wo
Opeeming meame joes} ‘1 29 wy) cy (673) we
Equity in earnings of uncornciidated equity sfilunis 50 ar : 2 8
Gains On sales of aswets anc irreustormnits LJ uu at oe
Interest income na 126 5 : " ww
Other income, net 45 $4 8 a 5 TM
Income (how) befarn internat, minority
iemerents and income tenes 685. 437 ee £5 wm 1,995
Capmat axpersitures 26 1.216 4 226 wa 2363
Idernifiabie asuets 748 1A ‘956 . er) 2034s
Investments in and povarcns to
uncoraolcinted ecpaty wffiliates on 2684 : 158) 5.096
Total pssets 37.099 215 5356 3 $3281 S71
1396
Unaffiliated revenues $1433 $27,220 sion $750 $185 $31,280
intermageent revenues!Ol 16 8. - 134 459) -
Total revenues 14a 725 jon om (xy 38.280.
Depreciation, depletion and amertizabon: 253 1s 3 Ca 33 a7
Operating income (hows) $62 480 aay 133 op wwe
Equity 9 earrings of unecrsctidatod equity aft ietes ” a a : 2 or
‘Cairn on sabes of aiwets and kevestments n 4 : : an 6
rnorwst income 8 or : 1 ” Ey
Othor income, net 2 es) 2 8. hoe gn.
Income floss) before interest. minceity
inacrests and income taxns 7 68 11%), 120 2) 1,582
Capital expenditures, 30 706 75 30 124 1,905.
Idencifiable amets 6355 208 1a 3001 208 may
Inestments in and advances to
uncorsalidated equity affiliates ft 2.602 - : 10 cers)
Total asuats 56 $14.07 sar 53,000 sue $29350

Gt Unatiasted reverwves erase ales fo uncoriokcted equ

artis
(i) Preesegriact rele are made al prices compereOie 10 IMONE cecewed rar arated cts avid #1 Some KUIANEEE are affected! by cuUSMhory CORSFESEINYE

dc) AaPects pena through August 16, 1959. See Mote 2
A) Incas conmokenaiing ekmenwtions

(ona ANDAR 2808

02799

01300000001408


°

q
i

of your 708
a
3

ry

Acquisitions and divestitures
Effect of curtmiment anc
sottiorents A)
Benefits paid

Benefit obtigetion end of yeor 3146

Change in plan amets
Fair valuo of plary assets,
beginning of year) on
Actual return an plan assets so 0
Acquisitions and dhvesttures - :
Employer contribution w 5 7
Plan participants’ contributions - 4
Benefits prick

Foie vahae of

Sndct yoo

ssa 5059 5 44 5 68

Recereiliabien of funded status.
end of year
Funded status. end of yeor
Urrocognized transition
obligation [mset] CC
Unrecognized prior service cost se 2 wm
tarevoryed et ene

a eee

upand eruad beret cmt THis 5S $izy F009)
Weighted average smuamptions at
December 3

S112 $145 S80) $052)

Discount rate 1.78% 7.79% 7.79% 1.9%
Expected return on plan
auats (pretae)

Rane of compensation incraswe

© & & W
1) feb ett

Components af wet periodic benefit cost
Servien cout ‘
Interest com
Expectad retum on plan awots
Amortization of transmion
cbligation (asset)
Amortization of prior service cost
Rrcognized net actuarial less (gain)
Effect of curtaiment and

Ben

n

33
on

Py

union reports,

Pty (retest anaes af thee ESDP 0¢ $1 NS OM and $127 mathor 3 Override
37, 2000 and 1299, eeqpectate

Fe) Long-tenrr rate of metuen ort aisers o aisurcd 20 be NO.S% for the Ervor Pan,
3.0% For the Poraternt Coane Par are 5% few me EFS Fren.

(0 Long-tece rate of retuer cn ausets o amxcerted 10 be 7.5% for dhe Zevon assets
‘and 9.5% for the Portiond Genera’ sists

fet Mase of compensanan monmwse & asuened to be 4.0% for the Evo Fin,

4.05 tw 2.5% fey One Portland Generel Penn sent 5.0% for me EF Par,

Included In the abowe amounts are the unfunded obligations
for the supplemental executive retirement plans. At both
December 31, 2000 and 1999, the prajected benefit obligation for
these unfunded plans was $16 rellion and the fair value of assets
wos $1 peillion,

The measurement dite of the Enron Plan and the ESOP
September 1 anc the measurement date of the Portiand General
Plan, the BFS Plan and the postratirenrent benefit plars & December
37. The funded status as of the wahuation date of the Enron Pian, the
Poniand Generat Plan, the ESOP and the postretinemunt beeetit
plans reconciles with the amount detmled above which is included
“Other Assens” on the Consolidated Balance Sheet.

For meausement purposes. 6% snd 10% annual rates of
increase in the per capita cost of covered health care Devefits
were assumed for the period 2000 to 2001 for the Enran and
Portlond Gerwral postratirement plans. respectively The rates
were assumed to decrease to 5% by 2002 and 2010 for the Enron
and Portland General pastretinement plans, respectively Asiuread
health care cost trond rates have a significant effect on the
senounts reported for the health care plans, A ore-percentage
point change in assumed health care coir trend rates would have
the following effects:

1Pwreamage — |. Percentage
{hn emda) Point Increase Point Docrnsan
Effost on total of service and

interest com componems we wy
Effuet on pastratirement benefit

obligarion se 436)

Additionally, certain Enron subsiGearies maintain various
incentive bawe compensation plans for which participants may
receive a combination of cash oF sock options, Hased upon the
achievement of certain performance goats

32 RATES AND REGULATORY ISSUES

Rates and requistory issues related to certain of Enron's
natural gas pipelines and ms electric utilRy operations are sutyect
to final determination by varius regulatory agencies The
domestic interstate pipeline operations are regulated by the
Fedora! Energy Regulstory Commission (FERC) and the electric
tnility operations are reguisted by the FERC and the Oregon
Publi Utility Comeiasian (OPUC). As a result. these operations
are subject to the provisions of Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects:
of Certain Types of Regutation,~ whech recogrezes the ecanomic
effects of requintion and, accordingly, Enron has recorded regu
latory assets and liabilities related to such operations,

‘The reguisted pipelines operations’ ret regulatory amats
wore $290 million and $250 million at December 31, 2000 and
1999, respectively and are expected to be recovered over varying
Ume periods.

The electric utility operations’ net regulatory assets were
$450 millian and $494 million at December 31, 2000 and 1999,
respectively: Gmed on rates in place at December 31. 2000. Enron
desimates that it will collect substartially ell of its requistory
omots within the nast 11 years

Ppetne Operations

On April 16, 1999. Northern Netura! Ges Company
(Northern) filed an uncontested Stipulation and Agreement of
Settlement (Settiement) with the FERC and an order approving
the Sectioment was imued by the FERC on june 18. 1999, The
rates effectuated by Nortern on November 1, 1929 remain in
effect. On May 1, 2000, Northern filed to implement an option-
al volumetric fiem throughput servies. An order approving such
service was issued November 6, 2000 with effectiveness
November 4, 2000; 4 rehearing request ts pending. On
Nowember 1, 2000, Northern filed to incromve its rates for the
recovery of return and taxes on its System Levelized Account.

02794

01300000001403


From: Carleton, Norman

Sent: Friday, January 04, 2002 5:30 PM

To: Rosebore, Brian; Bair, Sheila; Gross, Jared; Wiedman, Mark; Bitsberger, Timothy; Smith, Amy
Ce: Schultheiss, Heidilynne; Nickoloff, Peter; Ellett, Martha; Gabllondo, Jose; Sutton, Gary
Subject: FW: Draft Memo on Enron/CFMA Articles

Attached is a memo that details our first attempt to clarify what the press has been saying in regards to Enron and the
Commodity Futures Modemization Act.

| talked to the Ken Raisler, a New York lawyer, about this, He told me that Enron did not directly lobby the administration
about the CFMA but was part of an energy coalition, which Mr. Raisler represented, that did lobby on this issue, The
exempt commodity/etectonic trading facility provision in the CFMA did not directly benefit Enron since EnronOnline was not
structured as a trading facility as defined in the CFMA, Therefore, the major beneficiaries of these provisions are Enron's
competitors, such as the InterContinental Exchange and TradeSpark, which are stuctured as electonic trading facilities.
Enron did get the legal certainty it wanted that the CFTC cannot regulate EnronOniine. [(b)(5)}

Ken also told me that he had talked to then Assistant Secretary Lee Sachs about the exempt commodity issue. According
to Ken, Lee told him that the Treasury would not oppose the CFMA because of the exempt commodity issue but
encouraged the industry to reach a compromise with the CFTC. In the end, Wall Street . energy firms, and the
futures industry, as well as the PWG (including the CFTC) all supported passage of the CFMA.

Original Message-—-

From: Schulthetss, Heidlynne

Sent; Friday, January 04, 2002 5:10 PM
To: (Carleton, Norman

‘Subject: Draft Memo on Enrony'CFMA Articles

Altacned is the draft memo on the Enron articles that asserted that the CFTC and PWG objected to the energy exclusion
provisions of the CFMA. The three news articles are downloaded as the latter pages.

ereereiea coe:

Tracking: Recipient
oeorm ran
area
roared
ecman ar

erer mo
mom
c @ ec nne
cooff cer
ome
@ ondo oe

on ar

eaaeneoeanea®y?
CECCCCCCEES!
RELRRR REREE

01300000000027


Desc annaaL BEBO D8

a

ENRON BROADBAND SERVICES

Enron Brosdbend Services made excellent
progress executing its business plan in 2000. The
build-out of Enron's 16,000-mile global fiber
network is Near completion, bandwicth interme-
diation transaction volume is growing exponen-
tially, and we are testing the first commercially
Sound premium content-on-demand service.
Clearly, the Enron business model is working in
the broadband market,

Enron Broadband Services’ goals are to:

+ Dapiloy the most open, efficient global broadband
network, the Enron inteiligent Network.

+ Be the world’s largest marketer of bandwicth and
network services.

+ Be the world’s largest provider of premium con-
tent delivery services

The Enron Intelligent Network

We expect to be the first to provide broad:
band connectivity on @ globe! basis through the
Enron Intelligent Network (EIN). The EIN operates
as a “network of networks,” providing switching
capaity between independent networks for lave
cost scalability. We will continue to add pooling
points, which physically interconnect third parties
natworks and serve as reference points for band
width contracts. We currently operate 25 pooling
points: 18 in the United States. and one exch
In Tokyo, London, Brussels, Amsterdam, Paris,
Dusseldorf and Frankfurt. We expect to add at
least 10 more in 2007

EIN's embedded intelligence, provided by
Enron's proprietary Broadband Operating System
(805). gives Enron unique. powerful multi-layer
network control, The Enron BOS enables the EIN ta:
+ Dynamically provision bandwidth in real time.

+ Control quality and socess to the network for
Internet Service Providers

+ Control and monitor applications as they stream
over the network to ensure quality and avoid
congested routes

The BOS automates the transaction process
all the way from the initisi request for capacity to
Provisioning, electronic billing and funds transfer.
With the BOS, Enron has created the first scalable,
fully integrated transaction processing platform
for delivering banéwidth capacity.

Bandwidth Intermediation

We exceeded our expectations by delivering
more than 72,000 terabytes of network services
in 2000, demonstrating rapidly growing industry
acceptance of our flaxible services. We are cresting
Ube risk management building blocks to manage
almost every clement of the network in addition to

bandwidth: dark fiber, circuits, internet Protocol (IP)
services (transporting data packets according to iP
standards) and storage capacity

To date we have transacted with 45 counter-
parties, including U.S. and international telecom.
munications carriers, marketers and resellers snd
network service providers. In 2001 we expect to
deliver 570,000 terabytes as we grow both the
breadth ang the depth af our network and prod
ucts, We offer 32 bandwidth-related products on
EnronOntine.

Enron's ability to provide bandwidth-on-
demand at specified service levels and guaranteed
delivery enables customers to access capacity with-
‘out necessarily butiding, buying or expanding their

The Value of Bandwidth
Intermediation

Enron's barr interment Quire gies hp
brosdband sndustry new toots — standend contracts.
fquackty, price angpvency: conmectbaty, quict prow
stoning and fleetdtity — to help mcusty partopents
OPT sates aed pet

own networks Our bundied intermediation package
includes IP transport over land, under the sea. and
via satellite, at both fined and peak-usage terms.
For example, we are working with i2 Technologies,
8 global provider of intettigent eBusiness solutions,
Lo connect with customers in six cities, including
four overseas. (2 has provisioned local-toap and
long-haul capacity through Enron. and has how-
cost access to our network's equipment as if it
were its own, but it now has the flexibility to
quickly add or discard capacity as day-to-day
needs change.

Data storage is a $30 betion-per-year business,
NG we know customers would like to purchase It
on an as-needed basis. In January 2001 we com:
pleted our first data storage transactions with

02764

01300000001373


FULILER coer a peepee Sanaa
Snes Commodities Service

Copyright (c) 2002, Dow Jones & Company, Inc.
Wednesday. Ianwsry 9. 2002

OJ CBOR Exe: ing To Single Stock Puteres Ventu
STrersring to ad # Sa St rae aera race Mee = .

Chicago, Jaa. 9 (OaterDomianes) - Single stock futures exchange
CneChicago

hen tapped Chicago Board Options Exchange executive Robert Walsh as ito
managing dixector ef operations, the joint venture said ina release

Walsh is a 28-year veteran in the futures and securities business,
inclwdimy 23 years at the CROR, where he was involved in the debut of
cue
extended trading sessions om the exchange’s screen-based trading
ayaten,

CBORdivect, the release said. OneChicage on Tursday said it had chosen
CROBdirect as its single trading platform.

While Walsh's appoietwent was announced by OneChicago on Wednesday,

he
Degan work at the joint venture on Dec. 3, maid a spokeoman, Gary
‘compton.

Forser Commodities Futures Trade Commission Chairsan William Rainer
date
ast summer signed up to head the joint venture. launched in May 2000
by the
Chicago Mercantile Exchange, the Chicago Board of Trade and CBOE to
2aunch

Single stock futures.
in recent months, Raimer has hired tour industry executives to join
Onechicago, including C. Robert Paul a general counsel, Peter ¥.

ing director business development and Marcin Doyle as

ging
dizector of business development.
OneChicago, which along with at le:
expects to
begim trading single stock tutures Lx the second quarter, will be
headquartered in the Chicago Board of Trade building, where ic recently

two other 0.5. exchanges

signed

& lease.

Kate Gibson, Outerbowlones, (312) 977-1673
xgibsca@osterdovjones.com

Thursday, January 10, 2002 Page 15

01300000000136


Nickoloff, Peter

From: Carleton, Norman

Sent: Tuesday, August 07, 2001 10:07 AM

To: Bair, Sheila; Eichner, Matthew; Ellett, Martha; Fisher, Peter; Gabilondo, Jose; Gross, Jared;
Hammer, Viva; Nickoloff, Peter; Novey, Michael; Roseboro, Brian; Schultheiss, Heid@ynne;
Sutton, Gary

Ce: Hamilton, Tynise

Subject: Retail Swaps Study -- Memo on New York Interviews

Attached is a relatively informal memo on the New York interviews. There were designated nole takers al these
interviews, and their summaries should be distributed soon.

This memo is not for distribution outside of Treasury. We promised confidentiality to the interviewees. In particular, Enron
made a point that it did not want its business plans be made public at this time.

18 Mervew senrrary
word doe

02961

01300000001570


was repaid in December 1999, and certain financial inner enents
hreciging an irtwesment held by Enron. Enron recorded the ssets
received and equity issued at estimated fair value. in connection
with the tramactions, the Related Party agreed that the senior
offloer of Enron would Hane no pecuniary ivterest in such Enron
common shares and would be restricted from voting on matters
related to such shares In 2000, Error arc the Related Party
entered into an agreement to terminate certsin finsecial entry
ments that had been ervtered into during 1000. fn eannectian
with this agreement. Enron received approximately 3.1 million
shares of Enron common stock held by the Related Party. A put
option, which was onginally entered into in the first quarter of
2000 and gave the Related Party the right Lo sell shares of Enron
common stork to Enron at a strike price of $71.37 per share, was
terminated under this agreement. In return, Enron paid apron.
mately $268 mllion to the Relates Party.

In 2000, Enron sold a portion of its dark fiber inventory
to the Related Party in exchange for $30 million cash and 2 $70
evilion note recewable that was subsequently repaid, Enron
recognized gross margin Of $67 million ory tive sale,

in 2000, the Related Party acquired, through secur itizations,
approximately $35 million of enercharnt iewestments from Enron.
in addition, Enron and the Related Party formed partreeships in
which Enron contributed cai and assets and the Related Party
contribysted $17.5 million in cash, Subsequently, Enron sold a por-
‘Von of its wterest in the partnership Urough securilzations. See
Note 3 Akio, Enron contributed a put aption to 2 trust i which
the Related Party and Whitewing hak! equity and debe interests
At December 31, 2000, the fair value of the put option was a 536
mnifion loss to Enron,

Wr 1900, the Relatiod Party acquired approximately $377 mil:
Son of merchant omets and! investments and other assets from
Enron, Enron recognized pre-tax gains of approximately $16 mil-
Son related to these transactions, The Related Party also enternd
ino an agreement to acquire Enron's interests in an unconsali-
dated equity affiliate for approximatoly $34 million,

17 ASSET IMPAIRMENT

fn 1998, continued significant changes i state and federal
ngas rogarding the use of MIBE as 2 gasoline additive have
significantly impacted Enron's view of the future prospects for
this business. As a resutt. Enron completed 9 reevalumtion of its
position and strategy with respect to its operated MTBE assets
which reuited an () the purchase of certain previousiy-lesed
MIDE rolated mts. under provisions within the kease, in order
To facilitate future actions, including the potential disposal of
such assets anc (y) a rewew of aif MTBE-retated aasets for impair.
ment considering the recent achrerse changes sev! their erpact ory
recoverability. Based on this review and disposal discussions wah
market participams, in 1999, Enron recorded a $447 million
pre-tax charge for the impairment of its MTBE-related assets.

18 ACCOUNTING PRONOUNCEMENTS:

Cumuative Etfect af Accounting Changes

In) 1999. Enron recorded an after-tnx charge of $131 million
to reflect the initial aGoption (as of January 1, 1889) of two new
accounting the AICPA Stmement of Position
98-5 (SOP 98-5}, "Reporting on the Coxts of Skar-p Activities”
and the Emerging sues Task Force Issue No, 98-10, “Accounting
for Contracts Invalved in Energy Trading and Risk Management
Activities * The 1900 change was primarily related to the acop:
tion of SOP 96-5.

Recently Issued Accounting Pronouncemants

In 1998, the Financial Accounting Standards Board (FASE)
issued SFAS No. 133, "Accounting for Derivative instruments
and Hedging Activities.” which was subsequently amended By
SPAS No. 137 and SFAS No. 138. SFAS No. 133 must be applied
to all derivative instruments and certain derivative instruments
ertedded in hybrid instruments and requires that suct inet:
ments be recorded in the balance sheet ether as an asset or
febility measured at its fair value through earnings, with special
accounting allowed for certain qualifying hedges Enron wall
adopt SFAS No, 133 as of January 1, 2001. Due to the adoption
Of SFAS No. 133, Enron will recognize an after-tax non-cash boss,
of approximately $5 million in earrengs and an after-tax non:
cash gain in “Other Comprehensive income.” a component of
shareholders’ equity, of approximately $22 million from the
cumutative effect of a change in accounting principle. Enron
will also reclassify $532 mation from “Long-Term Debs” to
“Otter Liabilities” due to the adoptan.

The total impact of Enron's adoption of SFAS No. 133 an
earnings and on “Other Comprehensive Income” is dependent
upon cerain pending interpretations. which are currently
under consideration, including those relsted to “normal pur-
chases ard normal sales” and inflation escalators included in
certain contract paynent provisions. The interpretavons of
these Isues. and others, are currently undie eonicdoration by
the FASB. While the ultimate conciusions reached on interpre-
tations being considered by the FASS could impact the effects,
of Enron's adoption of SFAS No, 133, Enran does mot beliewe
that such conclusions would have @ material effect on its cur-
rent estimate of the impact of adoption,

02797

01300000001406


Wss

ollioloz

New Treasury Securities-Auction Policies Attempt
To Cut Costs by Speeding Up Release of Results _

By Rewpoca Crmstie
Dew Jones Newretres

WASHINGTON — The 0.8. Treasury

“Pople ke us, primary deslers, are go
tobe careful. Hopefully, we

i
z
a3

mounted. That would mean bidders will
wo longer have to take as much risk of
market movements in Ue interim.
Consistently shorter release tines
would help Treasary lower its borrowing
‘costs, since it wouldn't bawe to pay # pre-

Treasury Yield Curve
Yields as of 4:30 p.m. Easter time

i BE

i
i

e233
4

*
ee pupae
BSS 2Rces

S68 385% §

Ste

mium for that uncertainty.

Tm the long run, Mr. Fisher sald, Trea-
sury Is aiming for a two-rminwe turn-
around. That could take a while, as It will
require a number of technical upgrades.
But it already has drawa praise frem mar-
ket partielpants,

“The minor inconvenieace of the

ald Lucas, senior povernanent bond strate-

irist for Merrill Lynch, a designated ptt
mary dealer in government securities.

i

itt
it

{

from t billion euros, It was priced at a
yield 1.18 percentage points over swaps.
‘The debt was rated single-AJ by
Moody's Investors Service und triple
plus by Standard & Poor's.
—Steven Hames and Rickard A. Brave
camtributed 40 this article.

Page 26

Thursday, January 10, 2002

01300000000147


Carleton, Norman

Grom Tuesday, J = 08, 2002 5:45 i“
E |, Janu
To: Schulthess, Heidliynne: Nickoiolt
Subject: FW: CFTC’s Exemption Based iets Contracts Involving Energy Products (April 20, 1993)
~nginal Message---
From: Carleton, Norman
Sent: Tuesday, January 08, 2002 5:44 PM
To: Bair, Sheila
Subject: RE: CFTC's Exemption for Certain Contracts Involving Energy Products (April 20, 1993)
[(b)(5)]
Norman
From: Bair, Sela
Sent: qs, jamsary 06, 2002 5:24 PM

To:
Subject: RE: Re TCS Crompton for Certain Contracts Involving Energy Products (April 20, 1993)

[(b)(5)]

Sheila

——Origind Message--—

From: Carleton, Norman

Sent: mae January 06, 2002 5:14 PM

0:

ca ‘Smith, Amy; Bair, Sheila; Berard, Steve; Bitsberger, Timothy; Eictner, Matthew; Gabllondo, Jose; Gross, Jared; Hammer, Viva; Lon
‘Sanatamorena (E-mat); Nickoloff, Peter; Nowey, Michael; Pietrangell, Fred; Roseboro, Brian; SchuRheiss, Heidiynne;
Whaley, Jean; Wiedman, Mark

‘Subject: CFTCs Exemption for Certain Contracts Involving Energy Products (Aan! 20, 1993)

‘Sheila,

((b)(5)]

01300000000044


{(b)(5)]

Norman
----Original Message
From: —Hammonc, Donald
Sent: Thursday, February 15, 2001 8:26 AM

To:
cc:

DeMarca, Edward; Bils, Ding; Huffman, Lucy; Carleton, Norman; Mclnemey, Raberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Tishuk, Brian; Rabbins, Eric

Subject: RE: Benkruptoy Reform Mark-up Hearing

Ed,

[(©)(5)]

Don

Tracking:

ew Oniginal Message---~
From: DeMarco, Edward
Sent: ‘Thursday, February 15, 2001 8:22 AM
To: Hammond, Donakd; Els, Dina; Huffman, Lucy; Carleton, Norman; Mcinerney, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,
Lawranne
Ce: Tistuk, Brian; Robbins, Eric
Subject: FW: Bankruptcy Reform Mark-up Hearing

~mOriginal Message—--
From: Robbins, Eric
Sent: Wednesday, February 14, 2001 5:45 PM
To: DeMarco, Edward
(Cer Tistuk, Brian
Subject: Baniruptcy Reform Mark-up Hearing

H.R. 333, the “Bankruptcy Abuse Prevention and Consumer Protection Act 2001” was reported out
of the House Judiciary Committee on Wednesday, February 14, 2001. During the mark-up hearing,
cighteen amendments were offered with all but one amendment failing to . Voting occurred
largely along party lines. The only amendment that passed was a technical amendment offered by
Chairman Sensenbrenner, Only one Republican crossed party lines to vote for one of the seventeen
other amendments that failed.

Representative Bachus (R-AL) assured the committee that he was committed to working with
Representative Oxley from the Financial Services Committee on commercial bankruptcy provisions
netting requirements.

Recipient Delivery Read
Barber, Francine Delivered: 21/01 10:47 AM Read; W21/04 12:00 PM

; 02946

01300000001555


long-term debt by one notch to Baa2 from Baal, still two levels above junk bond status, citing
the write-downs, equity charges, and partnership investments. It stated that it might downgrade
Enron’s commercial paper P-2 rating as well, making it more difficult/expensive for Enron to
borrow short-term cash. Royal Dutch/Shell reportedly was interested in purchasing Enron, and
had approached it earlier in August. The SEC transferred its inquiry to its Washington D.C.
headquarters.

On October 30, there were rumors that GE Capital, Berkshire Hathaway or Royal Dutch
Petroleum might buy Enron. Its stock increased 25 percent, rebounding from a nine-year low,

On October 31, the SEC began formally investigating the Fastow partnerships. Large
energy traders were reported as willing to do business with Enron, but at shorter maturities and
using less complex structures. Trading on EnronOnline was reportedly strong. However, few
firms would accept Enron as a guarantor of credit derivatives, some counterparties in its core
energy markets refused to transact, and two members of the Intercontinental Exchange, owner of
the International Petroleum Exchange that trades energy derivatives, refused Enron's credit,

On November 1, Enron received a $1 billion loan from J.P. Morgan Chase and Salomon
Smith Barney, using natural gas pipelines (Northem Natural Gas and Transwestern Pipeline) as
collateral. Proceeds from this secured loan were to be used for debt payments and to supplement
cash reserves, and it could borrow an additional $200 million from other banks. This was
perceived as a desperate attempt to preserve its creditworthiness. It reportedly was unable to
issue commercial paper (at least at lower rates), and two energy companies (Exelon and
Northeast Utilities) restricted business with Enron. Its stock declined 16 percent, and its notes
had declined substantially as well.

On November 5, Fitch downgraded Enron’s senior unsecured debt rating from BBB+ to
BBB-, one notch above junk status, citing its liquidity difficulties, erosion of investor
confidence, and substantial diminution of its global investments financed with aggressive off-
balance shect vehicles. Fitch also lowered Enron’s subordinated debt from BBB to BB, its
preferred stock from BBB- to B, and its commercial paper from F3 to F2. It also lowered the
senior unsecured debt ratings of Enron's pipeline subsidiaries, Northern Natural Gas and
Transwestem Pipeline, from A- to BBB-, whose assets were pledged the previous week to help
Enron secure an additional $1 billion bank facility. All of the Fitch ratings remained at “Rating
Watch Negative” status.

On November 6, Fitch warmed that it might downgrade Enron's credit rating to junk
status. Also, former Enron president Skilling reportedly testified before the SEC in Washington,
D.C. pursuant to a subpoena.

On November 7, Enron stock sank to a new low of $7 per share before rebounding on
reports that it was having discussions with Dynegy Inc. regarding at least a $1.5 to 2 billion cash
infusion, and possibly a full merger. A merger would involve the sale of Enron to Dynegy for
about $8 billion in a stock swap (about $10 per share), with a cash infusion of $1.5 billion
initially and $1 billion later provided by ChevronTexaco, which owns 27 percent of Dynegy.
Dynegy would assume Enron’s $12.8 billion on-balance sheet debt; the disposition of its

6 02860

01300000001469


Outlook

During 2007, Energy Services anticipates continues growth
in the demend for retail energy outsourcing salutons Energy
Services will deliver these services to its existing customers, while
CorTtinuing (o expand its commercial and industrial customer base
for total energy outiourcing. Energy Services also plans to comin:
Ue integrating its service delivery capabilities, extend its Business
model to relaced markers and offer new products.

Broscband Services

In Implementing Enron's network strategy. Brondbancd
Serviess is constructing the Enron Intelligent Network, 3 ration:
wide finer-optic network that consists of both fiber deployed by
Enron and acquired capacity on non-Enron networks and is man-
aged by Enron's Broadband Operating System software, Enron is
extending ts market-making and risk managemenn skills from its
energy business to develop the bandwidth itermediation busi.
ness to help customers manage unexpected fluctuation in the
price, supply and demand of bandwidth. Enron's nardwidth-or-
demand platform allows delivory of high-bandwidth medis-cich
contemt such as video streaming. high eapacity dats transport
and video conferencing. Broadband Serviess alka makes invest.
ferns in companies with related technologies and with the
potential for capital appreciation. Earnings fram these merchant
inwestments. which are accounted for on a fair value basis and
are inctuded in revenues, result from changes in the market value
of the securities. Broadband Services uses rok management disci-
plines, including hedging (ansactions, to manage the impact of
market price movements an its merchant investments.
Broadband Services siso sells imterests in certain investments ancl
onher assets to improve liquidity and overall return, the tering of
which Is Gependent on market conditions snd management's
expectations of the investment’s waluae,

‘The camponems of Broadband Services businesses include:
the development end construction of the Enron Intelligent
Network, sales of excess fiber anc software, bandwidth interne-
ation and the delivery of content, Significant components of
Broadband Services’ resusts ore a3 follows

i
Grons margin

Cperating expenses
Ocggreciation and amortization

Broadband Servicus recognized 4 low before innerext, minority
interests and taxns of $60 milion in 2000. Grons margin inchudled
earnings from sales of excess fiber capocty 3 significant inarasse i
‘the market value of Broadband Services’ merchant investments ard
the monetizition of # portion of Enron's broadband content delw-
ety platform. Expenses incurred during the period mctude expenses
ulated to Guilcing the business and depreciation and amortization,

Quttoak,

Broadband Services is extending Enron's proven business
madet to the communications industry. In 2007. Enron expects to
further develop the Enron Intelligent Network, @ global broad:
band network with broad conewetivity potential to both buyers
and sallers of bandwidth through Enron's pooling posnts. In act
tion, Enron expects to further Geploy its proprietary Broadband
Operating System across the Enron Intelligert Network, enabling
Enron to manage Dancwidth capacity independent of owning the
undertying fiber. Brosdbend Servioes expects its intermediation
wanaction level to increase significantly #9 2007 25 more rmariant
partiopants connect to the pooling points and trarnact with Enron

to manage their Dandwidth needs. The availabilty of Enron's
bandwidth intermediation products and prices on EnrorOnling are
dxpected to favorably impact the volume of transactians. In 2001,
Broadband Services expects to continue to expand the commercial
rolhouk of its content servien offerings including video-an-
demand, Enron expects the volume of content delivered over its
Network 1o Increase as more contert Gelivery contracts aru sigred
8rd 8s more dienexOn partner Iceatians are connected.

Comporate and Other

‘Signeficant components of Corporate and Other's I8IT are ms
footw:
{0 peiitiona) . 2000 19038
iT before Rams mmpacting

comparataiity:

hoes epacting comparability:
Charge to roflvet impairment
Dy Arurie
Gains on exchange ond sales of
Enron O# & Gas Company (OG) week = ASA 2
Charge to reflect impairment of
MIDE asuots and lowes on
cortracted MTBE production : ae) U
Lois before interest, minority
3)

interests and tax
ews for Corporate and Other i 2000 reflect operating
lowes from Enron's investment in Azurie (exctuding the impair-
ments Gscused below) and increased information technology.
employee compensstion and corporate-wide expenses.

Rewshs for Corporate and Other in 1889 were impacted by
higher corporute expenses, partially offsat by increased earnings
from EREC resulting from increased sales volumes from its
German manufacturing subsidiary and from the completion and
sale of certain domestic wind projects. Enron also recognized
higher earnings related to Aaurx. Results in 1998 were fevor-
seoly impacted by increases in the market value of certain corpo-
ratermanaged financial instruments, partially offset by higher
corporate expenses.

thems impacting comparsbility in 2000 inchided a $326 mil-
han charge rufiecting Enron's portan of impairments recorded
by Azurix related to assets in Argurmine teers impacting compa-
rabality im 1998 wiluded # pre-tax gain of $454 millicn on the
xchange and sale of Enron's interest in EOG (see Noxe 2 to the
Cormolicated Financial Statements} and a $441 million pretax
charge for the impairment of its MTBE aswets (soe Note 17 to the
Cornoti cated Firane ist Statements),

During 1398, Enron recognized 3 pre-tax gain of $22 million
on the delivery of 10.5 million shares of EOG stock held by Enron
aS repayment of mandatorily exchangeable debt. Enran ato
recorded a $61 milion charge to refiect fonses on contracted
MITRE production,

seep S17) 8 7

srs) (4)

Fnerest ad Related Charges, Not

interest and related charges. net of interest capitalized
which totaled $38 million, $54 milan and $66 million for 2000.
1999 and 1996, increased to $838 million in 2000
from $686 million in 1998 snd $550 million ins 1998, The increase
in 2000 as compared to 1999 was primarily 2 result of incremsed
long-term debt. levels, incromed average shart-taren borrowings,
short-term debt aswumed as a result of the acquisition of MG pic
and higher interest rates in the U.S. The incraase was partially
offset by the replacement of debt related to 3 Brazilisn sub-
sidisy with lower interest rane debe.

02773

01300000001382


Enron Corp. and Subsidiaries Consolidated Income Statement

Year ended December 31,

millions except per shure wreunts 2030 1938 1388
Reverves
Natural gas and other products $ 50,500 $19,596 $13.27
Electricty 33,823 15.238 13,999
Metals a.23e :
Cte az 5.338 anes
Total revenues 760,709 wn 20
Costs and Expenses
‘Cont of gon, electricity, metals and other products sasi7 34761 26.361
Operating expernes are 304s 2403
Dupreciation, depinbion ned amortization ass 870 az?
Taos, cther than income tases 2 co) an
Impairment of lang-Bvod assets +. an .
Total conts and expernes 96,838 wate Pee
Operating income 1,953 eo 1.08
Other income and Deductions
Equity in earigs of uneariclicdatedt ogaty w!filisten " 78 oT
Goins on sates of nonamerchant amet “6 ow 6
Gains co tho issuance ef stock by TNPC, tne. cra) :
Interest incorme mm we os
Other income, not on mw on
income Before Interest, Minority Interests avd income Taxes Zaz Tas Tame
interest and related charges, net 28 656 $50
Oreidends on company obligated preferred secunties of subskianes 7” TM n
Minority imoreses we 135 n
income tax eapere: ue a us
Net Income before cumulative effect of accouraing changes pry Tne ma
Cumulative effect of accounting changes, net of tax . 31 -
Net income a 203 708
Preferred stock Givacends a « as
Earnings of Commons Stock + +z 3 ae
Earnings Per Share of Common Stock
Base
Before cumulative effect of accounting changes $1 $1.36 $ 107
Cumulative effect of arcourting changes . 0.19) -
Gave earrings per share sz pi $107
Ohad
Before camulative wffect af accounting changes sou $127 $107
Camulachen affies of accounting changes - 017) :
Dilkeod earnings por share i tn
Average Number of Common Shares Used in Computation
Bau n6 705 ez
Dikned itd 769 eas

Enron Corp. and Subsidiaries Consolidated Statement of Comprehensive Income

a ‘Yeu unded Decomrtper 31.
Qh mitions) 7000 1909 1908
Net Income rr) $aa2 $703
Cher comprehensive lecme
Foreign ewrrency tranilucian adjumment and other pan 57%) ny
Total Comprehanuive income = 334 3 603

The accompanying nies are an agra part cf chee cormclianie Maw STEN

02779

01300000001388


Retail Swaps

{(b)(5)]

03040

01300000001650


Enron Executives Face Subpoenas

Senate Panel Also Orders Testimony of Directors
By Peter Behr and Dan Morgan

Washington Post Stall Writers

‘Thursday, January 3, 2002; Page E01

A Senate committee announced yesterday that it is subpoenaing top executives and directors of
the bankrupt Enron Corp. to determine their roles in the Houston company’s epic collapse.

Three other congressional committees already are digging into the Enron failure, but the
subpoenas announced yesterday are believed to be the first of the congressional probes. Among
the likely recipients is Wendy Gramm, an Enron director who is the wife of Sen. Phil Gramm (R-
Tex.).

Sen. Carl M. Levin (D-Mich.), chairman of the Governmental Affairs Committee's permanent
subcommittee on investigations, said the panel also will subpoena financial and trading records
from Enron and audit documents from its accountant, Arthur Andersen LLP,

Enron's attorney, Robert Bennett, called the subpoenas “totally unnecessary" and said "we are
fully cooperating with Congress."

Although Enron Chairman Kenneth L. Lay did not show up for two earlier congressional
hearings on Enron's bankruptcy, he has agreed to testify next month before the Senate Commerce
Committee, Bennett said.

Enron has turned over nearly three dozen boxes of documents to the House Energy and
Commerce Committee, Bennett said. "I don't question the legitimacy of an inquiry [into Enron's
failure}, but it's not a measured approach to have a half-dozen different committees doing this at
the same time," he said, "It can lead to a circus atmosphere and a lot of wasted time and effort."
The full Governmental Affairs Committee has scheduled a hearing for Jan. 24 on Enron's use of
a large number of partnerships that kept billions of dollars of corporate debt off the company's
books. The hearing will also examine whether federal regulators missed warning signs of the
company's trouble.

Accounting errors involving the private partnerships caused Enron to overstate its earnings by
half a billion dollars over the past four years. Enron's disclosure of the overstatement, in
November, triggered a final plunge in the company’s stock price and the company’s bankruptcy
filing Dec. 2.

Sen. Joseph I, Lieberman (D-Conn.), chairman of the full committee, said, "The focus is, how
did this corporation collapse, and what can we do to make sure that something like this never

happens again?"

Lieberman's committee joins an already crowded field of Enron inquiries. The House Energy and
Commerce Committee has sent investigators to interview Enron officials in Houston,

02837

01300000001446


December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose
Entities

Dow Jones Newswires

WASHINGTON -- U.S. Senate Commerce Committee Chairman Fritz Hollings, D-S.C.,
pledged Tuesday to introduce legislation to eliminate the sorts of financial accounting
that led to the financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate
the use of special-purpose entities, which are partnerships or trusts through which
companies keep their debt off the books and, in Enron's case, overstate eamings.

Hollings said such off-the-balance-sheet transactions should end in order to protect
investors, Hollings also was highly critical of the amount of insider stock selling by top
Enron officials, He noted that Enron Chairman Kenneth Lay and former Chief Executive
Jeffrey Skilling each sold shares in recent months for more than $60 million, while
members of Enron's board sold shares worth more than $160 million,

"The selling of Enron was prolific," Hollings said, calling the insider selling “a screaming
red flag.”

if Enron officials felt the stock was undervalued, as they publicly attested, "why were
they cashing in?" Hollings said.

Hollings also said there was plenty of blame for the “shenanigans” associated with
Enron's collapse, which he likened to a "cancer." He cited Enron's role in persuading the
Commodity Futures Trading Commission against the Clinton administration's call for
regulation of energy derivatives, and subsequent congressional action to exempt from
regulation the highly complex energy derivatives Enron's special-purpose entities
engaged in.

“We are all guilty for letting it happen," Hollings said of Enron's collapse.

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel,
described Tuesday's hearings as the first of several that will delve into the roles in
Enron's financial collapse played by: Enron officials; Arthur Andersen, Enron's outside
auditor; Wall Street analysts, and regulators.

"This is about an energy company that morphed into a trading company involved in

hedge funds and derivatives. It took on substantial risks, created secret off-the-books
partnerships and, in effect, cooked the books under the nose of their accountants and

investors," Dorgan said.

02826

01300000001435


(Cortinue J

the Senate would raise crop support rates and scale down annual
payments. But like the House, it would revive the target price

system,
STALLMAN RE-ELECTED LEADER

On the final day of the convention, delegates re-elected
Stallman, a cattle and rice grower from Texas whose blunt,
energetic pursuit of a new farm law rankled Senate Republicans
who wanted to modify the Senate bill.

Some Farm Bureau members, who generally are social and

fiscal conservatives, have complained Stallman worked too
closely with Senate Democrats. But he won a second term with no
opposition in an endorsement of his leadership. Steve Appel of
Washington state was re-elected vice president.

Indiana delegate Don Villwock said the decision not to make
maior changes in the Par Bureau's farm bill priorities “was
politically astute.”

‘We wrote our farm bill policy last year," Villwock said.
“It's pretty broad. Hopeful ly this will allow us to be in those
discussions* om Capitol Hill to complete a farm bill.

Missouri Farm Bureau president Charles Kruse held the same
view. "It would be very tough to change our policy half-way
through 4 farm bill.”

As part of policy discussions, Farm Bureau delegates voted
for country-of-origin labels on food imports and against the
current practice of meatpackers raising their own animale for
slaughter or contracting with farmers for exclusive access to
herds. Both are contentious issues in the farm bill.

Delegates also voted to raise national dues by 50 cents, to
$4, in December 2003, The increase was a Compromise that came a
day after a $1 increase, spread over four years, was defeated.

Without an increase, leaders said the Farm Bureau, widely

regarded as one of the most powerful lobbying groups in
Washington, would soon begin to sat into reserves and have to

(erol)

Thursday, January 10, 2002 Page 24

01300000000142


Carleton, Norman

From: Carleton, Norman

Sent: Wednesday; December 19 2001 3:43 PM

To: Wiedman, Mark; Bair, Sheila; Bi wt tale ube , Timothy; DeMarco, Edward; Dorsey,
Karen; Ellett, Martha; Ellis, Dina; Jose; Gross, Jared; Huffman, Lucy; Hughes,
Gerry; McGivern, Tom; Mclnemey, Roberta: Nickoloff, Peter; Roseboro, Brian; Salladin, Anne;
Schultheiss, Hei } Smiths, Amy; Sutton, Gary, Tishuk, Brian

Subject: Converation with rank Hampton and ABI Website: House Leaders Continue to Push Netling

According to Frank Hampton of TBMA, Dick Armey is also pushing the netting legislation. However,
Sensenbrenner hopes to acheive a compromise on the larger bankruptcy legislation by February and is opposed
to passing the netting legislation separately. In the Senate, Grassley is also opposed to a separate netting bill
and is reportedly avoiding a meeting with Greenspan to discuss this.

Norman Carleton

ABI Website news:

December 19, 2001

House Leaders Continue to Push Netting Provisions

House leaders are trying to nudge forward legislation that seeks to prevent systemic financial crises by allowing
creditors to “net cu? dete derivatives losses with major counter parties that have filed for bankruptcy, The
American Banker reported, It is still unclear, however, whether even they will be successful in overcoming the
political obstacles that have stalled it for more than a year - especially considering that Congress is expected to
adjoum for the year as early as this week. Majority Whip Tom DeLay (R-Texas) “believes that it's important to
get the netting provisions done, either within the context of bankruptcy reform or elsewhere,” a spokesman said.

Such highly technical bills rarely attract the attention of top House or Senate leaders, but the recent collapse of
Enron Inc. has given the netting legislation newfound relevance. Federal Reserve Board Chairman Alan
Greenspan and Treasury Secretary Paul O'Neill say markets are at risk until a law is enacted that allows
contracts to be quickly and easily netted out without the approval of slow-moving bankruptcy courts, Holding it
up, however, is House Judiciary Committee Chairman James Sensenbrenner (R-Wis.), who heads the House-
Senate bankruptcy legislation conference committee. The netting legislation is a part of the bankruptcy reform
legislation. Sensenbrenner and some Senate Judiciary Committee members, including bill sponsor Charles
Grassley (R-lowa), oppose passing the netting authonty separately because they still hope that the relatively
uncontroversial provisions will propel the bankruptcy package.

Though industry sources said they have received commitments from House leaders that netting will be enacted
by year-end or soon thereafter, they are not expected to force a vote without the support of Sensenbrenner.

Even after a meeting last week with Greenspan, Sensenbrenner maintained that he was “going to try to keep it in
the bankruptcy package,” his spokesman said.

Tracking: Recipient Delivery Read

Wiedman, Mark Delivered: 12/1801 3:43 PM

Bair, Sheila Deltvered: 12/1901 3:43 PM Read: 12/26/01 B41 AM
Bieger, Peter Delivered: 12/7901 3:43 PM

Bitsberger, Timothy Delivered: 12/1901 343 PM Read: 12/1901 4:25 PM
DeMarco, Eoward Delivered: 12/1901 3:43 PM Read: 121901 3:58 PM
Dorsey. Karen Delivered: 12/18001 3:43 PM Reac: 12/9101 245 PM
Ellett, Martha Delivered: 12/1901 3-43 PM Dolatod: *2/20001 10:24 AM
Bilis, Dina Delivered: 12/1@/01 3:43 PM Read: 12/19/01 3:43 PM
Gabilondo, Jose Delivered: 12/1904 3:43 PM Read: 1219/01 3:46 PM
Gross, Jared Delivered: 12/1901 3:43 PM Read: 12/23/01 5:53 PM

1

01300000000092


Carleton, Norman

—_—— —_— - —$$$_—_—
From: Carleton, Norman

Sent: T 5 07, 2001 8:39 PM

To: jsullcrom.cor’

‘Subject: RE: Cl Presentation -- Final Version

Ken,

Thanks, I received it this evening.
Norman

---=+-Original Message-----

Prom: Raislerk@sullcrom.com [mailto:Raislerk#sullcrom.com)
Sent; Tuesday August 07, 2001 7:20 PM

To: norman, carleton@do.treas.gov

Subject: FW: CFTC Presentation -- Final Version

This is the right version. Please acknowledge receipt.

~see8 Original Message-----

Prom: chendrixsenron.com (mailto:chendrix@enron.com]
Sent: Tuesday, August 07, 2001 6:42 PM

To: Raislerk@sullcrom.com

Subject: RE: CFTC Presentation -- Pinal Version

Here you go. (See attached file: cftc_final.ppt}

Raislerk@sullcrom.com on 08/07/2003 08:06:50 PM

To: chendrix#enron.com
ce:
Subject: RE: CFTC Presentation -- Final Version

Chris,

As I am sure Scott told you, this presentation went very well, Treasury has
asked for copies in electronic form. Can you resend this to me without the
notes imbedded so I can forward it on to them, Thanks.

o----! Original Message-----

Prom: chendrix@enron.com [mailto:chendrixgenron.com)
Sent: Wednesday, August 01, 2001 3:57 PM

To: Raislerkgsullcrom.com

Subject: CFTC Presentation -- Final Version

Attached ia the final version of the presentation. (See attached file:
cftc_final_presentation. ppt)

This e-mail is sent by a law firm and contains information
that may be privileged and confidential. If you are not the
intended recipient, please delete the e-mail and notify us

02938

01300000001547


Enron manages efficient, flexible n rks to reliably er physical products a
predictable prices. In 2000 Enron used its networks to deliver a record
amount of physical natura’ electricity, bandwidth capacity and
other produc U rks, we can significantly expand our

existing businesses while extending our services to new markets
with enormous potential for growth

CONTENTS

1 FINANCIAL HIGHLIGHTS 20 F REVIEW

2 LETTER TO SHAREHOLDERS 83 ALUES

9 ENRON WHOLESALE SERVICES 54 BOARD OF DIRECTORS

14 ENRON ENERGY SERVICES 56 EN COMMITTEE
16 ENRON BROADBAND SERVICES $6 SHAREHOLOER INFORMATION

18 ENRON TRANSPORTATION SERVICES

02748

01300000001357


"There are aspects of [the Enron case] that remind us of the savings and loan scandal, in the
sense that a powerful institution used big money to buy influence and protect itself while
ordinary citizens ended up losing their life savings," said Fred Wertheimer, president of
Democracy 21, a Washington interest group, referring to a banking controversy in the 1980s.
Enron's ties to Republicans and the present Bush administration were especially close. Lay raised
large sums for George W. Bush's campaign.

Enron, Lay and its employees have contributed $572,350 to him over his career, far more than
any other company, according to the Center for Public Integrity in Washington.

Several top administration officials have been Enron advisers or stockholders. Enron, Lay and
other senior executives contributed $1.7 million in soft-money donations to politicians in the
2000 election cycle, two-thirds of it to Republicans, according to the Center for Responsive
Politics.

Republicans clearly are sensitive to the potential political dangers. The National Republican
Senatorial Committee recently retumed a $100,000 check collected from Enron in November,
after deciding that “it was appropriate to give it back,” spokesman Dan Allen said. The
Republican Governors Association last week returned an Enron donation of $60,000.

What was unique about Enron, competitors and allies agree, was a brash and sometimes
counterproductive political style.

Stories of Enron's hardball style are legion. In October 1999, for example, Jeffrey K. Skilling,
then Enron's president, expressed his displeasure at Rep. Joe Barton's position on a deregulation
bill pending in the energy subcommittee Barton chairs,

The meeting grew "heated and awful,” said one person who was present, until Barton (R-Tex.), a
usually mild-mannered man who keeps a Bible on his desk, exploded. “Jeffrey Skilling, I may
not have your millions of dollars, but | am not an idiot,” one witness recalled Barton saying. The
meeting ended without Enron getting the changes it wanted, "Skilling did not get Washington,”
the source added.

"In their lobbying, they acted like the 800-pound gorilla they were," said Christopher Horner, a
Washington lawyer who briefly directed Enron's government relations in 1997. Lay and Skilling
declined interview requests, but Enron officials say they have no regrets about their use of
money. "It got us name recognition," company spokesman Mark Palmer said. "Given the
aggregation of our foes, we had to make sure that people knew what our argument was."

Jump-Starting Deregulation

Almost from its start in 1985 as a gas pipeline company, Enron needed help in Washington, and
it got it in a series of actions by Congress and the Federal Energy Regulatory Commission
(FERC) that undermined the traditional monopoly of utility companies over power plants and
transmission lines.

Enron lobbied for several of the initial actions that set the stage for the era of a deregulated
wholesale electricity market,

01300000000105


Carleton, Norman

— ————_— —
From: Carleton, Norman

Sent: Wednesday, July 11, 2001 5:51 PM.

To: Hammer, Viva; Novey, Michael; Eichner, Matthew

Subject: RE: Interviews

They will most likely be on August 1 and 2 at the FRBNY. Morgan Stanley, Goldman, Refco, Enron, J.P Morgan Chase,
and ISDA have said they would come, There is an attempt to schedule Lehman and Deutsche Bank. AIG and Citibank
are not interested, We may try to contact State Farm.

--—-Original Message-~-~

From: Hammer, Viva

Sent: Wechescay, July 11, 2001 5:35 PM

To: Carleton, Norman

Subject:

could you get us some more information on the wheres and whens of the interviews?

Tracking: Recipient Delivery

Mammer, Vive Delivered: 7/1101 S51 PMA Read: 712/01 1:49 PM
Novay, Michael Delivered: 7/11/01 5:51 PM Road: 711/01 G07 Pt
Eichner, Matthew Delivered: 7/1101 5:51 PM Read: 7/11/01 8:27 PM

03022

01300000001632


{(b)(5)}

Please review and let me know your thoughts.

Thanke,
Mike
Tracking: Recipient Defivery Read
Delivered: 2/2101 10:45 AM Read: 9/21/01 11:56 AM

Barber, Francine

02983

01300000001592


Carleton, Norman
From: Bair, Shella
Sent: Tuesday, January 08, 2002 5:56 PM
To: Carleton, Norman
Subject: RE: CFTC's Exemption for Certain Contracts Involving Energy Products (April 20, 1993)
((0(5))
so Original Message-——
From: Carleton, Norman,
Sent: Tuesday, January 08, 2002 5:44 PM
To: Bair, Shela
‘Subject: RE: CFTC's Exemption for Certain Contracts Invalving Energy Products (Apel 20, 1993)
{(b)(5))
Norman

--—-Onginal Message----
From: Bair, Streila

To:

Sent: Tuesday, Jeruary 08, 2002 5:24 PM
Carleton, Norman
Subject: RE; CFTC's Exempton for Certain Contracts Involving Energy Products (Apri 20, 1993)

{(b)(5)}

Shela

Original Message---=

From: Carleton, Norman

Sent: ‘Tuesday, January 08, 2002 S:14 PM

To: Bair, Sheila

Ce: Smith, Amy; Bair, Shela; Berard|, Steve; Btsberger, Timothy; Eichner, Matthew; Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori
Sanatamorena (E-mail); Nickoleff, Peter; Navey, Michael; Pietrangel, Fred; Raseboro, Brian; Schuttheiss, Heidilynne;
Whatley, Jean; Wiedman, Mark

Subject: CFTC Exemption for Cestain Contracts Involving Energy Products (April 20, 1993)

Sheila,
{(6)(5)]

02812

01300000001421


MT  ofholor
Justice Dept. to Form Task Force
To Investigate Collapse of Enron

By KURT EICHENWALD with JONATHAN D. GLATER

Widening the potential scope of the Washington lawyer who represents
criminal tevestigation into the Enron the company. He could not be
‘Corporation, the Justice reached for comment last night.
plans to form a spectal force of While the decision to form the task

jates attorney's offices — inc! juirves into practices
those In Houston, New York Cty and entire indastries, ean care
San Francisco — a ef them and

Thursday, January 10, 2002 Page 11

01300000000132


Carleton, Norman

From: Nickoloff, Peter

Sent: Weongedey. D Pecemper 19, 2001 1:50 PM
To: ‘Fox, Elizabeth

Ce: Carleton,

Subject: RE: Reta ‘Swaps Study -- Clearance status?
[(>)(5)]

-----Original Mesgage--~---

From: Fox, Blizabeth L. R. [mailto:efoxgCFTC.gov)
Sent: Wednesday, December 19, 2001 1:41 PM

To: 'Peter.Nickoloffedo.treas.gov"

Subject: RE: Retail Swaps Study -- Clearance status?

I expect we will have sign-off here by the end of the day. As far as the
number of copies, I'm not sure what the usual protocol is. I think that 50
would cover our senior staff and commigssioners' offices. How is the actual
signing to be handled?

--Original Message-----
From: Peter. Nickolotfedo. treas.gov [mailto:Peter.Nickoloffédo.treas

Sent: Tuesday, December 18, 2001 3:58 PM
To: efoxGCFTC.gov
Subject: RE: Retail Swapa Study -- Clearance status?

-gov]

beaded Original Message-----

From: Fox, Blizabeth L. R. [mailtorefox@CFTC.gov)
Sent: Tuesday, December 18, 2001 2:15 PM

To: ‘Peter.Nickoloffedo.treas.gov"

Subject: RE: Retail Swaps Study -- Clearance status?

thanks--no other changes anywhere in the document?

-««--Original Message-----
From: Peter. Nickoloff@do.treas.gov [mailto:Peter,Nickoloff@do.tress.gov)
Sent: Tuesday, December 16, 2001 2-10 PM

To: efox@CFTC.gov

Subject: RE: Retail Swaps Study -- Clearance status?

Please see the attached.

--Original Message-
From: Fox, Elizabeth L. R. (mailto-:efox@®CFTC.gov]
Sent: Tuesday December 18, 2001 2:07 PM

To: 'Peter.Nickoloff@do.treas.gov'

Subject: RE: Retail Swaps Study -- Clearance status?

I need a clean copy of that page to circulate.

«««=°Original Message-----
Prom: Peter.Nickoloffado.treas.gov [mailto:Peter.Nickoloffedo.treas.gov)
Sent: Tuesday, December 19, 2001 1:41 PM

To: efox@CFTC. gov

Subject: RE: Retail Swaps Study -- Clearance statu:

1

02870

01300000001479


Sureenanized information for Enron's Plans i as follows

2000 1999, 1988
‘Weighted ‘Weeigntes ‘Weighted
Average Average Average
Cuercise Coercive Leerctie
(Shares in thousands) Shares Price Ser Price: Spares Price
amending,
bagreing of year 93537 says A804 $18.60 vase $10.89
Granted 3087 yooz ast 340 15,702 “oe
Exercised 2! (2,235) mas (18, 905) 1808 413,072) 10
Forfoned 14358) 3568 11,465) 2451 (9.498) *77
tapered a) 2375 cra) 1989 4206) TRIS
Outstanding. end of year 96,083 ware 9353) S264 79.404 53.0
Exerciable, ond of year ers s20a5 32.000, $22.6 43982 ae
Asailablo for grant, end of yoarTM 22,086 24,864 10.498
Weighted average fair value of optioes granted $13.35 $7.24 $4.20

et b> 2000, treon recorcind tae Series rested to Rock options exci! by
(0) bre a 60 20.70.08 whan, 22. 140. PGE stares ard 10.497-670 stares
orice’ stock or purr ao stock ODN

ration sediecieg € shacks

emyplayoes of apprasirexnty $290 omy
5 OF Decercter 37. 2002 1998 ard TSR, rewpectiele tach may be MVE ether ar

The following table summarizes information sooUt stock options outmancing st December 31, 2000 (shares in thousands):

Options Outstanding Options Exereisatie
‘Weighted
Average ‘Weighted Weignied
Number Remabeng Awerage Peerage
Outstanding Contractual Exercive Cerca
Purge of Exerc Priees att23ieo bie Price Pree
$ 688 to $2000 75.268 “7 nen tise
2006 to 3481 24081 68 28 24.13
3503 to 47.31 2520 68 40.82 40
S048 to 668.00 12965 66 ow A
71,06 to «(8663 nowy hal ro 26
‘063 az see s2oms

Restricted Stock Plan

Under Enron's Restricted Stock Pian, particpants may be
granted sock without cast vo che participant. The shares granted
under this plan wes to the participants st vinous times ranging
from imeneciate vesting to wasting at the end of a five-year periog.
Upon venting. the shares are released to the participants, The
following summarizes shares of restricted stock under this pian

{Shares in thousanch 200018881888
Cutstancing. beginning of yrar 67m 60M 8.078
Gaming RUS 2672 -2.722
Retosed ta participants 2201) (ra (ay
fortomed a
. end of year 5.379 6781 Gage
femilabie for grant, end of yoar mows 22,141 10.498
‘Weighted average fair woke of
rostricted stock granted 35760 $3738 $2370

12 PENSION AND OTHER BENEFITS,

Enron maintains 2 retirement plan (the Enron Pian} which is
a noncontritaitary defined benefit plan covering substantially all
employees in the United States and certain employees in foreign
countries. The benefit accrual is in the form of a cash balerce of
5% of annual base pay.

Portiend General has a noncontributcry defined benefit
persion plan {the Portisnd Generat Pian} covering sostantially
all of its employees. Benefits under the Portiand General Plan
are baved on years of service, final average pay and covered

Enron Factity Services has. norcontntutory Gefined bene-
fi persion plan (ihe EFS Pian) covering substantially all of its

employees. Senefits under the EFS Plan are based on years of
service, finet average pay und covered compensation

Enron also maintains a noneontrmutory employee stock
camervhip plan (ESOP) which cowrs all ehginie empioyors
Alocations to individual employees’ retirement accounts within
the ESOP offset a portion of benefits earned under the Enron
Plan. All shares included in the ESO? have been allocated to the
employee sccounts, At December 31. 2000 and 1908. 12,600,277
shares and 17,241,731 shares, respectively. of Enron comman
stock were held by the ESOP, a portion of which may be used to
offset benefits under the Enron Plan.

Assets of the Enron Plan, the Portland General Pian and the
EFS Plan sre comprised primarily of equity securities Teed
Income securities and temporary cash investments. tt is Errors
policy to fund af persion costs accrued to the extent required by
Federal tax regulations.

Enron provides cortain pestretirament medical, life insur-
free ond chetal benefits to eligible employnes and the eligible
dependents. Benefits are provided under the provisions of con.
trtatery defined daliar benefit plans. Earan is currently funding
thet portion of its abligataons under these postretiremert bere
Tht pilaew which are expected to be recoverable through rates by
its requiated pipelines and electric utity operstions

Enron accrues these postretirement benefit costs over the
service ves of the emplayees expected to be eligible to receive
such benefits Enron s smortining the trenstion obfigation which
existnd at Aaruaary 1, 19913 over a period of approximately 19 yours,

The following table sets forth information related to
changes i the benefit obligations, changes in plan assets, &
feconcilistion of the funded status of the plans and components
of the expense recognized related to Enron's pension and other

~~" 92793

01300000001402

(crm Atenas iPS 2000


DRAFT
January 4, 2002

TO: Norman Carleton
Director
Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss
Financial Economist
Office of Federal Finance Policy Analysis
SUBJECT: Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modernization Act of 2000
BACKGROUND
[(b)(5)]

01300000000101


Aplin ones Comite fecy—1300dbam——-
Jones Commodities Service

Copyright (¢} 2002, Dow Jones & Company, Ine.
Wednesday, Janonry $, 2002

SOL NYA Te Provide Resubatenm seccices To jalan purrs —-
cago, Jam. § (OsterbewJones) - The Mationel Futures Association

wilh
provice regulatory services to Island futures Exchange, an electronic
exe!

to trade security futwres in the second quarter of 2003, tha

aid Wednesday in » release.
inland Pulures - an affiliate of Talasd £CH - is waiting for
approval as a

deeignated contract market by the Comodity futures Trading Comission.

exchange is the fourth new electronic exchange to outsource its
regulatory

rograna te NFA since the Commodity futures modernization Act of 2000

eed, the MFA said.

a Talaed SC executes approximately ome owt of every five trades on
and counts more then 700 Droker-dealers as elie
industry's

self-regulatory organization.

~ the MPA, the

re Gibsos, OsterDowlones, (112) 977-1673
kgibsonetun com

orfto/se

MARGINS:

fan 9 2002 14:55

EXCHANGE TO LOWER NATURAL GAS MARGINS

NEW YORK, NY, January 9, 2002 == The New York Mercantile
Exchange, Inc., today announced that it would lower the margins on
its natural gas futures and swaps contracts as of the close of
business tomorrow.

The spot month margins will decrease to $2,500 from $3,500
for clearing members; to $2,750 from $3,850 for members; and to
$3,375 from $4,725 for customers. Margins in other months will be
reduced as follows:

Clearing Members Members Customers

Second month $2,500 from $3,000 $2,750 Efrom $3,300 $3,375
from $4,050

Third through sixth months $2,000 from$2,500 $2,200 from
$2,750 $2,700 from $3,375

Seventh montha and beyond $1, 500 from $2,000 $1,650 from

$2,200 $2,025 from $2,700

Page 14 Thursday, January 10, 2002

01300000000135


Subcommittees of the House Financial Services Committee and the Senate Commerce
Committee have already held hearings.

But Lieberman's panel is the top investigative committee of the Senate. Under Republican
leadership during the Clinton administration, then-chairman Fred D, Thompson (R-Tenn.)
headed an investigation of Bill Clinton's 1996 presidential campaign fundraising.

Levin and Lieberman said they intend to look into the close ties between Lay and President
Bush, a connection that some Democratic Party officials say they hope to take advantage of in
this year’s congressional election campaigns.

Levin said he wants to know what advice Lay, who was a large contributor to the Bush
campaign, gave to officials of the new administration as it formulated energy policy a year ago.
Enron "also had close relationships with some Democrats, it's fair to say," Lieberman
acknowledged. He said he expected the inquiry to be bipartisan and to have Thompson's support.
"We are going to work together,” Lieberman said.

Lieberman said the committee also wants to leam whether federal regulators have the authority
to adequately oversee the complex commodity trading and financial transactions that were the
foundation of Enron's rapid growth over the past three years.

Lieberman noted that much of Enron's trading in energy derivatives was exempt from regulation
by the Commodity Futures Trading Commission, and he said a focus of the inquiry would be
whether this allowed the company to hide some transactions.

Enron was an active player in lobbying for the exemption beginning in the early 1990s,
according to sources. The exclusion was initially approved by the CFTC in 1992, and in 2000
Congress endorsed it as part of the Commodity Futures Modernization Act, despite concerns of
some senior regulators.

At a joint hearing on the legislation by the Senate Banking and Agriculture committees in June
2000, then-CFTC chairman William J. Rainer spelled out his "reservations" about the exclusion
and said that "the case for it has not been made” with regard to energy derivatives.

© 2002 The Washington Post Company

02838

01300000001447


has no assets other than a one-third stake in Azurix, a subsidiary that owns British water utility
Wessex. Enron Treasurer Ben Glisan stated that assets could be sold to pay off the noteholders,
raising at least $2.2 billion, including $1.55 billion in proceeds from the sale of the Portland
General Electric utility. In a worst-case scenario, it could issue as much as $1 billion in stock
(there are currently 850 million shares outstanding), although Enron’s share price had declined
75 percent from its high. An analyst estimated that Enron could have close to $9 billion in off-
balance sheet debt, and had been trying unsuccessfully to sell $6 billion in illiquid foreign assets

for years.

On October 24, Enron reported it had $3.35 billion in bank lines of credit, of which $1.75
billion would expire in May 2002 if not renewed. However, analysts still seemed to be
mesmerized by Enron. Goldman Sachs downgraded Enron from its “U.S. Select List” of a few
dozen stocks to its “Recommended List” of 200 stocks, Only Prudential downgraded Enron to a
“sell” rating. Of 17 analysts, 10 still maintained a “strong buy” rating. Critics charged that
analysts had compromised their objectivity, especially since Enron has retained many Wall
Street firms for its offerings and paid a substantial amount of investment banking fees.

On October 25, Mr. Fastow took 2 “leave of absence” from Enron, and Mr, McMahon
was named CFO. Concems arose regarding a potential destabilizing effect on the energy trading
market, since Enron trades approximately 25 percent of U.S. OTC electricity and natural gas
contracts, particularly through its popular EnronOnline Internet trading platform. The notional
value of its derivatives portfolio was estimated at $21 billion, and there were fears that utilities
and commercial and investments banks could be affected as well. J.P. Morgan Chase was
mentioned, as it advises Enron on asset sales, provides credit to Enron, has the largest derivative
operation of any bank, is a counterparty to Enron in some transactions, and has a large
commodity trading business. Enron's creditworthiness was questioned. Enron's stock price
declined again and it was the most actively trade NYSE stock at nearly 76 million shares,
included some large blocks of 800,000 shares or more reportedly sold by institutional investors.
Share prices for other energy trading companies declined as well. Additional analysts issued sell
recommendations for Enron.

On October 26, Enron drew down $3 billion of its $3.35 billion bank credit lines to
redeem $1.85 billion of outstanding commercial paper that it was unable to roll over, and to
provide it with a cash cushion. Citigroup and J.P. Morgan Chase reportedly each extended at
least $400 million. Enron reportedly was negotiating an additional $1 to $2 billion credit line,
although the banks were insisting on stricter covenants and terms. Fitch placed Enron on review
for a possible downgrade, and S&P changed its credit outlook to negative from stable. Enron's
bonds, although still investment grade, traded at a 770 bp spread to Treasurys, in the same range
as junk bonds, with yields rising above 10 percent, and liquidity was described as poor, The cost
of a default swap rose to 10 from 8 percent of the size of the credit insured. Enron sued
Microsoft over its failed broadband services arrangement. Critics noted that Enron would
receive $254 million in tax benefits in the current House stimulus package.

On October 29, European energy firms reportedly were reluctant to trade with Enron, one
of Europe's biggest power and gas traders. Some counterparties avoided Enron, and liquidity
was reduced. Its stock hit a five-year low. Moody's downgraded Enron's senior unsecured

s 02859

01300000001468


FINANCIAL HIGHLIGHTS

(Unaudited: in métions, escept per share data} 2000 1 1998 1997

Reverses $100,789 sean $31,280
Not income
Operating remats Ss 1,266 957 698 515

ng comparability (287) $ (e104
$979 oad 703 105

Exenings per diluted common share
Operating rewats s 147 a 1.09 os?
Reems impactinag comparability (0.35) (0.08) 001 om
Total S42 1.10 19 0.16
Dividends paid per common share $ 0,50 0.50 048 0.46
Totat assets S 65,503 23,381 23,380 22.852

Cash from operating setivites

(exdhading working capital) $ 3070 2.228 1.873 26

Capital expenditures and equity iwestments = § 3,314 1,085 ame
NYSE price range
High $ 90% 444 24 22%
Leow an% mu 19% Ws

Close December 31

Pt)
n3

a i

ov 2 2 OF

Siete

REVENUES OPERATING RESULTS

wn | 8%
“ @ @

Sar Gon SRP ren SAP Error
$0 B 300

(re Yur ve en —

CUMULATIVE JOTAL RETURN
feweugh December 31, 2008)

$13,289

ost
ov
100

16.197

742

1483

02749

WON anerses RCE 2000

01300000001358


DRAFT
January 4, 2002

TO: Norman Carleton

Director

Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss

Financial Economist

Office of Federal Finance Policy Analysis

SUBJECT: Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modernization Act of 2000

BACKGROUND

((b)(5)]

02815

01300000001424


and an additional expanion of up to 180 MMefid that is expectadt
to be completed im 202. Northam Border Partners ts evakusting
the development of a 325 mile pipeline with § range of capacity
from 375 MMcfid to 0 MMefid to connect natural gas produc:
tion in Wyoming to the Northam Border Pipetine in Montara

in 2001, Partiand General anticipates purchaied power
and fuel casts to remain at historically high levels, Portland
Geners! has submitted a request with the OPUC to recover the
anticipated cost increase through # fate adjusument.

Wmolesale Services

Enron builds ts wholesale businesses through tne creation
of networks Involving selective @sat Ownership, contractual
access to thirdpary assets and market-making activities. Each
market in which Wholesale Services operates utilizes these
components in a sightly different manner and it at # cifferent
stage of development. This matwork strategy hos enabled
Wihaleale Services to establih a leading postion i its markets.
Wholesale Services’ activities are catagorized into two Dusres
tines: (a) Commodity Salles and Services and (b} Assets and
lewestmancs. Activities may be integrated into a bundled product
offering for Enron's customers.

Wholeale Services manages hts portfolio of contracts and
assets in order to marimize value, minimize the amoceatod risks
and pravicie qverall liquidity. In doing 30, Wholesale Services uses
Portfolio and risk management disciplines, including offsetting
‘of hedging transactions, to manage @powures ta market price
movements (commodities, interest rates. foresgn currencins and
equities). Additionally, Wholesale Services manages its liquidity
and exposure to third-gaety ereciit risk through monetization of
its contrast portfolio or third-party inwurance contracts
Wholesale Services sho sells interests in certain iwestmernts anc
other assets to improve liquidity snd overall return, the timing of
which is dependent on market conditions and management's
expectations of the investaent’s value.

The following table reflects IST for each business line:

ow 2000993888
Commodity sales anc services Heo S$ Ga SENT
Assens and ineestments a8 850 me
Unatoceted expemes 2s) (16) na
Income before trtoroit,
minority interests and taxes $2,260 81.317 $088

‘The following discustion analyzes the contributions to (GT
for each business line.

Commodity Sales and Services. Wholesale Sercices prowiies
reliable commodity delivers and predictable pricing to its
customers through forwards and other contracts, Ths marker.
making activity incudes Une purchase. sale. marketing and
delivery of natural gas. electricity liquids and ether commode
thes. a5 well as the managament of ¥Wholessie Services’ own
portfolio of contracts. Contracts msceisted with this actreity are
accounted for using the mark-to-market method of sccourrhing
Swe Note 1 to the Consolidated Finwncial Statements. Wholesale
Services’ market-making activity is facilitated through @ network
of capabilities including selective asvet ownership. Accordingly,
certain assets involved in the delivery of these services are
included in this business (wich 2s intrastate natural gus pipes,
ges storage facilities and certain electrec generetion aes)

Wholesale Servicns markats. transports and provides energy
commodities as reflected in the following table (including inter-
company sounts):

. 1398
Physical wokarans Bcueid) @ME)
Gax
United States we A982 TATE
Canada 4359 43981408
Europe and Other S72 1.281
W757 14052 12.158
Tramportation volumes - ss, 559
Total gas vohames mae 15,527 12.714
Crude 8 and Liquids aces 6160 3.570
Broctricity 17.208 10.742 eee
Total ptrypucat volumes (BB Lahd| Su71s 32,429 27.008
Bieciricty volumes (thousand MWh)
Unned States S7H,707 380,518 401,843
Furope and Other $4470 11,576 529
Total $33,457 302.084 402.372
Financal settlements
_{notionst, BBtueh) 796,148 98337 75.286
dat Btoon Beta Wherry umes CTR

(i) inchachs tira perty
(0) Represents elcricty woleren, comarted to SBT

Earnings from commodity sales and seevices incrozsed $1.0
illian (160%) in 2000 4s compared to 1999. Increased profits
from North American gas and power marketing operations
European power marketing operations as well as the waive of
new Busineses, auch os pulp and paper, contributed to the
earnings growth of Enron's commodity sales and services busi-
ness. Continued market leadership in terms of volumes trans-
acted, significant increases in natural gos prices arnt price
voistility in both the gas and power markets were the key
contributors to increased profs in the gas and power interme
lation businesses, in late 1999, Wholesale Services launched ant
Internet-based eCommerce system. EreonDaling, which allows
wholesale customers ta view Enron's real time pricing and to
complete commodity trareactions wih Enron as principal, with
no direct interaction, in its first full year of operation,
EnronOnline positively impacted wholesale volumes, whch
increased 89 percert over 1999 lavels,

Earnings fram commodity sales and servieus increased $277
fniltion (53%) an 1999 2s compared to 1996, reflecting strong
results from the intermediation busineses in bath North
America and Europe. which incluce delivery of energy com:

third:party contracts. New product offerings in ecal and pulp
and paper markets also added favarably to the rests,

Assets and trvastmonts. Enron's Wholesale businesses make
investments in various energy and ceetuin related assats as 8 part
of its network suategy Wholessic Servioss either purchasas the
stat from a third party or develops and constructs the asset.
mest cases. Wholesale Servieas operates and menage: such
assets. Earnings from these mwestinents principally rewsk from
‘operations of the sisets o# sales of ownership eiterests,

Addivanally, Wholesale Services invests in dept and equity
securities of energy and technology-related businesses. which
may also utilize Wholesale Services’ products and services. with
thee merchant investments, Enron's influence i much more
United relative to assets Enron develops oF constructs. Earnings
from these activities, which are accounted for on a fair value
basis and ere inekuded in revenues, result from changes in the
morket value of the securities Wholesale Services uses risk

02771

01300000001380

4, PONS 3

Bd


Carleton, Norman

From: Carleton, Norman
Sent: T , October 02, 2001 1:52 PM
To: Ni , Peter; Schuttheiss, Heidilynne
Subject: FW: Discussion with Ken Raisler about Enron Product
----Onginal Message-~--
From: Hammer, Viva
Sent: Monday, Octaber 01, 2002 3:09 PM
To: Carleton, Norman
Subject: RE: Discussion with Ken Ratsler about Enron Product
Petal Seeasn doe

one versin of retail swaps

~-—Original Message=-~

From: Carleton, Norman

Sent: ‘Saturday, September 06, 2001 1:10 PM

To: Bar, Sheila; DeMarco, Edward; Eichner, Matthew; Blett, Martha; Fisher, Peter; Gabfondo, Jose; Gross, Jared; Hammer, Vive;

Hughes, Gerry; Nickolo¢f, Peter; Novey, Michael; Roseboro, Brian; Schutheiss, Heidilyrine; Smith, Amy; Sutton, Gary
‘Subject: Discussion with Ken Ratsier about Enron Product

On Friday, September 7, I discussed the retail swap issue with Ken Raisler. He is a partner at
Sullivan & Cromwell who represents Enron. In the mid 1980s, he was the general counsel of the CFTC.

I asked Ken if Enron opposed state regulation of retail energy derivatives if the CFTC were to grant an
exemption for this product. The first answer to this question was yes, but that answer was modified as we
further discussed the issue.

I asked Ken if he thought that there was a preemption argument that could be made because of CFTC
exclusive jurisdiction. He said he thought there was. He said Enron would not make such a legal argument
because it is regulated in some states as a utility company, but that others might make such an argument.

I told Ken that the Treasury had not come to a conclusion about the retail energy swap issue but that we
were unlikely to support a result that would mean no federal regulation and would not allow state
governments to regulate this product if they chose to do so. He asked me what regulatory issues might be of
concem. | answered that such issues as advertising, pricing, and assurances that the company offering the
product had the financial ability to meet its obligations might be subjects that governments would be
concemed about. Ken said he thought that this was a reasonable position.

I asked Ken whether he thought that the CFTC could exempt retail energy swaps from the exclusive
jurisdiction provision of the CEA, thus precluding any arguments about state jurisdiction. He said he
thought that might be possible.

At the end of the conversation, Ken indicated he would talk to his client about the issues I had raised.

((b)(5)]
Tracking: Recipient Delivery Read
col ete elieed Read
‘Sc heiss eidil ¢ elieed Read

03039

01300000001649


Subcommittees of the House Financial Services Committee and the Senate Commerce
Committee have already held hearings.

But Lieberman's panel is the top investigative committee of the Senate. Under Republican
leadership during the Clinton administration, then-chairman Fred D. Thompson (R-Tenn.)
headed an investigation of Bill Clinton's 1996 presidential campaign fundraising.

Levin and Lieberman said they intend to look into the close ties between Lay and President
Bush, a connection that some Democratic Party officials say they hope to take advantage of in

this year’s congressional election campaigns.

Levin said he wants to know what advice Lay, who was a large contributor to the Bush
campaign, gave to officials of the new administration as it formulated energy policy a year ago.
Enron "also had close relationships with some Democrats, it's fair to say,” Lieberman
acknowledged. He said he expected the inquiry to be bipartisan and to have Thompson's support.
"We are going to work together," Lieberman said.

Lieberman said the committee also wants to leam whether federal regulators have the authority
to adequately oversee the complex commodity trading and financial transactions that were the
foundation of Enron's rapid growth over the past three years.

Lieberman noted that much of Enron's trading in energy derivatives was exempt from regulation
by the Commodity Futures Trading Commission, and he said a focus of the inquiry would be
whether this allowed the company to hide some transactions.

Enron was an active player in lobbying for the exemption beginning in the carly 1990s,
according to sources. The exclusion was initially approved by the CFTC in 1992, and in 2000
Congress endorsed it as part of the Commodity Futures Modemization Act, despite concerns of
some senior regulators.

At a joint hearing on the legislation by the Senate Banking and Agriculture committees in Junc
2000, then-CFTC chairman William J. Rainer spelled out his "reservations" about the exclusion
and said that "the case for it has not been made" with regard to energy derivatives.

© 2002 The Washington Post Company

01300000000111


From: Gabilondo, Jose
Sent: Wednesday, May 16, 2001 2:36 PM
To: Carleton, Norman
Subject: RE: New Version of Retail Swap Study Federal! Register Release
((b)(5)]
[(b)(6)]
Jose
--~-Oniginal Message-—--
From: Carleton, Norman
Sent: Wednesday, May 16, 2001 2-35 PM
To: Gabilondo, Jose
Subject: RE: New Version of Retail Swap Study Federal Register Release
((0)(5)]
———-Original Message----

From: Gabilando, Jose

Sent: Wednesday, May 16, 2001 2:32 PM

To: Carleton, Norman

Subject: RE; New Version of Retail Swap Study Federal Register Release

[(b)(5)]
Jase
wn Original Message-——
From: Carteton, Norman
Sent: Wecnesday, May 16, 2001 11:46 AM
To: Pauius, Michael; Nickolof, Peter; Schulthelss, Heidilynne; Novey, Michael; Hamrner, Viva; Eichner, Matthew; Sutton, Gary; Elett,
Martha; Ganiondo, ; DeMarco, Edward
‘Subject: New Versian of Retal Swap Study Federal Register Release
{(b)(5)]

<< File; retail swaps redline wpd >>

<< File; retail swap study release (10).wpd >>

02701

01300000001310


Enron Executives Face Subpoenas

Senate Panel Also Orders Testimony of Directors
By Peter Behr and Dan Morgan

Washington Post Staff Writers

Thursday, January 3, 2002; Page E01

A Senate committee announced yesterday that it is subpoenaing top executives and directors of
the bankrupt Enron Corp, to determine their roles in the Houston company’s epic collapse.

Three other congressional committees already are digging into the Enron failure, but the
subpoenas announced yesterday are believed to be the first of the congressional probes. Among
the likely recipients is Wendy Gramm, an Enron director who is the wife of Sen. Phil Gramm (R-
Tex).

Sen. Carl M. Levin (D-Mich.), chairman of the Governmental Affairs Committee's permanent
subcommittee on investigations, said the panel also will subpoena financial and trading records
from Enron and audit documents from its accountant, Arthur Andersen LLP.

Enron's attomey, Robert Bennett, called the subpoenas “totally unnecessary" and said "we are
fully cooperating with Congress.”

Although Enron Chairman Kenneth L. Lay did not show up for two earlier congressional
hearings on Enron's bankruptcy, he has agreed to testify next month before the Senate Commerce
Committee, Bennett said.

Enron has turned over nearly three dozen boxes of documents to the House Energy and
Commerce Committee, Bennett said. "I don't question the legitimacy of an inquiry [into Enron's
failure], but it's not a measured approach to have a half-dozen different committees doing this at
the same time," he said. “It can lead to a circus atmosphere and a lot of wasted time and effort."
The full Governmental Affairs Committee has scheduled a hearing for Jan. 24 on Enron's use of
a large number of partnerships that kept billions of dollars of corporate debt off the company’s
books. The hearing will also examine whether federal regulators missed warning signs of the
company’s trouble,

Accounting errors involving the private partnerships caused Enron to overstate its earnings by
half a billion dollars over the past four years. Enron's disclosure of the overstatement, in
November, triggered a final plunge in the company’s stock price and the company's bankruptcy
filing Dec. 2.

Sen. Joseph I. Lieberman (D-Conn.), chairman of the full committee, said, "The focus is, how
did this corporation collapse, and what can we do to make sure that something like this never
happens again?"

Lieberman's committee joins an already crowded field of Enron inquiries. The House Energy and
Commerce Committee has sent investigators to interview Enron officials in Houston.

01300000000037


{(6)(5)}

CONCLUSION
{(b)(5)]

Attachments

[(b)(5)]

01300000000030


(On Nowember 22, 2000, the FERC ised an order approving the
rates, subject to refund.

(On Nowernoer 1, 2000, Transwestern Pipeline Company
ienpleneried a rate escalation of settied trammportation rates in
accordance with its May 195 glotel settienert, as amended in
May 1996, On August 23, 1999, Transwestern filed for # new
service, Enhanced Firm Backhaul An order by the FERC was isssed
Februmry 23 2000, approving the service.

Gece Uuity Operations

‘On October 2. 2000 PGE filed a restructuring plan with the
CPUC that implements the provisions of the State Senate Bill
987148, signed into law in July 1999. The new law peowkdes incus-
vial and commercial customers af iwestor-cwned utilties in the
state Groct access to competing energy suppliers by October 1,
2001, As flee, PGE's plan aso proposes an increase in base rues,
with new tariffs effective on October 1. 2001, PGE is a 7.5%
owner of the Trojan Nuciear Plant (Trojan). In September 2000,
PGE emtered ito an agreement wih the OPUC related ta Trajan.
See Note 14. At December 31, 2000. PGE's reguistory sssut rulat-
00 10 recovnry of Trojan decommissioning costs from customers
was $7180 million,

Enran believes, based upon its experienot to date and after
coraidering appropriste reirees Ut have been established,
that the ultimate resolution of pending regulatory matters will
not have 3 material impact on Enron's faancial positon or
remats of operations,

14 UTIGATION AND OTHER CONTINGENCIES

Enron is # party to wariaus claims and Stigation, the signifi-
cant items of which are dacussed below. Although no aswurances
can be given. Enron believes, based on its experience to date sed
after considenng appropriate reserves that hava Bosn estab:
lished, that the ultimate resokstion of such ems. individually oF
in the aggregate, will not Hime @ material adverse impact on
Enron's financial pavtion or results of operations

Litigation

Imp 1995, several parties {the Piairwtiffs} filed suit in Harris
County District Court im Mauston, Texas. against invatex Gas
Company (Intrates), Houstan Pipe Line Campany and Panhance
Gas Company (collectively, the Enron Defendants), each of which
is. a wholly-owned subsidiary of Enron. The Piainaifts were either
sellers oF royalty OwMers Under MUMerOUS gus pUTchiw CorrtraEts
with Intrates, many of which have terminated. Early in 1896. the
case was severed by the Court into two matters to be thed (or
otherwne resolved) separately. in the first matter, the Plainttts
allaged that the Enron Defendants committed fraud and negli-
QP mistopresentation in connection with the “Panhandle pro-
gram,” a special marketing program established in tne early
19805, This cee was Wied in October 1996 and resulted ma ver-
dict for the Enron Defendarts, in the second matter, the Plaintiffs
allege that the Enron Defencerns violated state regulatory
requirements and certain gas purchase contracts By failing ta take
the Plaintiffs’ gas retably with other producers’ gas at certain
times between 1978 and 1388, The trist court certifing # class
action with respect to ratability daims, On March 9, 2000, the
Texas Supreme Court ruled that the trial court's class certification
was improper and remanded the case to the (ist court. The Enron
Osfencants Gary the Plaintiffs’ claims and have asserted various
affirmative defenses. inctuding the stouce of lemitetions The
Fnvron Defendants botieve that they have strong legal snd factual
doferans, and intend to vigarousy contest the claims. Although
no amsurances can be given, Enron believes that the ultimate

renolution of these marters will not have a material adverse effect
‘on its financial position oF results of operations,

(On Newember 21, 1995, an explosion ccourred in or around
the Humberto Vidal Building in San Jusn, Puerto Rico, Thee @apio-
sion resulted wn fateitien bodily injuries and damage to the
building and surrounding property. San Juan Gas Comparne Ine.
(San juan Gas), on Faron affiliate, operated a propancienr
distribution system in the vicinity but did not provide service to
the Duilding. Enron, San juin Ges, four affiliates and their insur:
neo carriers wore named as defendarts, stong with several third
parties, including The Puerto Rico Aqueduct and Sewer
Authority. Puerto Rico Telephone Company. Heath Consultaens
Incorporated, Humberto Vidal, Inc. and their insurance carriers
in numerous lawsuits Fed in U.S, District Court for the District of
Puerto Rico and the Superior Court of Puerto Rica, These sults
seek damages for wrongful death. personal ijury. tersiness ier
ruption and property dsnege allegedly caused by the explosion.
After pearly four years without determining the casio of the
explasion. all parties hawe agreed not to liigate further thet
isuse, but to mave these suits toward seitiements oF tials to
determine whether each pleritif! was injured as a result of the
exploson and. if sa, the lawful damages attroutable to such
injury. The defendants have agreed on @ fund for settlements or
finol awards. Numerous claims have been settled. Although no
auarances can be given. Enron believes that the timate resolu-
tion of theie matters will not have a material adverse effect on
its financial pasition or results of operations.

Trqjan Ineasxment Recovery

In early 1903. PGE ceased commercial operstion of the
Trojan nuclear power generating facility. The CPUC granted PGE.
through 8 general rake order, recovnry of, and a return on, 87
percent of its remaining #westmentt i Trojan

The OPUCY generat rate ardor related ta Trojan has been sub-
ject to litigation in various state courts. including rulings by the
Oregon Court of Appeals and petitions to the Oregon Supreme
Court filed by parties opposed to the OPUC's order, including the
Utility Reform Project (URP) and the Citizens Utilny Board (CUB),

In August 2000, PGE entered into agreements with CUB and
the staff of the OPUC to settle the Stigatian related to PGE's
recovery of its investment in the Trojan plant. Under the agree-
nents, CUS agreed to withdraw from the litigation and to sup
Dort the setthenertt as Ue means Lo resolve the Trojan Mtigaton
The OPUC approved the accounting anc raterisking slemants of
‘the settlement on September 29. 2000. As @ result of these
approuals, PGE's investment in Trojan & no longer included in
rates charged to customers. either through a return on or areturr
of that investment Collection of ongoing decommasioning cass
at Trgan © not affected by the settlement agreements or the
September 23, 2000 OPUC order. With CUBS withdrawal, URP is
the one remaining significant adverse party in the IRigation, URP
has indicated that it plans to continue to challenge the OPUC
order allowing PGE recovery of its investment in Trojan.

fnron cannot predict the outcome of theve actions,
AAithough no amurances can be given, Eneon believes that the
ultimate resolution of these matters will not have # material
adverse effect on its financial pasition or results of operations.

Enveonmontal Matters

Enron ts subject to extensive federal, state ark! local envi:
foomental laws and reguistions. These lies and regulations
require expenditures in connection with the construction af new
facilities, the operation of existing facilities and for remediation
at various operating sites. The implementation of the Clean Air
Act Amendments & expected to rewlt in increased operating

02795

01300000001404

ONO Anerund ERO 2000,

=
a


The exemption, tucked into broader legislation that established the legality of unregulated
derivatives trading by banks, was not supported by a Clinton administration working group,
largely because of opposition from the CFTC. Since the departure of Wendy Gramm, some in
the agency had lobbied for tighter control over the exploding energy derivatives market, The
legislation passed through the Senate Banking Committee, then chaired by Phil Gramm, who has
received $97,350 from Enron employees and its political action committee since 1989. A Gramm
spokesman said the senator does not recall talking to his wife, an Enron director, about the
energy provision and played “no role" in negotiating it, Wendy Gramm did not retum phone calls
secking comment.

Enron was a primary player, with Koch Industries Inc., a large, privately held oil and gas
company based in Wichita, in pushing for the exemption, a source said. But the company's main
effort was focused on the House Agriculture Committee, where the legislation originated. Its
chairman and ranking Democrat, Texas Reps. Larry Combest (R) and Charles W. Stenholm (D),
Tespectively, were among the top recipients of Enron campaign donations in the House since
1989.

The CFTC objected strenuously to the initial draft marked up by the committee, but the Texas
congressmen helped work out a compromise between Enron and the agency, The compromise
was then offered by Rep. Jerry Moran (R-Kan,), the home-state congressman of Koch Industries
and a recipient of campaign donations from Enron and Koch in the last election cycle. Moran did
not return a phone call seeking a comment.

Early this year, Lay seemed to be at the height of his political power, getting a private mecting
with Vice President Cheney to discuss the administration's energy policy proposals and weighing
in on key nominations to FERC,

Curtis Hebert Jr., FERC’s chairman at the time, has reported that Lay called him and implied that
Enron would urge the newly installed Bush administration to keep him in the job -- if he changed
his views to support Enron's position for faster electricity deregulation. Lay contended that
Hebert called him to ask for support.

Hebert was not reappointed. He was replaced by Texas lawyer Pat Wood III, a strong advocate
of deregulation who had the backing of Lay and Enron.

Ironically, since Enron's fall, both FERC and Congress seem to be moving in the direction of the
deregulated markets Lay and Enron lobbyists had pushed for.

© 2001 The Washington Post Company

01300000000108


-
PP PPP REMI PME

“tts
NSN

002 wodsy yenuuy vos

{Endless possibilities.

1400 Smith Street
Houstors, Texas 77002-7561
wrmenron com

01300000001415


{ <ayeseation Cem Jan 10 08;04;53 cued

{[BZDYLBV) Expand farm supports now, largest US farm group says

-- Bxpand fara eupports now, largest US farm group says --
By Charles Abbott

RENO, Nev., Jan 9 (Reuters) - The largest U.S. farm group
voted on Wednesday to push aggressively for billions cf dollars
worth of new farm supports, and urged Congress to offer the
fatter subsidies on this year's crops.

Senate Majority Leader Tom Daschle has said the farm bill
vould be one of the first items for action when Congress
re-convenes on Jan, 23- .

A stalemate between Republican and Democratic senators
dashed hopes that a new farm policy law would be enacted last
month. idy spending on grain, cotton and soybeans would
rise by about $5 billion a year whenever lawmakers reconcile
their disagreements and send a bill to the White House.

*We will continue to push for passage of a farm bill as

goon as we can,* president Bob Stallman said after the American
Pare Bureau Pederaticn adjourned its annua licy-setting
convention. With $,1 million members, it ranks as the largest
U.S. farm group.

The farm bill is written every few years to chart federal
spendi: on crop subsidies, export programs, public nutrition
and agricultural research.

With Congress mid- through an overhaul of farm law, the
arm Bureau's 397 voting delegates decided to stick with a set
of priorities that included new subsidies to he released
whenever market prices were below ‘target prices" set by law.

The Farm Bureau also favored higher wheat, rice and feed
(coarse) grains supports that would be in line with soybeans.
Analysts say a generous soybean support rate has encouraged
record seedings despite low market prices.

"This is a re-affirmation we are headed in the right
direction,” Illinois Farm Bureau president Ron Warfield said of
the convention.

BIGGER FARM SPENDING NEEDED

U.S. competitors in the global export market regard the
House amd] Senate farm bills, which prescribe larger farm
spending, as an example of good politics but poor policy.

"It's good policy with respect to going into a new round of
(world trade} negotiations, We're not going to disarm
unilaterally," said Stallman.

Me said the Farm Bureau supported the U.S. proposal to
reduce export subsidi: ma domestic supports and to remove
barriers to agriculty: trade worldwi'

The Buropean Union has complained about the level of U.S.
Gomestic crop subsidies that are likely to grow in the next
farm bill, and the U.S. push to eliminate export subsidies,
which is one of the EU's prime ways of supporting farmers.

The House of Representatives passed a $73.8 billion farm
bill last fell that would run an unprecedented 10 years. It
would hold crop supports at current levels but give grovers a
larger annual subsidy and revive ‘target price" payments.

By comparison, the $45 billion, five-year bill pending in Aye >

Page 20 Thursday, January 10, 2002

01300000000141


the Bush administration is partly to blame for high interest rates
on longer term borrowing, which some say ere stunting a rebound in
growth,

Some investors bet the tax cut will push the U.S. budget back
into deficit and require the government to sell more government
securities.

The yield on the Treasury's benchmark 10-year note, at 5.05
percent today, is 6 basis points lower than it was on Jan. 1,
2001. In that same time, Fed policy makers have lowered the
overnight bank Lending rate by 4 3/4 percentage points.

“Lots Going On’

““There are lots of things going on in the world, including
enormous changes in energy prices and Argentina,*' he said. ““To
say this change in the federal revenues accounts for everything
you see or Gon't see in interest cates is wrongheaded.''

The former chairman of No. 1 #luminum producer Alcoa Inc. said
his conversations with industrialists offered a ‘"mixed bag'' of
outlooks. Manufacturing, as measured by the Institute for Supply
Management's monthly survey, rose in December to the highest level
since October 2000 as new orders and production increased. That's
a sign factories are starting to recover from 4 17-month slump.

““There are people I speak to that already see in their own
demand picture an early pickup in the economy and there are some
who don't,'* O'Neill said.

One reason he cited for optimism was that inventories were
now lean enough to allow production to increase, something he said
would boost growth.

“You've created the basis for a resurgence,*' O'Neill said of
those who have sliced their stockpiles amid falling demand of
2001. Inventories declined at a record $€1.9 billion annual rate
during the third quarter.

Commodities “Encouraging’

O'Neill also said a rise in commodities prices is
““encouraging.'' The Commodity Research Bureau index, which
includes 17 markets for raw materials, is up 6.3 percent since
falling a two-year low on Oct. 24.

Automobile producers, such as General Motors Corp. and Ford
Motor Co., were also praised by O'Neill for helping the economy by
introducing zero financing costs in the wake of Sept. Ll, even
though they may have lost profits.

““If they insisted on margin maintenance then, that might
have been better for them,'' he said. “‘But from a broader
economic point of view (their actions} meant jobs for people that

A Wer

Thursday, January 10, 2002 Page 29

01300000000150


Dam, Ken

From: LaKritz, Robb

Sent: Wednesday, January 09, 2002 10:53 AM

To: Dam, Ken

Subject: FW: Protests at World Economic Forum in NYC (Jan 31-Feb 4)
FYI

Thanks -

Robb Lakrit2

onnQniginal Message----
From: ‘Carnes, Carol
Sent: Wednesday, January 09, 2002 10:37 AM
To: Sebade, Keith; Figura, Linda; Galen, Reed
Cc: Donovan, Meg; Toloul, Ramin; Sabel, Mark; Harlow, Robert; Marvey, Reavie; Valentic, Marsha; Lakritz, Robb; Pauisan, Sara; Conley,
Robert; Crowe, Brian; Stedman, Lousilen; Gaukol, Andy; Lundsager, Meg; Backes, Steven
‘Subject: Protests at World Economic Forum in NYC (Jan 31-Feb 4)
{(b)(5)]

00100000000871


Wa have metamorphosed from an assat-based
paling and power generating company to 2

mariceting and logistics company whase biggest
assets are its woll-established business approach

and its innowative people.
Our performance and capabilities cannot be

red to @ traditional energy peer group. Our
results put us in the top tier of the world’s corpora
tions. We have a praven business concept that is
eminently scalable in our existing businesses and
adaptable enough to extend to new markets.

As energy markets continue their transforma:
tion. and nan-energy markets develop, we are
poised to capture @ good share of the enormous
opportunities they represent. We believe wholesale
gas and pawer in North America. Europe and Japan

-
a | |
ue " oo

NRON TRANSPORTATION SERVICES |

REPORTED INCOME BEFORE INTEREST AND TAXES
Gh reali

will grow from @ $660 billion market today to @
$1.7 trillion market ower the next several years.
Retail energy sorvices in the United States and
Europe have the potential to grow from $180 billion
totkey Lo $765 billion in the not-so-distant future,
Broadband's prospective globe! growth 5 huge
it Should increase from just $17 billion today to
$1.4 triltion within five yoars

Taken together, these markets present a $3.9
trillion opportuni
scratched the surface. Add to that the other big

for Enron, and w

rave just

markets we are pursuing — forest products. metals,

steal, coal and air-emissions crecits — and the

opportunity rises by $830 billion to reach nearly
$4.7 trillion

Our talented people. global presence, finan-

cial strength and massive market knowledge have

crested our sustainable and unique businesses.

‘onOniline will accelerate their growth. We plan
» leverage all of thase compatitive sdvantages to
create significant value for our shareholdars.

Kermeth L. Lay
Chairman

/
Joffrey K. Skilling
President anc

Chiat Executive Officer

a
~..&
1 4 4

ENRON BROADBAND SERVICES -
7000 BAMERMIDTHE TRANSACTIONS,

02753

01300000001362

eeu Aneel expat 28

w


ISSUE AND DISCUSSION

[(b)(5)]

CONCLUSION

{(b)(5)]

[(©)(5)]

02830

01300000001439


Market Risk

‘The use of financial instruments by Enron's businesses may
expose Enron to market ed credit risks resulting from adverse
changes in commodity and equity prices, intarest rates and forwign
exchange rates. For Enron's businemes. the major market risks ore
dscumed below:

Commodity Price Risk Commodity price risk is a consequence
of providing price risk management services to customers. AS dis:
uated abows, Enron actively manages the nak on a portfolio bass
to ensure compliance with Enron's stared risk management poticies,

dntecest Rate Risk, Interest rate risk is abo 3 consequence of
providing price risk management services to customers and having
variable rate debt obligatiorn, ws changing interest rates impart
‘the Gscounted valve of future cash flows. Enron utilizes forwards,
TULUres, swaps and Options 10 marge its interest rate Fisk.

Foreign Currency Exchange Rate Risk Forign arrency
exchange rate risk is the result of Erran's enternatons| operations
and price risk management serviees provided to is waricwidy
customer base. The primary purpose of Error’ foreign currency
hedging activities is to protect against the volatility associated
with foreign currency purchase and sale transactions. Enron pri-
murity ulihoes forward exchange contracts. futures and purchased
options to manage Enron's risk profile

Equity Risk. Equity risk arises from Enron's participatian in
invetments Faron generally manages this risk by hedging spe
cifle investments using faures, forwards. swaps and options.

Enron evaluates, measures and manages the market risk in
its investments on # daily basis Utilizing value at risk and other
methodologies. The quantification of market risk using value at
fink provides » conmistert measure of risk across diverse markets
sed products, The use of these methodologies requires a num:
Der of key assumptions including the selection of a confidence
sevel for expected losses, the holding periad for liquidation and
the treatment of risks outside the value at risk methodologies
including liquidity risk and event nak. Value at risk represents an
estimate of reasonably possible net losses i earnings that
would Be recognized on its Investments assuming hypothetical
mawements in future market Fates and no change in positions,
‘Value ot rik lt not necessarily indicative of actual reults which
may occur.

Value at Risk

Enron has performed an entity-wide vale at risk anaiyws of
virtually ail of Enron's financial innzruments, including peice risk
Management activities and merchant iwestmerits, Value at risk
incorporates numerous variables thet could Impact the fair value
of Enron's inwestments, including commodity pricas. interest
faten foreign exchenge rates. equity prices and associsted
volatilities, as well as correlation within and across thew
warabies, Enron estimates value st risk for commodiy, interest
rate and foreign exchange expousres using # made! based on
Moree Corto simulation of deltaigamma positions which captures:
a significant portion of the exposure related to option positions,
The value at rok for equity expasure Gscussed above Is based an
Morgan's RiskMetiesTM appranch. Both vehue # risk methods
utilize 2 one-day holding pericd and a 98% confidence level,
Cross-commodity correlations arn used ws approprinte,

The use of value at rik modets allows management to
aggregate risks across the company compare risk on a consistent
basis and identity the drivers of risk. Because of the inherent
limitations to walue at risk. including the use of deftalgamma
APPrOKIMaAtiONS to value OPKiON, subjectivity in the chowoe of
liquidation period and reliance on historical data to calibrate the
models, Enron relies on value at risk as only one companeNt in its
fink control process. In addition to using value at risk momures.

Error performs reguisr stress end scenario analyses t0 estimate
the econceni inpest of suciden market moves on the value of its
portfolios. The results of the stress testing. along with the pro-
fessional judgment of experienced busness and rak managers,
are used to supplement the value at risk methodology and eap-
ture sdditions! market-refated risks, including volatility. iquidity
and event. concentration ard correlation risks

The following table illustrates the value at risk for each
component of market risk:

s z
Wrnerest rote — 2 4 2 -

exchange rate a «¢ 8 » 4
quay - a3 6 1 5
Presents 4 tetra roonth aerage of the month ene kes
The Ing ard cw vrtastions for each mawsst nik component represent the

‘ong Jowest movi enuf wove during A000

money wuieed for equity ITvdwNG rraTKOr (isk mats /avMED (mene Cel c.
fatare with he vaanEN nied Sor marcha acthote

(51) MURS Ory Ce Fe seat Ae inutrumonts that serve an Aacines
AF ODM AOR WAAK® Ohe edited! uncerhang hazed feert

Accounting Patces

Accounting policies for price ritk management and hedging
artes are dewribed in Note 1 to the Consolidwted Finance!
‘Statements,

02776

01300000001385


Enron Corporate Policy Committee

EM LAY
Chama Errors

JEfF SKRUNG
President and Chuef Executive Officer,
Enon

Shareholder information

TRANSFER AGENT, REGISTRAR,
QVIDEND PAYING AND
REINVESTMENT PLAN AGENT
(DARECTSERVICE PROGRAM
First Chicago Trust Compary
elo Equiserve

P.O. Box 2500

Jorvay Cy NI OFI02-2500
(B00) 518-3791

(201) 324-1225

TOD: (201) 222-4055

For direct cepeni of dividurncs ont. cat:
(pom) 70-7340

Ininenet adeeeie

herp alawwequeserve.com

2000 ANNUAL REPORT

This Aswual Raport and the statements
contained herein are submitted for Uwe
goreral Information of the sherehotders
of Ereon Camp. and are not intended for
une in commrcction with oF 10 inchucn tive
‘tata or purchane of securities.

ADOITIONAL INFORMATION:

Enron Corp.s Armas Report to share
hhoftders anc Fors 10K report to the
Securities anc Exchange Commission
ten available upon request on Enwon's
Interna address hipuTwwwenroncce
For information regarding specific
sraretolder quention, write ex call tne
Transfer Agent.

CUFF BAXTER
Vex Charman &
(Cried Strategic Offices. Error

RICK CALISEY
Eamctive View President &
Chief Accounting Officer, Enron

DAVE DELANEY
‘Chairman: & CEO,
Enron Energy Services

JM DERRICK

ANDY FASTOW
Executive Wee Presider &
Chief Francie! Officer, Enron

MARK FREVERE
Grmirman & CEO.
Enron Whole Servi

KEVIN HANNON
Crint Operating Cefiowr
Enron Droecbend Serviogs

Finance! analysts ans emntors who need
additiona! Information sheudd exentact:
Enron Corp.

Inventor Relations Dept,

PO. Box 1188, Sute 49208

Houston, TX 77257-7188

(743) 853-2856

Enror's lnneenet wctiress:

itp Owewenroncom

ANNUAL MEETING OF
SHAREHOLDERS

Thm Annual Moeting of Sherehoiders wit
bbe held in Houston, Team, wt the Lasalle
Ballroom of the Oraitetes Hote of
‘Aion Center, 420 Ballas Strout, oF
‘Townday, May §, 200), at 1am
informanion with respect to this emeting
a coreainod in the Prosry Statemant
mn with this Arras Report to Molders
of record of Eneen Corp.'s Common
Stock and the Camulative Second
Preferred Commertitte Stock on Marth
2 200), The 7000 Annus! Report is not
to be considered # pért of the prowy
voligiting material,

DIVIDEND REINVESTIVENT

‘The Transfer Ager offers nokters of
Enron Corp. Common Stock the opper-
tunity to reinvest part oF 3% of their
Gividends Une purchase of addtional
shares of Common Stock by parteipating:

STAN HORFON
Chadrman & CEO.
Eneon Transportation Swevices

‘STEVE KEAN
Eamutinw Vice President &
(Chie? of Staff, Enron

LOU PAL
uiman 4 CED.
‘Enron Xeelerstor

KEN ICL
‘Chairman & CEO,
Enron trowdtoarxs Services

JOHN SHERRIFF
Prescot & CEO,
Enron Burape

GREG WHALLEY
President & COO.
Ervon Wholesale Services

In the OlractSERVICE Program tor
Shareholders of Enron Corp. This pro
(gram ghews almost everyone the oppor
Unity 10 purchane additional sures of
Common Stock without paying # Dro
kkorage commiwion, Anyone wishing to
participate in the program may. upon
‘timmy application, reinvest some, a,
oF nenn of the cash dividends paid on
‘their Comman Stock, oF make optional
cash payments of as Kcthe as $25, after
1 initial investment of $250 for rrew
shareholders, with a imi of $120,000
per catlandar year, Direct recpansts fer
further information to
DirectSERVICE Program fer
‘Sharwneiders of Enron Corp.

do Fievt Chicago Tum Compary

io EquiServe:

PO. Box 2598

Jessay City, 41 07303-25968
Sharehoieiors may cell: (BOO) 619-9197
Nonanarenciders requests for program
materion:

(00) 662-7662

trhernet address.

NLD Aleve egpd serene comm

TOD: (201) 222-4955

02804

01300000001413


[(b)(5)]

ISSUE AND DISCUSSION
{(b)(5)]

01300000000029


Carleton, Norman

From:
Sent:
To:
Subject:

errarners co

Schultheiss, Heidilynne

Thursday, December 20, 2001 1:04 PM
Carleton, Norman

CHRONOLOGY OF ENRON EVENTS

02854

01300000001463


The 7th Annual Repo & Securities Lending Conference

Moderator

Panelists

3:00-3:15 p.m.

3:15-5:00 p.m.

Host

Contestants

Lifelines

$:00 p.m.

Page 4 of 6

obstacles to its growth), (iv) the effect of the dwindling supply of Treasury debt
SOMA portfolio and margining efforts, (v) Repo Tracking/Ginnie Mae Conversi
and (vi) Continuous Linked Settlement (CLS).

Omer Oztan

The Bond Market Association

Kevin Caffrey

Principal

Morgan Stanley & Co.

Jeff Ingber

Managing Director

General Counsel

Government Securities Clearing Corporation

Brian Reilly

Managing Director

BNP Paribas

Break

Ask the Trader!

This game show-style panel promises to be an entertaining and highly substantiv
examination of market practices in the repo and securities lending markets.
Experienced front-office funding professionals will be the contests, answering
questions a repo and securities lending trader commonly must answer in order to
complete a transaction. The professionals will also call upon legal, tax and accou
professionals active in the funding markets to help them answer these questions,
Contestants will also participate in a "bonus round", consisting of questions from
audience!

Larry Brandman

Vice President

Goldman, Sachs & Co.
Jeff Kidwell

Principal

Morgan Stanley & Co.
Others to be Announced
Patricia Brigantic
Director and Counsel
Salomon Smith Barmney/Citigroup
James Johnson

Partner

Deloitte & Touche, LLP
Lucy Farr

Associate

Davis, Polk & Wardwell
Cocktails

Registration Information

Registration Fees:

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK303 l\repo.him

02898

1/15/02

01300000001507


When costomers do business with
Enron, they get our comeitment fo rei
bly diver thar proxtuxr at a predictable
price, regardless of the market conctnon.

Tvs commitment és possible because
of Enron's unnivated acc to markets
equity, We manage Mexibye me
works with thousands of delivery paints
giving us multipie options and a distinct
sernce advantage

Our extensive davy market activity
keeps we on top of price movements. so
We CAN mANAQE OW CUStOMES' price risk
We offey 9 multitude of predictable pric:
ing optrons.

(Markat access and iformation atow
Envan to deliver compreternive logistical
solutions that work in volatile markets
OF markets undergoing fundamental
Changes, Such as energy and broadband,

This core koashcay capatvitty led to
ur best year ever an 2000 Decause physi.
ves ive our wlan pret
We see ample opportunities for further
volume growtty in existing arnt new may
kets. Fran's ability to deviver is the one
constant #7 an increasingly complex and
compennive warts,

IN Volatile
Morkets,

EVERYTHING CHANGES BUT US

Enron blends these four elements together
to deliver premium logistical solutions.

F >>

01300000001363


December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose
Entities

Dow Jones Newswires

WASHINGTON -- U.S. Senate Commerce Committee Chairman Fritz Hollings, D-S.C.,
pledged Tuesday to introduce legislation to eliminate the sorts of financial accounting
that led to the financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate
the use of special-purpose entities, which are partnerships or trusts through which
companies keep their debt off the books and, in Enron's case, overstate earnings.

Hollings said such off-the-balance-sheet transactions should end in order to protect
investors. Hollings also was highly critical of the amount of insider stock selling by top
Enron officials. He noted that Enron Chairman Kenneth Lay and former Chief Executive
Jeffrey Skilling each sold shares in recent months for more than $60 million, while
members of Enron's board sold shares worth more than $160 million.

“The selling of Enron was prolific," Hollings said, calling the insider selling "a screaming
ted flag.”

If Enron officials felt the stock was undervalued, as they publicly attested, “why were
they cashing in?" Hollings said.

Hollings also said there was plenty of blame for the "shenanigans" associated with
Enron's collapse, which he likened to a "cancer." He cited Enron's role in persuading the
Commodity Futures Trading Commission against the Clinton administration's call for
regulation of energy derivatives, and subsequent congressional action to exempt from
fegulation the highly complex energy derivatives Enron's special-purpose entities
engaged in.

“We are all guilty for letting it happen," Hollings said of Enron's collapse.

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel,
described Tuesday's hearings as the first of several that will delve into the roles in
Enron's financial collapse played by: Enron officials; Arthur Andersen, Enron's outside
auditor; Wall Street analysts, and regulators.

“This is about an energy company that morphed into a trading company involved in
hedge funds and derivatives. It took on substantial risks, created secret off-the-books
partnerships and, in effect, cooked the books under the nose of their accountants and
investors," Dorgan said.

01300000000087


The 7th Annual Repo & Securities Lending Conference Page 6 of 6

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02900

file://C\WINDOWS\Temporary%20Internet%20Files\OLK3031\repo.htm 1/15/02

01300000001509


Carleton, Norman

—— —_—_—_——_— ————————$
From: Carleton, Norman

Sent: Tuesday, June 19, 2001 2:42 PM

To: Annette Nazareth (E-mail); Belinda Blaine (E-mail); Bob Colby (E-mail); Bob Zwirb (E-mail);

"David Wall; "Diane Virzera’; Elchner, Matthew, Elizabeth Fox (E-mail); Eric Hirschhorn (Ee
mail); Hammer, Viva; John Poise (e-maa); Joyce Hansen’; Kathryn Dick (E-mail); Kevin
Erickson (E-mail); Kurt Wilhelm (E-mail); Lori Sanatamorena (E-mail); "Miguel Browne’,
Nickoloff, Peter, Novey, Michael, Pat Parkinson (E-mail); 'Pat White’; Schultheiss, Heicilynne

Cc: gos. Jared; Eliett, ; Sutton, Gary; Gabilondo, Jose; DeMarco, Edward; Hughes,
jerry
Subject: FW: Suggested Interviewees

weeer Original Message~-----

From: Zwirb, Robert S. {mailte:bzwirbsCFTC.gov)
Sent: Tuesday, June 19, 2001 2:35 PM

To: ‘Norman, Carleton@do.treas.gov'

Subject: Suggested Interviewees

Here is our list of organizations/ individuals that we propose to interview
for the retail swaps study:

{(b)(5)]

Tracking: Recipient Delivery Read
Annetie Nazareth (E-mail)
Belinda Biaine (E-mail)
Bod Colby (E-mail)
Bob Zwird (E-mail)
‘David Walt
‘Diane Virzera’
Eichner, Matthew Delivered: 6/1901 242 PM Read: 1901 4:05 PM
Eitzabeth Fox (E-mail)
Eric Hirschham (E-mail)
Hammer, Viva Detivered: 6/18/01 2:42 PM Read; 6/20/01 1:54 PM
John Polise (E-mail)
‘Joyos Hansen”
Kathryn Dick (E-mail)
Kevin Erickson (E-mat)
Kurt véiivein (E-mail)
Lori Sanatamorena (E~nail)
“Miguel Browne”
Nickototf, Peter Detiverad: 619/01 2:42 PM Reed: 6/19/01 245 PM
Nowey, Michael Delivered: 6/19/01 2:42 PM Road: 6/19/01 5:04 PM
Pat Parkinson (E-mail)
“Pat White”
‘Schuitheiss, Heicihnne Delivered: 6/190 242 PM Read: 6/19/01 2:42 PMA
Grogs, Jared Delivered: 6/19/01 2:42 PM Read: 6/19/01 2:42 PM
Ebett, Martha Delivered: 19/01 2:42 PM Read: 6/24/01 9:34 AM
Sutton, Gary Delivered: 4/1501 2:42 PM Read: 7/2/01 9:04 AM
Gabiondo, Jose Delivered: 6190T 242 PIA Read: 6/1901 3:00 PM
DeMarco, Edward Delivered; 6/19/01 242 PM Read: 6/19/01 4:10 PM
Hughes, Gerry Delivered: 619/01 2:42 PM

; 02703

01300000001312


Carleton, Norman

((0(5))

Bitsberger, Timothy

Wednesday, December 19, 2001 11:18 AM
Carleton, Norman; Wiedman, Mark

enron

02866

01300000001475


FT oreo

US extends
terror funding

crackdown on

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01300000000152

Page 31

Thursday, January 10, 2002


Carleton, Norman

From: Carleton, Norman
Sent: Tuesday, October 30, 2001 10:11 AM
To: Schultheiss, Heidilynne
Subject: FW; Enron Meeting Request
FYI
~-~-Original Message-~

From: Bi, Dina
‘Sent: ‘Thursday, March 15, 2001 5:59 PM
To: Fisher, Peter; Paulus, Michael; Carteton, Norman
Cec; Gross, Jared
‘Subject: RE: Enron Meeting Request
seems ok to me...should be run through GC,

ao Original Message=-=

From: Fisher, Peter

Sent: ‘Thursday, March 15, 2001 5-31 PM

To: Paulus, Michael; Elis, Dine; Carleton, Norman

Ce: ‘Gross, Jared

Subject: RE: Enron Meeting Request
| also see no reason to object.

---Ongnal Message-——-
From: Paulus, Michael
Sent: Thursday, March 15, 2001 5:27 PM
To: Ells, Cina; Fisher, Peter; Carleton, Norman
Ce: Gross, Jarec
Subject: Enron Meeting Request

Jeff Skilling, President and CEO of Enron has requested a meeting with the Secretary for April 5 to discuss the
West Coast energy crisis. | see no reason to object. Thoughts?
Tracking: Recipient Delivery Read
Schultheiss, Heidilynne Delivered: 1090101 10:11 AM Reed: 10/3001 10:11 AM

01300000000041


Carleton, Norman

—_—____— —— _
From: Gabilondo, Jose
Sent: Wed: , December 05, 2001 5:57 PM
To: Carleton, Norman
Subject: RE: Enron collage
Norman:
{(b)(5)]
José

~—--Original Message-—--

From: Carteton, Norman

Sent: Wednesday, December 0S, 2001 2:58 PM

To: Gabilando, Jose

Subject: RE: Enron collage

Thanks.

From: — Gabllondo, Jose
Sent: —Wednesctay, December 05, 2001 2:56 PM

Here -- for what they're worth ~ are the best of my Enron resources. Here's the link to a daily price chart
of Enron's common stock, which is easier to drag on to your screen and to open (rather than saving): << File:
energysquid.doc >>
This is is a tiny note that | wrote about Enron market structure << File: article2.him >>. These are two (now dated)

pence p pieces about Enron: << Fite: article,htm >> << File: ar2000 pdf >> Here's the 2000 annual
report << File: Pwr_mkters_110201 ppt >> and here's a list of the top 20

power marketers prepared by an energy consulting group - . Hope that you like the Paul Klee format.
José

02892

01300000001501


Daily

DITr ;
&

we

Prepared by Office of Public Affairs @ Commodity Futures Trading Commission @ (202) 418-5080

Selected From Current Issues and the

Washington Wires of:

Futures World News

The Financial Times
Bloomberg Business News
Investor's Business Daily
The New York Times
The Wall Street Journal
USA Today

The Washington Post
Washington Times
Chicago Tribune

Chicago Sun-Times

Thursday, January 10, 2002

Bush to Name Senate Aide Walter
Lukken as U.S, CFTC Commissioner,

p2

Collapse of Enron Sparks Criminal

investigation, p 4

Justice Sets in Motion New Probe of
Enron: Executive Actions Under

Scrutiny, p 9

NFA to Provide Regulatory Service to

Island Futures, p 14

CBOE Executive Moving to

Single-Stock Futures Venture, p 15

Brazil Futures Exchange to Trade

Energy, ADR Futures, p 17

KCBT Members to Vote to Alter HRW

Wheat Contract Rules, p 18

Federal Reserve Chairman Alan
Greenspan to Appear January 24,
2002. at Senate Committee. 0 25

Comensdity Futures Trading Cammissian @ Regulatory Agency for Futures Trading @ 3 Lafayette Certre @ Washington D.C. 2058)

01300000000122


“There are aspects of [the Enron case] that remind us of the savings and Joan scandal, in the
sense that a powerful institution used big money to buy influence and protect itself while
ordinary citizens ended up losing their life savings,” said Fred Wertheimer, president of
Democracy 21, a Washington interest group, referring to a banking controversy in the 1980s.
Enron's ties to Republicans and the present Bush administration were especially close. Lay raised
large sums for George W. Bush's campaign.

Enron, Lay and its employees have contributed $572,350 to him over his career, far more than
any other company, according to the Center for Public Integrity in Washington.

Several top administration officials have been Enron advisers or stockholders, Enron, Lay and
other senior executives contributed $1.7 million in soft-money donations to politicians in the
2000 election cycle, two-thirds of it to Republicans, according to the Center for Responsive
Politics.

Republicans clearly are sensitive to the potential political dangers. The National Republican
Senatorial Committee recently returned @ $100,000 check collected from Enron in November,
after deciding that "it was appropriate to give it back," spokesman Dan Allen said. The
Republican Governors Association last week returned an Enron donation of $60,000.

What was unique about Enron, competitors and allies agree, was a brash and sometimes
counterproductive political style.

Stories of Enron's hardball style are legion. In October 1999, for example, Jeffrey K, Skilling,
then Enron's president, expressed his displeasure at Rep. Joe Barton's position on a deregulation
bill pending in the energy subcommittee Barton chairs.

The meeting grew “heated and awful,” said one person who was present, until Barton (R-Tex.), a
usually mild-mannered man who keeps a Bible on his desk, exploded. “Jeffrey Skilling, 1 may
not have your millions of dollars, but I am not an idiot," one witness recalled Barton saying. The
meeting ended without Enron getting the changes it wanted. "Skilling did not get Washington,”
the source added.

"In their lobbying, they acted like the 800-pound gorilla they were," said Christopher Horner, a
Washington lawyer who briefly directed Enron's government relations in 1997. Lay and Skilling
declined interview requests, but Enron officials say they have no regrets about their use of
money. “It got us name recognition," company spokesman Mark Palmer said. "Given the
aggregation of our foes, we had to make sure that people knew what our argument was.”

Jump-Starting Deregulation

Almost from its start in 1985 as a gas pipeline company, Enron needed help in Washington, and
it got it in a series of actions by Congress and the Federal Energy Regulatory Commission
(FERC) that undermined the traditional monopoly of utility companies over power plants and
transmission lines.

Enron lobbied for several of the initial actions that set the stage for the era of a deregulated
wholesale electricity market.

02819

01300000001428


IssueAlerts email Page 4 of 4

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If you no longer wish to receive this daily e-mail, and you are currently a registered subscriber to IssueAlert
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Copyright 2001. SCIENTECH, Inc. All rights reserved.

02741

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK303 I \article21.htm 1/17/02

01300000001350


It supported the 1992 Energy Policy Act, which opened the utility companies’ wires to electricity
merchants such as Enron. It also worked with the Commodity Futures Trading Commission --
then chaired by Wendy Gramm — for a regulatory exemption for futures trading in energy
derivatives, which later became Enron's most lucrative business. Soon after Gramm stepped
down in 1993, she was appointed to Enron's board.

Independent sources knowledgeable about these dealings, however, said Enron was not the main
interested party. They said the lead was taken by several major oil companies, including British
Petroleum Co. and Phillips Petroleum Co,, which were concerned about the effect of CFTC
regulation on their offshore trading in crude oil contracts, Wendy Gramm, an apostle of free
markets, needed little convincing, the sources said.

That same year, Lay served as chairman of the committee organizing the Republican National
Convention in Houston. Hedging its bets, Enron made a major contribution to a "street fair" in
honor of Sen. John Breaux (D-La.), a key energy policymaker, at the Democratic convention.
Key orders by FERC in 1996 also supported Enron's transformation into a freewheeling trader of
gas, electricity and more exotic products, such as telecommunications services and sulfur-
dioxide emissions credits.

The new rules ensured that Enron and other merchant companies could buy electricity from
independent power plants and sell it to distant customers, using transmission lines borrowed
from utility companies.

Even Enron's harshest critics credit Lay with putting new issues -- such as electricity
deregulation -- on the Washington agenda. Lay,a former Interior Department official with a PhD
in cconomics, became "the ambassador" for deregulation, one former employee said,

Throughout the 1990s, Enron's agenda was opposed by coal-burning utilities, especially ones in
the Southeast, which viewed the emerging wholesale electricity market as a threat to their turf.
Many of these, such as Atlanta-based Souther Co., had impressive political funding and
connections of their own,

But with the explosive growth of Enron and the GOP takeover of Congress in 1995, the
company’s soft-money donations -- unregulated and unlimited gifts to political parties and
organizations -- jumped sharply. They went from about $136,000 in the 1993-94 election cycle,
to $687,000 in 1996 and $1.7 million in 2000, according to the Center for Responsive Politics.

Frustrated by Washington

For all its connections, sources say, Enron often found Washington frustratingly slowand
unreliable.

The company placed a substantial bet on federal support for limits on the greenhouse gases
causing global warming. Enron officials hoped to exploit a new market in industry for carbon-

emissions credits, similar to the one that developed for sulphur credits after clean-air legislation
was enacted in 1990.

02833

01300000001442


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Juliet Eilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AO]

During the administration of the first President George Bush, a new party fundraiser named
Kenneth L. Lay was invited to spend the night at the White House. The sleepover was an carly
coup for the chairman of Enron Corp. and a harbinger of things to come.

Over the following decade, Lay and Enron poured millions of dollars into U.S. politics,
cultivating unequaled access and using the entree to lobby Congress, the White House and
regulatory agencies for action that was critical to the energy company’s spectacular growth.

Now, with Enron's sudden bankruptcy, public attention has tumed not only to the financial
practices that brought the company down, but to what its far-flung political operations say about
the country's campaign finance system.

Some Democrats in Congress are spoiling for an opportunity to use Lay and Enron to embarrass
the Republican Party, which received most of the company's largess over the years. They want to
look into such things as Enron's relationship with Phil Gramm (R-Tex.), ranking minority
member on the Senate Banking Committee and chairman of the committee at a time when his
wife, Wendy L. Gramm, was serving on Enron's board, Last year, Gramm's committee approved
legislation that included a key provision exempting parts of Enron's massive energy trading
operation from federal oversight.

"I think the Enron story is going to turn out to be an enormous political story,” said Rep. Henry
A. Waxman (D-Calif), ranking minority member on the House Energy and Commerce
Committee.

The ties of Lay to the White House and GOP leaders, he added, were so multilayered that
Republicans are likely to be reluctant to pursue them, But he made clear that he intends to do so
and expects the Democratic-controlled Senate to follow suit.

Enron also cultivated relationships with Democrats, however, Lay played golf in Vail, Colo.,
with President Bill Clinton, and Enron gave hundreds of thousands of dollars to Democratic
campaign committees and Democrats in the House and Senate, including Sen. Charles E.
Schumer (N.Y.) and Rep. Martin Frost (Tex.), the ranking minority member on the House Rules
Committee.

A Routine Cost for Some

Advocates of campaign finance reform say the Enron case vividly illustrates the ties between
politics and big money, though it's unclear that the company’s political operations were radically
different from others for whom political contributions have become a routine cost of doing
business,

02818

01300000001427


3/9/2000 draft letter to bankruptcy conferees

The Honorable Henry Hyde

Chairman

Committee on the Judiciary

United States House of Representatives
Washington, D.C.

The Honorable John Conyers, Jr.
Committee on the Judiciary

United States House of Representatives
Washington, D.C.

Dear Chairman Hyde and Representative Conyers:

[(o)(5)]

02970

01300000001579


al _
| BridgeStatio # Jan 10 06:04:46 2002

“ ABADULNY) U.S. form group raizes dues to hone Tes influence ~

nena

-- U.S. farm g raises dues to hone its influence --

RENO, Nev., Jan 9 (Reuters) - The American Farm Bureau

Federation, often cited as one of the most intluential

Washington lobbying groups, will raise ite duea, but only half

e8 much as its board recommended, delegates decided on

Wednesday,

The increave of 50 cents, to $4 4 year, was approved as o
compromise on the final day of the annual convention of the 5.1
million-menber group, the argest U.S. farm organization. It
was the first increase since 1983.

“We're telling the world,,.we're ready to take on aj] che
challenges," president Bob Stallman said after the increase was
approved, 270-127. A two-chirds Majority, 265 votes, was
needed.

indiana delegate Alan Kemper said the increase would
enhance the “outstanding farm organization in the country.”

The board's request for a $1 increase, spread over four
years, was defeated on Tuesday. Southerners resisted the
‘rease, which state Farm Bureaus would Bey to the national

group,

Without ore income, APBP leaders said, the group would

goon eat into its reserves or have to sharply curtail staff and
services. Dues accounted for $17.85 million of the AFBF's $20.3
®illion in revenue last year. Expenses totaled $19.1 million,

Fourteen jobe have been eliminated in the past two years
and expenses have been cut by $3 million since 1999.

Belegates also asked for = vore hext year on giving the
board the power to decide the location of AFBF headquarters,
now in the Chicago suburb cf Park Ridge, Ill. The lacation ia
dictated in APBF bylaws.

"Our office space in Chicago is very old and poorly laid
out," said South Carolina Parm Bureau president David Winklee.

Stallman said the proposal was "a structural thing.*

"Don't think that action means we are going to pack up and
nove aometine,* he said after the convention adjourned.

A perennial topic in Farr Bureau circlea has been whether
to combine the Chicago and Washington offices.

The proposal for a $1 increase, spread over four yoare,
tailed, 25. 59, on Tuesday. Bfforts began immediately to find
4 compromise.

“Some of us need some time to got our ducks on a row to lay
the eggs to send tc the Parn Bureau" said Tennessee Farm Bureau
President Flavius Barker, who proposed the 50-cent increase. It
takes effect in December 2003.

Some delegates remained skeptical any increase was needed.
vereeransp has continued to grow and the national had a
strong balance sheat with agsets of $28 million, up $2 million
from a year ago.

Don Meacham, vice president of the Nevada Parm Bureau,
supported the increase as a way to retain clout.

"You all know we have Harry Reid,* Meacham said, referring ALNe y

Page 22 Thursday, January 10, 2002

01300000000143


{(b)(5)]

02964

01300000001573


[(b)(5)}

02913

01300000001522


{(b)(5)]

01300000000102


January 3, 2002

Washington Post Articles on Enron and the Commodity Futures Modemization

TO: Norman Carleton

Director

Office of Federal Finance Policy Analysis
FROM; Heidilynne Schultheiss

Financial Economist

Office of Federal Finance Policy Analysis
SUBJECT:

Act of 2000
BACKGROUND
((b)(5)]

02829

01300000001438


Carleton, Norman

From: Carleton, Norman

Sent: Saturday, September 08, 2001 1:10 PM

To: Bair, Sheila; DeMarco, Edward; Eichner, Matthew, Evlett, Martha; Fisher, Peter; Gabllondo,
Jose; Gross, Jared; Hammer, Viva; Hughes, ; Nickoloff, Peter; Novey, Michael;
Roseboro, Brian; Schultheiss, Heidilynne; Smith, , Sutton, Gary

Subject: Discussion with Ken Raisler about Enron Product

On Friday, September 7, I discussed the retail energy swap issue with Ken Raisler. He is a partner at
Sullivan & Cromwell who represents Enron. In the mid 1980s, he was the general counsel of the CFTC,

I asked Ken if Enron state regulation of retail energy derivatives if the CFTC were to grant an
exemption for this product. The first answer to this question was yes, but that answer was modified as we
further discussed the issue.

1 asked Ken if he thought that there was a preemption argument that could be made because of CFTC
exclusive jurisdiction. He said he thought there was. He said Enron would not make such a legal argument
because it is regulated in some states as a utility company, but that others might make such an argument.

[ told Ken that the Treasury had not come to a conclusion about the retail energy swap issue but that we
were unlikely to support a result that would mean no federal regulation and would not allow state governments
to regulate this product if they chose to do so. He asked me what regulatory issues might be of concern. 1
answered that such issues as advertising, pricing, and assurances that the company offering the product had the
financial ability to meet its obligations might be subjects that governments would be concerned about, Ken said
he thought that this was a reasonable position.

1 asked Ken whether he thought that the CFTC could exempt retail energy swaps from the exclusive
jurisdiction provision of the CEA, thus precluding any arguments about state jurisdiction. He said he thought
that might be possible.

At the end of the conversation, Ken indicated he would talk to his client about the issues I had raised,
[(b)(5)]

. 02916

01300000001525


Carleton, Norman

((b)(5))

Tracking:

Carleton, Norman

Ping = January 08, 2002 2:51 PM
Roseboro. Brian; Bitsberger, Timothy; Wiedman, Mark; Gross, Jared; Schultheiss, Heidilynne;

Nickoloff, Peter

PWG's Report on OTC Derivatives and the CEA

Bar, Steia

Roseboro, Bran
Bitsberger, Timotty
Wiedman, Mark

Gross, Jared
‘Schultheiss, Haidiynne
Nickoloff, Peter

Delivery

Delivered: 1/602 2:51 PM
Delivered: 1/8/02 2:51 PM
Dettvered: 1/8/02 2:51 PM
Delivered: 1/8/02 2:51 PM
Delivered: 1/8/02 2:81 PM
Delivered: 1/8/02 2:51 PM
Delivered: 1/8/02 2:51 PM

Read
Read: 1/02 256 Pt

Reed: 1/0/02 8:35 AM
Read: 1/8/02 3:04 PM
Read: 1/8/02 3:03 PM
Read: 1/8/02 2:81 PM
Read: 1/8/02 2:52 PM

01300000000116


remo arin ACPO Bom

ENRON ENERGY SERVICES

Enron Energy Services is the retail arm of Enron,
serving business users of energy in commercial and
industrial sectors. Our comprehensive energy out-
sourcing product has proven an exceptionally
effective way for companies to reduce their costs,
manage risks of energy price volatility, improve
their energy infrastructure and focus resources
on their core businesses,

Enron Energy Services recorded its first prof-
itable quarter as expected at the end of 1889, and
continued to grow rapidly through 2000, with
increasing profits in all four quarters of 2000 and
aggregate recurring income before interest and
taxes (BIT) of $103 million for the year. The value of
Gur contracts in 2000 totaled more than $16 billion,
increasing Enron Energy Services’ cunulative con-
tract value to more than $30 biltion since late 1997

This success reflects growing acceptance of
Enron's energy outsourcing product — acceptance
that has meant an increasing rave of new contract-
ing. Our retail energy success in 2000 also reflects
our strang emphasis on contract execution and
implementation and on excellence in custamer
service. Additionally, 2000 was marked by increases
activity in Europe — an untapped market for
energy outsourcing

We are pasitioned to dramatically increase Our
profitability im 2001. Retail energy earnings will be
fueled bby the rapid growth of our U.S. and European
businesses and the strong execution and extension
of existing contracts.

Market Volatility

The U.S. energy sector experienced unprece-
dented challenge and opportunity in 2000, In
national terms, steady movement toward & furre-
tioning deregulated energy marketplace continues,
More than half the country’s population is scheduled
to be able to choose their electricity supplier by
2008. The ongoing energy criss in California has
focused everyone's attention on the complaxities
of incomplete daraguiation, the risks of unreliable
supply and the casts of unenanaged energy demand.
Enron provides commercial and industrial energy
customers with the solutions they need, bringing
reliability and price-risk management to 8 market
otherwise fraught with uncertainty

The volatility of energy prices across the coun-
try has heightened the value of energy management
and increased the demand for retail services. With
Our series of capabilities — energy commodity and
Price risk management capabilities, energy asset
management and capital solutions — we remain
the only firm with the skill, experience, depth and

vorsatility to provide a comprehensive solution to
address uncertain, rapidly changing markets.
Customer Relationships

The core of Enran’s retall business is devetoping
long-term, multi-year relationships with our cus-
tomers. The value st contract signing is only @ part
of the potential value that can be realized when
satisfied customers seek to add additional Enron
servicgs to their contracts.

Of the $16.1 billion in total contract value
signed in 2000, approximately $3 billion came from
expansions of existing contract retationships. For
example, in 1996, we signed a five-year, $250 million
contract with World Color Press, which later merged
with Quebecor Printing. In 2009, based on Quebecor

Measuring Performance
Companies can't improve what they con't measure
Thae's ty Eman hiss dewtoped a stata-of-cheart
Performance Measurement Center (PMC) wnat man’
tore predicts deat changes customer energy consump:
ston. Pomered by 2 Mentie Intesret-based tink that
connects customs’ building controts to the FRAC,
ant operated by 2 teem af anergy menagerie j0-
fessicnak, tho PMC is a unique resource, enabing
gorainoly proactwe energy managerrenit

‘e 7
A

Se pe |
World's satisfaction, the retationshap was extended
and expanded to a 10-year, $1 billion agreement
including not only commodity supply, but also over
all energy management, including the design ang
implementation of improvements in energy asset
infrastructure in more than 60 facilities operated
by Quebecor World.

We value our long-term customer relation-
ships, and the health of these relationships can't
be left to luck, instinct or vague impressions, Our
Customer Satisfaction Program continually cap:
twres our performance against expectations and
benchmarks thase results. Further, it ts designed
to ensure identification and resolution — including
prompt escalation to the exccutive level if needed
— of any issue that might arise.

02762

01300000001371


Tracking:

~~ Original Message----

From: Carieton, Norman

Sent: ‘Thursday, January 10, 2002 4:46 PM

To: Rzemien, Susan

Subject: Fv: CFTC Daily Newsclios 01/10/02 (News on Walt Lukken)
Susan,

[OUTSIDE SCOPE]

Norman

-——-Original Message-—-

From: McCoy, Antoinette B. [mailto:amcony@CFTC.gav)

Sent: Thursday, January 10, 2002 9:51 AM
Subject: CFIC Daily Newsclips 01/10/02

<< File: nc01 1002, pot >>

Recipient Delivery
Rzemien, Susan Davered: 1/1002 5:49 PM

Read
Read: 1/19/02 9:20 AM

01300000000121


cores Original Message-----

From: Fox, Elizabeth L. R. (mailto-:efox@CFTC.gov]
Sent: Tuesday, December 18, 2001 1:40 PM

To: 'Peter.Nickoloffédo.treas.gov'

Subject: RE: Retail Swapa Study -- Clearance status?

Did you change Enron to Enron Energy Service, Inc., and Blackbird to
Blackbird Holdings, Inc.?

o----' Original Message-----

From: Peter.Nickoloffedo.treas.gov (mailto: Peter.Nickoloff@do.treas.gov]
Sent: Tuesday, December 18, 2001 10:25 AM

To: efax@cftc.gov

Subject: Retail Swaps Study -- Clearance status?

Hi Blizabeth,

What the clearance status of the report at the CFTC? It's nearly ready to
go to the Secretary here, and the Fed Board yesterday voted 7-0 to approve
the report. it's making slow but steady progress at the SEC.

Also, how many copies of the report will the CPTC require?
Please let me know, Thanks.

Peter Nickoloff

Office of Federal Pinance Policy Analysis
U.S. Department of the Treasury

Room 5011 MT

Washington, D.C. 20220

te 202/622-1692
f. 202/622-0974
e. peter.nickoloffedo.treas.gov

x

02871

01300000001480


Enron Corp. and Subsidiaries Consolidated Staternent of Changes in Shareholders‘ Equity

On mitions, except per share 2000 1398 1988
ammount; shares ir Drona Shaws Amount Sheews Amour Shares Amourt
Cumulatave Sesoed Prufurred Convertible Stock
Aistanoe, beginning of yoar 12m $1 1am $1 aa 8 1M
Exchange of corwertibie preferred sock far common sock | a) eh eo
Balance. end of yeor jae) 8 tae 1.256 $130 i320 $132
Mandatortly Convertible Junior Preterred Stock, Serios ®
Balaren, beginning of yuar 2 $1,000 $s -
fuasances : a) :
_Balarce. end of yeor 29 8 00080 s
Commen Stock
Baleren, beginning of your The $807 OT. 4.226
Exchange of convertible preferrod stack for common stock 1.508 ‘ m
suuances related to benefit
and dividend reirmeesument plans 2210 6 10,0586 28 - “a
Sales of common stock . 21,600 533 34.500 56
Irauances of common sock In business acquiibors
(see Note 2) am 8 7852 250 : :
Gener : 0 - we - ”
Balunee, end of yosr a of SC SC CRD
Retsined Exenings
Balance, beginning of year $ 2006 $2,226 srasz
Not income 9 293 103
Cash dividends
‘Common stock (80.5009, $0.5000 and 50.4872
Por share in 2000, 1999 and 1986. rexpectivety) 168) ass) aa
Cumulative Second Preferred Comeertible Stock
(513.652, $13,452 and $13.2402 per sharn in 2000,
1909 and 1988, eoxpectivaly} oy i) 0
Saris A aed B Proferred Stock (68) (9)
Balance, and of your $3226 $2698
Aceumdatod Other Comprenensive Inome
Batance, beginning of yoor s aa $ (162) $ (148)
Transtation ochustmerns and other 4307) (579 4)
Batence, end of your $ (1,048) $.cay 082)
Treasury Stock
Balance, beginning of year (133) 8 (418.334) (H95) (PANOZ «$ (RER)
Shares poqured ane ga 17,845) TM (2236) co)
Lechange of convertible preferred stock for common sock : - co) 4 406 8
hsuances relates to benefit and dividend retrventmeert plas aars ast 9.080 aa sare 124
esuances of treasury stock in Business acquiskions : . - : 2 2
Balance. end of year a er Oo} 3s) $1135)
Riestreted Stock and Other
Bsloren, beginning of yar + pes $ (0 $ (175)
tavances related to benefit and dividend retwestmert plans 43) 51 105,
Balance. end of year stay 5 (00) $00,
‘Total Shareholders’ Equity $0470 $8,570 57.088

The accompanying nates are a aniagra) pert of hese consavkcied Reni states.

(HDS Arora REPOS B80

02783

01300000001392


Carleton, Norman

eee _—_— — ———— $$$ $$$ —__—_——_

From: Carleton, Norman

Sent: Tuesday, January 08, 2002 5:44 PM
To: Bair, Sheila
Subject: RE: CFTC's Exemption for Certain Contracts Involving Energy Products (April 20, 1993}

{((b)(6)} {(b)(5)]

Norman

——Original Message----
From: Bair, Sheila
Sent: Tuesday, January 0B, 2002 5:24 PM
To: Carleton, Norman
Subject: RE: CFTC's Exemotion for Certain Contracts Involving Energy Products (Apri 20, 1993)
{(b)(5)]
Sheila

~—-Original Message—--

From: Carleton, Norman

Sent: Tuesday, January 08, 2002 5:14 PM

To: Bar, Shella

ce Smith, Am; Bak, Sheila; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabllondo, Jose; Gross, Jared; Hammer, Vive; Lori
Sanatemorena (E-mail); Nickoloff, Peter; Novey, Michael; Pietrangeli, Fred; Roseboro, Brian; Schulthelss, Heiditynne;
Whaley, Jean; Wiedman, Mark

Subject: CFTCs Exemption for Certain Contracts invaiving Energy Products (Apri! 20, 1993)

Sheila,

The CFTC proposed an exemptive order for certain energy contracts on January 27, 1993, It was finalized on
Apri 20, 1993. [(b)(5)]

01300000000117


Carleton, Norman

— —_—_—_—_— —_—__—— —

From: Carleton, Norman

Sent: Tyesdey. November 20, 2001 2:54 PM
To: isasser@ny {rb.

Subject: Enron Update

I have also been following Enron developments, which bear heavily on the retail al swaps report. | would appreciate being
put on the distribution fist for any further work you send here on that subject. Thar

Norman Carleton

, 02902

01300000001511


The 7th Annual Repo & Securities Lending Conference Page 2 of 6

8,00 - 8:30 a.m

8:30 - 9:00 a.m

Welcome

9:00 - 10:15 a.m.

Moderator

Panelists

10:15-10:30 a.m.

10;30-11:30 a.m.

Moderator

Panelists

Breakfast
Featured Speaker

Dino Kos

Executive Vice President

Federal Reserve Bank of New York

Joseph Blauvelt, Managing Director, J.P, Morgan Chase & Co,

Head of Funding Desk Roundtable

The far-reaching impact of September 11 affected the financial markets, and in
particular created special challenges for the funding desks of financial institution
global heads of funding desks from major institutions will address the impact of
September 11 on the funding markets, In addition to discussing how the funding
markets dealt with such challenges, panelists will also discuss what lessons were
fearned. In addition, the panelists will reflect upon any potential longer-term effe
the funding markets may experience.

Paul Saltzman

Executive Vice President

General Counsel, The Bond Market Association

Joseph Blauvelt

Managing Director

J.P. Morgan Chase & Co,

John Kruger

Director

Salomon Smith Bamey

Paul Scheufele

Managing Director

Credit Suisse First Boston

Gerald Tamburro

Managing Director

UBS Warburg

Break

Legal & Regulatory Update

‘A thorough review of the latest legal and regulatory developments in the funding
markets, Subjects to be addressed include (i) changes in banking regulation, incl

a review of the proposed Basel Accord (ii) emergency regulatory responses to th
events of September 11, (iii) changes to the Investment Company Act, (iv) bankr
reform, and (v) pending regulatory reform.
Ranada Fergerson

Managing Director

Bear, Steams & Co. Inc.

Sibyl Peyer

Vice President

Assistant General Counsel

Goldman, Sachs & Co.

Robert Cook

Partner

Cleary, Gottlieb, Steen & Hamilton

02896

file://(C:AWINDOWS\Temporary%20Internet%20Files\OLK303 1 repo. htm V/15/02

01300000001505


Carleton, Norman

From: Carleton, Norman

Sent: T , October 02, 2001 1:52 PM

To: N }, Peter, Schultheiss, Heidilynne

Subject: FW: Discussion with Ken Raisler about Enron Product
~--~Original Message—---

From: Hammer, Vive

Sent: Monday, October 01, 2001 3:09 PM

To: Carleton, Norman

Subject: RE: Discussion with Ken Raisler about Enron Product

Reta reaped

one versin of retail swaps

Original Message——

From: Carleton, Norman

Sent: Saturday, September 06, 2001 1:10 PM

To: Bair, Sheila; DeMarco, Edward; Eichner, Matthew; Blett, Martha; Fisher, Peter; Gablonda, Jose; Gross, Jared; Hanmer, Viva;
Hughes, Gerry; Nickoloff, Peter; Novey, Michael; Raseboro, Brian; Schuithelss, Heicllynne; Smith, Amy; Sutton, Gary

Subject: — Oiscussion with Ken Raisler about Enron Product

On Friday, September 7, I discussed the retail energy swap issue with Ken Raisler, He is a partner at
Sullivan & Cromwell who represents Enron. In the mid 1980s, he was the general counsel of the CFTC.

lL asked Ken if Enron opposed state regulation of retail energy derivatives if the CFTC were to grant an
exemption for this product, The first answer to this question was yes, but that answer was modified as we
further discussed the issue.

I asked Ken if he thought that there was a preemption argument that could be made because of CFTC
exclusive jurisdiction, He said he thought there was. He satd Enron would not make such a legal argument
because it is regulated in some states as a utility company, but that others might make such an argument.

I told Ken that the Treasury had not come to a conclusion about the retail energy swap issue but that we
were unlikely to support a result that would mean no federal regulation and would not allow state
governments to regulate this product if they chose to do so. He asked me what regulatory issues might be of
concem. | answered that such issues as advertising, pricing, and assurances that the company offering the
product had the financial ability to meet its obligations might be subjects that governments would be
concemed about. Ken said he thought that this was a reasonable position.

I asked Ken whether he thought that the CFTC could exempt retail energy swaps from the exclusive
jurisdiction provision of the CEA, thus precluding any arguments about state jurisdiction. He said he
thought that might be possible.

At the end of the conversation, Ken indicated he would talk to his client about the issues I had raised.

[(b)(5)]

Tracking, Recipient Delivery Read
jeolo ete eleed Read
Sc tess edi e ekeed Read

02911

01300000001520


Blogmbrere olog oe

BN Fed's Greenspan
Tan 9 2002 15:00"

Appear Jan. 24 at Senate Committee (Updatel)

(Adds that Greenspan testimony is part budget process in
second paragraph.)

Washington, Jan. 9 (Bloomberg) =~ Federal Reserve Chairman
Alan Greenspan is scheduled to testify before the Senate Budget
Committee on Jan. 24.

Greenspen's testimony will begin at 10 a.m. Washington time,
said committee spokesman Bob Stevenson. He typically testifies to
Congress every January about the economy as part of the budget
process. This is in addition to Greenspan's twice-yearly testimony
to the banking committees, commonly referred to as Humphrey-
Hawkins testimony.

The Fed chairman will make his first speeches of the year
later this week, including one Friday on the U.S. economy to 4 San
Francisco public policy group. He will also discuss financial
literacy at an economic summit in Oakland on Thursday.

The last time Greenspan commented publicly about the economy
was Oct. 19, when he spoke to the National Italian American
Foundation. The central bank cut interest rates 11 times last year
as the slipped inte recession.

--Siobhan Hughes and Laura Litvan in Washington (202) 624-1943 or
shughes@bloobmerg.net /cah

Thursday, January 10, 2002 Page 25

01300000000146


Carleton, Norman

From: Carleton, Norman
Sent: Tuesday, June 19, 2001 2:42 PM
To: Annette Nazareth (E-mail); Belinda Blaine (E-mail); Bob Colby E-maa); Bot Laat etd (E- pwd {E-mail
‘David Wall’; 'Diane Virzera’, Eicher, Matthew; Elizabeth Fox Kareyn Dice irschivomn (E-
mel): He Hammer, Ne: John Polise (E-mail); sdoyce Hansen’: Kalrwyn Dick (mat), Kovis
Fricieon E-cnaty Kast Wihelm mein (Emel. Lori tamorena (E-mail); Miguel
Nickoloff, Michael, Pat Parkinson (E-mail); ‘Pat White’, Schultheiss, Heidilynne
Ce: gone Jared, Ellett, Martha; Sutton, Gary; Gabilondo, Jose; DeMarco, Edward; Hughes,
Subject: aa Suggested Interviewees

--Original Message-----
1 Qwirb, Robert §. (mailto:bzwirbeCFTc.gov)

gents Tuesday, June 19, 2001 2:35 PM
To: ‘'Norman.Carleton@do.treas.gov'
Subject: Suggested Interviewees

{(0)(5)]

Tracking:

Recipient Delivery

Arnatte Nazarath (E-mal)

Belinda Btaine (E-mail)

Bob Colby (E-mat)

Bob 2werb (E-matt)

‘David Wail

‘Diane Virzera’

Eichner, Mathew Delivered: 619/01 2:42 PM
Exzabeth Fax (E-mail)

Eric Hirschhom (E-mail)

Hamener, Viva Delivered: 6/191 242 PM
John Polise (E-mail)

‘Joyo Hansen’

Kathryn Dick (E-mail)

Kevin Erickson (E-mail)

Kurt Vineim (E-mail)

Lori Sanatamorana (E-mail

‘Miguel Browne’

Nickoloff, Peter Doelivered: 619/01 2:42 PM
Novey, Michael Delivered: 6/1901 2.42 PM
Pat Parkingon (E-mail)

‘Pat White’

‘Schuttheiss, Heicityane Delivered: 6/1901 242 PM
Gross, Jared Delivered: B19 242 PIA
Eilett, Martha Delivered: 8/1901 242 PM
Sutton, Gary Delivered: G/1N01 742 PM
Gabilondo, Jose Delivered: 4/1901 2:42 PM
DeMarco, Edward Delivered: 6/1901 2:42 PM
Hughes, Gerry Dalivered: 6/1801 2:42 PM

1

Read; 6/1901 4:06 PM

Read: 6/2007 1:54 Pa

Read: 6/18/01 2:45 PM
Read: 6/19/01 5:04 PM

Read: BW01 242 Pla
Read: 6/1901 242 PtA
Read: 6/2101 934 AM
Read: 7/2/01 &:04 AM

React: 19101 2:00 PM
React: 6/1901 4:10 PM

02702

01300000001311


CORRECTION

Wednesday, December 26, 2001; Page A02

A Dec. 25 article incorrectly reported the action taken by the Senate Banking Committee, chaired
by Phil Gramm (R-Tex.), on a bill that exempted much of Enron Corp.'s trading activities from
federal regulation. The legislation was approved by the Senate Agriculture Committee.

© 2001 The Washington Post Company

01300000000109


i

26

‘The increase in 1999 as Compared to 1998 was primarily due
to debt mauances and debt related to a Brazilian subschary. par
tally offset by 8 decrease in dedt related to EOG following the
‘sale and excraenge of Enron's interests August 1999. See Note
2 to the Consolidated Financial Statements.

Minority Interests
Minority interests include the following:

femaarn) z0e0___mee 1908
Beko $8 $a s-
Miyority-owned limited Rabeity
company ard broiled partnerships: 108 nn
Enron O# & Gas Company . 2 co)
Other 6 23 53
7

Jota! 4 $135 5

(a Resnas to one respective pantets af Elektro. witch Mt menanty sateuhodsies
#7 2000 and 1999. See Wooe 8 1D Me Conschautad Frencist Statements.

Minorty renews ictus Euatro begreng Ianuey 1, 1998,
8 maerity-cwned limited liability company anc emajonty owned
lieited partnerinigs since their formation during 1986 through
(2000 and ECG uettil the exchange and sale of Enron's terests
‘August 1899 (see Nate 2 to the Consolidated Financial Statemerns).

hoome Tas Eaperse

Sreome tax expense increased in 2000 a compared to 1990
primarily 2.3 rest of increased earnings, decreased equity earn
ings and decreased tax benefits related to the foreign tas rate
differentia, partially offset by an increase in the diferences
beween the book and tax basis of certain assets and stock sales

roome tax expense Gecremuwed in 1998 compared to 1908
primarity a3 3 result of increased equity earnings. tax benefits
related 10 the foreign tax rate differential and the aude settie-
ment related to Monthly income Preferred Shares, partially
offset by increased earnings.

‘Cumulative Elfect of Accounting Cranges

In 1999, Enron recorded an after-tax ewege of $131 million
to reflect the initial adoption (as of January 1, 1999) of two mew
accourting pronouncements, the AICPA Statement of Position
98-5 (SOP 96-5), “Reporting on the Costs af Start-Up Activities,”
and the Emerging sues Task Force Issue No. $¢-10. “Accounting
for Contracts Involved in Energy Trading and Risk Management
Activities,” The 1999 charge was primarily related to the acop:
thon of SOP 96:5

NEW ACCOUNTING PRONOUNCEMENTS.

in 1996, the Financial Accounting Standards Board (FASE)
isued Statement of Financial Accounting Standards (SFAS) No.
133, “Accounting for Derivative Instruments and Hedging
Activities,” which was subsequently amended by SFAS Nia 137 anc
SEAS No, 138, SEAS No. 133 must be applied to all derivative inetru-
mens and certain Gorivative instrumorns embecdec in hybrid
inserumerns and requires What such instr umanes be recorded in He
balance sheet either as an amet oF liability measured at fs fale
‘value through warnings, with spacial sccounting allowed for cer=
tain qualifying hedges. Enron will adopt SFAS Na. 133 as of
January 1, 2001. Due to the adoption af SFAS No. 133. Enron wilt
recognize an aftertax non-cash loss of approximately $5 million in
‘earnings and an after-tax non-cash gain in “Ccher Compeuhansive
frome,” a component of sharehoklers’ equity, of approximately
$22 mition from the cumulative effect of a change in accounting
principle. Enron will ako reclassify $532 milion fram "Long Tern
Debs” to “Other Liabilities” due to the adaption,

‘The total impact of Enron's adoption of SFAS No, 133 on
eaenings and on “Other Comprehensive income” is dependent
pen certain pending interpretations, which are currently under
consideration. including those related to “normal purchases anc
normal saks” and inflation escalators included i certain con
treet payment provisions. The interpretations of these hsues. and
Others, are currently under consideration by Ue FASE. While the
uitimate canclusions reached of interpretations being connie
ered by the FASB could impact the effects af Enron's adoption af
SFAS No. 133, Enron Goss nok beligwe thet such conehisiors
would have @ material effect on ay current estimate of the
impact of adoption.

FINANCIAL CONDITION

Cash) Flowes

(Qn evittions) _ Se ae

Cosh provicked bry juried an
Operating activities $4779 $1228 81.640
mramtng mcttsnen (426 G40 .9689
Financing activins a7) 24s a6

Net cash provides by operating activities increased $3.51
million #9 2000. primarily reflecting decreases in working capital.
Positive Operating rewsts and 2 receipt of cash associated with
‘the assumption of @ contractual obligation Net cash prowded
by Operating actwites Gecressed $412 million in 1998, primarily
reflecting nereases in working capital and net assets from price
risk morvegerent activities. psrtisily offset by incremed earn-
ings and higher proceeds from sales of merchant assets and
investments. The 1996 amourt reflects positive operating cil
lowe from Enron's major busmess segments, proceeds trom sales
of interests in energy-related merchant assuts and cash from
timing and ather changes related 19 Enron's commodity portfo-
Hid, partially affset by new investments in merchaet masts
anc ‘vestments.

Net cash used in ieneusting activities prienarity raflnets capital
expenditures and equity investenernts, which total $3,514 million
in 2000, $3,085 mition in 1999 and $3,564 million in 1998, and
cash used for business nenuasitions. See “Capital Expenditures and
Equity trrextments” below and see Note 2 to the Consolidated
Financial Stavements for cash used for busines acquisitions.
Partiaity offvetting these uses of cash were proceeds from sales of
Mommerchant assets. including certain equity instruments by
Energy Serices und an internatons! power project. whech totaled
$494 million im 2000. Proceeds from normerchant asset sales
were $29¢ milion in 1999 and $239 mition in 1998.

Cash provided by financing activities in 2000 included pro-
coedk from the Ksuance of subsidiaey equity and the asuance af
common stock related Lo employee Daveft plas partially offset
by payments of dividends Cash provided by financing octvities
in 1999 included proceeds from the net issuance of short: and
Jang-term det, the Ssuanee of comeman stock and the ssuance
of subsidiory equity partally offset by payments of dividends.
Cash provided by financing activities in 1998 included proceeds
from the ner isuuance of short- and long-term debt, the issuance
of common stock and the sale of @ minority interest im a sub>
sidiary. partially offvet by payments of dividends.

02774

01300000001383


optimize both the Mexican electricity market and
cross-border activity between the two countries.

Enron also ts active in South America, where
we own and develop assets to help create an
energy neqwork.

Enron Europe

‘We are rapidly extending Enron's market-
making approach into the dereguisting European
markets, focusing on the U.K,, the Continent and
the Nordic region. The Continant is still in the early
stages of liberalization, Although Une European
Union nas mandated liberalization of the pawer anc
natural gas markets, each courttry is responding at
its own pace. The velocity of transactions is rising on
the Continent, however, and Enron expects to raise
the level of liquidity to make the markets work.

Our business throughout Europe Is grawing
rapidly. Natural gas and power volumes more than
Goubles to 10.3 trillian British thermal units equiv:
alent per day (TBtueld) in 2000 from 4.1 TBtueld in
1999. We enjoy several competitive advantages in
Europe: We are the only pan-European player: we
have & proven business strategy: we entered the
market early to build & presence; and we have
attracted a talented and skilled local workforce,

(Our cross-border capabilities are becoming
increasingly important as markets imterconnect,
U.K. gas can now be transported to Belgium, and
subsequently to the rest of the Continent. giving us
the opportunity to develop innovative transactions
on both sides of the border, The resulting incresse
in price volatitay has nearty doubled U.K, gas prices,
which, along with more volatile electricity prices
ahead. has significantly improved demand for the
U.K. rink management products we offer, both now
and over the long term.

Just as in North America, EnronOniine &
increasing Enron's reach and wolumes in Europe
and is a prime driver of liquidity. Its simple con:
‘tracts, multi-currency capabilities, transparent and
competitive prices and easy accessibility have won
EnronOnline rapid acceptance

In the U.K., power and gas volumes more thar
doubled. with power rising to 113 million MWh in
2000, and gas volumes climbing 119 percent to react
3.2 Beflo. Several market factors are lWaely to create
more business for us. The U.K.’s New Electricity
Trading Agreements, which replace the existing
U.K. power pool, are scheduled to be implemented
by the second quarter of 2001. The agreements
will resutt in increased price volatility, and Enron
is wall-positioned to help customers manage ths
risk. Additionally, lower power prices are shrinking
profit margins for U.K. merchant power plants.
which Increasingly need to turn to market inter:

(nM Arend REPORT 2000

mediaries such as Enron to hedge their tual anc
power prices.

On the Continent, our power volumes
increased to $0 million MWh in 2000 from 7 million
MWh in 1999. We are transacting at all major
country interconnections, benefiting from cross-
border opportunities. We closed our first-ever
(wansaction in France and are an active player in
Germany and Switzerland. We are beginning to
partner with utilities to offer comprehensive port-
folio management services, UCN as OUT Agreement
to purchase and distribute power joiritty with Swiss
Catypower AG, which controls 19 percent of the
Swiss electricity market.

EnronOnline

Errondniine successtuly leverages Enron's core
muntat-making capabilties. benefiting bot oor
customers and Envon, The web-based system
mates it easier to do business with Enron Mt
also acceierates the growth of Fran's existing
buninesis ord faciitates quick and efficient
cexniry ant ew matats

In Spain, electricity demand is growing faster
than anywhere else in Europe, and there are linit-
ed import and export capabilities, Enron is responc-
ing to this opportunity by developing = 1,200-
megawatt plant in Arcos, south of Seville, that
should close financing in 2001

Continental gas liquidity is just starting to
increase. Our volumes grew to 472 million cubic
feet per day (AMctid) in 2000 from 53 MMefid in
1899. While the market Is in its early stages, Enron
has managed to increase wookly transactions from
about 5 to 100 over the course Of a year. In
October we initiated the first gas supply deal in
Germany to the local utilities of Heidelberg.
Tuebingen and Bensheim. We also are delivering
natural gas to some large users In the Netherlands
and France.

02758

01300000001367


‘tive and flexible services to meet the transportation,
jorage and balancing needs of power producers, It
tompleted construction in October 2000 of a link to
445 megawatts of peaking power opersted by Great
River Energy in Minnesota. The link valli transport up
to 120 MMefid of gas.

Transwestern Pipeline

Transwestern operates approximately 2,500
miles of pipe with 1.7 Befld of peak capacity, With
pipeline originating in the San Juan, Permian and
Anadarko Basins, Transwestern can move gas east
10 Texas or west to the California border. To respond
to increased gas demand in California, Trasswestern
Pipaline ackted compressor facilities near Gallup,
New Mexico, in May 2000 to increase maining
capacity by 140 MMefid to the California border.
‘The new capacity ts completely subscribed under
Jong-term contracts. In 2000 the pipeline also added
‘several major interconnects to tap into growing
Markets east ot California.

The Transwestern system is fully subscribed for
western deliveries through December 2005 and for
‘astern deliveries through December 2002. The sys:
tem has the potential to quickly increase troughput
capacity. An expansion project Is expected to be fled
‘this year and completed in 2002.
Florida Gas Transmission

Florida Gas Transmission serves the rapidly
growing Florida peninsula and connects with 10
major pipelines. has maintained a competitive
position by staging expansions to keep pace with
Geman as it grows. With current peak capacity
of 1.5 Befid, Florida Gas Transmission will edd 600
MMctid of capacity when its Phase IV and Phase V
‘expansions are completed. The Fort Myers extension,
pert of a 200 MiMictid Phase IV expansion, wert into
service on October 1, 2000, and the remainder is
‘xhoduled to go into service in May 2001. The 400-
MMeflé Phase V expansion has received preliminary
‘approval from the Federal Energy Regulatory
Commasion and is expected to be completed in
‘April 2002.

The 4,796-mile pipeline currently 6 evahasting
supply connections to two proposed liquefied natu-
ral gus facilities.

Northern Border Partners, LP.

Northern Border Partners, LP is @ publicly
traded partnership (NYSE: NOP), of which Enron
is the largest general partner. Northern Border
Partners owns @ 70 percent general partner interest
in Northern Border Pipeline, which extends 1,214
miles from the Canadian border in Montana to
litinols, The pipeline, a low-cost link between
Canadian reserves and the Midwest market has &
poak capacity of 2.4 Befid anc is fully contracted

under long-term agreements with an average term
Of six years. Its Project 2000 extension — 34 miles of
pipe fram Manhattan, Illinois, to s point neer North
Haycen, Indiana — will provide 564 MMefid to
industrial markets in Indiana with 4 targeted in-
service date of late 2001

Late in 2000, Northern Border Pipeline settled
its rate case, allowing it to switch fram a cast-of-
service tariff to a stated-rate tariff, which will provide
rate certairity to customers, increase compotitivencss
and allow flexibility in services provided.

Northern Border Partners also owns interests
Jin gathering systems in the Powder River and Wind
River Basins in Wyoming, and recently signed a letter
of intent to purchase Bear Paw LLC, which has
extensive gathering and processing operations in
the Powder River Basin and the Williston Basin.
The partnership also owns Black Mosa Pipetine, a
273-mile coal-water slurry pipeline running from
Kayenta, Arizona, to Mohave Power Station In
Laughlin, Nevada
Portland General Electric

The sale of Porvand General Electric (PGE) to
Sierra Pacific Resources has been delayed by the
effect of recent events in California and Nevada an
the buyer. in 2000 the Portland, Oregon-besed elec-
icity utibity performed well in the face of regional
wholesale price volatility IBIT rose approximately 12
porcent to $341 million. Total electricity sales reached
38.4 million megawatt-nours (MWh) compared to
31.9 mation Msn in 1998. We wilt continue to drive
Performance while we pursue the utility's sale.

02767

01300000001376

808 ANNUAL OORT 2000


The 7th Annual Repo & Securities Lending Conference

11:30-12:30
p.m,

12:30-1:45 p.m.
Introduction

Speaker

1:45 - 3,00 p.m.

filex//C:\WINDOWS\Temporary%20Intemet%20Files\OLK3031 \repo.htm

Kim Olson
Assistant Vice President

Federal Reserve Bank of New York

Page 3 of 6

CONCURRENT SESSIONS: Global Funding Markets

Two break-out panels will address funding market issues in Europe and Asia,

respectively.
Current Issues in European Asian Funding Matters
Funding Markets

Funding markets in Asia

This panel of repo market continue to play a significant
experts, active inthe European —_ role in the global financial
funding markets, will discuss markets. This panel of repo and
major developments affecting securities lending professionals
continental Europe and United _ active in the Asian funding
Kingdom. The key matters that — markets will provide a review of
will be addressed include: (i) the the most significant aspects of
new Basel Capital Accord these markets, and also provide
implications for the European an update on latest
repo markets; (ii) the on-going —_ developments.
integration process of European .
clearing and security settlement Panelists Tom Brady
systems; (iii) the possible impact Managing Director
of proposals to change the Merrill Lynch, Inc.
European regulatory Mark Steffensen
environment for Alternatives Coun sel 7
Trading Systems (ATS); (iv) the
proposed Leopean Directive on Morgan Stanley &
Financial Collateral Co.
Arrangements; and (v) the
possible consequences of the
application of the proposed
Investment Services Directive
(ISD) on the European fixed
income markets.

Lunch

Micah Green

President

The Bond Market Association

The Honorable William S. Cohen

Former Secretary of Defense and U.S. Senator
Collateral Management Issues in the Funding Markets

The tragic events of September 11 have further highlighted the need for effective
management of collateral to ensure liquidity during times of market stress. This p
will focus on what collateral management issues the events of September 11 rais
well as provide an update on the latest developments in collateral management.
Subjects to be discussed include: (i) regulatory issues with regards to effective
collateral management in times of market stress, (ii) changes to the Federal Rese
Payment Systems Risk Policy, (iii) the expansion of GSCC's GCF product (and

02897

01300000001506

1/15/02


Management Gaciptines. including hedging transactions, 10
manage the impact of market price movements on its merchant
investments. See Note 4 to the Consolidated Financial
Satements for s summary of these investments

Earnings from awets and investments increased $39 mi@ion
{594} in 2000 as compared to 1999 as a result of an incresse in the
value of Wholesale Servicers’ merchant investments, partially off.
‘$e by lower gains from sales of energy assets. Earrings from
amet operations were comparable to 1999 levels. Eamangs from
merchant investments were positreely impacted by power-related
and ewrgy rwestenerts, partially offset by the decline in vatue
of tecology-related sed cerlain energy-intensive industry
investenents. Gains on sales of energy assets in 2000 inctuded the
monetization of certein European energy operations.

Earnings from assets anc investments increased $141 milion
(20%) in 1999 as compared to 1996. During 1999, eamings from
Wholesale Services’ energy-related assets increased, reflecting
the operation of the Daohot Power Plant it India, cwrseesnip ir
Elektro Eletrickdade @ Servigas SA (Elektro). a Brazilian etectrc
utility, and assets in various other developing markets, Wholesale
Services’ merchant investments wereased i value during the
year due to the expansion into certain technology-related fewest:
ments, partially offset by a decline in the value of certain energy
investments. In addition. Winolesale Services’ 1986 earings
increased due to development and construction sctivities, wilt
gains oF sales Of energy asets declined.

Unoliceated Exponses. Net unallocated expenses such as
systems expenses and performance-reiated costs increawd in
2000 due ta growth of Wholesale Services’ existing businesses
and continued expansion into new markets

Ono

In 2000, Whoknale Services renforced its ieecing poutions
in the natal gas and power markets in ath North America and
Europe. In the coming year. Wholesale Services plans to continue
to expand and refine ms existing anergy networks and to extend
its proven business model to new markets and industries.

In 2001, Wholesale Services plans to continue to fivetune
Its already successful existing energy networks In North America,
Enron expects to complete the sale of five af its peaking power
Plants located wm the Midwest and its intrastate natural gas
pipeline. in each case. market conditions, such as wereased
liquidity, have cinsinahes the need to cwn physical assets. For
energy Networks im other geograptecal areas where liquedity may
be an ius, Enron will evaluate whether its existing network will
benefit from additional physical assets. The existing networks in
North America and Europe should continue te provide oppor
‘nities for sustained volume growth and increased profits

The combination of knowledge gained in building networks
in hey energy markets and the application of mew technology. sah
a5 EnronOriine, 6 expected to provide the bass to extend
Wihoiesale Services’ business model to new mariuts and industs ies.
in key intenational markets, where deregulation is underway,
Enron plans to build energy networks By using Uke optimum
commination of acquiring oF constructing physical assets and
securing contractual accuss to third-party assets Enron also plans
tO replicate Ms Outiness model to new Industrial markets such os
metas, pulp. paper and lumber, coal and steel, Enron qepects to
use its eCommerce platform, EnronOnling. to accelerate the pene-
ation inte these industries

Earnings from Wholesale Services are dependent on the
origination and completion of transactions. some of which are
individunity sqnificant and which are impacted by market condl-
ors the reguistory emronment eid cumomer relationships
Wholesale Services’ wansactions have historically Been based on

a diverse product pertfolia, providing 2 solid base of eamings,
Enron's strengths, including its ability to identify and respond ta
custamer needs, access to extensive physical assets and its inte-
grote product offerings. sre importarit drivers Of the expected
cortinuad earnings growth in addition, significant earnings are
expected from Wholeiale Serviees’ commodity portfolio and
investments, wtlich sre subject to market fluctuations. External
factors, such as the amount of volatility in market prices, impact
the earnings opportunity siscciated with Wholesale Services’
business Risk related to these activities & managed using natu
rally offsetting tramactions ond hecige transactions. The effec.
tiveness cf Enron's risk management activities can have # materi
I impact on future earnings. See “Financial Risk Management”
for 2 discussion of market risk related to Wholesale Sarvicns,

etal Energy Services

Energy Services sells or manages the delivery of natural gas,
electricity, liquids and other commodities to industris! and
commercia! customers located in North America and Europe.
Energy Serviess alsa provides outsourcing solutions to customers
for ful energy management. The integrated product exhides
the management of commocsty Gelivery, energy information and
energy assets, and price risk managemert activities. The com
Moeity portion of the contracts asiockated with this business are
secourted for under the mark-to-market method of accounting
See Note 1 to the Consolidated Financial Statements,

(la evillior) Fn
Rovenues Sagrs Seo) S107?
Cost of sates ante 1551 55
Operating espornes “0 2
Depreciation and amortization s ci) n
Eqqaty homes (80) : 2
thor, ret a 3 1
(BST defer Roms impacting
eamparability 1m om 1%)
Iter ierpucting
Gain on The Now Power Company
Rock imuaren a)

Soa) _$ (118)

Operating Resuks

Reverwes and gross margin increased $2.008 million and
$331 milion. respectively in 2000 compared to 1998, primarily
feushing fram execution of commitments on its ensting cus
tomer base, long:term energy contracts originated in 2000 and
the increase in the walue of Energy Services contract portfolio,
Operating expenses incremed as a ren of cous incurred in
building the capabilities to deliver services on existing customer
contracts and in building Energy Services’ outsourcing business in
Europe Other, net in 2000 consisted primary of gam ssociat-
6d with the securitization of mon-mnerchant equity instruments.
Equity losses reflect Energy Services’ partion af losses of The New
Power Company.

Items impacting comparability #1 2000 included a pretax
gen of $127 million related to the Imuance of common stock by
The New Pawar Company and a charge of $59 million related to
the write-off of ceetsin information technology and other costs.
‘The New Power Company which & apprommately €$ percerit
owned by Enron. was formed to provide electricky and natural
gas to residential and small commercial customers in deregulated
energy markets in the United States

02772

01300000001381


Weekly Activity Report, Federal Finance Policy Analysis, June 14 - June 18, 1999

[(o)(5)]

02949

01300000001558


((0)(5)]

, 02918

01300000001527


Desc asoeat REPORT 29N6

expenses. These incremed operating expenses are not expected
to hae # material impact on Enron's Financial position or results
‘af operations.

Enron's natural gas pipeline companies conduct soil and
groundwater remediation on a numiber of thelr facilities. Enron
does not expect to incur material expenditures in conmection
‘with soll ancl groundwater remediation.

15 COMMITMENTS:

Fiem Traenpertation Obigations

Enron has fem transportation agreements with various jowmt
venture and other pipelines. Under these agreements, Enron
must make specified minimum payments each month, At
December 31, 2000, the estimated aggragate amounts af such
required future were $81 million, SUB milion, S08 revi
fon, $85 million and $77 million for 2001 through 2005, respec-
tively and S447 milion for later years

‘The costs recognized under firm transportation agreements,
iexluding commodity charges on actual quantities shipped
tonaled $48 million, $55 million and $30 mition in 2000. 1999 and
1998, respectively.

‘Other Commaments

Enon lemes property. operating facitties and equipment
under various operating leases, certain of which contain renewal
and purchase options and residual value guarantees Future
Commitments related to these items at December 31. 2000 wore
$123 miller. $96 million, $69 milion, $66 million and $43 maior
for 2001 through 2005, respectively. and $350 million for leer
yore, Guar entees under the leases total $556 milion at December
2000,

Total rent expanse incurred during 2000, 1999 and 1998 was
$743 million, $443 million and $147 mation, respectively,

Erwon has entered into two Gevelopmert agreements
whereby Enron is required to manage construction of # certain
number of power projects on behalf of thed-party owners.
Under one development agreement, where construction is
expected to be completed on or before March 31, 2004, Enron
has agreed to enter into power offtake agreements for varying
portions of the offtake from each facility Under both develop
ment agreements, Enron maintains purchase options, which
may be assigned to a third party. In addition to the purchase
option under the other development agreement, Enran main=
tains jesse options on the power projects, If upon completion.
which is expected to occur on oF before August 31, 2002, Enron
nas failed to exercee one of its options, Enron may participate
fn the remarketing of the power projects which Enron has quar-
anteed the recovery of 89.9 percent of carain project casts, af
which approximately $140 million has been incurred through
December 31, 2000.

Enron guarantees the performance of certain of ms uncon
solidated equity affiliates in conmection with letters of credit
ssued on behalf of those eritios At Cecumber 31, 2000, a total
‘of $264 milion of such guarantees were ounstanding. cluding
$103 eifion on behalf of EOTT Energy Partners, LP (EOTT)
in addition, Enran is @ guarantor on certain liabilities of uncon
sclidated equity affikates and other comparves totaling sppron-
moly $1,863 million at December 31, 2090. inctuding $538
milion related to EOTT trade obligations. The EOTT letters of
cedt anc querentees of ade obligations are smeured by the
assets of EOTT. Enron has sho guaranteed $386 million in lease
‘obligations for which i has been indemnified by an “Investment
Grade” company. Management dows not concer it likaly that
Enron would be required to perform or otherwise incur any lox

fs associated with the above guarantees, In addition. certain
commaments have Deen made related to capital expenditures
and equity investments planned in 2001.

On December 15, 2000, Enron announced that it hac
entered into an agreement with Azutix under which the holders
of Aurix’s approximately 39 million publicly traded shares would
receve cmh of $8375 in exchange for each share The agree-
ment, which is subject to the approval of Azurix shareholders. &
expected to close in earty 2001

TE RELATED PARTY TRANSACTIONS:

In 2000 andi 1989, Enron entered into transactions with lim-
ited partnerships (the Related Pamy) whose general partner's
managing member 6 2 senior officer of Enron The tented part-
nats of the Related Party are unealated to Enron. Management
believes that the terms of the transactions with the Related Party
were reasonable compared to thave which could have been
negotisted with urvelated third partes.

In 2060, Enron entered imo transactions with the Reisted
Party to hedge certain merchant investmernis and other aswens, As
part of the wansactions Enron 0) contributed to newly-formed
entities (the Entities) assets valued at approximately $1.2 billion,
including $150 million in Enron nates payable, 3.7 millon
festricted shares of outstanding Enron common stock and the
Fight to recnive up to 18.0 million shares of outstanding Enron
common stock in March 2003 fusaject to certain conditions) and
(0) transferred to the Entries assets valued at apprasimataty
$209 million, inckuding « $50 milkon note payable and an invest:
‘ment in an entity thet indirectly holds warrarits convertible into
common stock of an Error equity method investes. in return,
Enron received econcemic interests in the Entities, $300 erniliicn in
notes receivable, of whieh $259 million & recorced at Enron's
comyower basts of zero, and 9 special distritatian from the
Entaies in the form of $1.2 Dillion in notes recelwable, subject to
changes in the principal for amounts payable by Enron in cor
nection with the emseution of adeitional dervatwe instruments.
Cas) in these Entities of $172.6 millon is invested in Enron
demand notes, In addition, Enron paid $123 million to purchase
stare-settied options from the Eemities on 21.7 million sharws of
Enron common stock. The Entities pad Enron $107 million to
terminate the share-sattled options on 14.6 mifion shares of
Enron common stock outstanding. in iste 2000, Enron entered
into share-settled caller srrangements with the Entities an 15.4
million shares of Enron common stock. Such arrangements will
be wecourned for as aquity transactions when setthed.

in 2000, Enron entered ito derwvative transactions with the
Entities with # combined national aenount of approximately $2.1
billion to hedge certain merchant irnwstenents snd cithwer asserts.
Enran’s notes recewatle balance was reduced by $36 milton asa
result of premiums owed on cerivative tramnactions. Enron
recognized revenues of approximately $500 million related to
the wébsequent change in the market value of these derivatives,
which offset market value changes of certain merchant invest
ments and price rk management sctivives. In addition, Enron

recognized $44.5 million and $14.7 milian of interest nome
and ienerest expense. respectively, on the notes receivable from
and payatle to the Entities.

In 1904, Enron entered into a series of transactions involving
a third party and the Related Party. The effect of the transactions
was () Enron and the third party amended carain forward
contracts to purchase shares of Enron common stack, resulting in
Enron having forward contracts to purchase Enron common
shares at the market price on that day. (i) the Relstod Party
received 6.8 million shares of Enron common stock subject to cer:
tain restrictions and {ii Enron received a note receivable, which

02796

01300000001405


como ANNU ACPO

Selected Financial and Credit information (Unaudited)

The following review af the credit characteristics of Enron Carp. and its subsidiaries and affiliates should be read in conjunction with the
Consolidated Finencial Statements. The credit information that follows raprasants management's cakulation of certain key credit ratios of
Enron.

fm minions) 2000 199 Source
‘Total Obligations:
Galsrecn sheet debt (short. and long term) 10.229 $8152 Dotgnice Stet
heors added to liability protihe:

Gusrartons a 23 130 Note 18

Rosidusd value guarantees of synthetic leaves 586 m5 Note 15

Not Habiity from price rink management activities (0) : - Balance Sect
Date exchangeable for EOG Resources, inc. sharos oe) (219) Nowe 7

Dete of unconsolidated equity aff itunes (% : - Now 9

Firm (ramportauion eblgabions M) ee : Note 15
‘Toul Obligations $90,886 5 8.000
‘Shareholders’ bigutty and Certain Other Noms
‘Shar unotders’ Equity. sao $4570 Balance Shewt
horn acddod to shareholders’ equity:

Minority interests 24a 2.410 Balance Shoot Note B
Compary-cligated preferred securities of mutnidiaries 304 1.000 Balarer Shoat, Note 10
‘Total Shareholders’ Equity avd Certain Other fees noe R080
Funds Flow trom Operations
Net cash peowided by operating activities san $1278 Camm Flaw Staterner
Changes in working capital 216 }.000) Cash Flows Staternare
funds terw trom Operations 330 32278 -
Interest and Estimated Lease interest Expense
Interest ieurred s 4% s 70
Capitalized interest Be Sa) Maragemem’s Dicumian and Analysis
Interest and Related Charges, rat 3 o 68 Income Statemert
Estimated Lease nevest Expense") $106 sm
Adjusted Exenings for Credit Analysis
Income before internst, evinority interests and income tawes 3 24az $ 1.995 Income Statement
Aadjusterants to 1BT

Gain on sales off non-marenant asicts 148) way Cash How Staten
Impairment of long-Sved asiors Oncuadting equity Investments) 6 aay Canh flow Statement
Distributions in excess of (tom than} earrings

‘of uncorsokcated epaty affiliates 276) 3 Now ®

Luirated lease enerest expense! 106 se
Total Adjusted Earnings for Credit Anatysis Five sz
Key Credit Ratios
Funds Row intrest coverage (3) 4a7 38T
Pretax interest coverage: a4 283
Funds Now from opermionwTetal obligations ana% 25.3%
Total obligation/Total cbiigations plus Totat

vharehetder’ equity ond cena other Rows MA% 40.4%
DobtiTotel Capital!” 40.9% 185%

{a} tAerazemecr pstrinien fora ik aghast expOture On UnCCeaTeaNRd Dusartnes u arprcrunty TOME OF Ge dota! none weve ct the guavartwes asin
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Total cape dockades deO. Ney nares company abAgalad prefisTed SeCUNIeS OF substtaries and sharahakters’ equty

02800

01300000001409


DRAFT
January 4, 2002

TO: Norman Carleton

Director

Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss

Financial Economist

Office of Federal Finance Policy Analysis

SUBJECT: Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modemization Act of 2000

BACKGROUND

{(6)(5)]

01300000000028


Carleton, Norman

From: Carleton, Norman
Sent: Wednescay, May 16, 2001 2:35 PM
To: Gabilondo, Jose
Subject: RE: New Version of Retail Swap Study Federal Register Release
[(b)(5)]
From: Gabllondo, Jose
Sent: Wednesday, May 16, 2001 2:32 PM
To: Carleton,

|, Norman
Subject: RE: New Version of Retail Swap Study Federal Register Release

So now we're reaching out to the energy swaps market (I assume that means Enron) and mortgage bankers? OK. |
don't have any remarks.

José

~owiQniginal Message---

From: Carleton, Norman

Sent: Wednesday, May 16, 2001 11:43 AM

To Paulus, Michael; Nickalc‘f, Peter; Schulthess, Heidlynne; Novey, Michael; Hammer, Vive; Eichner, Matthew; Sutton, Gary; Elkett,
Martha; Gatsfondo, Jase; DeMarco, Edward

Subject: New Version of Retail Swap Study Federat Register Release

[(b)(5))

<< File: retail swaps rediine.wpd >>

<< File: retail swap study release (10),wpd >>
Tracking: Recipient Delivery Read
Gabilordo, Jose Delivered: 816/01 2:35 PM Read: 1601 2:35 PM

03015

01300000001625


{(b)(5)]

03041

01300000001651


interest in the Smited liability company The eontribution by
the third party was inwevtad in highly Gquid investment grade
seaurities (including Enron notes) and short-term recetvables.
At Decomier 31, 2000, the majority-owned limited lability com
pany held net assets of $1.0 billion.

Quring 1999, thidparty investors contributed cas and
merchant investments totaling $1.0 billion to Enran-sporaornd
entities to inwest in highly liquid iwestment grade securities
(including Enron notes) and short-term receivables, The mor-
hae iereestmerts, Lotaling $600 miltion, were sold price to
December 31, 1999, During 2000, Enron acquired a portion of the
minority shareholder's interest for $485 million.

In 1996, Enron formed a wholly-owned limited partnership:
for the purpow of helding $1.6 bition of amets contnbuted by
Enron. That partnership contrauted $850 milion af awets and
third party contributed $750 million to a second newly-formed
lented partnesship. The asets held by the whaly.cwned limites
Pertnentyp represent collateral for a $7$0 milan mote receivable
held by the second limited partnership. in 2060 anc 1999, the
wholly-owned and second lenited partnerships sold assets valued
at approsimarely $152 million aed $460 milion. respectively, and
wrested the proceeds in Enron notes.

Ament cortain defaults or athe specified events Enron has
‘the option to acquire the minority holders” ieteress in Une
Partnentyps. Enron has the option to acquire the minority hold:
ers Interest in the limited liability company after November
2002. #f Enron does not acquire the minority holders’ interests
before December 2004 through May 2009, oF aarlier upon certain
Specified events, the minority interest hoklers may cause the
entities to liquidate thelr assets and discive

Im 2000, as pert of a restructuring, Jacaré Electrical
Distribution Trust (acard) soki a 47 pereent interest in Ereon
Brazil Power Holdings V Ltd. 8 sumedkary that holds its west:
ment in Elektro. to Whitewing for approximately $460 mation.
Se@ Note 9, The proceeds were used to acquire the original
minority shareholder's interest in Jacard,

fm 2000, Enron acquired all minority tarehoiders’ interests
fn Enron Energy Services, LLC and Ereor Reewrwatsie Enorgy Corp.
See Note 2.

9) UNCONSOUDATED EQUITY AFFILIATES

Enron's investment in and advances to unconsolidated affil-
iates which are accounted for by the equity method is as follows:

Net

Voting ___Decornbpor 3'
seeeest (4) 2000

in entire)
Azula Corp
Bridgesine Holdings
Citrus Corp.
Dabo Power Company
Joint &
sewostmernts LP pts)
Joint Energy Developerent
frwestments LP (JEDI 190)
SK ~ Enron Co, Ltd.
Wampertaders de Gas cet Sur $A,

Wihinewing Aswcelates, Up (Dt
Other

$383 3 $333
aus ¥ gene

Rave

$s.0r6)
(a) Corte reesiments fave income stung reas which aor Mon Eoon’s

olng wresests

(fy £00 xs DEY accor for (her vermont st fo ue. Whew somone for
COMIN OF AS ESTES OF Can vanae Teese at TIRates iA! (aw venkan errnbimernts tka
229 81.82 enon and 3,128 eNom, esenetinny of Oncweeter 31, 2000 ae! Fa

(6 A¥ Bacernbey 21, 2000 ane 1899, he unwrartted excess oF Envur’s mwanernery
40 emconsowdaned afTbutes was STA? sven anal $179 rrvtan, rexpnetinte
which a berg amartind over he mapected es oF Oe eTestTINNS.

Enron's equty in earings (losses) of uncorsofidated equity
affiliates ts as follows:

fecunend 2000998 1993
Aare Corp. sam $23
‘Cinnus Corp. 0 2 a
Datinot Power Campurry n »
Joint Energy Qevelopment.
Ineeestmants LP. a7 " 43)
Jort Energy Orvetopment
ervestmerts i, UP 58 2 «@
TAPC, inc. (The Kew Power Compary) (80) :
Transportadara de Gas del Sur SA, ey ry %
Whitewing Associates LP oe a .
Other 2 sr a
$7 $9 $97

(a) Dunn the four quarter of 2000: Asus Corp. (Arun amnared the carers
sabe Arperaie ema: easing no cape cf apeoataaay $170 aio,
Enwow's porn? ef ahe change wees $328

Summarized combined financial infarmation of Enron's
uncorsotidated effiliates is preserted below:

Qe mitions

Balance sheet
Current asserts 2? $5084 $3168
Prenperty, plant and equipment. met. 4786 4356
Other noncurrent assets mes 5,059
Current Hatalitioy |" 4733 4001
Long-term date 4? an7r | 486
‘Other nencurent abilities ea 2.402
Omners’ equity 13551 inne

w (retudes $410 avon are $227 ric secuabe ram freon aned $902 ator
(200 $84 rik payable to Eve at Cuneta 31. 2000 ar 1909, rempectioety

Et 79001988888.
wcome statement

Operating revenues $15,003 571.508 50.508

Operating experwes wr aap 7.244

Net income 6 1857 “2
tstributions paid to Enean 1374 a

Ay Enron rcogrwoee peveriaan (ron traraacsora wns urewrnetaiee aque a0
ones of S510 roehowr 20 $54 ron a 1299 are SGI maior 7 1988.

In 2000 ane 1999, Enron sold approximately $632 million
and $182 million, respectively, of merchant investments jerd
oaner assets to Whitewing Enron recognized no gains or losses
in connection with these transactions. Additionally, in 2000, ECT
Merchant Invertments Corp. 3 wholly-owned Enron subsidiary,
conributed two pools of merchant investments to @ limited
Partnership that is @ subsidiary of Enron. Sumsequant to the
cortr@ution. the partnership issued partnership interests
Tepresenting 100% of the beneficial, economic interests in the
two sset pools, and uxt intorests were sold for a total of $545
million ta 2 limited lability company that & a subsidiary of
Whitewing See Note 3. These ermtties are seperate legal erbties
from Enron and have separate assets and lisbllities. in 2000 anc
1999, the Related Party, as described in Note 16, contributed $33
milton and $15 million. respectively of equky to Whitewing. In
2000, Whitewing contributed $7.1 milion to @ partnenhip
formed by Enron. Whitewing and a third party. Subsequently.
Freon sold @ portion of its interest in the partnership through =
smcuritization. See Note 3.

fm 2000, The New Power Company sold warrants convertiole
ito common stock of The Mew Power Company for $50 million
to the Retuted Party (described i Note 16).

From tine to time, Enron has entered into various adminis-
trative service, management, construction, supply and operating

02790

01300000001399


The Astonishing Success of EnronOnline

Jn late 1999 we extended our successful busi
ness model to @ web-based system, EnronOnkine
EnronOniline has broadened our market reach,
accelerated our business activity and enabled us
to scale our business beyond our own expectations
By the end of 2000, EnrorOnline had executed
548,000 transactions with 2 national value of $336
billion, and it is now the world’s largest web-based
eCommerce system.

With EnronOoling, we are reaching a greater
number of customers more quickly and at a lower
cost than ever. It's a grest new business generator.
attracting users who are draven by the site's ease of
use, transparent, firm prices and the fact thet they
are transacting directly with Enron, In 2000 our
total physical volumes increased significantly as a
direct result of EnronOntine.

heft page
jetiney K
Peesechont 9

night page
VL. bay

EnronOntline has enabled us to scale quickly,
soundly and economically. Since its introduction,
EnronOniine has expanded to include more than
1,200 of our products, It also has stresmiined our
back-office processes, making our entire operation
more efficient. It has reduced our overall transaction
costs by 75 percent and increased the productivity
of our commercial team by five-fold on average
We are not sitting still with this important new
business tool — in September 2090 we released
EnrorOnline 2.0, which added even more customer
functionality and customization features and
attracted more customers.

Enron Wholesale Services
The wholesale services business delivered

fecord physical volumes of $1.7 trillion British
thermal units equivalent per day (TBtuckd) in 2000,
compared to 32.4 TBtueld in 1999, As a result

wholessle services income before interest, minority
interests and taxes (IDET) increased 72 percent to $2.3
billion, Over the past five years, as physical volumes
have increased, wholesale IBIT has grown at s com
pounded average snnusl rate of 48 percent, and we
have had 20 consecutive quarters of year-aver-year
growth. We have established core wholesale busi-
newes in both natural gas and power in North
Amerika and Europe, where we are market leadors
In North America, we deliver almost double
the amount of natural gas and electricity than the
second tier of competitors. Our network af 2,500
delivery points provides price advantages, Mexibility
and speed-to-market in both natural gas and power.
Natural gas, our mast developed business, has seen
substantial volume growth throughout the United
States and Canada. In 2000 cur physical natural gas
volumes were up 77 percent to 24.7 billion cubic fect
sz

per day (Befid). Physical power volumes were up
percent to 579 million megewatt-hours (MWh).
We are building @ similar, large network in
Europe. in 2000 we marketed 3.6 Befid of natural gas
and 53 million MWh in this market. @ vast increase
aver 1998. As markets open, we tenaciously pursue
the difficult, early deals that break ground for
subsequent business. We are the only pan-furopean

player, and we are optimizing our advantage to
conduct cross-border transactions.

We are extending Enron's proven business
approach to other markets, and integrating
EnronOnline into all our businesses as an accelers-
tor, Our growth rates are rising in areas such as
metals, forest products, weather derivatives and coe!
We expect these businesses to contribute to pamings
even more significantly in 2001
Enron Energy Services

Our retail unit is a tremendous business that
‘enced 8 break-out year in 2000, We signed

ex

contracts with @ total value of $16.1 billion of cus g
tomers’ future energy expenditures, almost double = &
the $8.5 billion signed in 1999. We recorded incraas-
ing positive earings in all four quarters in 2000, and
the business generated $103 million of recurring (61. #
Energy and facilities management outsourcing is i

3

02751

01300000001360


Al2 THURSDAY, JANUARY 10, 2002 /NA

fos Angeles Times

Mysteries of the Energy Plan

or months, the White House has re-

congres-
sional committees, Democrats are gleeful at
having such a fat target in a
election year. Yet the White House continues
too little, too late.

In a Jan. 3 letter to Waxman, White House
counsel David S. Addington states that Che-
ney or members of his energy tack force met
six Lines with Enron executives. Once Cheney
met with Lay, All of the meetings may have
been perfectly innocent. But the adamant re

fusal of the White House to explain what took
place not only creates the appearance of im-
Propriety but also iluminates a, dangerous
penchant for secrecy. Whether it's keeping
Congress out of the loop or histori-
‘ans from

quests for changes in federal policies by
executives, copies of documents presented
and the names of those

‘The vice president's office obviously doesn’t
‘soe it that way. White House counsel Adding-
ton ends his paltry letter to Waaman by say-
ing. “It is our hope that submission of [this] in-
formation wil help you avaid the waste of
time

Thursday, January 10, 2002

Page 13

01300000000134


Carleton, Norman

From: Carleton, Norman

Sent: Thursday, January 10, 2002 5:49 PM
To: Rzemien, Susan
Subject: RE: CFTC Daily Newsclips 01/10/02 (News on Walt Lukken)
((b)(5)]
--—-Original Message----=

From: Rzemien, Susan

Sent: Thursday, Jarwary 10, 2002 5:17 9M

To: Carteton, Norman

‘Subject: RE: CFTC Daily Newscigs 01/10/02 (News an Wak Lukken)

[OUTSIDE SCOPE]

Original Message~="=

From: Carleton, Norman

Sent: Thursday, January 10, 2002 $:09 PM

To: Rzemien, Susan

Subject: RE: CFTC Dally Newscllps 01/10/02 (News om Welt Lukken)

[OUTSIDE SCOPE]

Norman

—_ na Message--—-

From: Rzemien, Susan

Sent: ‘Thursday, January 10, 2002 5:05 PM

To: Carleton, Norman

‘Subject: RE: CFTC Daily Newsclips 01/10/02 (News on Walt Luiken)

[OUTSIDE SCOPE]

Carteton, Norman
Sent: Thursday, January 10, 2002 5:04 PM
To: Rzemien, Susan
Subject: RE: CFTC Dally Newsclips 01/10/02 (News on Walt Lukken)

[OUTSIDE SCOPE]

Rzemien, Susan
‘Thursday, January 10, 2002 5:02 P4

To: Carleton, Norman
RE: CFTC Daily Newsclips 01/10/02 (News on Wak Lukken)
[OUTSIDE SCOPE]

Thanks for forwarding this to me.
{(b)(6)]

01300000000120


Lay joined the Union of Concerned Scientists and environmental groups in calling for curbs on
carbon in the atmosphere. The Clinton administration was supportive, but this year the Bush
administration reneged on a campaign pledge to impose limits on greenhouse gas emissions from
coal-buming power plants.

A multimillion-dollar lobbying campaign in Congress to secure legislation requiring states to
institute retail electricity deregulation fared even worse.

Enron hired former New York representative Bill Paxon, a leading conservative, to run
Americans for Affordable Electricity, which commissioned studies and recruited business
support for deregulation. But the legislation never made it out of a congressional subcommittee.
At the same time, Enron was growing restive over the slow pace of deregulation in the wholesale
electricity market, the core of its business. Large parts of the country, especially the Southeast,
were still monopolized by regulated utilities that limited the opportunity for trading gas,
electricity and energy derivatives,

Political Pragmatism

Enron's political pragmatism was demonstrated in the 1998 New York Senate election, when it
dropped its support of the Republican incumbent, Alfonse M. D'Amato, after Democrat Schumer
endorsed Enron's goal of wholesale deregulation, sources said. Lay reciprocated by hosting
several fundraisers for Schumer, and Enron's political action committee contributed $7,500 to the
Schumer campaign.

The company’s lobbying team expanded along with its political spending. It outgrew the two-
person operation that existed in 1989 and began to reflect Enron's interest in everything from
pipeline safety and derivatives trading to Overseas Private Investment Corp. loan guarantees. By
last year, its lobbying expenses exceeded $2 million a year and covered a raft of big-name
consultants, such as former Montana governor Mare F. Racicot, the new Republican National
Committee chairman, and former top aides to House Majority Leader Richard K. Armey (R-
Tex.) and House Majority Whip Tom DeLay (R-Tex.)

The hazards of Enron's efforts to connect with both parties were evident last year, when shortly
before the November clection, the company picked a Clinton administration Treasury official,
Linda Robertson, to run its Washington office.

A perturbed DeLay, whose campaign and related funds had received more than $100,000 from
Enron and Lay, briefly "excommunicated" Enron, a House source said. Robertson was not
invited to a series of mectings of electricity lobbyists held in DeLay’s office last July, though an
Enron official did finally attend the sessions,

Enron had more success when Congress overwhelmingly approved legislation last year
containing a provision precluding the Commodity Futures Trading Commission (CFTC) from
regulating Enron's trading in energy derivatives. These instruments are traded largely between
electricity dealers and big wholesale consumers, which use them to hedge against price swings
that could adversely affect their businesses.

02821

01300000001430


IssueAlerts email Page 5 of 5

http://secure.scientech.com/account/ to unsubscribe. Otherwise, please send an e-
mail to to IssueA/ert, with "Delete IA Subscription" in the subject line.

SCIENTECH's IssueAlert!®”) articles are compiled based on the independent
analysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's
IssueAlert articles are not intended to predict financial performance of companies
discussed, or to be the basis for investment decisions of any kind. SCIENTECH's
sole purpose in publishing its IssueAlert articles is to offer an independent
perspective regarding the key events occurring in the energy industry, based on its
long-standing reputation as an expert on energy issues.

Copyright 2001. SCIENTECH, Inc. All rights reserved.

02746

file://C:\WINDOWS\Temporary%20Intemet%20F iles\OLK303 l\article} htm 1/15/02

01300000001355


The exemption, tucked into broader legislation that established the legality of unregulated
derivatives trading by banks, was not supported by a Clinton administration working group,
largely because of opposition from the CFTC. Since the departure of Wendy Gramm, some in
the agency had lobbied for tighter control over the exploding energy derivatives market. The
legislation passed through the Senate Banking Committee, then chaired by Phil Gramm, who has
received $97,350 from Enron employees and its political action committee since 1989. A Gramm
spokesman said the senator does not recall talking to his wife, an Enron director, about the
energy provision and played "no role” in negotiating it. Wendy Gramm did not return phone calls
seeking comment.

Enron was a primary player, with Koch Industries Inc., a large, privately held oi! and gas
company based in Wichita, in pushing for the exemption, a source said. But the company's main
effort was focused on the House Agriculture Committee, where the legislation originated. Its
chairman and ranking Democrat, Texas Reps. Larry Combest (R) and Charles W. Stenholm (D),
respectively, were among the top recipients of Enron campaign donations in the House since
1989.

The CFTC objected strenuously to the initial draft marked up by the committee, but the Texas
congressmen helped work out a compromise between Enron and the agency, The compromise
was then offered by Rep. Jerry Moran (R-Kan.), the home-state congressman of Koch Industries
and a recipient of campaign donations from Enron and Koch in the last election cycle, Moran did
not retum a phone call seeking a comment.

Early this year, Lay seemed to be at the height of his political power, getting a private meeting
with Vice President Cheney to discuss the administration's energy policy proposals and weighing
in on key nominations to FERC.

Curtis Hebert Jr., FERC's chairman at the time, has reported that Lay called him and implied that
Enron would urge the newly installed Bush administration to keep him in the job -- ifhe changed
his views to support Enron's position for faster electricity deregulation. Lay contended that
Hebert called him to ask for support,

Hebert was not reappointed, He was replaced by Texas lawyer Pat Wood III, a strong advocate
of deregulation who had the backing of Lay and Enron.

Ironically, since Enron's fall, both FERC and Congress seem to be moving in the direction of the
deregulated markets Lay and Enron lobbyists had pushed for.

© 2001 The Washington Post Company

01300000000083


Carleton, Norman

From: Carleton, Norman
Sent: Wednesday, May 16, 2001 2:35 PM
To: Gabilondo, Jose
Subject: RE: New Version of Retail Swap Study Federal Register Release
{()(5)]

-----Oniginal Message—-—

From: Gabilondo, Jose

Sent: Wednesday, May 16, 2002 2:32 PM

To: Carleton, Norman

Subject: RE: New Version of Retail Swap Study Federal Register Release

[(6)(5)]

José

~—-Original Message——

From: Carleton, Norman

Sent: Wednesday, May 16, 2001 11:48 AM

Tor = Paulus, Michael; Nickaloff, Peter; Schulthess, Meidilyine; Novey, Michael; Hammer, Viva; Eichner, Matthew; Sutton, Gary; Stet,
Martha; Gabilonda, Jose; DeMarco, Edward

‘Subject: New Version of Retail Swap Study Federal Register Release

{(b)(5)]

<< File: retail swaps redline.wpd >>

<< File: retail swap study release (10).wpd >>
Recipient

Tracking: Delivery Read

Gadiondo, Jose Delivered: 6/1601 235 PM Read: 5/16/01 2:35 PM

; 02944

01300000001553


n

{(b)(5)]

02963

01300000001572


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Jubet Bilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AO]

During the administration of the first President George Bush, a new party fundraiser named
Kenneth L. Lay was invited to spend the night at the White House. The sleepover was an carly
coup for the chairman of Enron Corp. and a harbinger of things to come.

Over the following decade, Lay and Enron poured millions of dollars into U.S. politics,
cultivating unequaled access and using the entree to lobby Congress, the White House and
regulatory agencies for action that was critical to the energy company’s spectacular growth.

Now, with Enron's sudden bankruptcy, public attention has turned not only to the financial
practices that brought the company down, but to what its far-flung political operations say about
the country's campaign finance system.

Some Democrats in Congress are spoiling for an opportunity to use Lay and Enron to embarrass
the Republican Party, which received most of the company’s largess over the years. They want to
look into such things as Enron's relationship with Phi! Gramm (R-Tex.), ranking minority
member on the Senate Banking Committee and chairman of the committee at a time when his
wife, Wendy L. Gramm, was serving on Enron's board. Last year, Gramm's committee approved
legislation that included a key provision exempting parts of Enron's massive cnergy trading
operation from federal oversight.

"I think the Enron story is going to turn out to be an enormous political story,” said Rep. Henry
A. Waxman (D-Calif), ranking minority member on the House Energy and Commerce
Committee.

The ties of Lay to the White House and GOP leaders, he added, were so multilayered that
Republicans are likely to be reluctant to pursue them. But he made clear that he intends to do so
and expects the Democratic-controlled Senate to follow suit.

Enron also cultivated relationships with Democrats, however. Lay played golf in Vail, Colo.,
with President Bill Clinton, and Enron gave hundreds of thousands of dollars to Democratic
campaign committees and Democrats in the House and Senate, including Sen. Charles E.
Schumer (N-Y.) and Rep. Martin Frost (Tex.), the ranking minority member on the House Rules
Committee.

A Routine Cost for Some

Advocates of campaign finance reform say the Enron case vividly illustrates the ties between
politics and big moncy, though it's unclear that the company’s political operations were radically
different from others for whom political contributions have become a routine cost of doing
business.

01300000000079


TO OUR SHAREHOLDERS

Enron's performance in 2000 was 4 success by any measure, as we continued to

outdistence the

competition

and sotidify our Jeadership in each of our major businesses. In our largest business,
wholesale services, we experienced an enormous increase of 59 percent in physical

energy deliveries. Our retail energy business achieved its highest level ever of fo

contract value. Our newest business, broadband services, significantly accelerateo

transaction activity, and our oldest business, the interstate pipelines, re

sterea

increased eamings. The company's net income reached a record $1.3 billian in 2000.

Enron has built unique and strong businesses
that have tremendous opportunities for growth
These businesses — wholesale services, retail energy
services, broadband services and transportation
services — can be signsficantly expanded within
their very large existing markets and extended
to new markets with enormous growth potential.
Ata minimum, we see our market opportunities
company-wide tripling over the next five years.

Enron is lasor-focusod on earings per share.
and we expect to continue strong earings per-
formance, We will leverage our extensive business
networks, market knowledge and logistical axper
tise to produce high-value bundled products for an
increasing number of global customers,
Competitive Advantages

Our targeted markets are very large anc are
undergoing fundamental changes, Energy deregu-
lation and liberalization continue, and customers
are driving demand for reliable delivery of energy
at predictable prices. Many markets are experienc:
tighter supply. higher prices and increased
votstility, and there is incre
within regions and across commodities, Similarly
the broadband industry faces Issues of avercapacity
and capital constraint even as demand increases for

ing interdepandence

faster, flexible and mare reliable connectivity. Enron

5 in 8 Unique position to prowide the products and

servicns needed In these environments, Our size,

experience and skills give Us enormous competitive
advantages, We have:

+ Robust networks of strategic assots that we own
of have contractual access to, which give us
greater flexibility and speed to reliably deliver
widespread logistical solutions.

+ Unoaralieied Bquidity and market-making abilities
that result in price and service advantages.

+ Risk management skills that enable us to offer
reliable prices 2s well as refiable delivery

+ Innovative technology such as EnronOnline to
deliver products and services easily at the lowest
possible cost

These capabilities enable us to provide high:
value products and services other wholesale service
providers cannot, We can take the physical compo-
nants and repackage then to suit the specific needs
of customers. We traat term, price anc delivery as
variables that are blended into @ singhe, compre-
hensive solution. Our tachnology and fulfillment
systems ensure execution. In
ronments, these abilities make Enron the right
company with the right made! at the right time.

cunrent market envi

02750

01300000001359


Carleton, Norman
From: Bair, Sheila

Sent: Tuesday, January 08, 2002 4:06 PM
To: Carleton, Norman
Subject: RE: PWG's Report on OTC Derivatives and the CEA
thanks
---Qriginal Message—-
From: Carteton, Norman
Tuesday, January 08, 2002 2:51 PM
To: Bair, Shela

co Roseboro, Brian; Bitsberger, Timothy; Wiedman, Mark; Gross, Jared; Schulthess, Heidiiynne; Neckolo*, Peter
Subject: PWG's Report on OTC Derivatives and the CEA

Sheita,
((b)(5)}

02810

01300000001419


{(b)(5))

Norman

2 02813

01300000001422


{(b)(5)]

CONCLUSION
{(b)(5)]

Attachments

((b)(5)]

02817

01300000001426


From: Carleton, Norman

Sent: Friday, January 04, 2002 5:30 PM

To: Roseboro, Brian; Bair, Sheila; Gross, Jared; Wiedman, Mark; Bitsberger, Timothy; Smith, Amy
Ce: Schultheiss, Heidilynne; Nickolo‘f, Peter; Ellett, Martha: Gabilondo, Jose: Sutton. . Gary
Subject: FW: Draft Memo on Enron/CFMA Articles

Attached fe 5 morn fiat cietele ox foal aitarnet lo Clary what the frees hea Baan saying in regards to Enron and the
Commodity Futures Modernization Act.

| talked to the Ken Raisler, a New York lawyer, about this. He told me that Enron did not bin Ant the administration
about the CFMA but was part of an energy coalition, which Mr. Raisler represented, that did on this issue. The
exempt carenodiyoladinnic trading facility provision in the CFMA did not directly benefit Enron since EnronOnline was not
structured as a tr: facility as defined in the CFMA. Therefore, the major beneficiaries of these provisions are Enron's
competitors, such as the InterContinental Exchange and TradeSpark, which are stuctured as electonic trading facilities.
Enron did get the legal certainty it wanted that the CFTC cannot regulate EnronOntine. [(b)(5)]

Ken also told me that he had talked to then Assistant Secretary Lee Sachs about the exempt commodity issue, According
to Ken, Lee told him that the Treasury would not oppose the CFMA because of the commodity issue but
ancouraged the industry to reach a compromise with the CFTC, In the end, Wall Street firms, energy firms, and the
futures industry, as as the PWG (including the CFTC) all supported passage of the CFM: A.

oo-Oniginal Message-—--
From: ‘Schuttheiss, Heidilyrine
Sent: Friday, January 04, 2002 5:10 PM
To: Carleton, Norman
Subject: Draft Memo an Enrory\CFMA Artictes:

Attached is the draft memo on the Enron articles that asserted that the CFTC and PWG objected to the energy exclusion
provisions of the CFMA. The three news articles are downloaded as the latter pages.

seerorctina doe

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01300000000100


CORRECTION

Wednesday, December 26, 2001; Page A02

A Dec, 25 article incorrectly reported the action taken by the Senate Banking Committee, chaired
by Phil Gramm (R-Tex.), on a bill that exempted much of Enron Corp.'s trading activities from
federal regulation. The legislation was approved by the Senate Agriculture Committee,

© 2001 The Washington Post Company

02823

01300000001432


Carleton, Norman

——_—_—_—_—_ ——— EE
From: Carleton, Norman

Sent: Wednesday, March 21, 2001 10:45 AM

To: Barber, Francine

Subject: FW: Proposed Changes to Netting Bill - Comments

~---Original Message~~~---~-

From: Carleton, Norman

Sent: Tuesday, February 13, 2001 5:08 PM

To: Hughes, Gerry

Subject: FW: Proposed Changes to Netting Bill -- Comments

woonat Original Message-----

: Keimminger, Michael H. (mailto:MKrimminger@FDIC. gov}
Sent: Tuesday, February 13, 2001 4:47 PM

To: 'morman.carleton@do.treas.gov'; ‘stephanie.martinefrb.gov';
‘Tom.MeGivern@do.treas,gov'; ‘MooneyJ®sec.gov"

Cc: Deleose, Michael; Ivie, Stanley R.; Tishuk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

{(6)(5)]

02947

01300000001556


8 powerful taam. Enron's financial resources and
eCommerce abilities add a new dimension to MG's
widespread physical merchant skills and excetient
cuntorner relationships, The early results are right on
Target. with physical volumes up 31 percent in 2000.
Enron Metals opens an additional coor to
large energy customers. Cominco Ltd, a zine pro-
ducer and an Enron Metals customer in Vancouver,
British Columbia, worked with Enron to halt zinc
production for su weeks and sell its power into the
Northwestern power market. whore it was needed
Enron North America pratected Cominco by struc
tring a fixed-price swap to guarantee the sale
price of the pawer, and Enron Metals arranged to

One Coal Contract
Covers All Logistics

The process of sourcing and delivering
CowW to an etectrickty generator (s a com
picated process, Earao provides a singe,
comprehensive solution to manage av
Aogistics aval risk. wetter Ove cow it

sourced domestically or abroad. In some

© con race ano

SUPPLY RISKS

Enron allows generators
to purchase coal at fexibve
seems, such as fong-term
Fined rates oF 4 wanienase
(price, Supply asd price are
assured because Envor has

Coal intermediation moved to 8 nev lewel in
2000. The inclustry has been radically affected by the
wortdwide deregulation of the electricity industry.
Like natural-gas- fueled generation, coal burning
generators require flexible terms and risk-manage-
Ment protection. Enron is able to provide unrivaled
logistical support. Our coal business has led us to
participate in sea and land logistics as well

Weather has never been better for us. ur
Weather risk management business is Up about
five-fold to 1,629 transactions in 2000 from 321
transactions the year before, As in all of our mar-
kets, we bring crass commodity capabilities to our
weather products For instance, we closed a three:

@ exnsrontaron mess e cxmnancy nsxs
Anpovtod coo! travels by sew
and land, and the consumer
usualy makes each arrange
Ment separately and bears
tho rise if prices or capacity

access fo multiple sourees

cases, we have reduced the customer's
est of coe by as much as 10 percent

all ewer tho glotse, Ervon is
on its miny to Dacoening the

wor'd's largest whotesake
‘coal merchant.

supply @ portion of the zinc required to fulfill
Cominco’s obligations. Cominco’s profit from the
deal exceeded the annual profit it makes trom
producing zine

Enron Credits a new business with strong mar.
ket potential. Enron has leveraged its intemal risk
management processes and systems to create 4 real-
time, market-based online credit evaluation systam.
The idea is simple: Existing credit ratings and scoring
mechanisms are not market-based and cannot
faspond in real time to credit events. This means
creditors must figure out their credit risk exposure
on their own. Enron Credit posts the cast of credit
as a srnpie interest rate for more than 10,000 com-
panies on its web site, wanvenroncredit.com, Enron
Credit also gives corporations the ability to hedge
their credit risk vis @ benkruptey product

em ARMAS EFT 080

®

year precipitation transaction that provides finan-
cial comparsation linked to natural gas prices if
precipitation falls below a pre-determined mini-
mum, The weather unit worked with several other
Enron groups to wansfer Enron’s risk, ultimately
transacting with 10 external companies in tree
markets (natural gas, weather products and insur
ance). The bundled end-product resulted in an
offective hadge for the customer.

Crude ail We now average crude deliveries of
7.5 TBtueld to 240 customers in 46 countries. We
have introduced the first-ever 24x7 commodity
market of e West Texas Internediate cruce product
‘on EnronOnline, allowing our customers to respond
to market-changing events at any time, day or
night. We also concluded our biggest physical jet
fual contract, providing 109,000 barrels for one

02760

01300000001369


Enron's 2000 year-end financial statements cryptically described transactions with the
Fastow partnerships, including the transfer from Enron of assets valued at $1.2 billion, including
$150 million in notes payable to Enron, 3.7 million restricted Enron shares, and a call option to
buy as many as 18 million Enron common shares in March 2003. Enron also transferred to the
partnerships other assets valued at $309 million, including a $50 million note and “an investment
that indirectly held warrants convertible into common stock of an Enron cquity method
investee.” In retum, Enron received economic interests in the entities, $309 million in notes
receivable from the entities, and $1.2 billion in notes receivable as a “special distribution.” The
statements also mentioned a series of purchases by Enron of “share-settled options from the
entities” on shares of Enron's common stock.

In April 2001, LJM2 reported that Mr. Fastow, and possibly others, had realized more
than $7 million in management fees and $4 million in gains on an investment of nearly $3
million. Profits had been improved by the early termination or renegotiation of transactions.
The partnership had raised $394 million and invested in power plants and Enron assets and stock,
seeking a 29 percent [RR (reduced from its previous 48 percent target) after the decline in the
New Power Co. retailer, a provider of electricity and natural gas to houscholds and small
businesses. Large cash distributions had been made to investors. In late July 2001, Mr. Fastow
severed his relationship with the LJM2 partnership. Enron dissolved the Fastow financing
vehicles, reacquired the Enron shares, and nullified the note receivable from the partnership after
the value of Enron's stock and its broadband investments dropped sharply.

In July 2001, Enron officials were reported to have sold 1.8 million Enron shares valued
at about $106 million, as the stock declined from $83 to $45 per share. CEO Kenneth Lay sold
429,614 shares worth $25.7 million as a result of stock options, leaving him with 2.8 million
shares. In 2000 he had sold $30.7 million; in 1999 he sold $26 million. Kenneth Rice, former
chairman and CEO of the broadband unit, sold $23.7 million, reducing his 1.5 million shares by
456,966, President Skilling sold 160,000 of his 1.9 million shares for $9.8 million, Aggregate
sales by Enron executives totaled 5.8 million shares for $449 million. In 1999, they had sold 3.4
million shares for $123.1 million. The only corporate insider who purchased stock was Fastow,
who bought 10,000 shares at $36.98 each.

In August 2001, Enron President and CEO Skilling left after only six months in that
position, citing personal reasons and the decline in Enron's stock price. Kenneth Lay, chairman
and former CEO, again became Enron’s CEO. Thomson Financial reported that Mr. Fastow's
proceeds from stock options were $4,6 million for the previous 12 months,

Current Enron Turmoil

On October 16, 2001, Enron reported a third quarter loss of $618 million (compared with
year-ago camings of $292 million), but did not release its balance sheet. The loss occurred
despite a 59 percent increase in revenue to $47.61 billion, after accounting for a $1.01 billion
charge to write off impaired assets at its Azunix Corp, water services unit and several investment
losses, The charge consisted of $287 million in asset impairments recorded by Azurix, $180

million from restructuring broadband services, and $544 million related to certain investments.
About half of the $544 million charge was attributed to The New Power Co. unit; the other half

; 02857

01300000001466


immediately.

Thie e-mail is sent by a law firm and containg information
that may be privileged and confidential. If you are not the
intended recipient, please delete the e-mail and notify us
immediately.

2 02939

01300000001548


December 31,

- 2008
UABILITIES AND SHAREHOLDERS’ EQUITY.
(Currorst Liabilities
Accounts payable sam sais
‘Usbitities from price risk management actiities 19,485 1,836
‘Short-term debe 678 1001
Gatomers deposits aztT “
Oeher 2178 3724
Tonal curraor, Viatittien 78.406 a So)
Long-Term Debt asso 7.15)
Deferred Credits arxt Ovter Linbilities
Deferred income tasees 16a 1aD4
Liabilities from price rk managament actuation Raza 2.990
Other 2692 1,58?
‘Yotal deferred credits and otner liabilities 19 60
Commitmons and Contingencies (Notes 13, 14 and 15)
Mireeity interests 2a 2,490.
Compary-Obligated Prafmrred Securnies of Subsidiaries 308 1,009
Shareholders’ Equity
Second preferred tock, cumufative, 10 par value, 1,370,090 shares authored.

1,240,033 shares and 1,236.184 shares tsued, respactively 124 0
Mondatority Corwertible Juror Preferred Stock, Series B.

0 par wale, 250,000 sharus isiued 000 000
Commen stock, 1 par valun, 7.200,000,000 shares authorized.

752.20, 92 shares and 716,865,061 shares hasedt, emspectivety a sour
Retained exenings a28 2.058
Atcumetatod other compronensive income (1,048) 4
Common stock Held in trewmary. $77,006 shares and 1,337,714 shares, respectively aa 4H
Restrictod wack and other nae (105)

Total sharsholders’ equity Tayo. 3.570

Total Listeiiten and Shareholders: Equity 985 S03 ESEET A

ROM AUAL CPU fa

02781

01300000001390


Subcommittees of the House Financial Services Committee and the Senate Commerce
Committee have already held hearings,

But Lieberman's panel is the top investigative committee of the Senate. Under Republican
leadership during the Clinton administration, then-chairman Fred D, Thompson (R-Tenn.)
headed an investigation of Bill Clinton's 1996 presidential campaign fundraising.

Levin and Licberman said they intend to look into the close ties between Lay and President
Bush, a connection that some Democratic Party officials say they hope to take advantage of in
this year's congressional election campaigns,

Levin said he wants to know what advice Lay, who was a large contributor to the Bush
campaign, gave to officials of the new administration as it formulated energy policy a year ago.
Enron “also had close relationships with some Democrats, it's fair to say," Lieberman
acknowledged. He said he expected the inquiry to be bipartisan and to have Thompson's support.
"We are going to work together,” Lieberman said.

Lieberman said the committee also wants to leam whether federal regulators have the authority
to adequately oversee the complex commodity trading and financial transactions that were the
foundation of Enron's rapid growth over the past three years.

Lieberman noted that much of Enron's trading in energy derivatives was exempt from regulation
by the Commodity Futures Trading Commission, and he said a focus of the inquiry would be
whether this allowed the company to hide some transactions.

Enron was an active player in lobbying for the exemption beginning in the early 1990s,
according to sources. The exclusion was initially approved by the CFTC in 1992, and in 2000
Congress endorsed it as part of the Commodity Futures Modernization Act, despite concems of
some senior regulators.

At a joint hearing on the legislation by the Senate Banking and Agriculture committees in June

2000, then-CFTC chairman William J. Rainer spelled out his "reservations" about the exclusion
and said that "the case for it has not been made" with regard to energy derivatives.

© 2002 The Washington Post Company

02825

01300000001434


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01300000000126

Page §

Thursday, January 10, 2002



ENRON WHOLESALE SERVICES

Wholesale services ts Enron's largest and fastest
growing business, with sustainable growth oppor-
Aunities in each of its markets. In 2000 income before
interest, minority interests anc taxes (IBIT) rose 72
percent to $2.3 billion, with record physical energy
volumes of 51.7 trillion British thermal units equiv-
alent per day (TBtued) — 2 $9 percent increase
over 1999.

For the past five years, wholesale services
‘earnings have grown at an average compounded
‘growth rate of 48 percent annually, and our com-
PeLitive position is growing stronger, Customers
wansact with Enron because we offer products and
services few others can match. With our flexible
etworks and unique capabélities in risk manage:
ment and finance, wo deliver the widest range of
Foliable logistical solutions at predictable prices,

Enron dedivers more than two times the natural
gas and power volumes as does its nearest energy
marketing competitor. Our formidable lead comes
from our willingness to enter markets early and
Serve as @ market-maker to build liquidity and price
transparency. Breakthrough technology applicatans,
such as EnronOntine, accolerate our market panctra-
tion, Those competitive advantages have made us
the most successful energy marketer in the two
largest dereguisting energy markets, North America
and Europe. We expact to achieve a similar leader-
Ship position 8s we extend our business approach
to new regions, products and industries.

H ‘Our business has flourished with EnronOnline.
Launched in November 1999, EnronOnline handled
548,000 transactions in 2000 with a gross notional
value of $336 billion. ErranOnline Is unquestionably
{the largest web-based eCommerce site in the world
and dwarfs all other energy marketing web sites
fombined. By the fourth quarter of 2000, M account-
‘ed for almost half of Enron's tansactions over all
Business units. EnronOnline has pushed productivity
Ihrough the roof Transactions per commercial persan
ose to 3,084 in 2000 from 672 in 1998. EnronOnine
Version 2.0, launched in September 2000, has attract-
ed more users with its additional functionality (see
“EnronOnline” next page).

Enron North America

In North America, Enron's physical natural gas
volumes increased 77 percent to 24.7 billion cubic
feet per day (Bef/d) in 2000 from 13.9 Befid in 1999,
Power deliveries increased 52 percent to $79 millian
Megawatt-hours (MWh) from 381 million MWh the
yeer before

EnronOnkine has been @ runaway success int
North America. It accounted for 74 percent of
North American volume transacted in 2000, and

created liquidity on # scale never seen before hiss
dynamic business accelerator: It Look nearly 6
decade for Enron’s daily gas transactions to reach
1.2.9 Bef in 1999. Just 12 months later, EnronOnline
had helped to practically double daily transactions
to 24,7 Bef.

EnronOnline magnifies the success of our
existing business, which springs tram the scale and
scope of our established networks. We touch more
parts of North America’s energy system than any
‘other merchant, with access to upwards of 2,500
Gistinet delivery points each day. The widespread
delivery options and possibilities of our network
give us a price and service advantage Our networks
and presence in nationwide energy markets also
‘enable us to capture and distribute massive amounts
Of information about real-time market supply and
demand, grid constraints and bottlenecks. When
the market moves, we are able to conduct business
while competitors are still fact-finding.

Our people abo make 2 difference. We are
able to attract the best end the brightest and place
them in an entrepreneurial atmosphere in which
they can thrive, With our intellectual capital. we
develop premium high-margin structured products
that draw on our liquidity and market knowledge.
A good example is the gas-marketing-services hub
In Chicago we launched with People’s Energy in
March 2000, Known as Enovate, this venture opti-
mizes People's 30 Bef # year of Chicago-area storage
capacity and related transportation. It played a role
in increasing our gas volumes in the central United
States by 156 percent, the Largest increase in our
2000 North American physical volumes.

‘We continually assess the necessity of adding
oF owning assets in 8 region. Sometimes it is tess
expensive to Own an asset than to replicate the
assat in the market through contracting and mar-
ket-making, We are developing generation plants
to sell merchant power to high-demand markets,
including propased facilities in California, Florida,
Texas. Louisiana and Georgia. But 2s liquidity
increases. asset Ownersmip may no longer be neces-
sary. We plan to sell Houston Pipe Line Company,
and Louisiana Resources Company is now held by
Bridgetine Holdings, LP. a joint venture in which
Enron retains an interest. Additionally, in the second
quarter of 2001 we expect to close the sale of five
Of the six electricity peaking generation units in
operation. The result Is the same earnings power
with less invested capital,

Mexico's move toward liberalizing its energy
markets should gain intensity and speed with its
new government, Increased cross-border electricity
transactions between Mexico and the United States
seem inevitable. Our activities im Mexico seek to

02757

01300000001366

1 CANON ANaNUMe RCT Be


(coidinue .-

J

to the assistant Senate majority leader, a Nevada Democrat
regarded in tarm country as overly friendly with
environmentalists,

"We've got to have another lobbyist or two back in
Washington to paddle that matt...1 won't bore you with any more

wind.*

Besides being in the forefront to boost farm subsidies,
APBF was active in Washington on ethanol, agricultural trade

and environmental regulation.

It wag named recently by Fortune

magazine as one of the 25 top lobbying groups.

Wss

oc lo lo

Gold Surges $4.50, Leaving Its Doldrums Behind .

Gold awakened from its torpor and
‘surged higher om & mixture of commodity:
fund and trade-house buying, enhanced by
‘the triggering of prepleced purchase or-
ders, or buy-sops, above the market.

mid
Clinging to its Maghi-to-quakty
aftermath of the Sept. 11 attacks.

Dave Mager, senbor metals analyst at

described the move as & ted
rally, not related to undertying ay and

demand influences, and
silver.

in demand im Landon
Ifted short-term lease rates to historic lev.
els Just shy of

masd—when thase currencies ose value
relative to the dollar,

“Gold had languished while silver went
up, $0 at some point there had to be a
reaction im gold," said Frank McGhee, a
Gealer at AlliameePinsncial LLC in Chi

3

impendin,
optians on the February gold contract also
contributed to the gold rally, Alarom's Mr,

Gold Rush?

Gold futures prices climbed $4.50 to
$283.70 a toy ounce yesterday. Price
on the continous front-nonth contract.

$300,

Sowce: Mra va Thermos Prencel Dates

Bhs

H

Meger been
defending some
time,’ that open
interest the $280

a
g

fot the obligation, to buy the underlying:
futures contract * peter is
higher than the strike price time of

e cots
pelled funds short the S380 calls
to caver thelr exposure by buying futures,

than 10,090 options contracts changed
hands yesterday, with total volume for

In other commodity markets:

SUGAR: World sugar fetures made
sharp gains, speeding to the highest levels
in more dian five menths as speculative
funds bought in heavy volume. The March

Thursday, January 10, 2002

01300000000144


Enron Executives Face Subpoenas

Senate Panel Also Orders Testimony of Directors
By Peter Behr and Dan Morgan

Washington Post Staff Writers

Thursday, January 3, 2002; Page BO)

A Senate committee announced yesterday that it is subpoenaing top executives and directors of
the bankrupt Enron Corp, to determine their roles in the Houston company's epic collapse.

Three other congressional committees already are digging into the Enron failure, but the
subpoenas announced yesterday are believed to be the first of the congressional probes. Among
the likely recipients is Wendy Gramm, an Enron director who is the wife of Sen. Phil Gramm (R-
Tex.).

Sen. Carl M. Levin (D-Mich.), chairman of the Governmental Affairs Committee’s permanent
subcommittee on investigations, said the panel also will subpoena financial and trading records
from Enron and audit documents from its accountant, Arthur Andersen LLP.

Enron's attomey, Robert Bennett, called the subpoenas "totally unnecessary" and said "we are
fully cooperating with Congress."

Although Enron Chairman Kenneth L, Lay did not show up for two earlier congressional
hearings on Enron's bankruptcy, he has agreed to testify next month before the Senate Commerce
Committee, Bennett said,

Enron has turned over nearly three dozen boxes of documents to the House Energy and
Commerce Committee, Bennett said. "I don't question the legitimacy of an inquiry {into Enron's
failure}, but it's not a measured approach to have a half-dozen different committees doing this at
the same time,” he said. "It can lead to a circus atmosphere and a lot of wasted time and effort.”
The full Governmental Affairs Committee has scheduled a hearing for Jan, 24 on Enron's use of
a large number of partnerships that kept billions of dollars of corporate debt off the company's
books. The hearing will also examine whether federal regulators missed warning signs of the
company's trouble.

Accounting errors involving the private partnerships caused Enron to overstate its earnings by
half a billion dollars over the past four years. Enron's disclosure of the overstatement, in
November, triggered a final plunge in the company's stock price and the company's bankruptcy
filing Dec. 2.

Sen. Joseph L Lieberman (D-Conn.), chairman of the full committee, said, "The focus is, how
did this corporation collapse, and what can we do to make sure that something like this never

happens again?”

Lieberman's committee joins an already crowded field of Enron inquiries. The House Energy and
Commerce Committee has sent investigators to interview Enron officials in Houston.

01300000000085


IssueAlerts email Page 2 of 4

Securities and Exchange Inquiry) that have caused uncertainty about the company among
investors.

Analysis: Enron's first financial report since the departure of former CEO Jeffrey Skilling in August has not done
much to once again instill investor confidence in the company, which has experienced one of its most turbulent
years in recent memory. While Skilling cited personal reasons for his departure, many analysts suspected that a
significant drop in Enron's share price and financial losses in its diversified businesses also played a role. At the
time of Skilling's departure, Enron's stock had tumbled to a 52-week low. However, based on the new 3Q report,
it now appears that Enron's downward turn may be continuing despite the return of Kenneth Lay to the company’s
top spot. In essence, Enron's financial problems have been caused by businesses that the company has
established as a way to diversify from its core focus on wholesale power sales. It appears that Enron is learning a
costly lesson—namely that investors are not responding favorably to the company’s innovation, especially if
bottom line performance is in any way compromised. The road ahead may remain uncertain for Enron, as 4 good
number of unresolved issues and a new Securities and Exchange Commission (SEC) inquiry into financial dealings
of its chief financial officer continue to overshadow the company.

Let's first establish the financial losses that Enron has reported in the third quarter. As noted, as a whole the
company reported $638 million in losses, after taking $1.01 billion in charges associated with several of its non-
core businesses. When we break down the losses, it becomes clear that Enron is struggling with its operations in
three businesses: water, broadband and the retail power market. Specifically, Enron reported $287 million in
charges from Azurix, its water and wastewater business; $180 million in charges related to the downsizing of its
broadband operations (including severance costs and losses on inventory sales and customer contracts); and
$544 million in what the company is calling “investment losses.” Evidently, about half of the $544-million figure Is
related to Enron's investment in NewPower Company, the retail electricity and natural-gas provider that Enron
launched about two years ago with partners America Online and IBM. Enron owns 45 percent of NewPower. In
addition, Enron's debt to total capitalization ratio reportedly will increase to about SO percent, although Lay says
that pending asset sales may reduce that amount to 40 percent by the end of 2002. However, it is important to
note that Enron's 3Q recurring net income (before the write-offs) did increase 35 percent to $393 million, or 43
cents a diluted share, and revenue in the quarter rose to $47.6 billion from $30 billion in 3Q 2000.

The losses associated with NewPower are particularly interesting. As one of the leading investors in the company,
Enron drove NewPower's aggressive business focus on retail residential power sales, despite ongoing concerns
about the development of retail competition across the United States. NewPower went public last year at an
opening price of $21, and in the early days of its initial public offering was trading above that price. However, the
company's stock has experienced a devastating drop in value, and is currently priced at $1.25. NewPower is not
scheduled to release its own 3Q financial statement until early November, but it is expected that the company will
continue to incur significant losses for the foreseeable future. Specifically, NewPower recently reiterated its earlier
expectations of a 3Q loss of $65 million to $70 million, or $1.12 to $1.20 a share. Third-quarter revenue
reportedly will be slightly lower than the $60 million to $65 million that the company had forecast in August.

In analyzing NewPower’s 2Q financial losses (see IssueAlert from 8/8/01 at www.scientech,com/rci), I argued
that the company is really struggling from a mix of positive and negative factors in its efforts to become the
leading retail energy provider in residential and small business markets in the United States. On the positive side,
NewPower has recently secured a large number of new customer accounts, most significantly from its purchase of
customers and related assets from AES Corp, and DTE Energy. These purchases prompted an impressive growth
spurt for NewPower, and the company reportedly now has a customer base in 22 markets in 10 states, However,
the bad news for NewPower is that its losses continue to widen, apparently resulting from a combination of
weather factors and financial hits absorbed in several of the states in which the company operates. This
dichotomy does not appear to be getting any better, and the company’s stock has continued to drop as a result.

In an effort to alleviate some of its financial woes, NewPower recently revised an existing master netting
agreement with Enron Corp, and several of its subsidiaries. The revised agreement essentially lowers the amount
of cash collateral that NewPower is required to post to the Enron subsidiaries through Jan. 4, 2002, With the
lowered financial obligations that it must make to Enron, NewPower believes that it will have sufficient financial
resources to conduct its business in the near term until It secures ongoing asset-based financing.

However, from Enron's perspective, the losses associated with NewPower (and, by the same token, the losses in
water and broadband) have contributed to a steady drop in its own stock price. The message is clear: The

file://C:\WINDOWS\Temporary%20Internet%20Files\OLK303\article2 1 htm 02739 W/17/02

01300000001348


Subcommittees of the House Financial Services Committee and the Senate Commerce
Committee have already held hearings.

But Lieberman's panel is the top investigative committee of the Senate, Under Republican
leadership during the Clinton administration, then-chairman Fred D. Thompson (R-Tenn.)
headed an investigation of Bill Clinton's 1996 presidential campaign fundraising.

Levin and Lieberman said they intend to look into the close ties between Lay and President
Bush, a connection that some Democratic Party officials say they hope to take advantage of in
this year's congressional election campaigns.

Levin said he wants to know what advice Lay, who was a large contributor to the Bush
campaign, gave to officials of the new administration as it formulated energy policy a year ago.
Enron "also had close relationships with some Democrats, it's fair to say," Lieberman
acknowledged, He said he expected the inquiry to be bipartisan and to have Thompson's support.
“We are going to work together,” Lieberman said.

Lieberman said the committee also wants to leam whether federal regulators have the authority
to adequately oversee the complex commodity trading and financial transactions that were the
foundation of Enron's rapid growth over the past three years.

Lieberman noted that much of Enron's trading in energy derivatives was excmpt from regulation
by the Commodity Futures Trading Commission, and he said a focus of the inquiry would be
whether this allowed the company to hide some transactions.

Enron was an active player in lobbying for the exemption beginning in the carly 1990s,
according to sources. The exclusion was initially approved by the CFTC in 1992, and in 2000
Congress endorsed it as part of the Commodity Futures Modermization Act, despite concems of
some senior regulators.

At a joint hearing on the legislation by the Senate Banking and Agriculture committees in June
2000, then-CFTC chairman William J. Rainer spelled out his “reservations” about the exclusion
and said that "the case for it has not been made" with regard to energy derivatives.

© 2002 The Washington Post Company

01300000000038


FUTURES

Energy Slumps As Supplies Swell;
Gold Climbs To Three-Month High

avenues ~ Washingroerbased hha special:

iis lord of Sixes is arin aes Tncreae 19% since sct-
higher Our most extreme ex- ting eight-year around $4.04
Pectations,” sald Alan Levine, » meunee laine Novena

(Lud/

Page 24 Thursday, January 10, 2002

01300000000145


(coRinue J

would otherwise have been taken out.'*

Such workplace security had a beneficial effect on confidence
and productivity, he sald. “‘If you lay off 100 of 100,000, all
100,000 think they're next,"' he said.

O'Neill offered an optimistic view of the U.S. economy's
ability to outpace those of other countries because of its free-
market foundations and the ability of its businesses to innovate.

““There is a huge opportunity for our economy to grow at rates
that most economies can't achieve because they have rigidities
built into their structure,"’ he said. “*L think we have enormous
potential going forward.*'

--Simon Kennedy and Brendan Murray in Washington (202) 624-1634 or
skennedy4@bloomberg-net with reporting by Liz Goldenberg in
Washington /jrc/cah

01300000000151


Carleton, Norman

From: Carleton, Norman
Sent: Wednesday, May 16, 2001 2:44 PM
To: Gabilondo, Jose
Subject: RE: New Version of Retail Swap Study Federal Register Release
{(6)(6)]
~-~-Original Message-----

From: Gabilando, Jose

Sent: Wednesday, May 16, 2001 2:36 PM

To: Carleton, Norman

Subject: RE: New Version of Retail Swap Study Federal Register Release

{(b)(5)]

{(b)(6)]

José

-—-Oniginal Message-—

From: — Carleton, Norman

Sent: Wednesday, May 16, 2001 2:35 PM

To: Gabilando, Jose

Subject: RE: New Version of Retail Swap Study Federal Register Release

{(b)(5))

-——-Onginal Message--—-

From: Gabliondo, Jose

Sent: ‘Wednesday, May 16, 2001 2:32 PM

To: Carleton, Norman

‘Subject: RE: New Version of Retail Swap Study Federal Register Release

{(b)(5)}

José

-—--Original Message-——-
From: Carleton, Norman
Sent: Wednesday, May 16, 2001 11:48 AM
To: Paulus, Michael; Nickolot, Peter; Schulthelss, Hefcllynne; Novey, Michael; Hammer, Vive; Exchner, Matthew;
‘Sutton, Gary; Glett, Martha; Gabdflondo, Jose; DeMarco, Edward

Subject: New Version of Retal Swap Study Federal Register Release
((b)(5)]

<< File: retail swaps redline.wpd >>

<< File: retail swap study release (10).wpd >>
Recipient Delivery Read

‘Gabiondo, Jose Delivered; SME01 246 PM Read: 616/01 3:07 PM

Tracking:

02943

01300000001552


Lay joined the Union of Concerned Scientists and environmental groups in calling for curbs on
carbon in the atmosphere. The Clinton administration was supportive, but this year the Bush
administration reneged on a campaign pledge to impose limits on greenhouse gas emissions from
coal-burning power plants,

A multimillion-dollar lobbying campaign in Congress to secure legislation requiring states to
institute retail electricity deregulation fared even worse.

Enron hired former New York representative Bill Paxon, a leading conservative, to run
Americans for Affordable Electricity, which commissioned studies and recruited business
support for deregulation. But the legislation never made it out of a congressional subcommittee.
At the same time, Enron was growing restive over the slow pace of deregulation in the wholesale
electricity market, the core of its business. Large parts of the country, especially the Southeast,
were still monopolized by regulated utilities that limited the opportunity for trading gas,
electricity and energy derivatives.

Political Pragmatism

Enron's political pragmatism was demonstrated in the 1998 New York Senate election, when it
dropped its support of the Republican incumbent, Alfonse M. D'Amato, after Democrat Schumer
endorsed Enron's goal of wholesale deregulation, sources said. Lay reciprocated by hosting
several fundraisers for Schumer, and Enron's political action committee contributed $7,500 to the
Schumer campaign.

The company's lobbying team expanded along with its political spending, It outgrew the two-
person operation that existed in 1989 and began to reflect Enron's interest in everything ftom
pipeline safety and derivatives trading to Overseas Private Investment Corp. loan guarantees. By
last year, its lobbying expenses exceeded $2 million a year and covered a raft of big-name
consultants, such as former Montana governor Mare F. Racicot, the new Republican National
Committee chairman, and former top aides to House Majority Leader Richard K. Armey (R-
Tex.) and House Majority Whip Tom DeLay (R-Tex.)

The hazards of Enron's efforts to connect with both parties were evident last year, when shortly
before the November election, the company picked a Clinton administration Treasury official,
Linda Robertson, to run its Washington office,

A perturbed DeLay, whose campaign and related funds had received more than $100,000 from
Enron and Lay, briefly "excommunicated" Enron, a House source said. Robertson was not
invited to a series of meetings of electricity lobbyists held in DeLay's office last July, though an
Enron official did finally attend the sessions.

Enron had more success when Congress overwhelmingly approved legislation last year
containing a provision precluding the Commodity Futures Trading Commission (CFTC) from
regulating Enron's trading in energy derivatives. These instruments are traded largely between
electricity dealers and big wholesale consumers, which use them to hedge against price swings
that could adversely affect their businesses.

01300000000034


it... ooo esete%

01300000001365


blorybeg YA /oz

BN . Economy Will Take 9 to 18 Months to Recover

Jan 9 2002 17:47

O'Neill Says U.S. Economy Will Take 9 to 18 MonLhs to Recover

Washington, Jan. 9 (Bloomberg) -- The U.S. economy probably
wil) return to its “‘potential'' growth rate of about 3.5 percent
in nine to 18 months, Treasury Secretary Paul O'Neill said.

“"At the moment, the weight of the evidence is cautiously
positive and it's been improving,'' O'Neill said in an interview.

O'Neill's assessment of how long it will take before U.S.
growth returns te a 3.5 percent rate is less optimistic than most
economists predict. The median of 42 forecasts in a Bloomberg News
survey is for the economy to expand at a 3.5 percent pace in the
third quarter and a 3.9 percent rate in the final three months of
the year.

The economy slipped into recession in March and contracted at
a 1.3 percent annual rate in the third quarter. The Bloomberg News
survey shows the economy probably shrank at 2 1.4 percent rate at
the final three months of the year. Recent statistics show an
increase in consumer confidence, a rise in home sales and & pickup
in orders to manufacturing and service companies.

“We're in the recovery process and we're in the beginning of
the positive real growth period,*' O'Neill said.

The Treasury chief described the current quarter, in which
analysts expect gross domestic product to contract at ao.
percent rate, as the ° ambiguous period where it's not obvious
what the rate of movement out of the low economic period is going
to be.'*

Unemployment is Likely to rise above the 6 1/2-year high of
5.8 percent it reached in December, O'Neill said. It's unlikely,
he said that the jobless rate will rise as much as another full
percentage point.

““The rate is going to go up from where we are,'' he said.
“"It takes a while before the economy's growing fast enough to not
only absorb the new population coming into the workforce, but to
begin to eat into the population that was dislocated by the
slowdown. But, I don't think 6.8 percent is a real probability.'*

Fed Officials

Federal Reserve policy makers have said this week that they
exprct a recovery this year, though possibly not at the pace
economists forecast. The U.S. will probably **see a more gradual
recovery from the recession than in most other postwar business
eycles,'' Al Broaddus, presidont of the Richmond Fed Bank, said
yesterday. Growth later this year and next may be “Sa Little
softer than the consengus,'' Broaddus said.

O'Neill also dismissed arguments that by eroding the
nation's budget surplus with a $1.35 trillion tax cut last year,

umes

Page 28 Thursday, January 10, 2002

01300000000149


CORRECTION

Wednesday, December 26, 2001; Page A02

A Dec. 25 article incorrectly reported the action taken by the Senate Banking Committee, chaired
by Phil Gramm (R-Tex.), on a bill that exempted much of Enron Corp.'s trading activities from
federal regulation. The legislation was approved by the Senate Agriculture Committee.

© 2001 The Washington Post Company

02836

01300000001445


now a prov
profitable deal flow, which inchades extensions of

contracts by many existing customers. Price volatility
in energy markets has drawn fresh attention to our

p concept, and we've established a

capabilities, increasing demand for our services, No
other provider has the skill, experiance. depth and
versatility to offer Doth energy commodity and
price risk management services. as well as energy
asset management and capital solutions. In 2001
we expect to close approximately $30 billion in
new total contract value, including business from
our newest market, Europe.
Enron Broadband Services

We have created @ new market for bandwidth

intermediation with Enron Broadband Services. in
2000 we completed 321 transactions with 45 coun

7

me
ma |
I |
os of

WHOLESALE SERVICES ~ PRTPSICAL WOLURAES
(uilion Brith therrnal unde aqutealert per diy)

© Orhes
@ Sewety
© Maus Cas

parties, We are expanding our broadband inter
mediation capabilities to include a broad range of
network services, such as dark fiber, circuits, Internet
Protocol series ar
aro increasing commensurately.

Part of the value we bring to the broadband
Tiold ts network connectivity — provkting the
switches, the network intelligence and tive inter-
mociation skills to enable the efficient exchange

data storage. Our opportunities

of capacity between independent networks. We
operate 25 pooling points to connect independent
third-parties — 18 in the United States. six in
Europa and one in Japan. At least 10 more are
scheduled to be complated in 2001

Enron aso has developed 8 compelling
commerical model to deliver premium coriterit-on
damanc services via
Content providers want t

Enron Intelligent Network.

to ates CPOE FO

extend their established

businesses and offer viewers at home an additional
convenient way to choose and recaive entertain
ment, Enron provides the wholesale logistical services
that bridge the gap between content praviders and
last-nile distributors, Full-length movies-on-demand
service has been successfully tested In four U.S.
metropolitan markats.
Enron Transportation Services

The new name for our gas pipeline group accu
rately reflects a cultural shift to add more innovative
customer services to our efficient pipeline operation.
To serve our customers more effectively, we are
increasingly incorporating the web into those rela:
tionships. Customers can go online to schedule nomi-
nations and handle inquiries, and they can transact
for available capacity on EnronOniine. The pipelines

ENRON ENERGY SERVICES —
VALUE OF CONTRACTS ORIGINATED
in bikie)

continued to provide strong earnings and cash flow
in 2000, Demand for natural gas is at a high in the
United States, and we're adding capacity to take
OMUNRIES in all markets

advantage af expansion of
New capacity is supported by long-term contracts
Strong Returns

Enron is increasing earnings per share and

continuing our strong returns to shareholders

Recurring earnings per share have increased
steadily since 1997 and were up 25 percent in
2000. The company’s total return to shareholders
was 88 percent in 2000, compared with a negative
ed by the S&P 500. The 10-year
return to Enron shareholders was 1,418 percent
compared with 383 percent for the S&P 500

Enron hardly resembles the company we were

9 percent retur

in the early days. During our 15-year history. we have
stretched ourselves beyond our own expectations

02752

01300000001361


[(b)(5)]

02737

01300000001346


Carleton, Norman _

From: Schultheiss, Heidilynne

Sent: Thursday, January 03, 2002 3:45 PM
To: Carleton, Norman

Subject: Draft Memo on Enron and Post Articles

{(b)(5)]

erecretre tee

02828

01300000001437


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Juliet Eilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AOL

During the administration of the first President George Bush, a new party fundraiser named
Kenneth L. Lay was invited to spend the night at the White House. The sleepover was an early
coup for the chairman of Enron Corp. and a harbinger of things to come.

Over the following decade, Lay and Enron poured millions of dollars into U.S. politics,
cultivating unequaled access and using the entree to lobby Congress, the White House and
regulatory agencies for action that was critical to the energy company’s spectacular growth.

Now, with Enron’s sudden bankruptcy, public attention has turned not only to the financial
practices that brought the company down, but to what its far-flung political operations say about
the country’s campaign finance system.

Some Democrats in Congress are spoiling for an opportunity to use Lay and Enron to embarrass
the Republican Party, which received most of the company’s largess over the years. They want to
look into such things as Enron's relationship with Phil Gramm (R-Tex.), ranking minority
member on the Senate Banking Committee and chairman of the committee at a time when his
wife, Wendy L. Gramm, was serving on Enron's board. Last year, Gramm's committee approved
legislation that included a key provision exempting parts of Enron's massive energy trading
operation from federal oversight.

"I think the Enron story is going to tum out to be an enormous political story," said Rep. Henry
A. Waxman (D-Calif), ranking minority member on the House Energy and Commerce
Committee.

The ties of Lay to the White House and GOP leaders, he added, were so multilayered that
Republicans are likely to be reluctant to pursue them. But he made clear that he intends to do so
and expects the Democratic-controlled Senate to follow suit,

Enron also cultivated relationships with Democrats, however. Lay played golf in Vail, Colo.,
with President Bill Clinton, and Enron gave hundreds of thousands of dollars to Democratic
campaign committees and Democrats in the House and Senate, including Sen. Charles E.
Schumer (N_Y.) and Rep. Martin Frost (Tex.), the ranking minority member on the House Rules
Committee.

A Routine Cost for Some

Advocates of campaign finance reform say the Enron case vividly illustrates the ties between
politics and big money, though it's unclear that the company's political operations were radically
different from others for whom political contributions have become a routine cost of doing
business.

02831

01300000001440


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Page 7

Thursday, January 10, 2002

01300000000128


Baty Report fee eae

Calendar
President’ Calnndar
‘Thursday, January 18, 2007

MULTE ROUSE ANBOONCEMENTS
eer et

van. 3:

President Bush announced his intention to nominate Walter Lukken to be «
foner of the Comsedity Putures Trading Commission.

‘The president announced hie designation of the following 11 individuals to
represent the United States at the Inauguration of Rnrique Bolanou Geyer ae
ne Of the Republic of Micaragua: Oliver Garza; John Maisto; Lino
et; Janet Ballastyme; George Prescott Bush; James ©. Kenny; Earle Irving
Mack; Anma Navarro; Rawl Romero, and Rvelyn Dee Potter Rose.

The president and Plorida Gov. Jeb Gush signed an agreewent to enuure
adequote water supplies are aveilable for the Compreneasive xverglades
Restoration Plan.

‘The White Howse announced the president on Jan. @ signed che following bills
inte law:

RR, 2299, which permits amy federal law enforceseat to enter into =
cooperative lew enforcement agreement with the Metropolitan Pulice Departwent
ef the Dintrict of Colusbia
WR, 2657, which designates the Family Division of the Superior Court of the
District of Columbia as the Pae{ly Court of the Superier Court and aakes
Structural and adeiniatrative changes
«

x he Rbineceros and Tiger Conservation Reaethorization Act.
7 DER K-32, 21
OF DOCUMENT.

Thursday, January 10, 2002 Page 3

01300000000124


Carleton, Norman

From: Carleton, Norman

Sent: Friday, January 04, 2002 5:30 PM

To: Roseboro, Brian; Bair, Sheila; Gross, Jared; Wiedman, Mark; Bitsberger, Timothy; Smith, Amy
Ce: Schultheiss, Heidilynne; Nickoloff, Peter; Ellett, Martha; Gabilondo, Jose; Sutton, Gary
Subject: FW: Draft Memo on Enron/CFMA Articles

Attached is a memo that details our first attempt to clarify what the press has been saying in regards to Enron and the
Commodity Futures Modernization Act.

| talked to the Ken Raisler, a New York lawyer, about this. He told me that Enron did not directly lobby the administration
about the CFMA but was part of an energy coalition, which Mr. Raisler represented, that did lobby on this issue. The
@xempt commodity/electonic trading facilily provision in the CFMA did not directly benefit Enron since EnronOnline was not
structured as a trading faciity as defined in the CFMA. Therefore, the major beneficiaries of these provisions are Enron's
competitors, such as InterContinental Exchange and TradeSpark, which are stuctured as electonic tradina facilities.
Enron did get the legal certainty it wanted that the CFTC cannot reaulate EnronOnline, {(b)(5)]

Ken also told me that he had talked to then Assistant Secretary Lee Sachs about the exempt commodity issue. According
to Ken, Lee told him that the Treasury would not the CFMA because of the exempt commodity issue but
encouraged the industry to reach a compromise the CFTC, In the end, Wall Street firms, energy firms, and the
futures industry, as @s the PWG (including the CFTC) all supported passage of the CFMA.

--—-Onginel Message-——-
Sent: Friday, January 04, 2002 5:10 PM
To: Carleton, Norman

Draft Memo on Enron/CFMA Artides

Attached is the draft memo on the Enron articles that asserted that the CFTC and PWG objected to the energy exclusion
provisions of the CFMA. The three news articles are downloaded as the latter pages.

teronctma doe

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01300000000075


August 7, 2001

MEMORANDUM FOR FILES
From: Norman Carleton

Subject: Retail Swaps Study Group Interviews at FRBNY, 8/01 - 8/02/01

{(0)(5)]

02962

01300000001571


Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a
future hearing. Dorgan also said the committee will invite Skilling, Enron's former chief
executive, and Andrew Fastow, Enron's former chief financial officer, to testify at the
same hearing.

"Was this just bad luck, incompetence and greed, or were there some criminal or illegal

actions, as has been suggested by the accounting firm that reviewed Enron's books?”
Dorgan said.

01300000000113


Carleton, Norman

From: Carleton, Norman

Sent: Wednesday, Jenusry 09, 2002 3:51 PM
To: Wiedman, Mark

Ce: Schulthelss, Heidilynne; Nickoloff, Peter
Subject: Policy Briefing Topics

Here are the topics for Heidilynne and Peter.

[OUTSIDE SCOPE]
Enron and CEA Issues
[OUTSIDE SCOPE]
Tracking: Recipient Delivery
Wiedman, Mark Delivered: 14902 3:51 PM
Schultheiss, Hedilynne Delivered: 1902 3:51 PM
Nickolot, Peter Delivered; 1/902 3:51 PM

Read

Reed: 1/002 4:56 PM
Read: 1/902 3:51 Pia
Read: 1/9/02 4:02 PM

01300000000119


INVESTOR'S BUSINESS DAILY
CREDIT M.

. aleolor a

Corporate Debt Sales Sway Market

debt sales,

The market did not react to Dallas
7 that the recessionary US.
view
economy is in the process of form
ingabottom

Lehman Bros. economist Drew
Matus said McTeer, 2 voting mem-
beron the Fed's
mittee, merely echoed a view ex-
pressed by several other Fed offi-
Galson Tuesday.

nn wo
J-ssanaiit
wowewslelt

‘ead tone Vane
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£ HH

WSs  ofhefor

Recession Will End
In a Month or Two,
Economists Predict

Ry « WALL Srranry Jovrenas Staff Reporter

KANSAS CITY, Mo.—Slighely more than
half of the economists surveyed by the Blue
Oa bo ee a, nical say ta recession

Thursday, January 10, 2002

Page 27

01300000000148


The counterparties asocisted wah gmets from price risk
management activities as of December 31, 2000 and 1999 are
summarized as follows:

2000 1998
Investeent, fveestmert

Qe rttione} Grade? total__Grado!")_ total.
Gasand elecirk wiles $5,030 $5,227 $1,481 $7,590
Energy markotors AGT 4126 nL)
Vinareial inatibtiorn: 4145 4,007 108 4,273
Independent power

producers Cr an et
Oil ané gus procucors 13068 2.608 an]
Induntrinls sor 4,138 5 OSM
Other 256 BT 8 Liu

Tora! sz 206 SANT
Credit and other reserves 44527) iy
‘Assets from price rik

an nt activities szxeosttl $5,134

(a) “Mwesinent Grade” 6 prmeniy derscroned using puatCy seeletse rect at:

(ngs pong stn conuiration af caun, anaty dtterr of creat. parent comps
and property meermath, maucing af anf gus neserees Hee

1 “Pmemmene Grade” are wath # errirum Stance & Poor
oF Moody rating of BEB: oF 8893

PY Che ant to customers” expences, at Deosmber 37. 2000 ent
1999 comprise greater then SM of Assets From Pree Ask Aferogement
Actas and are NCLdEd Bove os orwesemen Grade.

fe) At Drcereey 37. AAR. Enron hei cokatwa’ of epyerounnatety $5.5 bean,
tach consists subscartay oF cash Yopomie shower ws “Cyntomiers” Cepomte®
on abe batonce sheet

Ths concentration of counterparties may wmpect Enron's
overall exposure to credit rk, either pasitivaly of negatively. in
that the counterparties may be sevtarty affected by changes
in econamic, regulatory or other conditions. Based on Enron's
policies, its exposures and its eredin reserves, Enron doas nat
enticipate & materially adverse effect on financial position or
faults of operations as a result of counterparty nonperformance.

During 2000, the Califormia power maruet yeas significantly
impacted by the increase in wholesale power prices California
customer rates are currently frozen. requiring the utilities to
finance the majority of their power purchases. If wholesale prices
remain at the current levels and no reguistory relief oF legisistive
awistance & obtained. certaw Califoria utilities may need to
seek bankruptey protection. During 2000, Enran emtered wo
wholesale power transactions with California utilities mrhuding:
their nonreguiated power markating affiliates. Enron has pro-
wider credit reserves related to such activities Based on Enron's
not position with wach California utility. Dus to the uncertainties
surrounding the Californie power situation, management carrot
predict the ukimate outcome but believes these matters wil not
have a material adverse impact on Enron's financial condition.

Non Trading Activities

Enron sho enters inte financial instruments such as swags
and other contracts primarily for the purpose of hedging the
ienpact of market Nuctuations on assets, liabilities, production or
other contractual commitments.

Energy Commodity Price Swaps At Decesniber 37, 20K)
Enron was 4 party to energy commodity price swaps covering TEE
Tatu, 29.9 TBtu and 0.5 TBtu of natural gas for the yosrs 2001,
2002 ard 2003, respectively, and 0.3 million barrels of crude of for
the year 2007

Interest Rate Swaps. At December 31. 2000. Enron had
Gntered into interest rate swap agreements with an aggregate
notional principal smount of $1.0 billion to manage interest
fate exposure. These swap agreements are scheduled to termi-

hate $0.4 billion in 2001 and $0.6 billion in the period 2002
through 2070.

Foreign Currency Contracts At December 31, 2000, foreign
casrency contracts with @ notional principal amount of $1.4
billion were outstanding. These contracts wilt expire $1.0 billion
in 2001 arxd $0.4 billion in the period 2002 through 2006.

Equity Contracts. At December 31, 2000, Enron had ernered
into Enron common stock swaps. with an sygregste notional
amount of $121 million to hedge certain incentive-based
compersation plans, Such comuracts will expire in 2001,

Cradit Risk. While notional amounts are used to express the
volume of yanous financal instruments, the amourns pokentislly
subject to credit nik, ins the @eent of nonperformance by the
third parties, are substantially smaler, Forwards, futures and
other contracts are entered into with counterparties who are
equivalent to invexmernt grade. Accordingly. Enron does not
anticipate any material impact to its financial pasition or results
Of Operations a9 8 rasukt of nonperformance by the third parties
06 financial instruments related to nan-trading activities.

Financial Instruments

‘The carrying amounts and estimated tar values of Enron's
financial instruments, excluding trading activities at December 31
2000 ard 1999 were as follows

2000
Carrying Estimated Carying (rtmeted

{ln atinorsa) Amaurt Fait Value Amount Fair Value
Shart- and long-terre

debt (ote 7) $70.229 $70.217 SHTS2 $8,108
Comparry-obligated

preferred weurities of

subkdiaries (Note 10) oot 1.009 wr
Energy commecity

price swaps ° « ”
Wrerest rote swaps - i] (55)
Foreign currency contracts - o -
Equity contracts 3 at 4 4

Enron uses the following methods and maumpstionss i asti-
mating fair values: [a) short and long-term debt - the carving
amount cf variable-rate debt approximates fair value. the fair
‘value of mackutstsie debt is based on quoted market prices and
the fair value of other debt « buved or the discounted present
walue of cash flows using Enron's current borrowing rates:
{b) company-obligated preferred sucurities of subsidiarigs - the
fair value is Dawe on quoted market prices. where avaliable. or
based on the discounted present value of eain flows using
Enron's current borrowing rates if nat publicly traded: and
{c) energy commodity price swaps, interest rate swaps, foreign
currency contracts and equity contracts . estemsted fair values
have been determined using swaileble markat data and vakuation
methodologes. Judgment is necessarily required in "nerpreting
Morket data ond the use of different market mmuampticns
OF @stination mathodologies may affect the estimated fair
value amourts,

The fair enaekat value of cath and cash equivalents, trade
and other receivables, accounts payable and investments
accounted for at fair value are not materially different from their

mourns.

Guarantees of Habiities of unconsolidated entities and
residual value quarsmtees have no carrying value anc fair values
which are nat readily determinable (see Note 15).

02787

01300000001396

(veces rma moe

w


$5 eon tone sro ae

Enron Corp. and Subsidiaries Consolidated Balance Sheet

Deceenber 31. =
On rriltices, excopt shores! 2000 irr) _
‘ASSETS
‘Current Assets:
(Cash and cash equientents sume s 288
‘Trede receivables {net of allowance for doubefid
accourns of $133 and $40, respectively) 10,296 200
Other receiwonies wn Ld
‘Assets from price rk managemane activities r2018 aos
Inverearies 53 588
Deposts: 24m o
Other 1383 33
Total current asus 23,381 1255
Anvestmenes anc Other Assets
Hrrvestments in ned adheances to uncomolidated equity afTliates sam 5.006
Asswts from price risk management activities asa8 2929
Goodwill sean 298
Other 5459 Am)
Tora! invemants sed ocher anus aun 15.445
Property Plant and Equipment, at cont
Natural gas tranwmisaicn 6916 ones
Enctrie goneration and dtribution ane 3582
Fiber-optic network and equipment 519 a79
Coratrustion in progross oe wo
Other 2.256 1.913
15,458 13.912
Less accumulated depreciation, depletion and amertization a7i6 aan
Property, plan and equipment, ret 143 10,081
Total Amats 365,503 $33,381

The acceerpaeng matin ore an eign pat ef these consciericd (Wane stakNTOnt.

02780

01300000001389


Carleton, Norman

From: Carleton, Norman
Sent: Tuesday, January 08, 2002 6:21 PM
To: Schultheiss, Heidilynne: Nickoloff, Peter
Subject: FW: CFTC’s Exemption for Certain Contracts involving Energy Products (April 20, 1993)
soOiniginal Message-—-
From: Bair, Shela
Sent: Tuesday, January 06, 2002 5:56 PM
To: (Garteton, Norman,
Subject: RE: CFTC’s Exemption for Certain Contracts Invalving Energy Products (April 20, 1993)
{(b)(5))
From: Cerleten, Norman
Sent: bing wey 06, 2002 5:44 PM

To: Bair, Shed
‘Subject: RE: CFTC Bxerction for Certain Contracts Iwoling Energy Products (Apt 20, 1993)

((0{5)]

Norman

~-~-Original Message---=
From: Sarr, Sheila
Sent: Tuesday, January 08, 2002 5:24 PM
To: (Carfeton, Norman
‘Subject: RE: CFTC's Exemption for Ceriain Contracts Involving Energy Products (Apr® 20, 1993)

[(b)(5)]

Sheita

~~-Original Message-—--

From: (Careton, Norman

Sent: ‘Tuesday, January 08, 2002 5:14 PM

‘To: Bair, Sheila

Ce: Smith, Amy; Bair, Shela; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gablonda, Jose; Gross, Jared; Hammer, Viva; Lan
rast hor lyr Peter; Novey, Michael; Pletrangell, Fred; Roseboro, Brian; Schulthelss, Heidllynne;

Whaley, Jean;
Subject: FTC's Exemption for Certain Contracts Involving Energy Products (April 20, 1993)
Sheila,

{(b)(5)]

01300000000042


Enron Corp, and Subsidiaries Consolidated Statement of Cash Flows

Yoor erxind Docerber 311,
(Or erate) 7300 7909 : 1998
Cash Flows From Operating Activities
Reconciliation of net income to nest cash provided by cpnrating wethaties
Net income so +o
‘Curdutive effect of accounting changes a -
Depreciation, duptetion and amortization a5 az
Ienpairment of lang-Inved asscts (including equity investments) a :
Deferred income taxes 20) "
Gaim on sales of nor-merchant ansots om Lol
Changes in components of working capital 176% ey
Net assets from price risk maragemertt setivitios aun 380
Merchant auets and ineestments:
Realized gairn on sales (704) (786) (628)
Procends from sales 1838 227 1.4
Adihtions and unrestred gars (1,295) (B27) ral
Other opernting sctrenies 1.913 104 ful
Net Cash Provided by Operating Activities ay 1228 eo
Canis Fhowes From bavesting Activities
‘Capital expendaures (2.361) (2.383) 41,906)
Equity vestments (aa) (ray 65
Proceods Irom tales of non-merchant axsuts 484 ae 28
Acquistion of wbwdiery stock (485) ° nen
Buniness acquisitions, net of cash acquired (soe Note 2) am oy fos
‘Other investing activities ea (905) (356)
Net Cash Used in Investing Activinies a2ey B27) G55)
Cash Flows From Financing Activities
nmcance of long-term chatst 3984 WG 1.93
Repayment of lang-torm debe (2.3371 on 1820
rot increme (decrease) in short-term borrowings (1.586) 5 1158)
Nat isiwaree [redemption) of campany-cbligated
preferred securities of subsidiaries (6 :
‘suuance of common stock sor B52
‘suzance of subsidiary equity ‘500 68
Diiderncs pad er) en we
Mot disposition of tewasury stock a 18 13
Other financing activities (4g) 39
Net Cash Provided by Financing Activities a 2456 226
rerease (Decrease) in Can and Cash Equevatunts 1,086 Ww op
Cash and Cash Equivalents. Beginning of Year 2 ut v0
Cash and Cash Equivalents End of Year sia S 78 sin
‘Changer im Components of Working Capital
Beceovab les 18.203) s mn 41,055)
irventories 13% (193) 1372)
Payecios 7.967 (246) 433
Other 1.488 a 781
Foul 31.708 30,030) $4233

The accompany motes re an axial part of These consoaon? Merc satereeres

02782

(CRON Moen ead MPORT 2000

01300000001391


BWA-DER . 07 DER A-18, 2002 .
Neyelation, Taw € Econonice Stalin,
5 :

CFTC: BOSH TO NOMINATE GOP SENATE AIDE TO CFTC; PICK IS SECOND WITHIN A mONTE

‘The White House Jan, § announced itw intention to nominate Senate aide
Walter Lukken to be 4 sember of the Commodity Futures Trading Comiusion,

The anmowncement follows Fresident Bush's Dec. tatewant that he intended
to pominate Republican Sharon Urown-Hruaka
@t Ceorge Mason University in Virginia, to serve om the CPTC

Lakken, a graduate of Indiana University and Lewis and Clark Law School, has
been a staff menber for the Senate Agriculture Committee since 1997. He
Previously wae @ legisiative assistant to den. Richasd Lugar (R-Ind.) for five
years, according to a White Rouse

Wednesday, Jaovary 3, 2002

OSA» Bush to name Senate aide ao Ue. CPIC comaiesioner.

a to nominate
y Putures Trading
markets, the White Mouse seid on

MASUINGTON, Jan 9 (Reuters) - President George W. fueh pl.
Senate aide Walter Luk @ comsissionmr of the Commodi:
U.8. fue

Lukkea haw bens a ntaff weaber for the Senate Agriculture Committee since 1997
and was legislative assistant to ite forenr chairman, Indiana Sen. Richard
Lugar. from 1993 to 199% conticned, he will serve « tere expiring in
ApEil, 2005.

The five mesber comeiesion currently has two open seats, Bush said Laat month
be planned to neminate econcaist Shares Brown-Wruska fo £111 the other eit

{c) 2002, Dow Jones & Company, Ino.
Wednesday, January 9, 2002

Bush Nowinates Walter Lakken To Serve On CrTc

WASUIBGTON - (Dow Jones)- President Gearge W. beeh Has nominated walter Lukken
to be a comaissioner on the Commodity futures Trading Commission (CFTC).

The White Mouwe said Lukken would serve the reminder of » five-year tern
expiring on April 13, 2008,

bukken has secved as a staff member of the Senate Agriculture Comeittes since
1997 and was @ legislative assistant to Sen. Richard Lugar, R- » from 2993
to

Lukken is @ graduate of indians University and Lewis and Clark Law school

“By Alex Keto, Dow Jones Mewswites; 202-862-9256; guol|

Page 2 ‘Vhursday, January 10, 2002

01300000000123


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Juliet Bilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AOL

During the administration of the first President George Bush, a new party fundraiser named
Kenneth L. Lay was invited to spend the night at the White House. The sleepover was an early
coup for the chairman of Enron Corp. and a harbinger of things to come.

Over the following decade, Lay and Enron poured millions of dollars into U.S. politics,
cultivating unequaled access and using the entree to lobby Congress, the White House and
regulatory agencies for action that was critical to the energy company’s spectacular growth.

Now, with Enron's sudden bankruptcy, public attention has tumed not only to the financial
practices that brought the company down, but to what its far-flung political operations say about
the country's campaign finance system.

Some Democrats in Congress are spoiling for an opportunity to use Lay and Enron to embarrass
the Republican Party, which received most of the company's largess over the years. They want to
look into such things as Enron's relationship with Phil Gramm (R-Tex.), ranking minority
member on the Senate Banking Committee and chairman of the committee at a time when his
wife, Wendy L. Gramm, was serving on Enron's board. Last year, Gramm’'s committee approved
legislation that included a key provision exempting parts of Enron's massive energy trading
operation from federal oversight.

"I think the Enron story is going to turn out to be an enormous political story," said Rep, Henry
A. Waxman (D-Calif.), ranking minority member on the House Energy and Commerce
Committee.

The ties of Lay to the White House and GOP leaders, he added, were so multilayered that
Republicans are likely to be reluctant to pursue them. But he made clear that he intends to do so
and expects the Democratic-controlled Senate to follow suit.

Enron also cultivated relationships with Democrats, however. Lay played golf in Vail, Colo.,
with President Bill Clinton, and Enron gave hundreds of thousands of dollars to Democratic
campaign committees and Democrats in the House and Senate, including Sen. Charles E.
Schumer (N.Y,) and Rep. Martin Frost (Tex.), the ranking minority member on the House Rules
Committee.

A Routine Cost for Some

Advocates of campaign finance reform say the Enron case vividly illustrates the ties between
politics and big money, though it's unclear that the company's political operations were radically
different from others for whom political contributions have become a routine cost of doing
business.

01300000000031


The exemption, tucked into broader legislation that established the legality of unregulated
derivatives trading by banks, was not supported by a Clinton administration working group,
largely because of opposition from the CFTC. Since the departure of Wendy Gramm, some in
the agency had lobbied for tighter control over the exploding energy derivatives market. The
legislation passed through the Senate Banking Committee, then chaired by Phil Gramm, who has
received $97,350 from Enron employees and its political action committee since 1989. A Gramm
spokesman said the senator does not recall talking to his wife, an Enron director, about the
energy provision and played “no role" in negotiating it. Wendy Gramm did not return phone calls
secking comment.

Enron was a primary player, with Koch Industries Inc., a large, privately held oil and gas
company based in Wichita, in pushing for the exemption, a source said, But the company's main
effort was focused on the House Agriculture Committee, where the legislation originated. Its
chairman and ranking Democrat, Texas Reps. Larry Combest (R) and Charles W, Stenholm (D),
respectively, were among the top recipients of Enron campaign donations in the House since
1989,

The CFTC objected strenuously to the initial draft marked up by the committee, but the Texas
congressmen helped work out a compromise between Enron and the agency. The compromise
was then offered by Rep. Jerry Moran (R-Kan.), the home-state congressman of Koch Industries
and a recipient of campaign donations from Enron and Koch in the last election cycle, Moran did
not return a phone call seeking a comment.

Early this year, Lay seemed to be at the height of his political power, getting a private meeting
with Vice President Cheney to discuss the administration's energy policy proposals and weighing
in on key nominations to FERC,

Curtis Hebert Jr., FERC's chairman at the time, has reported that Lay called him and implied that
Enron would urge the newly installed Bush administration to keep him in the job — if he changed
his views to support Enron's position for faster electricity deregulation. Lay contended that
Hebert called him to ask for support.

Hebert was not reappointed. He was replaced by Texas lawyer Pat Wood III, a strong advocate
of deregulation who had the backing of Lay and Enron.

Ironically, since Enron's fall, both FERC and Congress seem to be moving in the direction of the
deregulated markets Lay and Enron lobbyists had pushed for.

© 2001 The Washington Post Company

02822

01300000001431


controversial off-balance sheet debt was unknown, Enron reportedly was unable to scll off
certain assets that it had hoped would raise cash. Its debt continued to trade at prices comparable
to non-investment grade debt, and it became more dependent on secured bank lending as other
sources of liquidity dried up.

On November 8, Enron restated its earnings and retroactively consolidated its past
financial performance with several previously off-balance sheet subsidiaries for 1997 through
2001, reducing net income by a total of $591 million. This reduced its 1997 earnings by about
$96 million, 1998 earnings by about $113 million, 1999 earnings by about $250 million and
2000 earnings by about $132 million. For 2001, it increased first-quarter earnings by $17 million
and second-quarter camnings by $5 million, but reduced third-quarter earnings by $17 million, It
was estimated that the consolidation also would increase its debt by about $2.59 billion. Enron
also made public its responses to SEC questions involving the partnerships. Enron fired its
Treasurer, Ben Glisan, and the General Counsel and managing director of one of its divisions,
Kristina Mordaunt, who may have been involved in a partnership,

On November 9, Enron cancelled a meeting with its creditors to apprise them of its
merger and liquidity situation. A possible merger was delayed because of concerns that a
combined Dynegy-Enron entity would receive a lower or junk credit rating. Dynegy and Enron
provided pro forma financial statements to the rating agencics and requested an expedited review
of the transaction. Enron disclosed that the controversial transactions with Mr. Fastow had
earned him $30 million,

Conclusion

Although the preceding chronology is subject to revision and embellishment as more
facts emerge, Enron definitely has suffered a decline in investor and analyst confidence, as well
as declines in its stock and debt prices and credit ratings, availability, and terms (see attached
graphs). The SEC is investigating possible violations of U.S. securities laws. It reportedly is
reviewing whether the transaction terminations should have been treated as a balance sheet item
or a loss that affected reported earnings and whether the related-party transactions were properly
disclosed. The current speculation is that Enron intentionally used the off-balance sheet
transactions to shift losses off its books to avoid an effect on its income statement. The current
concern is that Enron might have to issue large amounts of stock to noteholders to repay about
$3.3 billion in notes ultimately guaranteed by Enron for certain of its related entities if certain

trigger events, such as credit downgrades, occur, and that the situation could have a destabilizing
effect on the energy and derivative markets that Enron dominates.

Attachments (graphs)

7 02861

01300000001470


Carleton, Norman

From:
Sent:
To:

Subject:
{(b)(5)}

Carleton, Norman

Saturday,
Bair, Shella;

Retail

tember O8, 2001 1:07 PM

arco, Edward; Eichner, Matthew; Ellett, Martha; Fisher, Peter, Gabilondo,
Jose; Gross, Jared; Hammer, Viva; Hughes, Gory, W
Reseboro, Brian; Schultheiss, Heidilynne; Smith,

Swaps Study Group Meeting -- September 6

ickoloff, Peter; Novey, Michael;

; Sutton, Gary

02917

01300000001526


Carleton, Norman

—_— —_—_— _ —
From: Bair, Sheila
Sent: Tuesday, January 08, 2002 5:24 PM
To: Carleton, Norman
Subject: RE: CFTC’s Exemption for Certain Contracts Involving Energy Products (Apri 20, 1993)
{(b)(5)]
Sheila
~—~-Original Message---~
From: ‘Carleton, Norman
Sent: Tuesday, January 08, 2002 5:14 PM
To: Bair, Sheila
Ce: Smith, Amy; Bair, Sheta; Berardi, Steve; Bitsberger, Timothy; Eichner, Matthew; Gabilondo, Jose; Gross, Jared; Hammer, Viva; Lori
Sanatamorena (E-mail); Nickoloff, Peter; Novey, Michae!; Pletrangaii, Fred; Rosebora, Bran; Sctutheiss, Heldiiynne; Whaley,
Jean; Wiedman, Mark
Subject: CFTC's Exemption for Certain Contracts Involving Energy Products (April 20, 1993)
Sheila,
((b)(5)]
Norman

02811

01300000001420


B sonserscol Le sa 10 08:05:45 2002
(B: 2] UPDATE 1-Iowa acnator tells USDA hands off soybean loan rate

-- UPDATE 1-Iowa senator tells USDA hands otf scybean loan rate ==
WASHINGTON, Jan 8 (Reuters) - Towa Sen. Chuck Grassley said

on Tuesday the U.S, soybean loan support rate should be kept at
$5.26 a bushel throughout 2002 and any future changes should be
lett to Congress.

“I gay to Agriculture Secretary Ann Veneman just leave the
an loan rate alone,” the Republican senator told
reporters. *Let Congress set policy in the next farm bill."

Loan rates effectively assure farmers of a minimum level of
return on theix grain, cotton sand soybeans.

hast week, the Bush administration decided to deluy setting
loan support prices for all 2002 crops for a few months while
Congress tried to finish work on a new farm subsidy law,

USDA Undersecretary J.B, Penn said that if Congress failed
to pasa a farm bill early March, the departwent would go
ahead and announce this year's loan rates. He indicated that
pagan ePartment believed the 2001 soybean loan rate was COO

*J.B. Penn talks too much,* Grassley said. "He is not very
politically realistic."

He said USDA's actions were ‘needlessly makil
worried about loans to farmers" due to uncer’
federal loan rate will be for the 2002 soybe:

bankers
nty om what the
crop.

"If the loan rate is going to be changed on beans, it
should have been changed six sontha ago" when farmers were
distributing fertilizer for their 2002 crop, Grassley said.

Parmere had been concerned that soybean and cotton rts
would be reduced under formulas thet allow hoy ger pn loans
to reflect market prices in recent yeara. Grain prices
collapwed in late 1998 and recovery was at least a year away.

The House of Representatives several months ago passed =
tarm bill that would lower the soybean rate to $4.92 a bushel.
A stalemated Senate bill would set it at $5.20 6 bushel.

Both the House and Senate bills would release additional
payments whenever returns from sales and subsidies tell below
targets set by law.

The House bill would set a soybean target price of $5.86 4
bushel and the Senate version would be 95.75.

The American Farm Bureau Federation, the largest U.S, farm

group, and the National Farmers Union on lay both urged
Congress to keep the soybean support rate ac $5.26 a bushel.

(a-d]

‘Thursday, January 10, 2002 Page 19

01300000000140


CORRECTION

Wednesday, December 26, 2001; Page AO2

A Dec. 25 article incorrectly reported the action taken by the Senate Banking Committee, chaired
by Phil Gramm (R-Tex.), on a bill that exempted much of Enron Corp.'s trading activities from
federal regulation. The legislation was approved by the Senate Agriculture Committee.

© 2001 The Washington Post Company

01300000000084


Getu her se orf glee
BN Brazil Future Exchat$e to Trade Energy, ADK Futures (Updatel)
sr TTF : PE enn rma

raess 3 PE ot Simones

Brazil Puture Exchange to Trade Energy, ADR Futures (Updatel)

{Updates to add last year's results, seventh and eighth
paragraphs.)

Sao Paulo, Jan. 9 (Bloomberg) -- Brazil's Commodities and
Futures Exchange plans to start trading contracts next month for
the future delivery of energy as an easing of electricity
rationing boosts demand for power.

Trade in the contracts would improve efficiency in Brazil's
energy market, which was hammered last year by rationing after a
drought left hydroelectric dams with insufficient of water to
produce electricity, said the exchange, known by its Portuguese
acronym BMSF.

““It's a way for players in the energy market to guarantee
the price and, most importantly, the delivery of energy,‘' BMéF
President Manoel Felix Cintra Neto told reporters. *‘We've already
been authorized by the central bank to start trading in the energy
future contracts in February.''

Brazil last month eased power rationing, especially in the
industrial southern and southeastern regions, after last June
requiring individuals and companies reduce monthly consumption by
20 percent. There isn't now an exchange in Brazil for trading
energy futures.

The BM&F also hopes to begin trading later this year in
futures contracts on an index of Brazilian stocks that trade in
New York as American Depositary receipts, Cintra Neto said.

Trading in ADR index futures, which could be used by
investors as a hedge, would depend on whether the buying and
selling of the new instrument would be exempt from Brazil's 0.38
percent tax on financial transactions, he said. It will also
depend on the government authorizing the BMSF to permit non-
residents to trade financial contracts.

2001 Results

Volume on the BMéF rose 8.6 percent last year to $4.137
trillion. The number of contracts traded in the year rose 16
percent 97.9 million.

““It was a very positive year for the BMéF,'" Cintra Neto
said, ‘"Because of high volatility in the markets, investors were
looking for a hedge in futures. That helped increasing trading
here.'*

--Telma Marotto in Sao Paulo (5511) 3048-4640 or
tmarottol@bloomberg.net and James Craig in Sao Paulo threugh the
Sao Paulo newsroom (5511} 3017-4830/bh

Thursday, January 10, 2002 Page 17

01300000000138


agreements with its unconsolidated equity affiates, Enron's
managemenr believes that its exating agreements avd transac:
tons are resionsble compared to those which coufd have beet
cbtained from third parties,

10 PREFERRED STOCK

Preferred Stock

Enron has authorized 16,500,000 shares of preferred stock.
pa par value. At December 37, 2000, Enron ned outstanding
7,240,933 shures of Cumulative Second Preferred Convertible Stock
(the Corwartibie Preferred Stock), no per value The Convertible
Proferred Stock pays dividends at an amourit equél to the higher
of $10.50 per share or the equivalent chvidend that would be paid
# shares of the Convartible Preferred Stock wore commuted to
common stock. Each share of the Conwertiole Preferred Stock &
cormertible at ary time at the option of the holder therwof inte
27.304 shares of Enron's common stock, subject to certain adjust
ments, The Comvnrtible Preferred Stock (5 currerttly subject tt
redemption wt Enron's option at a price of $100 per share plus
secrued dividends, During 2000, 1999 and 1998. 55.251 shares
23,664 shares and 17,737 shores respectivuty of the Convertinike
Preferred Stock wore converted inta commen stock

in 1999, 28 cunstanding shares of Series A Preferrad Stock
ek! by Whitewing werw exchanged for 25.000 shores of Enron
Mandatorty Corwertible Junior Prefeered Stock, Series 8 (Series B
Proferred Stock). Also i 1999. Enron entered eto # Shore
Settiement Agreement under which Enron could De obiigated,
under certain ceturmitances, to deliver additional shares of
common stock of Series B Preferred Stock to Whitewing for the
amount that the market price of the converted Enron common
shores i less than $28 per share. In 2000, Enron increased tne
wrike price in the Share Settiersert Agreement to $48.55 per
shire i @xchange for an additions! capital contribution in
Whitewing by third-party investors The number of shares of
Series § Preferred Stock muthorired equals the number of shares
necesary to satisfy Enron's obligation under the Snare Settiement
Agreement. Abserk certain defaults or ather specified everns.
Enron has the option to acquire the thirdparty inwestces’ inter
ests, If Enron dows not acquire the thircparty investors’ interests
before January 2003. cr earlier upon certain specified everns,
Whitewing may liquidate its assets and dissolve. At December 31,
2000, Enron had outstanding 280,000 srares of Seris 8 Preferred
Stock wah @ liquidation walue of $1.0 billion The Series 6
Preferred Stock pays sami-annual cash dividends st so annual rane
of 6.50%, Each share of Series B Preferred Stock is mandator ty
convertible #1to 200 shares of Enron common stock ori January 15,
2003 or earlier upon the occurrence of certain everns,

In connection with the 1996 financial restructuring (yielding
proceeds of approximately $1.2 bition) of Errors investment in
Azurix, Enron committed to cause the sale of Enron cormerible
preferred stock, if certain debt obligations of the related entity
which acquires an interest in Azurix. are defaulted upon, oF in
certain events. wnckuding among other things. Enron's credit
ratings fall below specified levels. Hf the sale of tne commeruibie
preferred stock is not sufficient to retire such obligations, Enron
would be liable for the shortfall, Such obligations will mature in
December 2001. The number of common shares issuable upon
conwersion is based on future common stock prices.

Company-Obkgated Preferred Securkies of Subskkaries
Summanzed information for Erece’s eompany-cbligated
preferred securities of subsidiaries is as follows:

Liquidation
Value
Per Shore

Decorrtaer 31.
2000 1988

sees 2ue

Enecrs Capital Trust #
8.36 Trust Originated Proferred
Socurities preferred
securtien)* ao | (xO a

Errors Capitat Trust
8 VB% Trust Originated Preferred
‘Securities (6,000,000 preferred
secures At wo 10 a

Enron Captat Trust #1
Adjntatile- Rate Capital Trust Securities
{200,000 pruferred secur ios) -

UNG Powor LLC.
6.74% Preference Uns
105,000 sharon 105 .

Enron Equity Corp.
8.57% Preferred Stock (B30 cares)! Be oe
7.28% Preferred Stock (150 shareg!*) 15 1s

Enron Capital Resources. LP
9% Cumulative Preferred Securities,
Series A (2,000,000 preferrod
swourities}*) s " 2

Other 57 se
‘$04 $1,000
ater spect ctes

{ak Roohemmabie unter cata crcureatances
ity Fete rate 06 74% crewing to 7 TIN,
A) Movetotnniy recnematan or 218

02791

01300000001400

soneany pepo See


WSS

oifsofor

U.S. Puts Task Force on Criminal Probe of Enron

‘The Justice Department said a task
force has been formed to pursue a erimi-
nal investigation of Enron Corp., con-
firming a probe that is expected te cen-
ter on possible accounting fraud.

‘The investigation will be rum by the de-

t's crimini vision coordinat-
img among U.S. Attorneys In New York

By Wall Street Anernal staff reporters
Rebecca Smith im Los Angeies and

City, San Francisco, Houston and else-
where. The Wall Street Journal first re-
ported the criminal Investigation in carly
December.

Enrom, the nation’s biggest marketer
of electricity and natural gas, filed for
bankruptey-court protection following a
crists of confidence among its inrestors.
‘The problems have resulted largely from

!

Enron's dealings wiih private partner-
ships, run by some of lis own execu-
Uves. The company saw its market value
plunge recently to about $549 million
trom more than $I? billion last year.
‘The Securities and Exchunge Com-
mission, which has been investigating
Earva since October, and the Justice De-
partment could both file cases alleging
Violations of securitles laws if Enros is
found to have iutentionally misled inves-
tors sbout its fimumcial condition. Sev-
eral committees also

‘that It is

‘the tar-
the Jus

the company. “At the end of day, I'm

af
Cay aw
written [about Enron) aren't true.”

Bidders for pieces of Enron's energy-
Dusiness, which still has a staff of

court to delay the sale indefinitely, The list

‘would press to go ahead with the proposal.
“It's in the best {aterest of Enron and its

Thursday, January 10, 2002

01300000000131


{(b)(5)}

ISSUE AND DISCUSSION

{(b}(5))

01300000000077


{(b)(5)}

01300000000103


Boord of

ROBERT A. BELFER
New Wark, New York
Chairman, Belco Git & Gas Corp.

NORMAN P BLAKE, 12 9+
Colorado Springs. Catarade
Charmon, President anc CEO,
Comdtscn, Inc... ard Former CEO
aerd Secretary General United States
Olympic Committee

RONNIE C CHAN
Hang Kong
Chormen. Mang Lung Group

JOHN H. DUNCAN ©
Houston, Texas

Former Chatman of the Exncutive
Commities of Gulf & Western industries Inc

Directors

WENDY L. GRAMM = «
Washington, 0.C

Director of the Regufatory Studies
Program of the Morcatus Center at
Goorge Mason Unéversity

Former Chairman, US. Commodity Futures
Trading Comerision

KEN L. HARRISON
Partlarxt Oragon

Former Chasitrann aed CE
Germrat Electric Company

Portland

ROBERT K_JAEDICKE **
Stanford, Califomia

Professor of Accounting (fmeritus) snd
Former Dean, Graduate S00! of Buainens
Stoevford Unteresity

KENNETH L LAY
Houston, Texas
Chatman, Enron Com

CHARLES A. LEMMAISTRE **

San Antorio, Texas

Provcent Emeritus, Univerity of Treas
MD, Arcterson Cancer Center

JOHN MENOELSOMN ©
Houston, Texas

President. University of Texas
M.D. Anderson Cancer Center

JEROME J. MEYER ®*
Wilsamilie, Oregon
Chairman, Foktronite, tne.

PALO V. FERRAZ PERERA *
Rio de Janeiro, Brazil

Executive Vice President of Group Bozano
Former President and COO, Meridionat
Financial Group, and Former President and
CEO. State Bank of Rio de Janeiro, Herat

FRANK SAVAGE “*
Stamford, Connecticut

Chairman. Alliance Capital Management
iMemationnl (a deren of Atance Capea!
Management (P)

JEFFREY K SKLLING
Houston, Texas
President and CEO, Enron Corp

02802

01300000001411


((b)(5)]

Norman
—-—-Original Message——
From: —Harrenond, Derald
Sent: Thursday, February 15, 2001 8:26 AM
To: DeMarco, Edvard, Ells, Oina; Huffman, Lucy; Carleton, Norman; McInerney, Roberta; Canstantine, Eleni; Hughes, Gerry; Stewart,
ne

Ca Tishuk, Brian; Robbins, Eric
Subject: RE: Baricruptcy Reform Mark-up Hearing

Ed,
{(b)(5)]

Don

wen Original Message=---

From: OeMarco, Edward

Sent: ‘Thursciay, February 15, 2001 8:22 AM

Te: Hammond, Donald; Gits, Dina; Huffman, Lucy; Carleton, Norman; Mcinemey, Roberta; Constantine, Gert; Hughes, Gerry; Stewart,
Lawranne

(Ce Tistwk, Brian; Robbins, Eric

Subject: FW: Bankruptcy Reform Mark-up Hearing

FY!

—-—-Onginal Message-——-
From: Robbins, Eric
Sent: Wednesday, February 14, 2001 5:45 PM

Bankruptcy Reform Mark-up Hearing

H.R. 333, the “Bankruptcy Abuse Prevention and Consumer Protection Act 2001” was reported out
of the House Judiciary Committee on Wednesday, February 14, 2001. During the mark-up hearing,
eighteen amendments were offered with all but one amendment failing to pass. Voting occurred
largely along party lines. The only amendment that passed was a technical amendment offered by
Chairman Sensenbrenner, Only one Republican crossed party lines to vote for one of the seventeen
other amendments that failed.

Representative Bachus (R-AL) assured the committee that he was committed to working with
Representative Oxley from the Financial Services Committee on commercial bankruptcy provisions

and netting requirements.
Tracking: Recipient Delivery Read
Barber, Francine Delivered: 321001 1047 AM Read: 21401 12:00 PM

; 02981

01300000001590


FT aliofol

Collapse of |
Enron sparks
criminal
investigation

Justice Department sets up new task force
to investigate failed energy trader

By Peter Spleget in Washington and
Mehuty bn Howson
The US government has
Isunched a ertminad investigation
into the collapse of bankrupt
energy giant Enrom, a Justice
official speaking

ment's Washlagto-baved crim!-
‘nal division, will be run by a new
task force being wt sp by the
agency, which will bictude prose
catoes le New York, San Fran-
cisco and Houston, where Exror
te based.

Robert Bennett, the prominent
Washington attorney who was
recently retained by Enron to
amadie the sundry

into the company’s collaper, said
yesterday the mew task force will

cantralise regorets made of the Howse disclosed

company.

“Tt makes it a teach more ratlo
hale process to be dealing with a
Primery leader tn the investiga
tion.” Mr Bennett said in an
interview. “I wish there were no
investigation, but if there were
‘an investigation, this is the way
te fo it.”

‘The Labor Department and the
Securities and Exchange Com
mission

5114,000 to Mr Bush’s prosidectint

Harker this woek, the White

that vice presi
dent Dick Cheney and his staf
had met with Enron representa.
tives six times last year, but
never discussed the company's

month after investors fled [rots
the company following revela-

the tions it would take a $1.2bn

reduction tn shareholder equity,

afer The financial crisis was tliat to

it has been debated within the the W'S questionable use
agency for weeks, uf private partnerstaps.

Mr Bennett said Emrom has set _
Up its own independent inwestipa: fad}

Thursday, January 10, 2002

01300000000125


Carleton, Norman

—— ——
From: Carleton, Norman
Sent: Wednesday, March 21, 2001 10:47 AM
To: Barber, Francine
Subject: FW: Bankruptcy Reform Mark-up Hearing
From: Huftman, Lucy
Sent: ‘Thursday, February £5, 2001 12:18 PM
To: Carleton, Norman
Subject: RE: Baricruptcy Reform Mark-up Heanng
[(b)(5)}
Original Message==

From: (Carleton, Norman

Sent: Thursday, February 25, 2001 11:19 AM

To: Huffman, Lucy

Subject: FW: Bankruptcy Reform Mark-up Hearing

----Onginal Message--—-

From: Carleton, Norman:

Sent: Hiesbses February 15, 2001 10:07 AM

To: Hammond, Donald; DeMarco, Edward; Elis, Dina; Huffman, Lucy; McInemey, Roberta; Constantine, Eleni; Hughes, Gerry; Stewart,

Lawranne
cc: Tishuk, Brian; Robbins, Eric; Paulus, Michael; Sutton, Gary; Huffman, Lucy; McGivern, Tom; Nickakaff, Peter; Schulthess,

Heicilynine; Gross, Jared
Subject: — RE; Bankruptcy Reform Mark-up Hearing

Don,
[(6)(5)]

02980

01300000001589


"There are aspects of [the Enron case] that remind us of the savings and loan scandal, in the
sense that a powerful institution used big money to buy influence and protect itself while
ordinary citizens ended up losing their life savings," said Fred Wertheimer, president of
Democracy 21, a Washington interest group, referring to a banking controversy in the 1980s.
Enron's tics to Republicans and the present Bush administration were especially close, Lay raised
large sums for George W. Bush's campaign.

Enron, Lay and its employees have contributed $572,350 to him over his career, far more than
any other company, according to the Center for Public Integrity in Washington,

Several top administration officials have been Enron advisers or stockholders. Enron, Lay and
other senior executives contributed $1.7 million in soft-money donations to politicians in the
2000 election cycle, two-thirds of it to Republicans, according to the Center for Responsive
Politics.

Republicans clearly are sensitive to the potential political dangers. The National Republican
Senatorial Committee recently returmed a $100,000 check collected from Enron in November,
after deciding that “it was appropriate to give it back,” spokesman Dan Allen said. The
Republican Governors Association last week retumed an Enron donation of $60,000.

What was unique about Enron, competitors and allies agree, was a brash and sometimes
counterproductive political style.

Stories of Enron's hardball style are legion. In October 1999, for example, Jeffrey K. Skilling,
then Enron's president, expressed his displeasure at Rep. Joc Barton's position on a deregulation
bill pending in the energy subcommittee Barton chairs.

The meeting grew “heated and awful,” said one person who was present, until Barton (R-Tex.), a
usually mild-mannered man who keeps a Bible on his desk, exploded. "Jeffrey Skilling, I may
not have your millions of dollars, but I am not an idiot,” one witness recalled Barton saying. The
meeting ended without Enron getting the changes it wanted. "Skilling did not get Washington,"
the source added.

“In their lobbying, they acted like the 800-pound gorilla they were," said Christopher Homer, a
Washington lawyer who briefly directed Enron's government relations in 1997. Lay and Skilling
declined interview requests, but Enron officials say they have no regrets about their use of
money. "It got us name recognition,” company spokesman Mark Palmer said. "Given the
aggregation of our foes, we had to make sure that people knew what our argument was.”

Jump-Starting Deregulation

Almost from its start in 1985 as a gas pipeline company, Enron needed help in Washington, and
it got it in a series of actions by Congress and the Federal Energy Regulatory Commission
(FERC) that undermined the traditional monopoly of utility companies over power plants and
transmission lines,

Enron lobbied for several of the initial actions that set the stage for the cra of a deregulated
wholesale electricity market.

01300000000080


6 SUPPLEMENTAL CASH FLOW INFORMATION

Casn paid for income taxes and interest expense, including
Foes incurred on sales of wecounts recelvable, (5 a5 follows:

(hn erat harsh 2000 two 1908
Ingoswe tases (net of refunds) sez $510 873
Interest (net of amonarts capitatired at 56 505
NomCash Artity

Ins 2000, Enron acquired ai! minority sharerolders’ «nerexs
lin Eneon Energy Services. LLC and other businesses with Enron
Common stock, See Nore 2.

In 2000 and 1999, Enron entered inte various transactions
with related parties which resulted in an exchange of assets and
an increase in common stock of $177 millian im 2000. See Nowe 16.

fF 2200, a partnership in which Enron was 4 limited partner
made a liquidating distribution to Enron resulting in a non-cash
jrerease in current assets of $220 million, # decraase of $20
milton in non-curreeit assets and an increase in current Rabilities
of $160 million.

During 2000 and 1999, Enron received the rights to specific
third-party fiber-optic cable in exchange for the nights on spe-
tific fiber-optic cable held for sale by Enron. These exchanges
resulted in non-cash incresanes ins assets Of $69 million and $117
millicn, eaxpectivaly.

During 1990. Enron issued approximately 7.6 million shores
of common stock in connection with the acquisition. by an
unconsolidsted equity affiliate, of interests in three power plants
in Now Jersey

In Becomber 1998. Enron extinguished its 6.28% Bechange-
able Notes with 70.5 million shares af EOG cammon stock.

7 CREDIT FACILITIES AND DEBT

Enron has credit faetities with Gomestic and foreign banks
which provide for an aggregate of $1.4 billlan in long-term
committed credit, of which $150 muilion relates to Portland
General, and $2.4 bition in short-term comrrsting credit. Expiration
dates of the committed facilities range fram February 2001 to May
2005, Interest ates on borrowings are based upon the Loneian
Incerbank Offered Rete, certificate of deposit rates or other short:
‘torr interest rates, Certain credit facilities cortivin cowerseits which
must be met to borrow funds. Such debt covananis are not armicl
pated to materially rewict Enron's ability to Dorrow funcs Urner
such facilities. Compensating balances are not required. but Enron
is required to pay @ Commitment oF facility fee. At December 31,
2000. $290 million wes outstanding under these facilities

Fron has ako entered into agreements which prowide for
uncommitted lines of credit totaling $420 million at December 31,
2000. The uncommitted lines have no stated expiration dates.
Neither compensating balances nor commitment fees are required.
os borrowings under the uncommitted credit lines are availanle
Suiuject to agreement by the participating harks. At December 31,
2000, no sengunts wore outstanding under the uncommitted lines

In addition to borrowing fram banks on a short-term batik.
Enron and certain of its subsidieries yall commercial paper to pro
vide financing for various comporate purposes As af December 31.
2000 sxd 1999, short-term borrowings of $1 million ard $330 eit.
lion, respectively, and longterm debt cue within one yaar of
$1.203 mifion and $670 million, respectively. have been rocians-
fied as long-term debe based upon the avaliability of committed
credit f2olities with expiration dares exceeding one year and man
agemant’s intent to maintain such senounts in excess of one year,
Weighted average interest rates an short-term debt outstanding
at December 31, 2000 and 1999 were 6.9% anc 6.4%, respectively

Detatied information an lang-term cet is as follows:

December 31.
{n rittior) 2000 1899
Ereon Corp.
Serior cnbentisies
6.79% to 8.25% duc 2096 to 2012 sz 3 38
reotes payanielal
7.00% exchangeable notes chee 2002 me
6.40% to 9.28% due 2001 to 2028 4a 404
Floating rate moter due 2000 to 2006 2 78
Other m2 “
Northern Natural Gas Compamy
Noten payable
6.75% to 7.00% due 2005 to 2017 a)
Transwestern Pipetine Comparry
Notes payable
8.200% due 2004 " cry
Portland General
First morgage bonds
6.47% to 9.46% cum 7009 to 2023 2 OW
Patlution contro! bords
Various rates duc 2010 to AGS 20 ri)
Other m1
Other 4
Amount reclassified fram short-term debt 1a 1.000
Unamortiand debt ciscourt and premium (ey tS}
ots! tong tern dubt Sasso $7,159
9) cases cee cenomunuatinr SACI CUTENCS OF $835 matt

and S525 maion ompwctemly ot Decanter 31. 2000 end 7995 Seon haw
‘Geers rap oneal meres 9 hale ses 9 od Orig CUNY
exchenge Auchations amcciated welt such dent See Nove 2

The edenture securing Portiand Generats first Mortgage
Bonds constitutes 2 direct fest mortgage lien on werantinty alt
‘electric utility propery and franchises, other than expresily
‘excepted property.

The aggregate annual maturities of long-term debt owt
‘standing at Docember 31, 2000 were $2,172 millian, $750 miBion,
$852 million, $646 million and $1,592 million for 2001 through
2005, respectively
In Februsy 2001, Ervor issaed $1.25 billian zero coupon
conwertible senior noses that mature in 2021. The notes carry a 2.125
percent yield to maturky with an aggregace face value of $1.9 billion
and may be cornered, Upon certain contingencies berg Few, int
Enron common stock at on initial conversion premium of 45 percent.

B  MINDSSTY INTERESTS

Enron's minority interests at December 31. 2000 and 1989
inchide the following:

(er mitions) 000 1989
Mujonty-raned imited tablity company
and limited parnoreyps se $77
tieatrolal “ez 45,
Other a ns
Sau $2430

FY Bearer fo me resection pairones a Aba. WER ad ewvorey shards eF
2000 and 1895.

Enron has formed separate Emited partnerships and a breitedt
liability company with thirc-party investors for various purposes.
These entities are inchaded in Enron's consclicated financial!
statements, with Une Uvind-party investors’ interests reflected in
“Minority interests” in the Consolidated Balance Sheet.

In Octeber 2000, Enron contributed approximately $1.0 bit-
Won of met assets to # wsolly-owened immed lability company, A
third party contriguted $500 naillion for a preferred membership

02789

01300000001398

t
i
i

al


Carleton, Norman

Sent Friday. ter wey 11, 2002 10:30 AM
ent: January
To: Carieton, Norman,

Subject: RE: enron meeting

((o)(5)]

Thanks.

aceee Original Message-----

Prom: Carleton, Norman <Norman.Carletongdo.treas.gov>

To: Wiedman, Mark <Mark.Wiedmanédo.treas.gov>

CC: Schultheiss, Heidilynne <Heidilynne.Schultheiseédo.treas.gov>
Sent: Pri Jan 11 09:52:30 2002

Subject: RE: enron meeting -- 12:00?

[(b)(5)]

sooo Original Message-----

From Wiedman, Mark

Sent: Friday, January 11, 2002 9:10 AM

To: Carleton, Norman; Schultheiss, Heidilynne

Ce: Nickoloff, Peter; Bitsberger, Timothy; Stokes, Veronica
Subject: enron meeting -- 12:007

Tim would like to go over the Enron paper you folka put together at 12.

that?

itsberger. Timothy; Schultheiss, Heidilynne; Nickoloff, Peter

Can you make

: 02726

01300000001335


It supported the 1992 Energy Policy Act, which opened the utility companies’ wires to electricity
merchants such as Enron. It also worked with the Commodity Futures Trading Commission --
then chaired by Wendy Gramm -- for a regulatory exemption for futures trading in energy
derivatives, which later became Enron's most lucrative business. Soon after Gramm stepped
down in 1993, she was appointed to Enron's board.

Independent sources knowledgeable about these dealings, however, said Enron was not the main
interested party. They said the lead was taken by several major oil companies, including British
Petroleum Co, and Phillips Petroleum Co., which were concerned about the effect of CFTC
regulation on their offshore trading in crude oil contracts, Wendy Gramm, an apostle of free
markets, needed little convincing, the sources said.

That same year, Lay served as chairman of the committee organizing the Republican National
Convention in Houston. Hedging its bets, Enron made a major contribution to a "street fair” in
honor of Sen. John Breaux (D-La.), a key energy policymaker, at the Democratic convention.
Key orders by FERC in 1996 also supported Enron's transformation into a freewheeling trader of
gas, electricity and more exotic products, such as telecommunications services and sulfur-
dioxide emissions credits,

The new rules ensured that Enron and other merchant companies could buy electricity from
independent power plants and sell it to distant customers, using transmission lines borrowed
from utility companies,

Even Enron's harshest critics credit Lay with putting new issues — such as electricity
deregulation -- on the Washington agenda. Lay,a former Interior Department official with a PhD
in economics, became "the ambassador” for deregulation, one former employee said.

Throughout the 1990s, Enron's agenda was opposed by coal-buming utilities, especially ones in
the Southeast, which viewed the emerging wholesale electricity market as a threat to their turf.
Many of these, such as Atlanta-based Souther Co., had impressive political funding and
connections of theit own.

But with the explosive growth of Enron and the GOP takeover of Congress in 1995, the
company's soft-money donations -- unregulated and unlimited gifts to political parties and
organizations -- jumped sharply. They went from about $136,000 in the 1993-94 election cycle,
to $687,000 in 1996 and $1.7 million in 2000, according to the Center for Responsive Politics.

Frustrated by Washington

For all its connections, sources say, Enron often found Washington frustratingly slowand
unreliable.

‘The company placed a substantial bet on federal support for limits on the greenhouse gases
causing global warming. Enron officials hoped to exploit a new market in industry for carbon-

emissions credits, similar to the one that developed for sulphur credits after clean-air legislation
was enacted in 1990.

02820

01300000001429


Enron Executives Face Subpoenas

Senate Panel Also Orders Testimony of Directors
By Peter Behr and Dan Morgan

Washington Post Staff Writers

Thursday, January 3, 2002; Page BOL

A Senate committee announced yesterday that it is subpocnaing top executives and directors of
the bankrupt Enron Corp. to determine their roles in the Houston company’s epic collapse.

Three other congressional committees already are digging into the Enron failure, but the
subpoenas announced yesterday are believed to be the first of the congressional probes. Among
the likely recipients is Wendy Gramm, an Enron director who is the wife of Sen. Phil! Gramm (R-
Tex.).

Sen. Carl M. Levin (D-Mich.), chairman of the Governmental Affairs Committee's permanent
subcommittee on investigations, said the panel also will subpoena financial and trading records
from Enron and audit documents from its accountant, Arthur Andersen LLP.

Enron's attorney, Robert Bennett, called the subpoenas “totally unnecessary" and said "we are
fully cooperating with Congress.”

Although Enron Chairman Kenneth L. Lay did not show up for two carlicr congressional
hearings on Enron's bankruptcy, he has agreed to testify next month before the Senate Commerce
Committee, Bennett said.

Enron has turned over nearly three dozen boxes of documents to the House Energy and
Commerce Committee, Bennett said. "I don't question the legitimacy of an inquiry [into Enron's
failure}, but it's not a measured approach to have a half-dozen different committees doing this at
the same time," he said. "It can lead to a circus atmosphere and a lot of wasted time and effort.”
The full Governmental Affairs Committee has scheduled a hearing for Jan. 24 on Enron's use of
a large number of partnerships that kept billions of dollars of corporate debt off the company's
books. The hearing will also examine whether federal regulators missed warning signs of the
company’s trouble,

Accounting crrors involving the private partnerships caused Enron to overstate its carnings by
half a billion dollars over the past four years. Enron’s disclosure of the overstatement, in
November, triggered a final plunge in the company's stock price and the company's bankruptcy
filing Dec. 2.

Sen. Joseph I, Lieberman (D-Conn,), chairman of the full committee, said, "The focus is, how
did this corporation collapse, and what can we do to make sure that something like this never
happens again?”

Lieberman's committee joins an already crowded field of Enron inquiries. The House Energy and
Commerce Committee has sent investigators to interview Enron officials in Houston.

01300000000110


blorubery Yorfir—
BN SEC Flooded W1 ‘aper Filings After Anthrax Scare (Updates)
Jan 3 2002 Ter sy

an H rien 7

SEC Flooded With Paper Filings After Anthrax Scare (Updatel}
{Adds new case of anthrax hoax in 13th paragraph.)

Washington, Jan. 9 (Bloomberg) -- The U.S, Postal Service is
belatedly delivering thousands of insider-trade reports to the
Securities and Exchange Commission, paper filings delayed when
anthrax contaminated Washington's postal center three months ago.

The reports of executive stock transactions from October
through early December are just now arriving at the SEC, where
they are studied by investors as a sign of how company insiders
view tho strength of their companies’ stock.

““You can truly see what people are doing with their own
funds,'' said Mark Buckingham, an analyst with Muzea Consulting
LLC, a firm that tracks insider data for institutional investors.
“"If you believe in your company and you are willing to put your
money where your mouth is, that is a stronger testament than
words."*

About 1 million letters and packages were quarantined when
the Postal Service shut down the Brentwood mail-sorting facility
on Oct. 21, after an envelope containing anthrax was delivered to
the office of Senate Democratic Leader Tom Daschle, Two Brentwood
postal workers died from inhalation anthrax in what authorities
described as a likely terrorist attack.

The quarantine and an irradiation treatment applied to
Brentwood letters created a backlog in paper filings going to the
SEC and other U.S. government agencies.

“twiddling Our Thumbs’

““We have been just twiddling our thumbs waiting for
documents,'' said Pam Galasso, owner of Securities Document
Service, which obtains insider filings for clients. **It was like
4 trickle.''

The trickle turned into a flood when the filings were
released from quarantine. In the first five business days of
January, the SEC, made public more than 1,400 documents known as
Form 144s that were originally mailed in October, November and
early December.

Among the quarantined insider reports were filings from
Microsoft Corp. co-founder Bill Gates and Starbucks Corp. Chairman
Howard Schultz.

Many of the documents had turned yellow and brittle because
of the treatment to kill anthrax Spores, Some of the filings
crumbled in the hands of document researchers who sift through
insider reports to gather information for Wall Street brokerages
and institutional investors.

Mile ->

Page BZ Thursday, January 10, 2002

01300000000153


Enron Executives Face Subpoenas

Senate Panel Also Orders Testimony of Directors
By Peter Belw and Dan Morgan

Washington Post Staff Writers

Thursday, January 3, 2002; Page B01

A Senate committee announced yesterday that it is subpoenaing top executives and directors of
the bankrupt Enron Corp. to determine their roles in the Houston company's epic collapse.

Three other congressional committees already are digging into the Enron failure, but the
subpoenas announced yesterday are believed to be the first of the congressional probes. Among
the likely recipients is Wendy Gramm, an Enron director who is the wife of Sen. Phil Gramm (R-
Tex.).

Sen. Carl M. Levin (D-Mich.), chairman of the Governmental Affairs Committee's permanent
subcommittee on investigations, said the panel also will subpoena financial and trading records
from Enron and audit documents from its accountant, Arthur Andersen LLP.

Enron's attorney, Robert Bennett, called the subpoenas "totally unnecessary” and said "we are
fully cooperating with Congress."

Although Enron Chairman Kenneth L. Lay did not show up for two earlier congressional
hearings on Enron's bankruptcy, he has agreed to testify next month before the Senate Commerce
Committee, Bennett said.

Enron has turned over nearly three dozen boxes of documents to the House Energy and
Commerce Committee, Bennett said. "I don't question the legitimacy of an inquiry [into Enron's
failure}, but it's not a measured approach to have a half-dozen different committees doing this at
the same time," he said. "It can lead to a circus atmosphere and a lot of wasted time and effort."

The full Governmental Affairs Committee has scheduled a hearing for Jan. 24 on Enron's use of
a large number of partnerships that kept billions of dollars of corporate debt off the company's
books. The hearing will also examine whether federal regulators missed waming signs of the

company’s trouble.

Accounting crrors involving the private partnerships caused Enron to overstate its eamings by
half a billion dollars over the past four years. Enron's disclosure of the overstatement, in
November, triggered a final plunge in the company’s stock price and the company's bankruptcy
filing Dec. 2.

Sen, Joseph I, Lieberman (D-Conn.), chairman of the full committee, said, "The focus is, how
did this corporation collapse, and what can we do to make sure that something like this never

happens again?"

Lieberman's committee joins an already crowded field of Enron inquiries. The House Energy and
Commerce Committee has sent investigators to interview Enron officials in Houston.

02824

01300000001433


‘The 7th Annual Repo & Securities Lending Conference Page 5 of 6

Member: $895 (additional registrants from the same firm are $695 each)
Non-member; $1,095 (additional registrants from the same firm are $895 cach)
Pre-Conference Workshop: $195

Refund Policy: The Association will issue refunds, each subject to a $75 service
charge, on cancellations received in writing on or before Friday, November 30,
2001. No refunds will be issued on cancellations after this date. Substitutes are
welcome at any time.

Hotel Reservations: For your convenience, a limited number of guest rooms have
been reserved at the Roosevelt Hotel, 45 East 45th Street, New York City. For hotel
reservations, please call the Roosevelt Hotel at 888.833.3969, Be certain to mention
you are attending The Bond Market Association's conference.

For further information, please call Mary Garcia at (212) 440-9429.

Registration Form

Member (first registrant): $895
T Additional registrants from same firm: $695

F Nonmember (first registrant): $1,095

T Additional registrants from same firm: $895
F Regulators and Non-profit Associations: $395
Pre-Conference Workshop: $195

Individual
Registration:

Your Name i}

Name for Badge [

Title T

Company i

Address |

City | State | Zip

Phone a Fax
filey/C:\WINDOWS\Temporary%20Internet%20Files\OLK303 | \repo-htm 0 2 89 9 Vis/o2

01300000001508


{(b)(5)]

02869

01300000001478


Aiefo2.
TIMES

Justice sets
in motion
new probe

Z
:
g

by the vice .
‘The Addington letter was sent in
toa in
by Rep. Henry

its Sor four years “using what appear
new to be very questionable

tee also will ask why Enron's board
of directors allowed financial
arrangements “that some claim
were intended to hide company
holdings from public view”

and seller of natural gas and the
Largest electricity marketer in the
mae marc
paper, metals and a
optics, year, Enron stock trad-
Gist $85 per share ‘Today, i is bess.
they want to inveighte whether
want to whether
the Bush administration should
have acted sooner to protect
investors from the Enron collapse.
Hearings in the matter before the
Senate Governmental Affairs

Committee are expected to begin

Jan. 24, the day after
returns to work, COneT=*s
Enron

‘500 firms last year.
Since the 1989-90 election cycle,
Enron has made nearly $5.8 mil-

ing company stock from their
Earomheavy 401(k) accounts.

(aud)

01300000000130


(Corinne. _}

Security Procedures

The SEC yesterday issued a one-paragraph statement noting
that filings and other documents mailed to the commission were
delayed “‘due to U.S. Postal Service security procedures for mail
to be delivered to government agencies,''

While the postal service has delivered all of the mail that
was held at Brentwood, it continues to send letters addressed to
government agencies to outside contractors in Lima, Ohio, and
Bridgeport, New Jersey, for irradiation, a process that can add
several days to the delivery process, said Postal Service
Spokesman Gerry Kreienkamp.

““Tt's unfortunate but it's something the Post Office had to
do,*' said SEC spokesman John Heine.

The U.S. Capitol building was closed for an hour and a half
on Jan. 3 after another threatening letter sprinkied with powdery
dust was sent to Daschle. Authorities concluded that the second
letter was a hoax and the powder was not hazardous,

SEC filings are required to be made by top executives who buy
and sell shares in the companies that they run, as well as by
large shareholders and people who receive stock through private
transactions,

An insider who plans to sell stock must file a Form 144 by
the time the order is placed with his broker. The same insider
must file a Form 4 Feporting the details of stock sales or
purchases in the month that follows the actual transaction,

Exception to Rule

Insider reports are an exception to rules that require U.S,
corporations to file their disclosure reports through the SEC's
electronic data gathering, analysis and retrieval (EDGAR) system.
The agency has yet to require electronic filing by insiders
because it believes that many lack the resources to use Edgar.

Some stock analysts have intensified their examination of
insider transactions since the SEC's Regulation Pair Disclosure
barred companies from selectively releasing information to
analysts and investors.

“*Because of Regulation Fb, People are paying attention to
the insider trades a little more,"' said Michael Johanna, another
analyst at Muzea Consulting. "There are no whisper numbers
anymore.'"'

Although insider reports rarely move markets, the documents
provide a window into what is happening at major companies. In one
instance, Louis Borders, founder of Webvan Group Inc., revealed in
an insider filing that he sold most of his company stake less than

three weeks before the online grocer shut down,

In another example, Paul Allen, a co-founder of Microsoft,
reported that he had purchased securities that protected the value
of much of his stake in the Redmond, Washington, software

manufacturer.

“Miles Weiss in Washington (202) 624-1879 or at
aweiss@bloomberg.net /rp .
Thursday, January 10, 2002 Page z%

01300000000154


ENRON TRANSPORTATION
SERVICES

The Gas Pipeline Group formailly changed its
name in September 2000 to Enron Transportation
Services to emphasize its ability to deliver innovative
solutions to its customers. These emerging services
sugment our core competency: operating interstate
pipelines safely and efficiently. In 2000 we continued
Our record of strong returns with consistent earnings
and cash flow. Income before interest and taxes
Feached $391 million, up from $380 million i 1999
Cash flow from operations rose to $415 million
in 2000 fram $370 million in 1999. Throughput
remained relatively unchanged in 2000 at 9.13

Purchasing Capacity
Through EnronOnline

needs Northam Natural Gas. for example, has used
Interruptible storage products that extend its capa
bility to meet the growing demand for services to
manage physical positions, Transwestern Pipeline
Company is offering shippers Increased service
floxibility by accessing third-party storage. Across
all pipetines, web-based applications have been
introduced to allow custamers to better manage
transactions and allow the pipelines to maximize
their capacity offerings, Northern Natural Gas,
Transwestern Pipeline anc Florida Gas Transmission
began to sell available capacity on EnronOnline
in 2000 to give customers the convenience of
eCommerce transacting (see “Purchasing Capacity
Through Enron Online” an this page)

Enron Tesportation Services has intro
ica sama invent CuTONTW SANCH,
inetuding the use of EoronOnine Northen
Natura Gis, Tansmeston Pipeline sed

=
PRICE DYSCOVERY

Knowtedge Relps cantomers make better
eciniors. Prices are fully transparent anc
tmatantly accwinicia, mich sows Supers [0
know what heir tramportation cots wil! be
oor they are buyang their gas

Wire 2 pipelioe is not totally subscribed,
Enrondetire fets the market anow itis avait.
‘abhe, Pypetines a(s0 can auction off highly
Gesirable capacity by accepeng sealed bits
EnvonOnine gives Enron Transportation

Fonte Got Harner re sag aad
able firm and nteruphiee capacity an
Ervondnkne m1 adaton 89 sey omenty
rough radon methods, Costarers
stad uting Enmonrine (0 tramsact gas
can now arrenge ranaportatinn at the
sae ime

billian cubic feat per day [Befid), compared to 9.18
Bcfid the previous year.

Together, our intorstate pipelines span epproxi-
mately 25,000 miles with a peak capacity of 9.8
Befid. We transport 15 percent of US. nstural gas
demand, We connect Lo the major supply basins in
the United States and Canada, and we continue to
increase capacity from thase basins to our major
markets. We have added 840 million cubic feet per
day (MMcfid) over the past two years, and nearly 1
8cfid Is scheduled to enter service in the next three
years. At the same time, our experse per MMecfid
has declined by 26 percent from 1992 to today.

Enron Transportation Services pipolines have
brought to market # variety of mew products and
services specifically tailored to address customer

xen atone Meroe re

&

Services the aniity t pat more product in
front of more of its customers than ever
before.

1}:

Northern Natural Gas

Northern Natural Gas. Enron's largest pipeline,
has approximately 16,500 miles of pipeline extend-
ing fram the Permian Basin in Texas to the Great
Lakes, providing extensive access to major utilities
and industrials in the upper Midwest. The pipeline
has market area peak capacity of 4.3 Befid. mt inter-
connects with major pipelines, including Great
Lakes, Transwestern, 6 Paso. Northern Bordar and
Trailblazer, to offer excellent northern, southern
and western flow capabilities. Ninety-five percent
Of market area capacity & contracted through 2003,

Market area damand is expacted to increase
considerably with the development of approximately
2.000 megawatts of gas-fired generation aver the
next three years, The pipeline has davelopad innova

02766

01300000001375


to bankrupt Northpoint Communications and other technology investments, and the early
termination of a structured finance arrangement. Excluding the charge, Enron would have met
market expectations. Investors questioned Enron's ability to expand from its successful core
wholesale energy business and its level of transparency, Moody’s reviewed Enron for
downgrade. Its debt-to-capital ratio increased to 50 from 46 percent, and it hoped to sell some
assets to reduce it. Enron did not disclose its large reduction in equity in its earnings release, but
instead waited.

On October 17, conflict-of-interest questions were raised regarding limited partnerships
tun by Mr. Fastow. The charge related to the early termination of certain structured finance
arrangements was quantified as $35 million. Enron held a conference call with securities
analysts and investors in which it disclosed that its shareholder equity contracted by $1.2 billion
to $9.5 billion as a result of Enron’s repurchase of 55 million shares from Fastow (Enron had an
average 913 million shares outstanding in the third quarter) at a lower price and the cancellation
of the partnership note. Enron characterized the reduction as a “result of Enron’s termination of
previously recorded contractual obligations to deliver Enron shares in future periods.” An
analyst explained that Enron had promised that a certain amount of Enron's shares would be
worth $1 billion, and when they plummeted and fell below that value, Enron bought them back.
One analyst conjectured that Enron had treated the shares as a buyback, but had never issued
them. The SEC sent a letter to Enron notifying it that it was beginning an informal inquiry.

On October 22, Enron confirmed that it had received a request for information from the
Texas regional office of the SEC regarding its controversial partnerships with Fastow. Analysts
speculated that its Enforcement division was investigating possible violations of securities laws.
The SEC reportedly was reviewing whether the transaction terminations should have been
treated as a balance sheet item or a loss that affected reported camings (accounting rules specify
that a company’s transaction in its own shares cannot produce profits or losses, whatever the
effect on cash flow); and whether the related-party transactions were properly disclosed under
Rule S-K, where a company must report transactions that exceed $60,000 with “any director or
executive officer."' There was speculation that Enron had used the off-balance sheet
transactions to shift losses off its books to avoid an effect on its income statement. Enron’s stock
price fell 20 percent and it was the most actively traded NYSE stock with 36 million shares
traded. Concerns about Enron's credit rating emerged, Enron stated that it had properly
disclosed transactions, was cooperating with the SEC, and was confident it would not default. A
class-action suit was filed in U.S. District Court in Houston alleging misrepresentation and
failure to disclose and write down investments. It alleged that Enron insiders sold $73 million of
their holdings during parts of 2000 and 2001.

On October 23, worries arose that Enron might have to issue large amounts of stock in
the next 20 months to noteholders to repay about $3.3 billion in notes ultimately guaranteed by
Enron for certain entities like the Marlin Water, Atlantic Water, and Osprey ventures if certain
trigger events occurred (such as credit downgrades). Marlin owes almost $1 billion in debt and

' However, FAS Statement 57 issued a broader disclosure directive regarding related party
arrangements involving a “material” piece of business between the company and a member of its

management,

4 02858

01300000001467


Mai t's Discussion and Analysis
of Financial Condition and Results
of Operations

The following review of the results of operations and
financial condition of Enron Corp. and ims subsidiaries and
‘STiligtes (Enron) should be read in conjunction with the
Consolidated Financial Statements,

RESULTS OF OPERATIONS

Comnoticiated Net Income
Enron's nee income for 2000 was $579 milion compared to
$893 million in 1909 arxt $703 million in 1998. Rams impacting
comparability are discussed in the respective segment rows. Net
secome before ems impacting comparability was $7.266 millon.
$957 millice and $898 million, respectivers im 2000, 1958 anc
1988, Enron's business is divided into five segments and
Exploration and Production {Enron Ov & Gas Compary} through
August 16, 1999 (s08 Note 2 to the Corsoliduted Financist
Statements). Enron's operating segments incke:

Transportation and Distribution Transportation and
Distribution consists of Enron Transportation Services and
Portland General. Transportation Services includes Enron's
ingerstate natural gas pipelines, primarily Norther Natural
Gas Company (Northern). Transwestern Pipeline Company
(franswestern), Enron's 50% interest in Fonds Gas Transmission
Company (Florida Gas) and Enran’s interests in Northern Border
Partners, LP and BOTT Energy Partners, LP (EOTT).

Wholesale Services. Wholesale Services inchides Enron's
wholosle businesses around the world Wholesale Services opor-
ates in Gevelopes markets such as North America and Europe. 2s
well as developing oF nmaty deregulating markets including
South Amesica, India and Japan

Rota Energy Services. Enron. through its subsidiary Enron
Enorgy Serviess, LLC (Energy Services). ts extending ms energy
expertise and capsbiities to end-use rete customers in the indus
trial and commercial business sectors to manage ther energy
Tequiroments and reduce their total erergy costs.

Broadband Swviees. Ervoe’s broadband serviess busines
[Broadband Services) provides customers with 1 single source for
broadband services, including bandwidth intermediation and the
deltvery of premium content

Corporate anid Other. Corporate and Other inckades Enron's
wrvestment in Azure Corp. (Azurix), whch prowdes water and
wastewater services, results of Enron Renewable Energy Corp.
(EREC), which Gevetons and constructs wind-ganeraied power
projects, and the operations of Enron's muthenol ax MTBE
Plants as well as overall corporate activales of Enron.

Net income inciudes the following

{in eeilticns) 200018881988
After-tan results before iter

impacting comparability S186 $957) 88a
hems impacting comparabiiity: (a)

Charge to reflect impeirment by Arurte (326) .

Gain om THPS, Ine. (The Nowe

Poem Company), not er) -
Gains or sales of sabaidinry stock . M5 45
NATBE related chorges a
Cumsative effect of

accounting charges = 3 -
Not income $378 $883 $703

Ga) Taw afictoo at SEAL encept where 2 SOON raw Fane BOAO
Oiluted eormengs per share of common stock were as folkrat:

2000 1983 176
Dited earnings par share lA
Aftertax reiuits Before ites,
impacting comparatslity

tore impacting comparably:
Charge to rufoct immpaiermcrnt by Azur 40.80) . .
Gain on The New Power Company, net 05 .
Gains on sales of subsiciary stock .
MTGL-retetedd cheeges :
Curredutivw affect cif
accourning changes . oaT) :
Ditsted narcings por ture FSkT a SA SD

{8 Restated 0 meee che nwo for one sto apt aiecTioe Augqurt 72, 708

$147 8118 $1.00

oor
‘0.08

O45
(eae

Income Botore lemneest. Minonty Imerests and tneame Tiss

The following table presents income before irnerest. mera
ity interests and income tases (IBIT) for aach of Enron's operating
segments [see Note 20 to the Consolidated Financsal Statements)

01 mittions) 2000 18881808
Transportation and Divtributsore
Tramportation Services san $30 $351
Portiaret Gane at 5 (285
Wrotesate Servioes 20037 68
Retail Energy Services 6 yey G19
Broadband Services Cr) : :
Exploration and Producben - 6 18
Corporate ond Other (6 f tr)
reome before terest.
mmenonty trherests and taxes s7aa2__ $i. $15

Transportapon and Dexibution

Transportation Services. The foticwing table summarizes
total volumes transported by each of Enron's interstate natura!
sa5 pipalieves.

9991908

Total wakanes wansported (BBtuid) =F
Northern Natural Gas 2529 020 40
rarmmnntern Papetine 1087 1,882 1.808
‘Floricla Gas Transmission Vsor 1685124
Northern Border Fipaling 2643 205 1.770

fa) tion Benne Abeena! arwer par cing Amount ewact 100% of each antiy's
throught sokrewn. Analy Gas and Norther Bord Ayers ave arcertch-
dated equty atone

02769

01300000001378

NR PHAR AHO

nN


Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a
future hearing. Dorgan also said the committee will invite Skilling, Enron's former chief
executive, and Andrew Fastow, Enron's former chief financial officer, to testify at the
same hearing.

“Was this just bad luck, incompetence and greed, or were there some criminal or illegal
actions, as has been suggested by the accounting firm that reviewed Enron's books?"

Dorgan said.

01300000000088


eB °
\ | OUR VALUES )

:
mer ?
oe”

We have av obligation to communicate. Weve. ve tate the tisve C0
4 tak with ane another....nd te titan, We beiove that snformation
¢ s meant to move ard that information maves peop,

A

Respect
We trnat athe 45 we woul! Uke 10 be twated oursetves. We do ad rat
ot tolerate abusive or disrespecthuy treatment.

= "TE
Wie mark with customers and prospects apemy. honestly and x p
coraly. Wher we say we will do someting, wer wil io it: ewer ee
Say we canmol or wil mat do something, them we wan't co i. .

We are satisfied with mathing fess than the very best in eweryttsing Pad J

we do. Wir mi continue to raise the bar for everyone. The great '
fun here wri be for all of ws to aiscover jst how guoxt we 220
renity be.

fre08 aseasas eemeaet 2500

02801 7

01300000001410


Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a
future hearing. Dorgan also said the committee will invite Skilling, Enron's former chief
executive, and Andrew Fastow, Enron's former chief financial officer, to testify at the
same hearing.

“Was this just bad luck, incompetence and greed, or were there some criminal or illegal

actions, as has been suggested by the accounting firm that reviewed Enron's books?”
Dorgan said.

02827

01300000001436


CORRECTION

Wednesday, December 26, 2001; Page AO2

A Dec. 25 article incorrectly reported the action taken by the Senate Banking Committee, chaired
by Phil Gramm (R-Tex.), on a bill that exempted much of Enron Corp.'s trading activities from
federal regulation. The legislation was approved by the Senate Agriculture Committee.

© 2001 The Washington Post Company

01300000000036


Carleton, Norman

— —__——_ —__—_—_—_—
From: Gabilondo, Jose

Sent: Wednesday, December 05, 2001 5:47 PM

To: Carieton, Norman

Subject: Enron Corp. Stock Chart

Norman:

This should work. | dragged this icon on to my shortcut screen, so that | just need to hit without separately
accessing the Internet. Also, below is the agenda for the repo ‘conference. Let me know if you're interested in any topic in
particular that | should focus on.

José
rven Comp. Stock repo hae
Cran rere

; 02893

01300000001502


EsBO8 Hoeve0k HECHT 2000

Frnron Corp. and Subsidiaries Notes to the

Consolidated Financial Statements

1 SUMMARY OF SIGNIFICANT ACCOUNTING POUCIES

Comsclkiation Poticy and Use of Estates

The accounting and financial reporting palicies af Enron
Corp. and its subsidiaries conform to generally accepted account-
ing principles and prevailing inckustry practicas The comoiicated
financal statements wclude the orcournts of all subsidiaries
controfies by Enron Corp. after the elimination of significant
intercompany accounts and transactions.

The preparation of financial statements in conformity with
generally accepted accounting pnnoples requires management to
make ostinstes and assumptions that affect the reported
amounts of assets and llabilities and disclosure of contingent
amets and hisoiitios at the date of the financial statements and
the reported amounts of reverwes and expernes during the
reporbng period Actus! results could differ from those estimates.

“Enron” is used from time to time herein as 2 collective
reference to Enron Corp. and its subsidiones ard sffitetes The
businesses of Enron are conducted by its subsiiaries and afflli-
ates whowe operabons are managed by ther respective officers,

Cash Equivalents
Enran records as cash equivalents all highly liquid short-tarm
investments with oniginaé maturities of three months or less.

Inventories
Inventories consist primarily of commodities, priced at martat
ass such inwerntorias are used in trading activities.

Depreciation, Depletion and Amortization

The provision for depreciation and amortizstion with
fespect to operations other than cil and gas producing activities
fs computed using the straight-line or regulatorty mandated
muthod, based on @mtimated economic lives. Composite depreci-
ation rates are applied to functions! groups of property having
sinilar econcenic characteritics, The com of umility property units
retired, other than land, is charges to accumulated depreciation.

Provisions for depreciation. depletion and amortization of
proved of! and gus properties are celoulated using the uits-of-
production method.

Icome Tees.

Enron arcounts for income taxes using an asset and Kabery
soprosch under which deferred assets and labiities are recog-
nizec based on anticipated future tax consequences attriutatyle
10 differences between Financial Katemneent carrying amoxets of
assets and Hablities and their respective tax bases (ee Note 5),

Earnings Per Share

Barc eamings pee share is computed baved Upon the
weighted-average number of common shares outstanding
during the periods. Diluted earings per share is computed based
upon the weightod-average number of common shares out-
standing plus the assumed isuance of common shares for of
potentially dikstive seasitie. All share and per share ansounts
have been adjusted to reflect the August 13, 1889 twofornone
stock split. See Note 11 for a reccnetbation of the basic anc dilut-
ed earnings per share computations,

Accounting for Price Rik Managemen

Enron engages in price risk management activities for bath
trading and nan-trading purposes. Instruments utilized 9 con
nection with trading activities ere accounted for using the mark
towmarket method. Under the mark-to-market method of
accounting. forwards, swaps, options. energy transportation con-
waets utilized for trading activities anc other instruments with
‘third parties are reflected at fair value and are shown as “Asets
and Liabilities from Price Rik Management Activities” in the
Consolidated Bstence Sheet These activities also inciude tee
commodity risk management component embedded in energy
outsourcing contracts. Unreskaed gains and loses fram newly
originated contracts, contract restructurings and the impsct of
price movements are recognized as “Orher Revenues,” Changes
in the asvets and liabilities from price risk management activities
result primarity from changes i the valuation of the portfolio of
contracts, newly criginated transactions and the timing af settie-
ment relative to the receipt of cash for certain contracts. The
Marke prices Land to value these tramuctions refiect manage-
Iment’s best esumate considenng various factors including closing
exchenge snd over-the-counter quotations, time value and
volatility factors underlying the commitments.

Fevuncial ewtrumerts are also utilized for non-trading
Purposes to Nedge the impact of market fluctuations on assets,
Niabilities. production and other contractual commitments,
Hedge accounting is utilized in non-trading activities when there
is. 3 high degree of correlation between price movements in the
ertvative end the item designated as being hedged. tn instances
where the anticipated correlation of price movements does mot
Occur, hedge accounting is Yenminated and future changes
the value of the Financia! struments are recognized as gains oF
Joswes. Wf the hedged item Is sold, the value of the financial
instrument is recognized in income. Gains and loses on financial
instruments uied for hedging purpouos are recognized in the
Comohdated Income Statement im the seme manner os the
hedged ikem

Thre cash flow impact of financial struments is reflectod as
éash flows from operating activities in the Consolidgted
Statement of Cash Flows See Nate 3 for further discumion of
Enron's price risk management activities.

Accounting for Development Actinity

Development coms related to projects, including costs of
feasibility studies, bid preparation, permitting, lieensing and con
tract negotiation are expensed as mcurred until the project is
¢etimated to be probable, At that time, such costs are caphalized
OF expensed as incurred, based on the mature of the costs
mcurred Capitalized development costs muy be recovered
through reimbursements from joint venture partners or other
third parties, of Cassified as part of the invesment and recow-
‘eed through the cash flaws from that project. Accumulated
chepitalized project development costs are otherwise axperaad in
the period that management determines it is probeake thet the
Carts will met be recowered,

Environmental Expendnunes

Expenditures that relate to an existing condition coused by
pest operations. and do not contribute to current or future
revenue generation, are expemed. Erwironmemal expenditures
relating to current or future reverwes are expensed or capitalined
ss appropriate baud on the nature of the costs incurred. Liabilities
ae recorded when environmental assessments andior chan-ups
are probable and the costs can be reasonably estimated.

02784

01300000001393


11 COMMON STOCK

Earnings Per Share
‘Tho computation of basic and diluted eamings per share ts
5 Toliows:

Your Eneted Decesmber 31.
On millions. excnpt pur ure aencunts} 2000 1989 198
Numerator

asic

Income before cumulative effect
‘of accounting changes
Profeered mock dividends
Second Preferred Stock on
Series & Preferred Stock +
‘Sorkes 8 Preferred Stock a | :
Income available to eomercn share.
hakders before curulatvve effect
of atcourting changes
Curative effost of accounting

somo $1004 $700
on on
(eh .

a ed
changes eet) -
Incomm available ta common

shareholders
Diuted

Income available to common share
aklors bofore cumulative effect

(of accounting charges

$306 5 a27_ sm

$958 $685

1
ty

$1.22 x10?

Before cumulative effect of

accoumting anges $1.2 $127 810
Cursulitive effect of uccounting
changes - 0) .
DMluted earrings per share v2 $10 0
i Te Serws A Prefers Stock avd the Series B Pree Stock woe ick acc
17 te caution of diced aarnungs per share Ceceune converunt of (hme
hares read be ACR.

Oenvatee betrumerts

At December 31, 2000. Enron hed durivative dnstrumenns
(excluding amounts disclosed in Note 10) on $4.8 million shares
of Eneor common stock, of which approximately 12 million
shares are with JEDI and 22-5 milion are with related parties
{sce Note 16). #1 an mrarage price of $67.92 per share on which
Enron was a fired price payor. Shares pocontially daltvaratie to
counterparties under the contracts are assumed to be outstaned-
ing i calcutating diluted earings per share unless they are
amtidiutive. At December 21, 2000. there were outstanding
non-employce options to purchsie 6.4 million shares of Enron
common Wtock at an exarcka price of $1.59 per share

Stock Option Plans,

Eneon applies Accourrting Principles Board (APB) Opinion 25
and related interpretazions in accounting for its stock option
plans. in accordance wah APB Opinion 25, no compernation
expense hes been recognized for the fixed stock option pilsrn.
Compensation expense charged against moms for the restricted
stock plan for 2000, 1999 and 199 was $220 million, $131 millian
end $58 million, respectively. Had compensation cont for Enran's
RIK Option compensation plans been Gerenmined based on the
for value ot the grant dates for awards uncer those plac
Enron's net come and earnings per share would nave been
‘$85 million ($1.09 per share basic, $1.07 per shore diluted) in
2000, $827 million ($1.08 per shew basic. $1.01 por share diluted)
in 1999 anc $674 mation ($1.02 per share basic, $0.97 par share
diluted) im 1998,

The fair value of each option grant & estimated on the date
of grant using the Black-Scholes optioe-pricing model wath
wenghtedwiverage assumptions for grants in 2000. 1999 and
1988, respectively: (I) dividend yisk! of 24%. 24% anc 25%; (ji)
erpected voustility of 22.3%, 20.0% and 18.3%: [lib risk-free
interest rates of 5.8%, 5.6% and 5.0%: and (iv) expacted lives of
2.2 yoors, 3.7 yoors and 38 yours.

Enron has four fixed option plans (the Plans) under which
options for shares of Enron's common stock have been or may be
granted to officers, employoes and nion-enployee members of
the Board of Directors Options granted may be either incentive
Stock Options OF MONQualfied stock Options and are granted at
not less then the fair market value of the stock at the time of
grant. Under the Plans. Enron may grant options with @ maw-
mum term of 10 years. Options vest under varying schedisies,

02792

01300000001401


—_——
From: Carleton, Norman

Sent: ‘Wednesday, March 21, 2001 10:45 AM

To: Barber, Francine

Subject: FW: Proposed Changes to Netting Bill -- Comments

Original Message-----

Carleton, Norman

Sent: Tuesday, February 13, 2001 5:08 PM

To: Hughes, Gerry

Subject: PW: Proposed Changes to Netting Bill -- Comments

ooo Original Message-----

From; Krimminger, Michael H. [mailto:MKrimminger@FDIC.gov]
Tuesday, February 13, 2001 4:47 PM
norman.carletonG@do.treas.gov'; 'stephanie.martin@frb.gov';
‘Tom. McGivernedo.treas.gov’; "MooneyJ! c.gov'

Ce: DeLoose, Michael; Ivie, Stanley R.; Tishuk, Barbara Starke
Subject: Proposed Changes to Netting Bill -- Comments

[(6)(5))

02982

01300000001591


B Omwanuas erro ame

19 QUARTERLY FINANCIAL DATA (UNAUDITED)

Surrenaeized quarterly financial dats és as follows:

(in pralhions, escape fit Second Tord Fourth Tout
per share amounts) 7 Quarter Quarter Quarter __ Quarter Year (a)
0
Revenues sis s18t8 s30.007 $00,751 ‘$100, 70
Income before interest, minority

whereas and income lanes a oe “- = 2aer
Net income ae 28 22 o a9
Earnings per share:

Basic sas $027 s a3 3 0.05 se

Dated 040 om ax 0.05 we
1909
Revenues $7,632 sore sitaas $10973 s4nnz
Income before terest. minority

imtorests and income taxns 533 10 $20 ana 1985
Not income 122 22 290 28 353
Earning per share:

Basie son $029 5 038 sos sou

Dauted 0.16 oz? 03s 031 1.10

ta? The scam af earnings per shove for the Rour quarters may not equal earrwngs pay share for the 10¢ev jaar cle Oo changes i Ine anarage muciber a COMUTION
cutstonevig

aherer

70 GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION

Erron’s business 6 divided ato operating segments, defined
4s components of an enterprise about whieh financial informa:
tion ts available and evstusted regulaely by the chief cpersting
deckion minker, oF deciion-making group. in deciding how to
allocate resources tO an individual segment ond in assessing
preformance of the segment. Enron's chief operating decision.
making graup ls the Office of the Chairman,

Erwor's chief operating decision-making group evaluates
performance and allocates resources based on income before
interest. minority interests and income taxes (I8IT) os well ss or
‘nat income. Certain costs related to company-wide functions are
sllocated to each segment. Hawever, interest on corporate debt
4s primarily maintained at Corporate and « net allocated to the
seqpnennts. Therefore, management beliewes that IBIT is the dom-
inant measurement of seqment profs consistent with Enron's
consolidated Financial statements. The accounting policies of the
segments are substantially the seme as those described in the
summary of significant accounting potkcies in Note 4

Beginning in 2000, Enron's tonmmunications business
being managed as 2 separate operating segment named
Broadband Services and therefore. based on criteria set by SEAS
No. 131, “Disckesures about Segments of an Enterprise and
Related information, * is reported separately,

Enron has divided its operations into the folowing
reponable segments, based on similarities in @oncenic cherac-
teristics, products and services, types of customers. methods of
Gistritaustions and requiatory emironment.

Transportation and Oistriutian - Regulated wmdustries.
Interstate Yansmision of natural gas. Management sud apera-
tion of pipstines. Electric utility operations.

Wnotesaie Services ~ Energy commodity sales sed servicas,
Fisk management products and frencial services to wholesale
entomers. Development, acquisition and operation of power
plants, natural gt pipelines and ather energy-related asuats.

‘Recall Fnargy Services ~ Sales of natural gas and electricity
directly to end-use customers, particulerty in the commercial
and industrial sectors, including the outsourcing of energy:
eolated activities.

Groodtund Services - Construction and management of &
nationwide fiber optic network, the marketing ark! management
Of bandwidth and the defivery of high-bandwidth content.

Explorstion and Production - Natural gas and crude of
dxploration and production primanty in the United States,
Canada, Trinidad and india urtil August 16, 1999. See Note 2

Carporate and Other = includes operation of water anc
renewable energy Gusinesses as well as clean fuels plants,

Financial information by geographic and business segment
follows for each of the three years in the period ended
Decomber 31, 2000.

Googgaphic Segments

Qu matore)_
(Operating reworks from

uratflisted cumomers

Untied State, $7789) $90,176 $25,247

Foreign z200b 9,936 6.093
$ie0, 749 $40,112 431.260

Income before Wrterml, minority

rterests and income tases

United States $219 61.273 $1,008

herman 2 S04
¥ 2aaz_ $3,005 8 1.582

Cang-ived assets

United States $1088 $8286 § 8382

Foreign 2395 1.278
$14,743 Hass H0687

02798

01300000001407


December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose
Entities

Dow Jones Newswires

WASHINGTON -- U.S, Senate Commerce Committee Chairman Fritz Hollings, D-S.C.,
pledged Tuesday to introduce legislation to eliminate the sorts of financial accounting
that led to the financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate
the use of special-purpose entities, which are partnerships or trusts through which
companies keep their debt off the books and, in Enron's case, overstate earnings.

Hollings said such off-the-balance-sheet transactions should end in order to protect
investors. Hollings also was highly critical of the amount of insider stock selling by top
Enron officials. He noted that Enron Chairman Kenneth Lay and former Chief Executive
Jeffrey Skilling each sold shares in recent months for more than $60 million, while
members of Enron's board sold shares worth more than $160 million.

"The selling of Enron was prolific,” Hollings said, calling the insider selling "a screaming
red flag.”

If Enron officials felt the stock was undervalued, as they publicly attested, “why were
they cashing in?" Hollings said.

Hollings also said there was plenty of blame for the “shenanigans” associated with
Enron's collapse, which he likened to a "cancer." He cited Enron's role in persuading the
Commodity Futures Trading Commission against the Clinton administration's call for
regulation of energy derivatives, and subsequent congressional action to exempt from
regulation the highly complex energy derivatives Enron's special-purpose entities
engaged in.

"We are all guilty for letting it happen,” Hollings said of Enron's collapse.

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel,
described Tuesday's hearings as the first of several that will delve into the roles in
Enron's financial collapse played by: Enron officials; Arthur Andersen, Enron's outside
auditor; Wall Street analysts, and regulators.

“This is about an energy company that morphed into a trading company involved in
hedge funds and derivatives. It took on substantial risks, created secret off-the-books
partnerships and, in effect, cooked the books under the nose of their accountants and
investors," Dorgan said.

01300000000112


Carleton, Norman

— — — —_—
From: Carleton, Norman
Sent; Wednesday, December 05, 2001 2:58 PM
To: Gabilondo, Jose
Subject: RE: Enron collage
Thanks.
~n Original Message-——

From: Gabilondo, Jose

Sent: Wednesday, December 05, 2001 2:56 PM

To: Carleton, Norman

Subject: Enron collage

Norman:

Here - for what they're worth -- are the best of my Enron resources, Here's the link toa daily price chart of
Enron's common stock, which is easier to drag on to your screen and to open (rather than saving): << File:
energysquid.doc >>

This is a tiny note that ! wrote about Enron market structure << File: article2.him >>. These are two (now dated)
market intelligence pieces about Enron: << File: article.htm >> << File: ar2000,pdf >> Here's the 2000 annual report -
<< File: Pwr_mkters_110201,ppt >> and here's a list of the top 20
power marketers prepared by an energy consulting group - . Hope that you like the Paul Klee format.
José
Tracking: Recipient Delivery Read
Gablonda, Jose Delivered: 12/6/01 2:58 PM Read; 125/01 3:08 PM

03012

01300000001622


The 7th Annual Repo & Securitics Lending Conference Page | of 6

| [x] The Bona

|

Register
For This
Event

Complete
Schedule
of Events

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GO RESEARCH — POLICYIADVOCACY

MEDIA EVENTS = PUBLICATIONS LINKS» ABOUT
[x] Conterences |

The 7th Annual
Repo & Securities Lending Conference

December 6, 2001
The Roosevelt Hotel, New York, NY

Exhibitand Sponsorship Opportunities Are Available

Pre-Conference Workshop

December 5, 2001
The Association Conference Center, New York, NY

Overview of Standard Funding Documentation

1:00 - 5:30 p.m.
This pre-conference workshop is intended to provide funding
market professionals with a straightforward and substantive review
of the most significant aspects of the Master Repurchase
Agreement, the Master Securities Loan Agreement, the Global
Master Repurchase Agreement and the Cross-Product Master
Agreement, In addition to discussing significant aspects of these
agreements, panelists will also update workshop participants on the
impact of the most recent revisions of certain of the standard
agreements. The workshop, consisting of four one-hour sessions,
will also allow for extensive interaction with experienced
professionals in the repo and securities lending markets.
Master Repurchase Agreement

1:00 - 2:00 p.m.
Carolyn Monroe-Koatz, Vice President, Assistant General
Counsel, J.P, Morgan Chase & Co.
Master Securities Loan Agreement

2:10 - 3:10 p.m.
Steven Kessler, Vice President, Associate Counsel, Goldman,
Sachs & Co.
Global Master Repurchase Agreement

3:20 - 4:20 p.m.
Habib Motani, Partner, Clifford Chance Rogers & Wells
Netting Documentation

4:30 - 5:30 p.m.
Scott Kimmel, Vice President, Lehman Brothers Inc.

Confirmed Exhibitors

Dealogic ICVADP

Decision Software Quant Trading Inc.
Garban,

Program

02895

01300000001504

1/15/02


_ _ —
From: Carleton, Norman

Sent: Wednesday, July 11, 2001 5:51 PM

To: Hammer, Viva; Novey, Michael; Eichner, Matthew

Subject: RE: Interviews

They will most likely be on August 1 and 2 at the FRBNY. Morgan Stanley, Goldman, Refco, Enron, J.P Morgan Chase,
and ISDA have said they would come. There is an attempt to schedule Lehman and Deutsche Bank, AIG and Citank
are not interested. We may try to contact State Farm.

--—Oniginal Message-~--

From: Hammer, Viva

Sent: Wednesday, July 11, 2003 5:35 PM

To: Carleton, Norman

Subject:

could you get us some more information on the wheres and whens of the interviews?

Tracking: Recipient Delivery

Hamear, Vive Delivered: 7/11/01 5:51 PM Read: 7/12/01 1:49 PM
Novey, Michast! Deltvered: 7/11/01 5:51 PM Read: 7/11/01 6:07 PM
Eicher, Matthew Delivered: 7/91/01 5:51 PM Read: 7/11/01 6:27 PM

02940

01300000001549


The exemption, tucked into broader legislation that established the legality of unregulated
derivatives trading by banks, was not supported by a Clinton administration working group,
largely because of opposition from the CFTC. Since the departure of Wendy Gramm, some in
the agency had lobbied for tighter control over the exploding energy derivatives market. The
legislation passed through the Senate Banking Committee, then chaired by Phil Gramm, who has
received $97,350 from Enron employees and its political action committee since 1989. A Gramm
spokesman said the senator does not recall talking to his wife, an Enron director, about the
energy provision and played “no role" in negotiating it. Wendy Gramm did not return phone calls
seeking comment,

Enron was a primary player, with Koch Industries Inc., a large, privately held oil and gas
company based in Wichita, in pushing for the exemption, a source said. But the company's main
effort was focused on the House Agriculture Committee, where the legislation originated. Its
chairman and ranking Democrat, Texas Reps. Larry Combest (R) and Charles W. Stenholm (D),
respectively, were among the top recipients of Enron campaign donations in the House since
1989,

The CFTC objected strenuously to the initial draft marked up by the committee, but the Texas
congressmen helped work out a compromise between Enron and the agency, The compromise
was then offered by Rep. Jerry Moran (R-Kan.), the home-state congressman of Koch Industries
and a recipient of campaign donations from Enron and Koch in the last election cycle. Moran did
not return a phone call seeking a comment.

Early this year, Lay seemed to be at the height of his political power, getting a private meeting
with Vice President Cheney to discuss the administration's energy policy proposals and weighing
in on key nominations to FERC.

Curtis Hebert Jr., FERC’s chairman at the time, has reported that Lay called him and implied that
Enron would urge the newly installed Bush administration to keep him in the job — if he changed
his views to support Enron's position for faster electricity deregulation. Lay contended that
Hebert called him to ask for support.

Hebert was not reappointed. He was replaced by Texas lawyer Pat Wood III, a strong advocate
of deregulation who had the backing of Lay and Enron.

Ironically, since Enron's fall, both FERC and Congress seem to be moving in the direction of the
deregulated markets Lay and Enron lobbyists had pushed for.

© 2001 The Washington Post Company

01300000000035


From: Jonn Yetter

To: BOM3,OOPO6(CARLETONN), MCGIVERNT

Date: 3/17/00 2:50pm

Subject: Financia! Netting provisions of H.R. 833 - bankruptcy bill -Reply -Reply -Reply

{o@)) I have attached your original e-mail and copied
mans staff to see if they have any comments.

22> Tom McGivern 03/17/00 02:46pm >>>
Norman, do you have comments/edits?

>>> John Yetter 03/10/00 10:18am >>>
| agree with all of Tom's comments on the Enron proposals and don't have any comments on the letler.

>>> Tom McGivem 03/09/00 06:36pm >>>
[(b)(5)]

On the Enron proposals Norman received:

[(6)(5)]

Thanks.
ce; DOM3. DOPOS{TooheyF), nickoloftp, schultheissh

02969

01300000001578


It supported the 1992 Energy Policy Act, which opened the utility companies’ wires to electricity
merchants such as Enron. It also worked with the Commodity Futures Trading Commission --
then chaired by Wendy Gramm -- for a regulatory exemption for futures trading in energy
derivatives, which later became Enron's most lucrative business. Soon after Gramm stepped
down in 1993, she was appointed to Enron's board.

Independent sources knowledgeable about these dealings, however, said Enron was not the main
interested party. They said the lead was taken by several major oi! companies, including British
Petroleum Co, and Phillips Petroleum Co., which were concerned about the effect of CFTC
regulation on their offshore trading in crude oil contracts. Wendy Gramm, an apostle of free
markets, needed little convincing, the sources said.

That same year, Lay served as chairman of the committee organizing the Republican National
Convention in Houston. Hedging its bets, Enron made a major contribution to a "street fair" in
honor of Sen. John Breaux (D-La.), a key energy policymaker, at the Democratic convention.
Key orders by FERC in 1996 also supported Enron's transformation into a freewheeling trader of
gas, electricity and more exotic products, such as telecommunications services and sulfur-
dioxide emissions credits.

The new rules ensured that Enron and other merchant companies could buy electricity from
independent power plants and sell it to distant customers, using transmission lines borrowed
from utility companies.

Even Enron's harshest critics credit Lay with putting new issues -- such as electricity
deregulation -- on the Washington agenda. Lay,a former Interior Department official with a PhD
in economics, became "the ambassador" for deregulation, one former employee said.

Throughout the 1990s, Enron's agenda was opposed by coal-burning utilities, especially ones in
the Southeast, which viewed the emerging wholesale electricity market as a threat to their turf.
Many of these, such as Atlanta-based Southern Co., had impressive political funding and
connections of their own.

But with the explosive growth of Enron and the GOP takeover of Congress in 1995, the
company’s soft-money donations -- unregulated and unlimited gifts to political parties and
organizations -- jumped sharply. They went from about $136,000 in the 1993-94 election cycle,
to $687,000 in 1996 and $1.7 million in 2000, according to the Center for Responsive Politics.

Frustrated by Washington

For all its connections, sources say, Enron often found Washington frustratingly slowand
unreliable.

The company placed a substantial bet on federal support for limits on the greenhouse gases
causing global warming. Enron officials hoped to exploit a new market in industry for carbon-
emissions credits, similar to the one that developed for sulphur credits after clean-air legislation
was cnacted in 1990.

01300000000106


Jaading provider of managed storage services,
StorageNetworks, and a large retailer, Best Buy.
Best Buy ts buying off-site storage capacity to save
Money and gain flexibility to am@ommodate chang:
ling storage needs.
Content Services

In April 2009 Enron signed an agreement with
ef to deliver movies over

8 US. video rental reta
the Enron intelligent Network. The trial service Is
up and running in Seattle; Portisnd, Ore: Salt Laie
City and New York City. Adgitionaily. we have
established relationships with other high-visibility
content pravkters. Over the next two or three years,
we plan to deliver on-demand not only mavies
but sports, educational content. games, music and

oZouveenury eo oenaunc mronsionnc Cerwonn CONTROL Creamy
Enron is facaNtating metwork cor Enron's pooling pox! mvfrartuc Witten freon’ Browdand Opersing — Ihe frvon intedigent Netmork
nectivity Dy establishing pooling hue silows compenies 62 provision — System (BOS) lie severw! unique (FIN) hers ecxtermive reach through
points io major metrapaitan sarees — bandwidth quickly. e(iminating the capabilities thet monitor switching owt the continenta’ Linited States

(a sewitch asctwviath Irom one dong lead times avsociated wath actmaly bahamas nenwncts and and comects to Europe and Asia.
independent networt te anothe, ——_circuil provisioning in the past control the provisioning ef circuits. With its browd connectivity, the
The pooling pevsts hatp aptimie —Entanend connactietly and dram The Enron BOS can measere per EW As denigned fo scale without
nehwork capacity Dy creating com — ic prowisionang allow handwndth = evmance in foal time af wrary Me cout of Danley authored
man pirysical detivery points and sary fo Lake adeentage of band layer of the mecwork arid ersare infrastructure, Leveraging the
seers 10 masttiple Mecations wich market opportunities 0 quality of service and delivery EreanOniine platform prowdies
short motice: sciitiomel reach and griws ca
tomers 2 new, easy option for
thew bandwsat needs.

Applications not yet imagined
Market Innovator

Enron's innovative approech is a3 valuable in
broadband as it is in energy. Our proven intermedi
ation skills are creating new value for the industry
and giving it a flexibility it has never enjoyed.
have combined our business model with readily
available technologies to deliver premiuen content
over the Enron Intelligent Network in a very com-

pelting commercial model, We are not tied to any
Partioular technology. We use the best solution at
the best time for our customers, delivering the

most refiable product at the lowest available cost
in the marketplace. :

02765 :

01300000001374


oe —_—_—_—— —_— $$ $$
From: Carleton, Norman

‘Sent: Thursday, December 13, 2001 4:31 PM

To: Robert Pisasser@ny ftb.org’

Subject: RE: Enron Update

Sorry not to reply to you sooner on this
Could you put me on your general distribution list? Thanks.
Norman Carleton

-----Original Message-----

From: Robert .Elsasser@ny.frb.org [mailto:Robert .Els)
Sent; Monday, November 26, 2001 10:46 AM

To: Norman.Carletonedo.treas .gov

Subject: Re: Enron Update

ergny.frb.org])

No problem. I can have you added to our general distribution list. This
would mean that you would receive our morning and afternoon recaps and
special reports on a variety of global markets. Alternatively, I can just
remember to add you to any future Enron reports that we produce. They may
be few and far between.

Bob Blsasser

Government Securities, FRBNY
robert .¢lsasserGny.frb.org
212.720.1234

Norman, Carleton@do
.treas.gov To: Robert .Eleasser@ny.frb.org

cc:
11/20/2001 02:53 Subject: Enron Update
PM

I have also been following Enron developments, which bear heavily on the
retail swaps report, I would appreciate being put on the distribution list
for any further work you send here on that subject, Thanks.

Norman Carleton

; 02901

01300000001510


DRAFT
January 4, 2002

TO: Norman Carleton
Director
Office of Federal Finance Policy Analysis
FROM: Heidilynne Schultheiss
Financial Economist
Office of Federal Finance Policy Analysis
SUBJECT; Dow Jones Newswires and Washington Post Articles on Enron and the
Commodity Futures Modemization Act of 2000

BACKGROUND

{(b)(5)]

01300000000076


((0(5)]

Norman
Tracking: Recipient Delivery Read
Schultheiss, Heigilyane Delivered: 1/6412 6:21 PM Read: 1/902 622 AM
Nickolio#f, Peter Delivered: 1/602 6:21 PM Read: 1/902 11-25 AM

01300000000043


"There are aspects of [the Enron case] that remind us of the savings and loan scandal, in the
sense that a powerful institution used big money to buy influence and protect itself while
ordinary citizens ended up losing their life savings," said Fred Wertheimer, president of
Democracy 21, a Washington interest group, referring to a banking controversy in the 1980s.
Enron's ties to Republicans and the present Bush administration were especially close. Lay raised
large sums for George W, Bush's campaign.

Enron, Lay and its employees have contributed $572,350 to him over his career, far more than
any other company, according to the Center for Public Integrity in Washington,

Several top administration officials have been Enron advisers or stockholders. Enron, Lay and
other senior executives contributed $1.7 million in soft-money donations to politicians in the
2000 election cycle, two-thirds of it to Republicans, according to the Center for Responsive
Politics.

Republicans clearly are sensitive to the potential political dangers. The National Republican
Senatorial Committee recently returned a $100,000 check collected from Enron in November,
after deciding that “it was appropriate to give it back," spokesman Dan Allen said. The
Republican Governors Association last week returned an Enron donation of $60,000.

What was unique about Enron, competitors and allies agree, was a brash and sometimes
counterproductive political style.

Stories of Enron's hardball style are legion. In October 1999, for example, Jeffrey K. Skilling,
then Enron's president, expressed his displeasure at Rep, Joe Barton's position on a deregulation
bill pending in the energy subcommittee Barton chairs.

The meeting grew “heated and awful,” said one person who was present, until Barton (R-Tex.), a
usually mild-mannered man who keeps a Bible on his desk, exploded. "Jeffrey Skilling, I may
not have your millions of dollars, but [ am not an idiot," one witness recalled Barton saying. The
meeting ended without Enron getting the changes it wanted. "Skilling did not get Washington,"
the source added. *

"In their lobbying, they acted like the 800-pound gorilla they were,” said Christopher Homer, a
Washington lawyer who briefly directed Enron's government relations in 1997. Lay and Skilling
declined interview requests, but Enron officials say they have no regrets about their use of
money. "It got us name recognition," company spokesman Mark Palmer said. "Given the
aggregation of our foes, we had to make sure that people knew what our argument was."

Jump-Starting Deregulation

Almost from its start in 1985 as a gas pipeline company, Enron needed help in Washington, and
it got it in a series of actions by Congress and the Federal Energy Regulatory Commission
(FERC) that undermined the traditional monopoly of utility companies over power plants and
transmission lines.

Enron lobbied for several of the initial actions that set the stage for the era of a deregulated
wholesale electricity market.

01300000000032


information Regarding Forward-Looking
Statements

This Report includes forward-tooking statements within the
meaning of Section 27 of the Securities Act of 1933 and Section
21€ of the Securities Exchange Act of 1934, All statements other
than statements of hisgorical fects contained in the: document
are forwardoaking matenerts Forward-looking statements
include, but are neg limited to, statements relating to expansion
‘Opportunities for the Transpertation Services, extension of
Ervon's business model to new markets and inchustries, demund
fm the market for broadband seeviers and high bandwidth
applications, transaction volumes in the U.S. power market. com:
mencement of commercial operations of new power plants and
Piping projects, completion of the sale of certain asats and
growth in the demand for retail evergy outsourcing solutions.
Wher used in this document. the words “anticipate,” “believe,”
“estimate,” “expects,” “intend.” “may.” “project.” “plan.”
“Srould” and similar eapremices sre mended to de smong the
statenents that identify forward-looking statements. Although
fron believes that its expectations reflected in these forward:
Jooking statements are bawd on resonable assumptions, such
statements involve risks and uncertainties and no assurance can
De given that actual reauits will be consistant with these farward-
Joaking statemeras. Important factors that could cause actual
results to differ materially fram those in the forward-ooking
Statoments herein seclude success i markating natural gas arxd
Power to wholesale cuomers; the abilay of Enron to penetrate
ews Petsit natural gus and electricity markets (including energy
cunsourcing markets} in the United States and foregn junsdic-
ans, development of Enron's broadband network and c.stomer
demand for intermediation and content services; the timing.
extort and market effects of Geregulation of energy markets in
‘the United States, inciuding the current energy market comdi-
tions in California, and in foreign juriadictions; other regulatory
devwlopmerts in the United States and in fareign countries,
inchuding tax fegislation and regulations: pofitical developments
in foreign countries: the extent of efforts by governments to
Privariae natural gas and electric utilities and other industries;
the timing and extent of changes in commodity prices for crude
oil, natura! gas, electricity, foreign currency and ieterest rates:
the extent of success in acquiring oll and gas properties and jin
discovering developing, producing and marketing reserves the
timing and succes of Enron's efforts to develop inenational
power, pipeline and other infrarructure projects: the effective
ness of Erwor's fisk management activities: the ability of coun-
terpartes to financial risk management nitruments and other
contracts with Enron to meet Uheir financial commaments to
Error: and Enron's ability to access the capital markets arid equi:
TY Markets Guning the periods covered by the forwardioaking
statements. which will depend cn general market conditions aed
Enron's ability to maintain the credit ratings far ms unsecured
senior long-term debt obligations

Management's Responsibility for Financia
Reporting

The following financial statements of Enron Corp. and sub-
sedans {collecbvely, Enron) ware prepared by management.
Which is responsible for their integrity end objectivity. The sate:
ments have been prepsred in conformity with generally accepted
accounting principles and necessarily include some amounts that
48 based on the Dest estimates and judgments of manageeners,

The system of intems! controts of Enron Is designed to
Provide rensonable assurance as to the reliability of firancal
statements and the protection of assets from unauthorized
acquisition, use or Gaposition This system is augmerted by
written policies and guidelines and the careful selection and
training of qualified personel. it should be recognized, however,
that there are itherert lenitations in the effoctivenas of any
system of internal contral. Accordingly, even an effective internal
control sytem <n prowde only reasonable assurance with
respect to the preperation of reliable financial stacements and
safeguarding of assets. Further, because of changes in conditions,
frternal control system effectivenass may vary aver time

Enron asesind its internat control system as of December 31,
2000, 1999 and 1996, rolative to current standards of control
criteria. Based upon this assessment. managument bebeves that
its system of internal controts was adequate during the periods to
Provide reasonable awurance #6 lo the reliability of financal
Matemeris and the protection of assets agninit unauthorined
acquishion, une or disposition.

Arthur Andersen LLP was engaged to audit the fascial
Statements of Enron and isust roperts thereon. Their aucits
inekidee developing an averat understanding of Enron's
accounting systems. procedures and internal cantros and con-
ducting tests ane other auditing procedures sufficient to suppor:
thir opinion on the finanoal statements Arthur Ancersen LLP
was ako engaged to examine and report on management's
‘e@mertion about the effectiveness af Enron's systam of inteenal
controls. The Raperts of Independent Pubic Accountants appear
in this Annual Report.

The adequacy of Enron’s financial controts and the accournt-
ing principles employed in financial reporting are under the
generat oversight of the Auct Committee of Enron Corp.'s Board
Of Directors, No member of this committee is an officer or
employee of Enron. The indepencent public accountants have
direct wecess to te Audit Committee. and they meet with the
committer from time to time, with ard without financial man-
agement prover. to discuss accounting auditing and financial
reporting matters.

02777

01300000001386

(70806 ANNUAL REPO 1908


4
E manage fis customers’ price risk end its

ik im and our of markets so it can maxemezn own.
i opportunity and margins. + Enron allows customers to choose te
in + Because: 1 has road plyysical access, OpRenAl way to sot @ predictable price.
o Enron reliably executes comracts.
_ —o 8 Eaeecrecnens naam samme”, Zé
Co
Advantages OF cttte atone
+ nlm mn seman Qty eetaae " + EnronOniine integrates seamnitesty into
dedtvery Sellliimene systems, reducing
«Comedie ends Exons 0c 0 ‘vansaction costs.
increase volumes snd marhet share + Existing systems scale realy a5
+ Eneoey’s sopitisticated systems track volumes increase
PNCES, regnier exposules and monhor + Standardized legal and tex compliance
stomer credit. speed business.
+ Systematic risk assessment and cowtrel
\ 4 protect Enron.
emeners nee rd NR eee ee

01300000001364


1/9/02 M2 Presewire (Pg, Unavail, Online)

M2 Presswire
Copyright 2002 M2 Communications, Ltd. Al! Rights Reserved.

Wednesday, January 3, 2002

OneChicegs welects CBORdirect as its watch engine

CHICAGO -- OneChicags, LIX, the joint venture ereated to trade single
atock futures by Chicago Mercantile Exchange Tne. (CHE!. Chicago Board
Optivas Exchange (CBOE }, and Chicago Board of Trade (cnat), today
announced that CROEdireceTH, the screen-based trading systen of CROR,
has been jected ao ito matching engine.

Oethicago will cperate exctusively as an stectronic exchang
orders pay be entered through either the Cmutdirect electronic
or via connections to CROBdirect through access pointe to CHES
slectronic trading platform.

“cpoedirect will provide our senbers with tha most efficient arena for
trading single stock futures, because it was designed to work with #
Lead Market Maker systen and is scalable to accommodate our tuture
needs,* said Willian J. Rainer, Chairman and Chiet Executive Officer of
onechi cago.

Platforms state-of-the-art technology.
r of experienced Liquidity providers that
es dynamic

pled with the vast ou
the menberships of cur three wachanges possess, will o
trading eavironment for thie new product.

TONE uupports OneChicagas cholee of CRORdirect as the satch engine for
tha new exchange to trade single stack futures.* said CME President and
CHO Jim McMulty, a sember of OneChicagos Board of Directors, *
capabilities ef CBORdirect, combined with GLOSEX electronic distribution
chaneals, will facilitate & unique macket-making system designed to add
Liquidity to the earket.*

=cnoedirect wan dewlgned to handle individes) equity prodwote with «
ad market maker capabiliry, The unique functionality of the Cacedizect
platfor= i ideally guited to Onechicagos market model.* said CaOt

Chairman and CHO wills:

Brodaky.

onethicago will implement Lead Market Makere (LM), who will be
responsible for providing continuous, two-sided markets for «li products
in whieh they are allocated, CBORdirect is currently is use at CBOE
during extended, pre-opening trading hours.

10 Communications Led disclaive aj] tiability for information
provided within M2 PresaWIRE. Date prepared by named party/parties.
Purther inforwation on M2 PresaWIRE can be obtained at
hetp://www.presswire.not on the worlé wide web. ne te |

infowe2 com}.

Dow Jones News savis

Copyright (cl 2002, Dow Jones & Company. Inc-
Wednesday, January 9, 2092

OneChicago Names Robert Walsh Managing Director Of Opar=

CHICAGO «(Dow Joneol- OneChicago LLC named i
iis tie ago Robert Walsh managing director of

In a press release Wednesday, the company said Waleh worked previously at the
:
Chicego Board Options Exchange ite project to ading sessions on
on ite projec extend tr tons

Onechicago, a venture of Chicago Mercantile Exchange tarc.. Chicago moard

ggttons Exchange and Chicago Board of Trade, was created to trade single stock

-Dorothss Degen; Dow Jones Newswirex; 201-938-5400

Page 16 Thursday, January 10, 2002

01300000000137


Enron Corp, Stock Chart

a os iv Ee #
Stock Chart

Security: ENE (Common Stock)

Click for historical price lookup

Page 1 of 1

am, @

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<Copirighe 1097 2001 Gnred A eighes reseroed,

02894

1/15/02

01300000001503


It supported the 1992 Energy Policy Act, which opened the utility companies’ wires to electricity
merchants such as Enron. It also worked with the Commodity Futures Trading Commission --
then chaired by Wendy Gramm -- for a regulatory exemption for futures trading in energy
derivatives, which later became Enron's most lucrative business. Soon after Gramm stepped
down in 1993, she was appointed to Enron's board.

Independent sources knowledgeable about these dealings, however, said Enron was not the main
interested party, They said the lead was taken by several major oil companies, including British
Petroleum Co. and Phillips Petroleum Co., which were concemed about the effect of CFTC
regulation on their offshore trading in crude oil contracts. Wendy Gramm, an apostle of free
markets, needed little convincing, the sources said.

That same year, Lay served as chairman of the committee organizing the Republican National
Convention in Houston. Hedging its bets, Enron made a major contribution to a “street fair" in
honor of Sen, John Breaux (D-La.), a key energy policymaker, at the Democratic convention.
Key orders by FERC in 1996 also supported Enron's transformation into a freewheeling trader of
gas, electricity and more exotic products, such as telecommunications services and sulfur-
dioxide emissions credits.

The new rules ensured that Enron and other merchant companies could buy electricity from
independent power plants and sell it to distant customers, using transmission lines borrowed
from utility companies.

Even Enron's harshest critics credit Lay with putting new issues -- such as electricity
deregulation -- on the Washington agenda. Lay,a former Interior Department official with a PhD
in economics, became "the ambassador” for deregulation, one former employee said.

Throughout the 1990s, Enron's agenda was opposed by coal-burning utilities, especially ones in
the Southeast, which viewed the emerging wholesale electricity market as a threat to their turf.
Many of these, such as Atlanta-based Southern Co., had impressive political funding and
connections of their own.

But with the explosive growth of Enron and the GOP takeover of Congress in 1995, the
company's soft-money donations -- unregulated and unlimited gifts to political parties and
organizations -- jumped sharply. They went ftom about $136,000 in the 1993-94 election cycle,
to $687,000 in 1996 and $1.7 million in 2000, according to the Center for Responsive Politics.

Frustrated by Washington

For all its connections, sources say, Enron often found Washington frustratingly slowand
unreliable.

The company placed a substantial bet on federal support for limits on the greenhouse gases
causing global warming. Enron officials hoped to exploit a new market in industry for carbon-
emissions credits, similar to the one that developed for sulphur credits after clean-air legislation
was enacted in 1990.

01300000000081


4 MERCHANT ACTIVITIES

An analysis of the composition of Enron's meschart investments
and energy assets at December 31. 2000 sexi 1909 is as fottowy

Decamber 31
Or matigeny mmo 188
Hercharn investments

Enorgy

Enangy-innersive industries

Technology related

‘Other

Norctaert assets

Independent power plants

Natural gas trareportation

Total $690 89.273

(et Crenstreeny aw secarcined at Cer vetue er “ONter Auets” wah chunges a Gar
akan celactodd on “CXter Rovernses.~

(tt Amouresrepresere Errors rvemimen er uncorcieed ay Avis et op:
cong earrings seected 7 “Equty #7 Earnings of Uncornenicanons Cquty Arkaos.

Enron provides capital primarily to energy and technology:
related DusmeMes seeking debt oF equity financing The merchant
investments made by Enron and certain of its uncoroticated
affiliates (see Note 9) are carried at fair value and include public
and private equity, government securities with maturities of more
‘than 90 clays. debt and interests ir limited partevarships, The wal
ation methodologies utlize market values of publicly-traded
SeCUNtIOS INdepeNderit appraisals and cash flow analyses.

‘Also included in Enron's wholesale business are irrrestrerts
in mmerchart assets such as power plants and motural gos
pipeiines, premarily held through equity method inwestmerns.
Some of thewe assets wore developed, constructed and operated
by Enron, The merchart assets are not @apacted to be long-term,
integrated components of Enron's energy networks

For the years ended December 31. 2000, 1998 and 1990,
respectively. pre-tax gains from sales of merchant assets and
investments totaling $104 milion. $756 reition and $628 millian
are included in “Other Revenues” and proceeds were $1,898
reillion, $2,217 millian and $1,434 million.

S INCOME TAXES

The comporverits of income before income tanes are as follows:

mations) 20001980
United States smo 6s 3ST
Foreign 73m

$603 $1178

Total income tax expense is summarized #5 follows

Qe mitions) 20001999
Puyabin currently
Fodorat 28
Sate R é 8
foreign 6 48 so
BY 5 36
Pupmant deferred
Foderal 3 OM Ma
suse “ a ”
Foreign wo 1s? 0
207 Fa ol
Total income tax expense! $414 S004 5175.

(i Sas Note 77 for far benifits raitted fo stack opti entrees Oy aniphnyers
recta in Wourphers’ eet

The differences becween taxes computed at the U.S. federst
statutory tax rate and Enron's effective income tax rate aw
as fotos:

zene __ 19903990

Scatutory federal incor

tax provinion BOX 350% 35.0%
(Nec state income tanes 25 wow
Foreign tas rate differential ew vo oe
Equity earrings $20 07) (43)
Banis and stock sate differences (1 (108) (14.2)
Goodwi® amortization or 16 (20
Aud settlement related ta Marnhly

Income Preferred Shares om.
Otrer ©. Os a

7% 92% ON

The pringipal components of Enron's net deferred come
tan liability are as follows:

____Decomber 31,
On rittbores) 2000189
Deferred come tax asuats
Aternative minimum tax credit cerrpforward = 254 $220
Net operating ks carryforware! mo 1,302
Other nT
— 820
Deferred iecome tax Babies
Depreciation, depiction ted amortization 113.807
Price risk management activities (ez) 1.133,
Other sae
ase ae
Net defermd menme tex aabeies 4! $4,782 82.012

(fat frchocier STAN cron anad $71 rion Wr ether convene Mateos for 200 ane
2988. respacereety

Enron has an altemative minimum tax (AMT) credit carry:
forward of approwmately $254 million whieh can be used to
offunt regular income tases payable i future years. The AMT
credit nas an indefinke carryforward period.

Enron has s net opeenting loss carryforward applicable to
U.S. subsidiaties of approximately $65 mation, which will begin
to expire in 2017. Enron has @ net operating kes carryfarward
applicable to nan-U.S. subsidiaries of approximately $1.2 bilhan,
of which $1.0 billion can be corrivd forward indefinitely. The
remaining $200 msllion expires between the years 2001 and
2010 Deferred tax assets have been recogrized on the $65
million domestic oss and $1.0 billion of the foreign tosses.

U.S. and foreign income taxes have beer provided for ean
ings of foreign subsidiary companies that are expected to be
romitted to the US, Foreign subsidiaries’ cumulative ureter
tuned earnings of approximately $1.8 billion are considered to be
pormanently reinvested outside the US. and, accordingly, no US.
income taxes have been provided thereon. In the event of a
Gstnbution of those earnings in the form of dividends, Enron
may be subject to both forsign withhokding taxes and US.
income taxes net of allowable foreign tax credits,

02788

01300000001397


From: Pater Nickoloff

To: BOM3.DOPO6(CARLETONN, MCGIVERNT), YETTERJ
Date: 3/17/00 3:17pm
Subject: Financial Netting provisions of H.R. 833 - bankruptcy bil -Reply -Reply -Reply -Reply

J have no comments or edits on the letters except to ask if they've yet been circulated to the other WG agencies.
Norman has been out of the office since 3/10 (and isn't scheduled to return until 3/27), 80 | can't say whether he had

‘3 chance to forward the letters on before he left, John, would you know?

>>> John Yetter 03/17/00 02:50pm >>>

{(6)(6)] Ihave attached your original e-enail and copied

Norman's staff to see if thay have any comments.

>>> Tom McGivern 03/17/00 02:46pm >>>
Norman, do you have comments/edits?

>>> John Yetter 03/10/00 10:18am >>>

((b)(5)]

>>> Tom McGivern 0340900 06:36pm >>>

[(b)(5)]

On the Enron proposals Norman received;

{(b)(5)]

Thanks.

ce: DOM3.DOPOS{TooheyF), OOM3,.DOPO6(schultheissh),

02968

01300000001577


December 18, 2001

Senator Eyes End To Enron-Type Special-Purpose
Entities

Dow Jones Newswires

WASHINGTON — U.S. Senate Commerce Committee Chairman Fritz Hollings, D-S.C.,
pledged Tuesday to introduce legislation to eliminate the sorts of financial accounting
that led to the financial collapse of Enron Corp. (ENE).

At a committee hearing on the Enron debacle, Hollings called for legislation to eliminate
the use of special-purpose entities, which are partnerships or trusts through which
companies keep their debt off the books and, in Enron's case, overstate earnings.

Hollings said such off-the-balance-sheet transactions should end in order to protect
investors. Hollings also was highly critical of the amount of insider stock selling by top
Enron officials. He noted that Enron Chairman Kenneth Lay and former Chief Executive
Jeffrey Skilling each sold shares in recent months for more than $60 million, while
members of Enron's board sold shares worth more than $160 million.

“The selling of Enron was prolific,” Hollings said, calling the insider selling "a screaming
red flag.”

If Enron officials felt the stock was undervalued, as they publicly attested, "why were
they cashing in?" Hollings said.

Hollings also said there was plenty of blame for the “shenanigans” associated with
Enron's collapse, which he likened to a “cancer.” He cited Enron's role in persuading the
Commodity Futures Trading Commission against the Clinton administration's call for
regulation of energy derivatives, and subsequent congressional action to exempt from
regulation the highly complex energy derivatives Enron's special-purpose entities
engaged in.

“We are all guilty for letting it happen,” Hollings said of Enron's collapse,

Sen. Byron Dorgan, D-N.D., chairman of the committee's consumer affairs panel,
described Tuesday's hearings as the first of several that will delve into the roles in
Enron's financial collapse played by: Enron officials; Arthur Andersen, Enron's outside
auditor; Wall Street analysts, and regulators.

“This is about an energy company that morphed into a trading company involved in
hedge funds and derivatives. It took on substantial risks, created secret off-the-books
partnerships and, in effect, cooked the books under the nose of their accountants and
investors," Dorgan said.

01300000000039


3 PRICE RISK MANAGEMENT ACTIVITIES AN FINANCWAL
INSTRUMENTS

Tracing Activnios

Enron offers price risk management sarvices [oO wholesale,
comenercial and industrial customers through a variety of finan
Gal and other inetruments ‘cluding forward contracts involving
physical delivery, swap agreements, which require paynunts to
(or receipt of payments fron) courterpertins Gased on the dif-
forerntial between @ flag and variable price for the commodity,
‘options and other contractusl arrangements Interest rau risks
and formign currancy risks associated with the fair value of the
commadity portfolio are managed using 8 variety of financial
instruments, including financial futures

Notional Amounts erat Terres. The nokional amounts and
terms of these ipitruments at December 31, 2000 are shown
below (dollars in mili):

Fund Price fined Price = Maszimum

ee rnin ears
=

man A910 a

ass 1,990 6

2ane 2388 £7]

308 a3 s

167 ws "

Interest rate (BP sanz 83977 a
Forvign currency S78 8 465 2
_ Equity investments 2 52.508 s1708 Ww

fa) Katara! gat crucie oF and Fauids and elecmecty sehr ae an Mee tat
‘coal ane pup are pazer FOALS One WRN OF OEE FONE ad Sama
roduetws ave a» thousands oF rorebytes.

24 Tre interes rane See? orice Mecevees inches the nee nictiaral cetat wae OF
Ue ecerest (ate sense componest OF the combed commmatty portion
The camasrwng mitarest re Miaed price recewer 07d the entre icerew ste Rt
(Bree payor represent the nota! Correct amoUN oF 8 pOtOAD OF wanoUT
fireareasl oracrumants used 20 Nadige Oh ner presen wRVE OF he coment
porches. For # gran unit of prea prosecnon, OMterert fiance instr
Teaire GATE RCN TOTO.

{i Exotics derhauves on Ervon coremnon tock. Sew fies 10 ere 11

Enron also has sales and purchase commitments associated
with commodity contracts based on market prices totaling 8,169
Thtue. with terms extending up to 16 years. and 7.2 million
metric torres, with torres wstencing up to 5 years

Notional amourns reflect the volume of (ranssctions but Go
not represent the amounts exchanged by the parties to the
financial instruments. Accordingly motional amounts do mat
accurately manusre Enron's exposure to market oF crecht risks,
The maxinaum terms in years detsied abowe sre nog indicative of
Wkely future cosh flows #6 thew positions may be offset in the
markets at any time #1 resporme to the company’s price risk
management reeds to the extent available in the market.

The volumetric weighted average meturity of Ereon's fiaad
Prive portfolio as of DecenDer 31, 2000 was approwmatety 7.5 years,

Fair Value. The fair value as of December 31, 2000 and the
average fair value of ewtrumerts ratated to prica nsk manage-
ment activities held dunng the year are set forth bekrw:

Average Fair Value
Fair Vibe for the Year Ended

as of 12/31/00 wy
(Or eratibare ‘Assets Liabilities Assets Liabilities
Naural gas Bin270 «$032 «$5525 § 5.114
Crude off and Bquids we 35 1te 27S
Blectrioty et ee ee
Other commodities 2sop 1,411 sea 757
Eqqty irventmmorts = TS 20S «2 20
Total S21458 818918 511.060 510.508

(8) Computed using ohe erating beivere at eect ccxaeth ore

The income before iterest, taxes and corain unatocated
expenses arising from ance risk management actreities for 2000
was $1,899 million,

Securitizations From time to time. Enron sells interests in
certain of its financial assets. Some of these sales are completed
in securitizations, in which Ereon concurrently errters into swaps:
associated with the underlying assets which limits the rises
assumed by the purchaser. Such swaps are adjusted to fair value
using quoted market prices, if available, or eximated fair value
besed on management's best estimate of the preset value of
future cash flow, These swaps are inckuded in Price Risk
Management activities above as equity imvestments During
2000, gains from sales representing socuritizatians were $387
migion snd proceeds were $2,379 million ($545 milion of the
proceeds related to soles to Whitewing Associates, LP.
{Whitewing)). See Notes 4 and 3. Purchases of securitized mer-
chant financial assets totaled $1,184 million during 2000.
Amnaunes primarily related to equity interests,

Credit Risk. tn conjunction with the valuation of its financiat
instruments. Eton provides reverves for credit risks associnted
with such activity, Crecit risk relates to the risk af loss that Enron
‘would incur as @ result of Manperformance by counterparties
Dursuen to the terms of their contractual obligations. Enron
mainairs credit policies with regerd to its counterparties that
management believes significantly minimize overall credit risk,
These policies inctude an evaluation of potential couterparies:
financial condition lincluding credit rating), collateral require.
ments under certain clcummtances and the use of sandardized
agreements which allow for the matting of postive and negative
Oxpenuares associated with 2 single counterparty, Enron also min.
imizes this cradit expowure using monetization of fs contract
portfolio of third-party insurance contracts.

02786

01300000001395


"There are aspects of [the Enron case] that remind us of the savings and loan scandal, in the
sense that a powerful institution used big money to buy influence and protect itself while
ordinary citizens ended up losing their life savings,” said Fred Wertheimer, president of
Democracy 21, a Washington interest group, referring to a banking controversy in the 1980s,
Enron's ties to Republicans and the present Bush administration were especially close. Lay raised
large sums for George W. Bush's campaign.

Enron, Lay and its employees have contributed $572,350 to him over his career, far more than
any other company, according to the Center for Public Integrity in Washington.

Several top administration officials have been Enron advisers or stockholders. Enron, Lay and
other senior executives contributed $1.7 million in soft-moncy donations to politicians in the
2000 election cycle, two-thirds of it to Republicans, according to the Center for Responsive
Politics.

Republicans clearly are sensitive to the potential political dangers. The National Republican
Senatorial Committee recently retumed a $100,000 check collected from Enron in November,
after deciding that "it was appropriate to give it back," spokesman Dan Allen said. The
Republican Governors Association last week returned an Enron donation of $60,000.

What was unique about Enron, competitors and allies agree, was a brash and sometimes

counterproductive political style.

Stories of Enron's hardball style are legion. In October 1999, for example, Jeffrey K. Skilling,
then Enron's president, expressed his displeasure at Rep. Joe Barton's position on a deregulation
bill pending in the energy subcommittee Barton chairs.

The meeting grew "heated and awful," said one person who was present, until Barton (R-Tex.), @
usually mild-mannered man who keeps a Bible on his desk, exploded. "Jeffrey Skilling, | may
not have your millions of dollars, but | am not an idiot," one witness recalled Barton saying. The
mecting ended without Enron getting the changes it wanted. "Skilling did not get Washington,"
the source added.

"In their lobbying, they acted like the 800-pound gorilla they were," said Christopher Horner, a
Washington lawyer who briefly directed Enron's government relations in 1997, Lay and Skilling
declined interview requests, but Enron officials say they have no regrets about their use of
money. “It got us name recognition," company spokesman Mark Palmer said. "Given the
aggregation of our foes, we had to make sure that people knew what our argument was,”

Jump-Starting Deregulation

Almost from its start in 1985 as a gas pipeline company, Enron needed help in Washington, and
it got it in a series of actions by Congress and the Federal Energy Regulatory Commission
(FERC) that undermined the traditional monopoly of utility companies over power plants and
transmission lines.

Enron lobbied for several of the initial actions that set the stage for the era of a deregulated
wholesale electricity market.

02832

01300000001441


Subcommittees of the House Financial Services Committce and the Senate Commerce
Committee have already held hearings.

But Licberman's panel is the top investigative committee of the Senate. Under Republican
leadership durimg the Clinton administration, then-chairman Fred D. Thompson (R-Tenn.)
headed an investigation of Bill Clinton's 1996 presidential campaign fundraising.

Levin and Lieberman said they intend to look into the close ties between Lay and President
Bush, a connection that some Democratic Party officials say they hope to take advantage of in
this year's congressional election campaigns.

Levin said he wants to know what advice Lay, who was a large contributor to the Bush
campaign, gave to officials of the new administration as it formulated energy policy a year ago.
Enron "also had close relationships with some Democrats, it’s fair to say," Lieberman
acknowledged. He said he expected the inquiry to be bipartisan and to have Thompson's support.
"We are going to work together," Lieberman said.

Lieberman said the committee also wants to lear whether federal regulators have the authority
to adequately oversee the complex commodity trading and financial transactions that were the
foundation of Enron's rapid growth over the past three years.

Lieberman noted that much of Enron's trading in energy derivatives was exempt from regulation
by the Commodity Futures Trading Commission, and he said a focus of the inquiry would be
whether this allowed the company to hide some transactions.

Enron was an active player in lobbying for the exemption beginning in the carly 1990s,
according to sources. The exclusion was initially approved by the CFTC in 1992, and in 2000
Congress endorsed it as part of the Commodity Futures Modernization Act, despite concerns of
some senior regulators.

At a joint hearing on the legislation by the Senate Banking and Agriculture committees in June
2000, then-CFTC chairman William J. Rainer spelled out his "reservations" about the exclusion
and said that "the case for it has not been made" with regard to energy derivatives.

© 2002 The Washington Post Company

01300000000086


Carleton, Norman

From;
Sent:
To:
Subject:

{(b)(5))

eworctna doe

Schultheiss, Heidilynne

Friday, January 04, 2002 5:10 PM
Carleton, Norman

Draft Memo on Enron/CFMA Articles

02814

01300000001423


Lay joined the Union of Concemed Scientists and environmental groups in calling for curbs on
carbon in the atmosphere, The Clinton administration was supportive, but this year the Bush
administration reneged on a campaign pledge to impose limits on greenhouse gas emissions from
coal-burning power plants,

A multimillion-dollar lobbying campaign in Congress to secure legislation requiring states to
institute retail electricity deregulation fared even worse.

Enron hired former New York representative Bill Paxon, a leading conservative, to run
Americans for Affordable Electricity, which commissioned studies and recruited business
support for deregulation. But the legislation never made it out of a congressional subcommittee.
At the same time, Enron was growing restive over the slow pace of deregulation in the wholesale
electricity market, the core of its business. Large parts of the country, especially the Southeast,
were still monopolized by regulated utilities that limited the opportunity for trading gas,
electricity and energy derivatives.

Political Pragmatism

Enron's political pragmatism was demonstrated in the 1998 New York Senate election, when it
dropped its support of the Republican incumbent, Alfonse M. D'Amato, after Democrat Schumer
endorsed Enron's goal of wholesale deregulation, sources said. Lay reciprocated by hosting
several fundraisers for Schumer, and Enron's political action committee contributed $7,500 to the

Schumer campaign,

The company’s lobbying team expanded along with its political spending. It outgrew the two-
person operation that existed in 1989 and began to reflect Enron's interest in everything from
pipeline safety and derivatives trading to Overseas Private Investment Corp. loan guarantees. By
last year, its lobbying expenses exceeded $2 million a ycar and covered a raft of big-name
consultants, such as former Montana governor Mare F. Racicot, the new Republican National
Committee chairman, and former top aides to House Majority Leader Richard K. Armey (R-
Tex.) and House Majority Whip Tom DeLay (R-Tex.)

The hazards of Enron's efforts to connect with both parties were evident last year, when shortly
before the November election, the company picked a Clinton administration Treasury official,
Linda Robertson, to run its Washington office.

A perturbed DeLay, whose campaign and related funds had received more than $100,000 from
Enron and Lay, briefly "excommunicated" Enron, a House source said. Robertson was not
invited to a series of meetings of electricity lobbyists held in DeLay's office last July, though an
Enron official did finally attend the sessions.

Enron had more success when Congress overwhelmingly approved legislation last year
containing a provision precluding the Commodity Futures Trading Commission (CFTC) from
regulating Enron's trading in energy derivatives. These instruments are traded largely between
electricity dealers and big wholesale consumers, which use them to hedge against price swings
that could adversely affect their businesses.

02834

01300000001443


IssueAlerts email Page 2 of 5

comparatively solid revenue streams and a solid position in the energy trading
space. The first point is obvious; as Enron's share price has hit a nine-year low and
dropped by half in just one week, it is natural that other companies on the prow!
for lucrative acquisitions would begin to hover around the company. Enron shares
have dropped dramatically, and the company's stock is now trading at close to
value. The other two factors | mentioned may need some further elaboration.
Despite the $638-million loss in the third quarter from businesses such as
broadband and water, Enron's core energy trading business posted a 26-percent
increase in recurring earnings in the same quarter. Thus, the core trading business
is basically in good shape and remains a strong cash generator. In addition, despite
the recent turmoil, Enron remains the largest natural-gas and power trader in the
United States, and thus is an attractive target for other companies operating in the
same space. Further supporting this point, most reports indicate that Enron is a
principal in one-quarter of all electricity and natural-gas trades in the United

There are three companies that keep appearing on a short list of potential buyers in
an Enron takeover, I think it is important to discuss the individual objectives of
these companies and the factors that may lead them to pursue a purchase of
Enron. The three companies most often mentioned are Royal Dutch Shell, Berkshire
Hathaway and GE Capital. In addition, a small number of European companies such
as Germany's E.ON and England's Powergen have also been mentioned. At present,
all the companies named have neither denied nor confirmed their involvement in a
possible Enron takeover.

Of all these names, Royal Dutch Shell, the number two energy firm in the world,
has been perceived as the top contender. The potential connection may have some
legitimacy. First, Royal Dutch Shell is the parent company to wholly owned
subsidiary Sheil Oil, under which Shell Energy Services is a wholesale and retail
marketing subsidiary. Shell Energy Services, which is based in Houston, had made
previous penetrations into the retail electricity markets of Texas and Ohio, but
recently withdrew from both states to focus more exclusively on wholesale power
transactions. Thus, Shell's focus on the wholesale market through Shell Energy
Services would make for a nice synergy with Enron's prominent position in the
wholesale trading space. Further, Shell had unsuccessfully tried on its own to be
involved in the merchant energy business, and thus an acquisition of Enron, the
dominant player in the energy trading space and an established energy franchise,
would be on par with the company’s strategy. Other reports have indicated that
Shell had previously looked at a possible Enron buy, even before the company
began to experience financial instability. Financing the deal would not be a problem
for Shell, as Enron's current market capitalization is around $11 billion and Shell
would probably not have to offer a huge premium for the company.

Berkshire Hathaway, founded by multi-billionaire Warren Buffett, is another
company with deep pockets and a potential synergy with Enron, Berkshire
Hathaway penetrated the energy industry with a $9-billion purchase of Des Moines,
Iowa-based MidAmerican Energy Company, giving the company 2 75-percent
ownership in the largest utility in Iowa, which is strategically located in the middle
of several major markets In the Midwest. Buffett, who previously invested in non-
energy companies such as American Express and Coca-Cola, has been drawn to the
energy space due to deregulation opportunities, Berkshire Hathaway's acquisitions
fit a pattern that Buffett created: They are well-managed companies that sell a
tangible product and have strong growth potential over the long term. MidAmerican
Energy arguably fit that template due to Its history as an integrated utility. Enron,
which is far more difficult to define, may ultimately prove to be too abstract a
company for Berkshire Hathaway's tastes.

As discussed in yesterday's IssueA/ert, GE Capital has been increasing its holdings 0 2 74 3
in the energy landscape lately due to its affiliation with Trens-Elect, a private
company that is actively pursuing the transmission assets sold by utilities, Trans~

file:/(C:\WINDOWS\Temporary%20Internet%20Files\OLK303 1 \article! .htm 1/15/02

01300000001352


Computer Software

Direct conts of materiats and services comumed in developing
‘oF obtaining software, including payroll and payroll-reluted costs
for employees who are directly associated with and who devote
time to the software project are capitalized Conts may begr to be
apitaliznd once the application development stage has begun Aa
other conts are expanses as incurred. Enron amortizns the casts on
© straight-line bass over the useful Wfe of the software.
imoairmers is wvaluwted based on changes in the expected useful-
ness of the software. At December 31. 2000 and 1999, Enron has
capitalized, Net of amortization. $287 mifion anc $240 millice,
respectivels of software costs covering numerous systems. includ
ing trading and settiemert, accounting. billing. and upgrades

rwestments in Unconsolidated Afraistes

froeemants in unconsolidated affilistes are accournind for
by the equity method. except far cartain investments resulting
from Enron's merchant investment activities which are wctucked
ot market value in “Other Investments” i the Corsolidated
Balance Sheet. Sew Note 4 and & Where acquired azets are
seeounted for under the equity method based on taenporary con
trol, exenings of lowes are recognized anly for the portion of the
invesumern to be retained.

Sale of Subslary Stock

Enron accounts for the issuance of stock by its subsicharies ir
accordance wih the Securties and Exchange Commision’s Stat
Accounting Bulletin (SAB) 51. SAB 51 allows far Enron to recog:
nize a gain in the amourt that the offering price par share of a
subsidiaey’s stock exceeds Enron's carrying amount per share

Foreign Cumency Iranstation

For international subsidisrios muait and Sability accounts
are tranvated 2t year-end rates of exchange and revenue and
experies are translated at average exchange rates prevailing
during the year For subsidiaries whose functional currency 6
deemed to be other than the U.S, dollar, traenation adjustments
are chided a6 @ separate component of other comprehensive:
income and shareholders’ equity, Currency transaction gains and
sens are recorded in income.

During 1888, the exchange rate for the Brazilian real to the
US, dollar declined, rewiting in a non-cash foreign currency
transiation adjustment reduting the value of Enron's assets and
shareholders’ equity by approximately $600 million,

Recevaificavans

Certain rectastifications have been made to the commobidated
financial statements for prior years to conform with the current
presentation

2 BUSINESS ACQUISTIONS AND DISPOSITIONS

fn 2000, Enron, through & wholly-cwmed subsidiary.
acquired all of the outstanding common shares of MG ple, a
leading independent international metals market-making
business that provides financial and marketing services to the
globe! metals industry, for $413 millian in cash and assumed
Gets of approximately $7.6 bition

In adtcttion, Erwom made other acquistiors including &
technotogyrelated company, # facility maintenance comoary
and all minority shareholders’ interests wm Enron Energy Services,
ULC and Enron Renewable Energy Corp. Enron isused 5.7 million
shares of Enron cammon stock, contrimuted common stork and
warrants of an unenmnolicieted equity affeiate and paed cash in
these transactions,

On August 16, 1995, Enron exchanged spprosimataly 623
million shares (approximately 78%} of the Enron Oil & Ges
Comparty {LOG} common stock it held for all of the stock of
£OGHredia, Ine. a subsidiary of EOG. Also in August 1999. Enron
recesved net proceeds of apysfasimately $190 million far the sale
‘of 85 million shares of EOG common stock i 4 public offering
and iswed approsimately $255 mvllion of public deot that is
‘exchangeable in July 2002 into approximately 14.5 mitiian shares
‘of EOG common stock. As 2 result of the shore exchange and
share sale, Enron recorded a pre-tax gain af $454 milion ($345
milion after tax. oF $0.45 per ciluted share) a 1999. As of August
16, 1999, EOG & no longer included in Enron's consolidated:
financial statements, EOGH-Inela, Ine. & included in the cormoll-
dated financial statements within the Wholesale Services
segment following the exchange and sale. Enron accounts for its
oll and gas exploration and production activities under the suc
‘eessful efforts method of accounting.

In August 1998, Fron, through a whollycwned suasidiars.
completed the acquisition of # controlling enerest in Elektro
Piotricidade @ Servigas S.A. (Elektro) for approximately $1.3 ba
bon. Diektro was initially accounted for using the equity method
bated on temporary control. In 1999, after the acquisition of
sdditicnal interests, Elekiro was consolidated by Enron,

Additionally, during 1849 and 1996, Enron acquired genera:
tion, riaturst gas distribution, renewable energy telecomeunice-
Dons and energy managenent Businesses for cash. Exon sed
subsdiery stock and notes

Enron has sccounted fer these acquisitions using the pur-
chase method of accourting as of the effective date of each
transaction. Accordingly, the purchase price of exch transaction
has been allocated based upon the estimated fair vale of the
mots and liabilities accquirad as of the acquisition date, with the
eacess reflected os goodwill in the Consolidated Balance Sheet.
This and all other goodwill is being amortited on a straight-line
basis over $ to 40 years,

Assets acquired. linbilties aswened and conicerstion paid
a a result of businesses aequired were a5 follows:

On mations) 20001990 __ eget!
Fair vahan of wiwets acquired,

‘other than exh $2607 $37 $280
Goode ot)
Fait vabse of liabilities amumed (2,418) 6 (259)
Commen stock of Erwon tusund ert

cquity of an uncomatttid

equity aftiiatn contrite (aoa : _:
Net cash paid ae ee

Dy Crchates amour rotated! Jo the 1958 seguetion of Linki:

(On November 8, 1998, Enron announced that m had entered
into an agrosment to sell Enron's wholly-cwrved electric utility
subsidiary. Portland General Electric Company (PGE). to Sierre
Pacitig Resources for $2.1 billion, Serre Pacific Resources wit alsa
amsume sppreximately $1 billion in PGE debt and prefurred stock.
The transaction hes been delayed by the effect of recent ewerts
in California and Nevada on the buyer Enron's carrying amount
of PGE as of December 31, 2000 was approximatety $7.6 billion,
Income befare interest, minority interest and income taxes for
PGE was $338 million. $298 million and $284 million for 2000,
1998 anc 1998. respectively.

02785

01300000001394



Carleton, Norman

From: Gabilondo, Jose

Sent: Wednesday, December 05, 2001 2:56 PM
To: Carleton, Norman

Subject: Enron collage

Norman:

Here — for what they're worth -- are the best of my Enron resources. Here’s the link to a daily price chart of

Enron's common stock, which is easier to drag on to your screen and to open (rather than saving);

é)

area nin
This is a tiny note that | wrote about Enron market structure . These are two (now dated) market

wicie here sr2000 pet Pre mbes 10001 8
intelligence pieces about Enron: Here's the 2000 annual report - ”
and here's a list of the top 20
power marketers prepared by an energy consulting group - . Hope that you like the Paul Klee format.

José

02736

01300000001345


Carleton, Norman,

From:
Sent:
To:

Subject:

{(b)(5)]

Tracking:

Carleton, Norman

Honiay. Sentember 10, 2001 11:34 AM
Bair, ila; DeMarco, Edward, Eichner, Matthew; rem) Martha; Fisher, Peter; Gabilondo,

Jose; Gross, Jared; Hammer, Viva; Hughes,

Heide; Sin Smith,

Roseboro, Brian; Schultheiss,
Retail Swaps - Telephone Call fr

Bar, Shela
DeMarco, Edward
Eichner, Matthew:
Ellett, Martha
Fisher, Pater
Gabilondo, Jase
Gross, Jered
Hammer, Viva
Hughes, Gerry
Nickolot, Peter
Novey, Michoe!
Roseboro, Brian
Schuttheiss, Heiditynne
‘Smith, Amy
Sutton, Gary

Delivery
Defivered: 6/10/01 11:34 AM

Delivered; S10001 11:34 AM.
Delivered: S/10001 11:34 AM
Deliverec: WONT 11:34 AM
Deltvered: 9/1001 17:34 AM
Delivered: 910/01 11:34 AM
Debvered: 910/01 11:34 AM
Delivered: 910/01 11:34 AM
Delivered: 10/01 11:24 AM
Delivered; 91004 11:34 AM
Delivered: 10108 11:34 AM.
Delivered: B/10101 11:34 AM
Deliveres: S°10101 11:34 AM
Delivered: G/TOV01 11:34 AM
Oeitvered: W10V01 11:34 AM

Nickolof Peter; Novey, Michael;
, Gary

Read

Read: 910/01 11:43 AM
Read: S001 4:15 PM
Read: S001 11:34 AM
React 9/1001 1251 PM
Read: 8/1001 19:46 AM
Read: 910101 11:39 AM
Read: 9/10/01 11:48 AM
Read: 910/01 11:49 AM

Read: 81001 11:35 AM
Read: 91001 11:54 AM
Read: S001 1201 PM
Read: S100 11:34 AM

React 00/01 11:34 AM

02915

01300000001524


In 1997, Andrew Fastow became Enron’s CFO. At least as early as 1997, Enron was
establishing “related party arrangements” or “employee-related entities.” One such arrangement
was the “Chewco” entity run by Michael Kopper, former Managing Director of Enron North
America.

In December 1999, Andrew Fastow, with the approval of the Enron board, created and
managed two limited partnerships related to Enron, LJM Cayman LP and the larger LIM2 Co-
Investment LP, possibly with Kopper. Their purpose ostensibly was to “hedge certain merchant
assets and transactions and the fluctuating values of its growing portfolio of assets” (of more
than $100 million), and to enter into “share-settled costless collar arrangements” and “derivative
instruments, including swaps, puts, and collars, which eliminated the contingent nature of
existing restricted forward contracts,” LJM raised only $16 million, but LJM2 raised at least
$200 million. Investors included CSFB, Wachovia, GE Capital, and The Arkansas Teachers
Fund.

Enron reportedly had been strapped for cash and sought to entice outside investors to
strengthen its balance sheet. The related party arrangements reportedly involved Enron assets,
millions of shares of Enron stock contributed to the structured finance vehicle, and notes
receivable issued by partnership-related entities to Enron. The LJM2 offering document stated
that Mr. Fastow would receive an annual management fee as much as 2 percent, and would be
eligible for profit participation over its ten-year life. The undisclosed general partner was
obligated to invest at least 1 percent of the aggregate capital commitments, Subsequent reports
speculated that the arrangements may have been created to retain Mr. Fastow after the exodus of
executives who cashed out large profits on stock options.

In 1999, Enron filed a statement with the SEC that disclosed the Fastow partnership
arrangements, although it was largely overlooked by analysts as they remained cxubcrantly
optimistic about Enron and its phenomenal growth and earnings prospects, Around this time,
Enron Treasurer Jeffrey McMahon complained to Enron President Jeffrey Skilling regarding
what he perceived to be Mr. Fastow’s conflict of interest. Mr. McMahon was reassigned as head
of the industrial markets group.

In January 2000, Enron remained a favorite company of market analysts. It was named
"The Most Innovative Company in America" for the fifth consecutive year and was ranked
number 24 among the "100 Best Companies to Work for in America" in Fortune surveys.
However, in June 2000, The Economist challenged Enron to refute allegations of arrogance,
aggressiveness, opacity, and borderline legality, Enron’s reply was viewed by the publication
and markets as nonresponsive,

In September 2000, LJM2 invested $30 million in the “Raptor III” investment, which
involved LJM2 writing put options that committed LJM2 to buy Enron stock at a set price for six
months, However, in January 2001, LJM2 requested that Enron settle the Raptor III transaction
early, LJM2 received back its $30 million in capital invested plus $10.5 million in profit. This
renegotiation occurred before the large decline in Enron's stock price, which would have forced
LJM2 to purchase Enron stock at a loss of $8 per share.

2 02856

01300000001465


Dorgan noted that Lay, Enron's chairman and chief executive, has agreed to testify at a
future hearing. Dorgan also said the committee will invite Skilling, Enron's former chief
executive, and Andrew Fastow, Enron's former chief financial officer, to testify at the
same hearing.

“Was this just bad luck, incompetence and greed, or were there some criminal or illegal

actions, as has been suggested by the accounting firm that reviewed Enron's books?"
Dorgan said.

01300000000040


IssucAlerts email Page | of S
Subject: FW: Enron Update: Sagging Stock Price, Increased Earnings Continue to Fuel Takeover Speculation

c N
O©SCIENTECH se tps te

C IssueAlert count fw tat aadureonds onarge. ,

November 2, 2001 c N

Enron Update:

Sagging Stock Price,

Increased Earnings

Continue to Fuel Takeover THE STRUCTURE
Speculation GROUP

By Will McNamara

Director, Electric Industry Analysis se
[News item from Associated Press] Troubled Enron Corp.

(NYSE: ENE) said it has secured $1 billion in new financing,

using its natural-gas and pipeline assets as collateral. But its

stock price took another dive after rising a day earlier on oo
takeover speculation. In afternoon trading Nov. 1 on the New
York Stock Exchange, Enron shares were down 9.3 percent,
or $1.29 a share, at $12.61.

Analysis: Like many following this ongoing story, I have
been closely tracking the plummet of Enron's stock since the
Oct. 16 release of the company's 3Q financial report, in which
a $638-million loss was identified. Since that time, Enron's
stature on Wall Street has literally fluctuated by the hour,
bumping up or down depending on the latest news report or
rumor circulating across the Web. The company’s financial
problems have been well documented, along with the new
Securities and Exchange Commission (SEC) probe into
Enron's financial deals involving its just-dismissed chief X 4
financial officer. For background information on this case and the factors that led to
Enron's current maladies, please review my 10/22/01 IssueAlert, available at
www.scientech.com/rci, In this article, I will focus exclusively on the new reports
that put Enron in the unprecedented spot of being a possible takeover target.
Ironically, the very mention of Enron as a takeover target would have seemed
ludicrous last year at this time, when the company's stock had just passed a 52-
week peak of nearly $90 in August 2001. As of early morning trading on Nov. 2,
Enron shares were priced at $11.05, illustrating just how low the company has

sunk over the last year and how quickly the positions along the energy industry's
playing field can change.

There are three factors that, when taken together, put Enron in a vulnerable 0274
position for takeover efforts. These three factors are a sagging stock price,

JINDOWS\Temporary%20Internet%20Files\OLK303 l\article1.htm 1/15/02

01300000001351


The exemption, tucked into broader legislation that established the legality of unregulated
derivatives trading by banks, was not supported by a Clinton administration working group,
largely because of opposition from the CFTC. Since the departure of Wendy Gramm, some in
the agency had lobbied for tighter control over the exploding energy derivatives market. The
legislation passed through the Senate Banking Committee, then chaired by Phil Gramm, who has
received $97,350 from Enron employees and its political action committee since 1989, A Gramm
spokesman said the senator does not recall talking to his wife, an Enron director, about the
energy provision and played "no role" in negotiating it. Wendy Gramm did not return phone calls
seeking comment.

Enron was a primary player, with Koch Industries Inc., a large, privately held oil and gas
company based in Wichita, in pushing for the exemption, a source said. But the company's main
effort was focused on the House Agriculture Committee, where the legislation originated. Its
chairman and ranking Democrat, Texas Reps. Larry Combest (R) and Charles W. Stenholm (D),
respectively, were among the top recipients of Enron campaign donations in the House since
1989,

The CFTC objected strenuously to the initial draft marked up by the committee, but the Texas
congressmen helped work out a compromise between Enron and the agency. The compromise
was then offered by Rep. Jerry Moran (R-Kan.), the home-state congressman of Koch Industries
and a recipient of campaign donations from Enron and Koch in the last election cycle. Moran did
not return a phone call seeking a comment.

Early this year, Lay seemed to be at the height of his political power, getting a private meeting
with Vice President Cheney to discuss the administration's energy policy proposals and weighing
in on key nominations to FERC.

Curtis Hebert Jr., FERC's chairman at the time, has reported that Lay called him and implied that
Enron would urge the newly installed Bush administration to keep him in the job -- if he changed
his views to support Enron's position for faster electricity deregulation. Lay contended that
Hebert called him to ask for support.

Hebert was not reappointed. He was replaced by Texas lawyer Pat Wood III, a strong advocate
of deregulation who had the backing of Lay and Enron.

Ironically, since Enron's fall, both FERC and Congress seem to be moving in the direction of the
deregulated markets Lay and Enron lobbyists had pushed for.

© 2001 The Washington Post Company

02835

01300000001444


HM.
2 a Coe

Enron Annual Report 2000

02747

"te,

01300000001356


Carleton, Norman

From:
Sent:
To:

Subject:

Carleton, Norman

Tuesday, June 19, 2001 2:42 PM
Annette Nazareth (E-mail); Belinda Blaine

(E-mail), Bob Colby (E-mail); Bob Zwirb (E-mail):

‘David Wall’; ‘Diane Virzers’; Eichner, Matthew; Elizabeth Fox (E-mail); Eric Hirschhom (E-

mail); Hammer, Viva; John Polise (E-mail); '
Erickson (E-mail); Kurt Withelm (E-mail); Lori

Hansen’; Kathryn Dick (E-mail); Kevin
tamorena {E-mail}; ‘Miguel Browne’;

Nickoloff, Peter, , Michael, Pat Parkinson (E-mail); ‘Pat White’; Schultheiss, Heideynne
gross, Jared; Ellett, Martha; Sutton, Gary; Gabilondo, Jose; DeMarco, Edward; Hughes,

ry.
FW: Suggested Interviewees

2-77 Original Message-----

From: Zwirb, Robert s.

Sent: Tuesday, June 19, 2001 2:35 PM
To: "Norman.Carleton@do.treas.gov'
Subject: Suggested Interviewees

mailto:bzewirbecrTc.gov]

Here is our list of organizations/individuala that we propose to interview
for the retail swaps study:

((b)(5)]

Tracking:

Recipient
Annetie Nazareth (E-mail)
Belinda Blaine (E-mail)
Bod Coby (E-nail)

Bob Zwirb (E-mail)
“David Wall’

‘Diane Virzera’

Eichner, Matthew
Elzabath Fox (E-mail)
Eric Hirschhom (E~mail)
Hammer, Viva

John Potise (E-mail)
“Joyce Hansen’

Kathryn Dick (E-mail)
Kevin Erickson (E-mail)
Kurt Wilhelm (E-rrait)
Lori Sanatamorena (E-mail)
‘Miguel Browne’
Nickolott, Peter

Nowey, Michael

Pat Parkinson (E-mail)
"Pat White’

‘Schuttheiss, Heidityree
Gross, Jared

Ellett, Martha

Sutton, Gary
Gabilondo, Jose
DeMarco, Edward
Hughes, Gerry

Delivery

Dalvered: 6/18/01 2:42 PM

Delivered: 6/19/04 2:42 PM

Delivered: 619/01 2:42 PM
Delivered: 6/19/01 2.42 PM

Delivered: A901 242 PM
Delivered: @/19101 2:42 PM
Dalverat 19101 242 PM
Delivered: £19101 2:42 PM
Oabvered: 6/18/01 2:42 PM
Oslvered: 619/01 2:42 PM
Delivered: 619/07 2:42 PM

1

Read: 6/1501 4:06 PM

Reed: 62001 1:54 PM

Read: 619/01 2:45 PM
Reed: 619/01 5:04 PM

Read: 61901 242 PM
Read: 6/1901 242 Pw
Read: 21/01 &34 AM
Read: 7/2/01 9:04 AM

Read; 6/16/01 3:00 PM
Read: 6/19/01 4:10 PM

02935

01300000001544


Carleton, Norman

From:
Sent:
To:

Subject:
[(o)(5)]

Srinecmyy cee

—

Schultheiss, Heidilynne

Cednesdey, December 19, 2001 12:08 PM

Carleton, Norman

Enron and the Commodity Futures Modermization Act of 2000

02868

01300000001477


November 27, 2001

TO: Norman Carleton
Office Director
Office of Federal Finance Policy Analysis

FROM: Heidilynne Schultheiss
Financial Analyst
Office of Federal Finance Policy Analysis

SUBJECT: Chronology of Enron Events and Recent Financial Turmoil

Background

The stock and debt prices and credit ratings on Enron Corp. fell precipitously following
the disclosure of a third quarter loss, possible accounting irregularities, questionable related party
arrangements with company officers, and an SEC formal investigation in October 2001. The
following chronology of events preceding and through the recent financial turmoil at Enron
summarizes publicly available imperfect information for a company renowned for its opacity and
reluctance to disclose information. It was compiled from an assortment of public sources whose
accuracy and completeness cannot be independently verified, and thus must be evaluated
cautiously in that context.

Pre-Tumnoil Enron Chronology

Enron was formed in July 1985 as a result of the merger of two troubled gas pipeline
firms, Houston Natural Gas and InterNorth of Omaha, Nebraska, creating an interstate natural
gas pipeline company. Enron first became involved in derivatives transactions in 1989, when
GasBank, the precursor to the North American and European wholesale trading business, was
launched and Enron began trading natural gas commodities. Following the deregulation of the
U.S. natural gas industry, the market revised its methods of contracting for gas in the wholesale
market. GasBank allowed producers and wholesale buyers to purchase firm gas supplies and
hedge the price risk of the new spot market simultaneously. Enron subsequently transformed
itself from a natural gas pipeline company into a more diversified energy company, specializing
in electricity, water, and bandwidth telecommunication markets, as well as risk
transference/derivatives markets, In 1999, Enron launched EnronOnline, the first global web-
based commodity trading site, and Enron subsequently became the world’s largest e-commerce
company, In 2001 it was estimated that 25 percent of OTC energy contracts were transacted by
or through Enron.

In 1990, Andrew Fastow, who would later become its controversial CFO, joined Enron.
At least as early as 1993, Enron was creating arrangements that allowed it to bring in outside
equity and borrow large sums for asset purchases without revelation on its balance sheet. It is
thought that Enron was attempting to restrain its debt load in order to maintain its credit rating
and sustain its tremendous growth. One such arrangement involved CALPERS.

02855

01300000001464


Medium-size Business Market
In the first three years of U.S. operation, Enron
Energy Services has been squarely focused on Fortune
1000 customers. But ULK.-based Enron Direct has
successfully penetrated the immense medium-size
business market. proving that we can sell energy to
smaller enterprises in 4 truly open retail market,
Since gaining regulatory approval in February
1999 through the end of 2000, Enron Direct has
acquired more than 130,000 gas and power cus-
tomers, and continues to grow at @ substartial rate
The profitability of these smaller accounts comes
from Enron's long-term price risk management capa-
bility and Enron Direct's low-cost sales channets. Our
high expectations for medium-size businesses are

2
o scusiue wvEsTuENTS © REDUCING PEAK DEMAND 6 Puaciosmic ALASUREMENTS Crexsensc DOWWIME
PUA data identify opportunities The 42st of energy weries widely ——AMst energy users don't realize Whee repairs are mend, PAC
to improve efficiency throught over the course of the day. Mhe sometting 15 wrong unt the ener- personne cart hep camera the
equipment upgrades or trough = PMC asas realeine pricing infor. gy Ball comes, and then it is much costs of vendor calls and o-site
changes at processes, mation, and the stream of data 100 fate. But with the Enron PRA repairs theowagh alingmontic dala,

adversely affecting a eliont’s oper- coming from the customey site, to reahtve morvtoring mnans Rat ad ttvougih best practice manage
ations. The PMC's sopnisticated automaticaly ant ty rechce I changes in energy demand — ment of a of thousands of
modeling systems calcadate 8 customers’ low-priority energy wie ave tracked Mnstantaneounty, wenca prowiderk We werk witht
cast-bomeit anaiysis for avery shen the prize of energy fs highest enabling Ena and the customer sevwice providers to catngorine seat
potential investment in energy “ensuring that the customer gets fo Adetity end ackirers protlams —amalyaw thw actual cos! of repairs
assets. This analysis inchates # manires benalit for every dotler ——_beflare energy cots get aut of With Enron's expertise and scale,
wal-tiewo corretation with tbe spent on evvergy. hae wre can improve response tines,
price of commodities — to help reckuce downtine ard cut the cost
companies mot any mate deci of repairs art mauntenamve.

Wars but alee to show them that
thare are decinives te be mad.

reflected by the rapid expansion of the European
operation. Enron Directo alresdy is active in Madrid,
Spain. and similar businesses will be launched in
other countries 45 well

tt ls our strong belief that Enron is uniquely
positioned to benefit both in the United States and
Furope from the world’s steady shift toward dereg-
ulated energy markets. We will continue to provide
Sensible market solutions for the effective manage:
ment of energy costs, and will continue to build &
dynamic global retail business to drive company
Profits and sustain our reputation for innovation.

02763 i

01300000001372


Contin.)

work and how the various strands of
investigation will be coordinated
have oot been determined.

‘The Justice Department has
formed purmerous task forces Im the
past, but they have usually focused
eltber on complex cases of violent
crime of conducted inquiries into

by entire industries.

‘Legal experts who have examined
the Enron case said that

the dis;

by bringing together ‘parare
pieces of the sprawling criminal in-

adding
the manpower from the depart-
ments fraud

probability of indictments.
“Prosecutors tend to indict what
they investigate,” said Jotn C. Cof-
fee Jr, a law professor at Columbéa
University who has testified tn Con-
gress on the Enron case. “This kind
of task force for an individual inves:
gation is witheet precedent, and
while tt doesn't guarantee an indict:
ment, H certainly races the stakes.”
But some past efforts by the Jus-
tice Department lo take a more cen
tral role in a criménal investigation
of @ corporation with infvence in
Washington have raised concerns
about potential political influence
over the inquiry. For exampée, in the
1080's, when part of an inquiry in-
volving the Archer Daniels Midland
Company was assigned to the fraud
section, some critics contended — to
the vehement denials of Justice offi-
cials — that Washington was trying

beth President Bush and Vice Presi-
deen Dick Cheney, has exercised sim-
lar political influence in the past.
In addition to the inquiry being
conducted by the Justice Depart-
ment, Enron's collapse is being in-
‘vestigated by the Securities and Ex-
change Coramission and several
Congressional committees.

Meanwhile, in Enron’s bankraptey
Proceedings, parts of the company
are now up for auction to the highest
Didder, For example, an auction of
its trading business is scheduled to
take place today, and # spokeswoen-
‘an said it should be presented to the
bankruptcy court at a hearing to-
morrow. But a speedy appraval by
the court is not assured. Several
creditors have filed objectians to the
guction because they are worried
that they will not have time to eval
Me whether all or parts of the busi-
ness Will be sold at a fair price.

Creditors have also expressed com
cern about what would happen to the
proceeds from the sale. Creditors of
Enron North America, the unit that
owns the trading business, want to
make sure that the money goes to
them and ts not distributed among
all the company’s creditors.

In Howston yesterday, in a suit
filed by Investors against 29 Enron
directors and officers, a federal
judge dealt a setback to plaintitfs by
declining to freeze more than $1 bil
liom that they say the directors and
officers gained from the sabe of En-
Ton shares while hiding informatke:
about the company's decline. Howev-
‘er, the judge also told detendants
‘that she had the power to freeze the
assets if necessary.

Enron creditors
tv bid to halt sale

biltofor

01300000000133


Sincerely,

Lawrenee H, Summers

cc: The Honorable George W, Gekas
The Honorable Jerrold Nadler

02971

01300000001580


1/9/02 Dow omen Comodities Serv. 12:58:00 | ~
PO TMET CORT IEE Sere
Copyright Ic) 2002, Dow Jones & Curpany, Inc.

Wednesday. January 9, 2002

eer Merbers aha Zp Alter Eat abear Cartan gules —
cage, Jan. 9 (Oaterfewiones| Kansas City Board of Trade

wembers voted
Tuesday to approve changes to the wheat futures contract upon the
recommendation of the Wheat Contract Committers, the KC#T amnownced in a
pre
release.

One portion of the change mandates that Wo. 3 hacd sed winter wheat
warehouse receipte delivered tisfaction of futures contracts to

zing Corp. and registered with the XCBT wut contain eo sore than
wheat

of other clases

Previously, the KCRT allowed Mo, 3 hard ced winter wheat deliveries

te
contais ae mach ae 10% wheat of other classes.

“This is « good compromise between the sector of the trade looking
to make
the delivery process all No. 2 hard red wheat and theee wanting to keep
wo. 3
as a delivery option." ome KCBT trader ssid,

‘The fear has alvaye been chat takers of delivery could end up with
a Wo. 3
hard ced winter wheat delivery receipt with as euch a® 10% other wheat
classes, he said. The changes should help to improve the delivery
sechanion
for obteining Ko, 3 hard red winter wheat supplies that is sore
ateractive for

merchandising,
The amendeonts to the rules will becone effective with the Jly 2003

wheat

futures contract month. Any person establishing « position in the Jly

2003

wheat futures contract month ex beyond dees so according to the amended

rules

and any economic decis:
be done
with that understanding.

The amendment aleo allows for replacement receipts reflecting the
maximue
SY wheat of other classes. The isauing warehouse must comply with che
cequest
and way charge the receipt holder « maximem of S cents per &
inwae
replacement receipts,

According to the vote, discounts for Wo. } hard red winter wheat
will be
charged from 3 cent per bushel under contract pri
contract ’
price. Ales, deliveries made in Wutchinson, Kan., have been changed co

wade im watablishing such @ position showld

R to

te Se under

discount ef tc under the contract price as opposed to the previous
discount of

ize.
Additionally, the KCRT hae authorized the listing of Mar, May and

ely

200) wheat futurws contract wontha tor trading effective Thernday

Trading in

che Mar and Bay 2003 wheat futures contract sonths should be done with

an

understanding of the aforerentioned rule changes and the relationship

betwee

thone contract fanths and the ly 2003 contract senth.
KCBT wenbers raci¢ied the whest contract cule amendments by « vote
of 19)

A4. These rule amendments are being subeitted to the Comodity rutures

fom for final approval.

Onterdowlones. {312} 348-5780
Ikallal@osterdowjones.com

Page 18 Thursday, January 10, 2002

01300000000139


Carleton, Norman

From: Wiedman, Mark
Sent: Wednesday, December 19, 2001 11:21 AM
To: Bitsberger, Timothy; Carleton, Norman
Subject: RE; enron
((b)(5)]

~---Original Message-—--

From: Basherger, Timothy

Sant: Weenesday, December 19, 2001 11:18 AM

To: Carleton, Norman; Wiedman, Mark

Subject: enron

{(b)(5))

' 02867

01300000001476


{(b)(5)]

Norman
Tracking: Recipient
‘Schulthess, Heidlynne
Nickoloff, Peter

Delivery
Delivered; 118/02 5:45 PIM
Detivered: 1/8/02 5:45 Pt

Read
Read: 1802 9-21 AM
Read: 18/02 11:27 AM

01300000000045


cume
coum

7

01300000001414

02805


((b)(5)]

Please review and let me know your thoughts.

Thanks,
Mike
Tracking: Recipient Delivery Read
Delivered: 3/21/01 10:45 AM Read: 9/21/01 11:58 AM

Barber, Francine

‘ 02948

01300000001557


IssueAlerts email Page 3 of 5

Elect and GE Capital are in the process of purchasing the transmission assets of
CMS Energy Corp. GE's role in the CMS deal is not entirely clear, but it appears that
the company Is participating mostly as a financial backer, Although they have
downplayed the significance of their relationship, Trans-Elect has clearly received
financial backing from GE. In fact, the Structured Finance Group of GE Capital
Services owns a minority interest in Trans-Elect (the size of the investment has not
been disclosed). Note that GE Structured Finance Group has many investments in
other energy companies, including The New Power Company, Enermetrix, Beacon
Power, and Plug Power (to name just a few). I don't see the synergies between GE
Capital and Enron as much as with Shell or Berkshire Hathaway. However, if GE
Capital ts attempting to simply increase its investments in the lucrative energy
business without any involvement in the operational aspects of the business, then
this partnership could be considered viable. GE's own microturbine business has
slowed somewhat, so the advantage of gaining Enron's wholesale business froma
marketing perspective may also be @ driver in this possible play. In addition, a
recent report in Business Standard indicated that General Electric plans to increase
its investment in India to about $800 million over the next three years with
increased investments in the infotech sector and GE Capital Services. Of course,
Enron is still involved in the India energy market due to its troubled Dabhol Power,
which oversees a power contract in India.

The European companies such as Enel and E.ON may turn out to be credible
prospects, as companies across the Continent continue to seek merger and
acquisition opportunities in the United States, across generation and transmission
sectors In particular. E.ON is still in the process of purchasing the United Kingdom's
Powergen, so it may be tied up in regulatory proceedings that would preclude an
additional acquisition. No word has emerged that may support or refute rumors
about a takeover from Enel.

Enron's stock price has oscillated wildly since its 3Q financial report was released in
mid-October. The allegedly non-recurring losses in non-core businesses, and their
potential impact on the basically strong core business of natural-gas and power
trading, coalesced with previous concerns about the departure of Jeffrey Skilling as
Enron's CEO and sent the company's stock on a downward spiral (falling an
approximate 54 percent in just seven days). Enron shares hit a nine-year low on
Oct, 30 and then bounced up about 25 percent on the following day. The surprising
upswing occurred when Enron announced that it had secured $1 billion in fresh
credit lines from investors such as J.P. Morgan Chase & Co. and Salomon Smith
Barney, Inc, that it planned to use partly to supplement short-term liquidity and
refinance maturing obligations. However, at the same time, what had started as an
informal inquiry by the SEC officially became a full-scale investigation, which thus
far has served as a brick wall against any further Increases in Enron's stock price.
The identification of the SEC probe as a full-scale investigation is significant
because it gives regulators the right to subpoena Enron company documents, which
has been a point of contention for some time among investors who claim that
Enron has not been completely forthcoming about its practices.

The Enron questions of the moment are: How much further can the company's
stock fall before Enron's business model is significantly restructured? Will Enron
incur additional losses beyond the allegedly non-recurring losses it claimed in the
third quarter? Will Enron remain a takeover target, and if so which company would
be likely to make a bid for the company? What will be the outcome of the SEC
investigation and potential credit downgrades from agencies such as Moody's?

Some of these questions are impossible to answer at this juncture, without the

benefit of a crystal ball. Clearly, the sudden lack of investor confidence in Enron has

rattled the company’s executives, which undoubtedly prompted the ousting of its @) 2 744
former CFO. 1 would think that this lack of confidence would also lead Enron to

consider fundamental changes In its business model. However, it may be too late to

file://C\AWINDOWS\Temporary%20Internet%20Files\OLK303 Narticle1 htm 1/15/02

01300000001353


(()(5)]

CONCLUSION

((b}(5)]

Attachments

((0)(5))

01300000000078


Norman

Tracking: Recipient Delivery Read
Bair, Sheila Deltvered: 1/8/02 5:44 PM Read: 1/0/02 5:55 PM

01300000000118


IssueAlerts email Page 3 of 4

businesses that Enron plunged into as a way to diversify have tainted the company as a whole. Further, what
some analysts perceived as brash hubris on Enron's part has not translated into measurable profits, and
consequently Wall Street has reacted by sending Enron's stock to a level that is about half of where it was 2 year
ago. The individual sectors that Enron has pursued are all unique, but they share the common denominator of
taking Enron away from what was a successful core business, Further, they are similar in that Enron aggressively
sunk large sums of capital into new business lines for which it arguably had unrealistic expectations for growth.
The problem with Enron's bandwidth unit is that the company has faced an unanticipated excess of fiber-optic
lines, which has prevented the demand for the division's services from materializing as anticipated. The problem
with Azurix, which has been losing money since its formation in 1998, is that privatization of the water sector has
not materialized as quickly as Enron and other companies anticipated. In addition to these problem areas, Enron
also faces challenges related to its investments in India (where it Is locked into a legal battle with the state
government) and California (from which Enron has yet to receive full payment for previous power sales).

In addition to the losses outlined in the 3Q report, there are new issues that are brewing at the start of this week.
First, the SEC has requested that Enron provide information regarding “certain related party transactions." Not
much additional information is presently available about this inquiry. However, it is probably connected to earlier
reports about concerns related to the dealings of Enron's Chief Financial Officer Andrew Fastow, who up until very
recently had run a limited partnership that bought assets from Enron. Ken Lay has said that Enron will cooperate
fully with the SEC's request. In a separate development, several mutual funds (including AIM Constellation that
once held large positions in Enron) have either liquidated or reduced their holdings in the company, which has
further weakened Enron's stock value. Portfolio managers of the mutual funds have cited concerns about Enron's
ability to balance its new businesses with its core strength as an energy trader.

The present challenge for Enron is to convince investors that the company remains on solid ground despite the
losses. Thus, Lay has been quick to reiterate that earnings from the company's energy and gas-pipeline business
are still strong. Further, Lay says that the charges reported in the third quarter should be seen as a way to “clear
away issues that have clouded the performance and earnings potential of our core energy businesses.”
Nevertheless, the fact remains that Enron has invested huge amounts of money toward its diversification effort,
and in addition to water and broadband the company has invested into the steel and pulp and paper sectors as
well, Thus, several questions remain at this juncture. Are the losses reported in the third quarter only a temporary
setback for Enron that will clear the way for the company to return to a primary focus on Its core business of
energy trading? Or, will the losses continue into the fourth quarter and 2002? Moving forward, will Enron once
again reshape its business model and eliminate the various businesses to which investors have reacted less than
favorably? Only time will tell as the industry continues to watch the developments at Enron, which is clearly @
company in the midst of another wave of change.

An archive list of previous IssueAlerts is available at
www.scientech.com

We encourage our readers to contact us with their comments. We look forward to hearing from you. Nancy
Spring
Reach thousands of utility analysts and decision makers every day. Your company can schedule a

sponsorship of IssueAlert by contacting Jane Pelz . Advertising opportunities are also available on our
Website.

Our staff is comprised of leading energy experts with diverse backgrounds in utility generation, transmission
& distribution, retail markets, new technologies, I/T, renewable energy, regulatory affairs, community
relations and international issues. Contact consulting@scientech.com or call Nancy Spring at 1-505-244-
7613.

SCIENTECH is pleased to provide you with your free, daily IssueA/ert. Let us know if we can help you with
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file://CAWINDOWS\Temporary%20Internet%20Files\OLK3031\article21.htm 02740 © wi

01300000001349


From: John Yetter

To: DOM3.D0PO6(CARLETONN, MCGIVERNT), NICKOLOFFP

Date: ‘3/17/00 3:20pm

Subject: Financial Netting provisions of H.R. 833 - bankruptcy bill -Reply -Reply -Reply -Reply -Reply
No, I Gon't know.

>>> Peter Nickoloff 03/17/00 03:17pm >>>
{have no comments or edits on the letters except to ask # they've yet been circukated to the other WG agencies.
Norman has been out of the office since 3/10 (and isn't scheduled to retum until 3/27), so | can't say whether he had
a chance to forward the letters on before he left. John, would you know?
>>> John Yetter 03/1700 02:50pm >>>
{(>(6)] ‘ have attached your original e-mail and copied

's staff to see if they have any comments.

>>> Tom McGivern 03/17/00 02:46pm >>>
Norman, do you have comments/edits?

>>> John Yatter 0/1000 10:18am >>>
{(b)(5)]

>>> Tom McGivern 0340900 06:36pm >>>

{(b)(5)}

On the Enron proposals Norman received;

((b)(5)]

ce: DOM3_DOPOS{TaoheyF), DOM3.0OPO6{schultheissh),

02967

01300000001576


Huffman, Lucy
Hughes, Gerry
MeGivam, Tom
Meinemey, Roberta
Nickolo#, Peter
Rosaboro, Sian
Saladin, Anne
‘Schulineiss, Heidityrne
‘Smith, Any

Sutton, Gary
Tishuk, Brian

Delivery

Delreered: 12/901 243 PM
Delivernc: 12/1901 343 PM
Delivered: 12/1901 343 PM
Delivered: 12/1901 3:43 PM
Delivered: 12/1907 343 PM
Delivered: 12/1901 3:43 PM
Delivered: 12/19/01 3:43 PM
Delivered: 12/19/01 3:43 PM
Detivered: 12/19/01 343 PM
Delivered: 12/19/01 3:43 PM
Delivered: 12/19/01 3:43 PM

Read: 12/2001 1:17 PM
Read: 12/2601 931 AM
Read: 12/2601 1:30 AM
Read: 12/2801 12:13 PM
Read: 12/2000 9:32 AM
Read: 12/2001 6:43 AM
Read: 12/1901 3:53 PM
Read: 12/19/01 3:43 PM
Read: 12/19/01 3:43 PM
Read: 12/19/01 6:27 PM
Read: 12/20/01 7:59 AM

01300000000093


{(b)(5))

ISSUE AND DISCUSSION
{(b)(5)]

02816

01300000001425


Reports Of Independent Public Accountants
‘To the Sisrehoiders anc Board of Directors of Enron Corp.

‘We have examined management's aserion that the system
Of internal control of Enron Corp. (an Oregon corporation) and
subsidiaries 3s of December 31, 2000 1999 and 1998 was
adequate to provide reasonatve assurance as to the reliability of
financial statements and the protection of assets from unaurho-
(aed acquisition, use OF disposibon, inciuded in the
ing report on Management's Responsibility for Financial
Reporting, Merwgement ts responsible for maintaining #ffective
internal congrot over Une ruliability of finance! statements and
the protection of assets against unauthorized acquisition, use or
disposition. Our responsibility is to express an opinion an
suanegeenent’s amertion based on our examination.

Our examinations wore mace i sccordénce with sttesta-
tion standards esqablived by the American Instkute of Certifing
Public Accountants and. accordingly, included obtaining an
Understanding of the system of interaé control, testing and eval.
wating the design anc operating effectiveness of the system of
intemal corel 4d auch other procedures as we considered
necesiary in the circumstances. We beliews that our examinations
provide @ remsanuble bass for cur opinion.

Because of inherent limitations in any system of internal
control, errors of irregularities may occur and not be Getected.
Ato, projections of any evaluation of the system of internal
contro! to future periods are subject to the risk that the system
‘of internal control may became inadequate because of changes:
in conditions, of that the degree of compliance with the policies
Of proceckites may deteriorate.

In Gur opinion, management's assertion Urat the system of
iraernal cortrol of Enron Corp. and ats subsidiaries as of
December 31, 2000, 1999 and 1996 was acucquete to provide rea:
sonable Aisurinee a5 to the reliability of financial statements ard
the protection of assets from unauthorized acquisition, use or
disposition i fairly stated. in a material respects, based upon
current standards of contro! crteria.

Arthur Andersen LLP

Houston, Texas
Fotrasry 23, 2001

To the Sharehokies and Board of Directors of Enron Corp.:

‘We have audited the accompanying cornolidsted Gslence
‘shnet of Enron Carp. fan Oregon corparation) and yubsidiaries as
‘of Becember 31, 2000 and 1999, and thn related comoldated
Statements of income. comprehensive income, cas flows sed
changes in shareholders’ equity for each of the three years in the
period ended Cecember 31. 2000. These financial stacements see
the resporsitylity of Enron Corp.'s management. Our respormsibit-
ity to express an opinion on these financial statements based
On cur audits.

‘We conducted our audits in accordance with auditing stan
dards ganerally scompted im the United States. Those standards
require thet we plan and perform the audit to cblain remonstsle
assurance about whether Une financial statements are free of
Ucorial misstatement. An gudit Inciuces examining, on # test
basis. evidence supporting the amounts and disclosures in the
finaneial statements, An audit ato includes assessing the
accounting principles used and significant estimates made
by management. as well as evaluating the overall financial
statement presentation, We believe thet our audits provkie a
reasonable basis for our opinion.

tn our opinion, the financial statements referred to above
present fairly, in al maceral respects, the financial position of
Enron Corp. and subsidiaries as of Decamber 31, 2000 end 1908.
and the results of their operstions, cash flows and changes in
shareholders’ equity for each of the Uiree years in the period
ended Deceiver 31, 2000, i conformity with accounting prini-
ples generally accepted In the United States

(AS discussed in Note 18 to the consolidated financial state-
ments. Enron Comp. and sutsidiaries changed its method of
accounting for costs af start-up aetivities and its method of
Sccourning for certain contracts Iwolved in energy trading and
Tak managomans activities in the first quarter of 1999.

Asthur Ancierson LLP

Houston, Texas
Fetrusry 23, 2001

02778

01300000001387


From: Carleton, Norman
Sent: Wednesday, December 19, 2001 11:33 AM
To: Schultheiss, Heidilynne; Nickoloff, Peter
Subject: FW: enron
-—-Driginal Message--—-
From: Wiednan, Mark
Sent: Wednesday, December 19, 2001 11:21 AM
To: Bitsberger, Timathy; Carieton, Norman
Subject: RE: enron
{(b)(5)]
From: Bitsberger, Timothy
Sent: Wednesday, December 19, 2001 11:18 AM
To: Carleton, Norman; Wiedman, Mark
Subject: enron
{(b)(5))
Tracking: Recipient Delivery
Scrulineiss, Heiditynne Delivered: 12/19/01 11:33 AM
Nickolotf, Peter Delivered; 42/1904 11;33 AM

Read
Read: 12/19/01 11:33 AM
Read: 12/19/01 11:36 AM

01300000000048


for electricity, gas and other en
erey products

Exroe championed the deregula-
tion of energy markets and tried to
influence the way California struc-
tured fs energy markets ane then
steered through its electricity cr
tig, Meron and its chairman, Ken-
neth Lay, welded enurmous peliti-
cal influence, pashing to success
fully replace the head of the
Pederal Energy Regulatory Corm-
mission and aiding i shaping the
Bush administration's = energy

policy.

Vice President Dick Cheney or
members of his energy task force
met six times with Baron execu
Uves last year, according to a
White House letter released Tues
day. Enron's financial problems
wert mot discussed, the White
House said

Enron began to crumble in med
October when it revealed surprise
oases from bad kivestments in
telecommunieations and water
ventures, But wrapped in thave
charges were losses and a $1.2-bil-
lion drop im shareholder equity as
sociated with partnerships run by
company employees.

Enron then admitted that, after
ace for losses in other off-
balance-sheet partnerships. it had
overstated its financial strength
‘and that investors should no longer
rely of more than four years of im
come and other financial data. lav
vestors fled Enron, and the com-

ran into a massive cash
cranch that led ft te seek a rescue
from as amaller, crosttown rival
Dynegy Ine.

Dynegy iater paler’ the vhs on
its $$ballion merger with Enron,
saying the company had mot re-
vealed the depth of its financial
problems, Baron then filed for pro
tection from its creditors under

‘Aavectat nt Pret

Enron's headquarters, right, and a partially completed second
tower, left, are prominent totures of the Houston skyine.

Chapter 11 of the US. Baakruptcy
Code, citing mare than $31 billion
in debt

Chapter 11 allows a company to
continue opetating while it works
out & plan to poy its creditors, Bx
ron is expected to apttion Xs come

enatgy trading business this week
and has agreed to bet Dynegy buy a
‘valuable enatural ga sip

reported from Washing
Rivera Brooks from Los An-

ton,
pes

Page 8

Thursday, January 10, 2002

01300000000129


Retail Swaps
{(o)(5)]

02912

01300000001521


Capaal Gpencitures and Equity ikneaments
Capital expendinires by operating segment are ns follows:

2008

On mations) Etrrate 2000 13931998
Transportation and Disrbution $ MO $ 270 $ Hé $ 310
Wholeuite Servican 570 1,280 (1216 (705
Rotail Enargy Services om co ss
Broadband Services ro a6 . *
Exploration and Production - - 2 Om
Corporate and Other 40 mS sett
Totst ‘$7.80 _$2.381__ $2.363 $1,995

Copital expenditures increased $18 milion in 2000 and $458
milion in 1999 2s compared to the previcus year. Capital axster-
ius in 2000 primaniy relste to construction of power plarts
to extend Wholesale Services’ network and fiber opbe network
infrastructure for Broadband Services. During 1999, Wholesale
Services expenditures increased due pritmarity to construction of
Gomestic and intarmtions! power plants, The 1899 increase in
Corporate and Other reflects the purchase of sartaiey previously
Jomied MIBE-roisted onsets

Cash used for inwestments in equity affikates by the operat-
ing sagmonts is as Follows:

{tn erittions) 2000 1989198
Tramportation and Distribution $1 3-8 7
Wholesale Services m2
Corporate and Other 2119 a
Total $933 $722 Sins

Equity iewestments in 2000 relate primarily to capital invested
for the ongoing construction, by a joint venture, af a power plant
in india as well 45 other international investments. Equity invest-
mmants «91990 relate primanly to an iwestment ina joln vorture
‘that hokts gas digrBution and relisted buninemes in South Korea
and the power plant project in India.

The leval of spending for capital expenditures and equty
investments will vary depending upon conditions in the energy
and broadband markets. redated economic conditions and iden
‘tehed opportunities. Managemen expects that Ue capital
spending program will be funded by 2 combination of internally
generated func, proceeds fram depositions of selected smets
and short: and long-term borrowings.

Working Capea

Ax December 31, 2000, Enron had working capital of $2.0
bition. If a working capital deficit should occur, Enron has credit
focitities in place to fund working capital requirements.
At December 31. 2000, those credit lines provided for up ta
$4.2 billion of committed and uncommitted credit, of which
$200 million was outstanding. Certain of the credit agreements
comain prefunding covermens However, such covenants are
not expected to restrict Enrom’s access to funds under those
agreements. In addition, Enron sells commercial paper and has
agreements to sell trade accounts receivable, thus providing
financing to meet yessons| working capital needs. Management
believes that the sources of funding described above are suffi-
cient to meet short: and long-term liquidity needs not mot by
cash flows fram aporaticns

(CAPITALIZATION

Total capitalization at December 31, 2000 was $25.0 billion,
Debt as 2 percentage of total capstalization increase to 40.9
percent at December 31, 2000 as compared to 38.5 percent at
December 34, 1988. The increase in the ratio primarily rafiacts
incremed debt levels and the impact on total equity of the
decline in the vakue of the Britiah pound sterling. This was par
‘tally offset by the ssuances, in 2000, af Enran comman stock
and the conaribution of common shares (ee Nate 16 to the
Consolicisted Financial Statements}. The issuances of Enron com-
mon stock primarily related to the acquisition of a minority
shareholder's Interest in Enron Energy Service, LLC and the
exercise of employee stock options,

Enron is a party to certain financial contracts whieh contain
Provisions for early settlement in the event of 3 significant
market price decine in which Enron's common stock falls below
cartain levels (peices ranging from $20.20 to $45.00 per share) or
if the credit ratings for Enron's unsecured, senior kang-term debt
Obligations fal betow investment grade. The impact of ths earty
settlement could include the Ksuance of additianal shares of
Enran common stack

Enron's sereor ursecured long-term Gebt & currently rated
BBB+ by Starciard & Poor's Corporation and Fitch IECA and B87
by Moody's Investor Service. Enron's continued investment gracke
‘Salus & critical Lo the success of its wholesale businesses as welt
25 hs ability to maintain adequate liquidity. Enron's management
Desieves it will be sble to maintan its credit rating.

Financial Risk Management

Wholessie Services offers price risk management services
primarily related to commodities asicciatnd with the energy
sector (natural gas, electrioty, cruce oll and natural gas liquids)
Energy Services end Broadband Services also offer price risk mare
gement services to their customers. These serviees are praviciee!
through @ variety of financial indtruments ireluding forward
contracts, which may involve physical delivers swap agreements,
which may require payments to (or receipt of payments from)
counterparties Daud on the differential berawen # feed and
‘wartable price for the commodity, options and cther contractual
arrangements. Incerest rate risks and foreign currency risks axs0-
cated with the fair value of Wholesale Services’ commodities
parrfolio are managed using @ variety of fevencis! inatraments,
including financial futures, swaps and options

Oe a much more limited bese, Enron's other busmesses also:
enter into financial instruments such as forwards swaps and
other contracts primarily for the purpase of heaging the impact
of market fluctuations on assets. labilites, production or ocher
contractual commitments. Changes in the market value of these
hedge wansactions see deferred until the gain oF loss is recog:
nized on the hedged item

Enron manages market risk on 3 portfolio basis, subject to
Parameters established by its Board of Directors, Market risks
re monitored by an Independent risk control group operating
separately from the units that create or actively manage these
isk exposures to ensure comphance with Enron's stated risk
management policies,

02775

01300000001384

FAWN SVL PEE SO

n


We continue to set records in the Nordic
yegion, where we are the largest power marketer,
‘Blectricity volumes increased nearly 150 percent
to reach 77 million MWh in 2000 from 31 million
MWh in 1999. Enron's Oslo office also is now
the base of our European weather risk manage-
ment business.

As more Nordic companies outsource energy
supply and management, Enron's products and seev-
Joes — including acvaneed technology applications
'= are eagerly sought. In December Enron ertered
nto a two-year portfolio management agreement
with UPM-Kymmene Corp,. one of the world’s
Jangest forest products companies. Enron will assist

UPM-Kymmene in optimizing its Nordic power port-
folio of approximatety 14 terawatt hours
Enron Japan

Enron Japan formally opened its Tokyo office
in October 2000, Japan represents an enormous
‘opportunity: Its electricity rates are the highest in
the world, and electricity consumption Is second
only to the United States. We have attracted top
talent to develop wholesale and joint venture possi:
bilities, and have introduced aur first procuct for
large electricity users — three- to five-year contracts
‘that will reduce electricity bills imenediately by up
‘to 10 percent the first year, with the possibility of
further reductions in subsequent years. Our first
contracts ware signed in early 2001.

Through joint ventures with several Japanese
companies, Enron is exploring merchant plant

opportunities to support our market-making sectivi-
tles, including inside-the-fence power generation
Under conskjeration are a number of sites. which
may be fueled by ges, liquefied natural gas or coal
Enron Australia

Enron's market-making ability has been suc-
cessfully extended to Australia, where Enron is 4
leading provider of logistical solutions in the cour-
try’s power market. During 2000 we introduced
weather risk management products in the region,
offering temperature-based products for Sycinay,
Melbourne, Hong Kong, Tokyo and Osaka. The
Sydney office stso provides # strategic platform for
the extension of Enron's coal, metals and broad-

7,900 a day by yosr-end 2000,
As Enon Online expands products
‘ond voiuunes, Enron's sealatve
huckoffice wi continoe to be

2 compenitie advantage

band businesses, as well as providing support for
Enron's operations in the Asia-Pacific region.
Extending to New Markets

Enron’s durable business approach, which has
river our success in the natural gas and electricity
markets, |s eminently applicable to other markots
and geographical regions, While we are remaining
focused on increasing eamings and opportunities
in gas and power, we also are extending Enron's
mathod to large, fragmented industries and prod-
ucts, where intermediation can make markets
more efficient and responsive to customer noods.
We expect these new businesses to contribute to
earnings in 2001,

Enron Metals was launched in July 2000 when
Enron acquired the world's leading merchant of non-
ferrous metals. MG pic. Together, MG and Enron are

02759

01300000001368

(v8 AMENUAL ARCA 2080


year at the flexible and market-based prices that
the customer needed,

LNG. Enron is establishing a Squefled natural
(985 (LNG) network to create merchant LNG opportu
nities and to bring more gas to areas of the workd
that need it. Our LNG-related assets in operation
and development in the Caribbesn and the Middle
East form part of this network. We source surplus
UNG from the Middle East and Asia and currently
maricot it in the United States.

Forest Products. Enron has offered pulp, paper
ang lumber financial products for several years, and
now we are marketing physical volumes. In 2000 we
acquired Garden State Paper Co., which gives us
access to 210,000 tors of newsprint a year and
Tour recycling centers in key markets In January
2001 we agreed Lo purchase @ newsprint mill and
related assets in Canada, With this acquisition,
Enron will become the seventtrlargest producer of
newesprint in North America, giving us the physical
Jiquidity necessary to quickly grow this business.
Enron's Clickpaper.comTM is powered by the
EnronOniing platform but is totally customized for
the forest products industry It offers more than 100
financial and physical products and features news
and information tailored specifically to forest prod-
ucts Industry customers,

Steey, In some markets, such as steel, wa beliawe
we can run our network with minimal assets, The
industry currently suffers from overcapacity, but
Jacks 2 market mechanism to efficiently market the
surplus, We will offer a core commodity baseline
product that can be indexed against almost all
other products in this $330 billion industry. The
outlook & promising — we have transacted our
Tirst steel swap, This year we will bulle liquictty,
improve pricing efficiency and gain contractual
‘Bccess to the physical product to provide compre-
hensive logistical support.

Enron Global Assets

Enron Global Assets manages and optimizes
Enron's assets ousside North America and Europe.
Enron has a solid portfolio of asset-based busi~
‘nesses. However, with the higher roturns available
In the company's other bummesses, we expect to
‘Givest some interests in a number of these assets,
The remaining asset businesses will continue to
focus on performance and complementing our mar-
ket-maiking and services businesses,

Enron Wind Con.

The economics of wind power are more
Promising than aver, creating significant growth
for Enron Wind. Technological advancements and
lower costs associated with today’s larger, more
efficient wind turbines have mace wind power

costs competitive with fossil fuel-generation for
the first time, This cost competitiveness. together
with government policies supporting renewable
energy in mast key markets and growing consumer
demand for green energy. have fueled 30 percent
annual growth over the past five years.

With focused efforts in the world's three key
wind power markets — Germany, Spain and the
United States — Enron Wind completed 2000 with
revenues of approximately $460 million. Strong
growth in both the United States and Europe will
account for 8 projected sales increase of approxi-
mately 100 percent in 2001.

02761

01300000001370

a


Carleton, Norman

From: Carleton, Norman

Sent: Wednesday, May 16, 2001 2:44 PM

To: Gabilondo, Jose

Subject: RE: New Version of Retail Swap Study Federal Register Release

I wasn’t able to make it either because of this project. [(b)(6)]

Original Message—-—
From: Gabilondo, Jose

Sent: Wednesday, May 16, 2001 2:36 PM
To: Carleton, Norman

Subject: RE: New Version of Retal Swap Study Foderat Ragster Release
Oh | think that it makes sense.
((b)(6)]
José
—---Original Message

From:  Carieton, Norman
Sent: Wednesday, May 16, 2002 2:35 PM

To: Gablondo, Jose
Subject: RE: New Version of Retal Swap Study Federal Register Release
{(b)(5)]
~---Onginal Message-——-
From: Gabllondo, Jose
Sent: Wednesday, May 16, 2001 2:52 PM
To: Careton, Norman
Subject: RE; New Version of Retal Swap Study Federal Register Release

So now we're reaching oul to the energy swaps market (| assume that means Enron) and mortgage bankers?
OK. I don't have any remarks.

José
o-~-Onginal Message-—
From: Carleton, Norman
Sent: Wednesday, May 16, 2002 11:48 AM
To: Paulus, Michael; Nickoloff, Peter; Schulthelss, Heid®ynne; Novey, Michael; Hammer, Viva; Bichner, Matthew;
Sutton, Gary; Eliett, Martha; Gabilondo, Jose; OeMarca, Ecard
Subject: New Version of Retail Swap Study Federal Register Release
{(b)(5))

<< File: retail swaps recline.wpd >>

<< File: retail swap study release (10).wpd >>
Rocipient Delivery Read

Tracking:
Gabilonda, Jose Delivered: §'1601 2:44 PM Read: 91601 3:07 PM

03014

01300000001624


It supported the 1992 Energy Policy Act, which opened the utility companies' wires to electricity
merchants such as Enron. It also worked with the Commodity Futures Trading Commission --
then chaired by Wendy Gramm -- for a regulatory exemption for futures trading in energy
derivatives, which later became Enron's most lucrative business. Soon after Gramm stepped
down in 1993, she was appointed to Enron's board.

Independent sources knowledgeable about these dealings, however, said Enron was not the main
intcrested party, They said the lead was taken by several major oil companies, including British
Petroleum Co, and Phillips Petroleum Co., which were concerned about the effect of CFTC
regulation on their offshore trading in crude oil contracts. Wendy Gramm, an apostle of free
markets, necded little convincing, the sources said.

That same year, Lay served as chairman of the committee organizing the Republican National
Convention in Houston. Hedging its bets, Enron made a major contribution to a "street fair" in
honor of Sen. John Breaux (D-La.), a key energy policymaker, at the Democratic convention.
Key orders by FERC in 1996 also supported Enron's transformation into a freewheeling trader of
gas, electricity and more exotic products, such as telecommunications services and sulfur-
dioxide emissions credits.

The new rules ensured that Enron and other merchant companies could buy electricity from
independent power plants and sell it to distant customers, using transmission lines borrowed
from utility companies.

Even Enron's harshest critics credit Lay with putting new issues -- such as clectricity
deregulation -- on the Washington agenda. Lay,a former Interior Department official with a PhD
in economics, became "the ambassador” for deregulation, one former employee said.

Throughout the 1990s, Enron's agenda was opposed by coal-burning utilities, especially ones in
the Southeast, which viewed the emerging wholesale electricity market as a threat to their turf.
Many of these, such as Atlanta-based Southern Co., had impressive political funding and
connections of their own.

But with the explosive growth of Enron and the GOP takeover of Congress in 1995, the
company’s soft-money donations -- unregulated and unlimited gifts to political parties and
organizations -- jumped sharply. They went from about $136,000 in the 1993-94 election cycle,
to $687,000 in 1996 and $1.7 million in 2000, according to the Center for Responsive Politics.

Frustrated by Washington

For all its connections, sources say, Enron often found Washington frustratingly slowand
unreliable.

The company placed a substantial bet on federal support for limits on the greenhouse gases
causing global warming. Enron officials hoped to exploit a new market in industry for carbon-
emissions credits, similar to the one that developed for sulphur credits after clean-air legislation
was enacted in 1990.

01300000000033


IssucAlerts email Page | of 4
Subject: FW: Enron's Departure from Core Business Takes a Toll on Performance

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October 22, 2001

Enron's Departure from Core Business
Takes a Toll on Performance

By Will McNamara 02 73 8

Director, Electric Industry Analysis

[News item from Reuters] Enron Corp. (NYSE: ENE) stock sustained further heavy losses on
October 19 as investor confidence in the former Wall Street favorite remained at a low ebb after it
reported its first quarterly loss in over four years. The energy giant's stock was off $3.32 or 11.45
percent at $25.68 per share at mid-day trade on Oct, 19, making a cumulative loss of 28 percent
for a week in which it reported a third-quarter loss of $638 million. As of early morning trading on
Oct. 22, Enron shares were priced at $21.99, a reflection of new developments (including a new

\WINDOWS\Temporary%20Internet%20Files\OLK303 l\article2 1 .htm

file:

1/17/02

01300000001347


Campaign Gifts, Lobbying Built Enron's Power In
Washington

By Dan Morgan and Juliet Eilperin
Washington Post Staff Writers
Tuesday, December 25, 2001; Page AO]

During the administration of the first President George Bush, a new party fundraiser named
Kenneth L. Lay was invited to spend the night at the White House. The sleepover was an early
coup for the chairman of Enron Corp. and a harbinger of things to come.

Over the following decade, Lay and Enron poured millions of dollars into U.S. politics,
cultivating unequaled access and using the entree to lobby Congress, the White House and
regulatory agencies for action that was critical to the energy company’s spectacular growth,

Now, with Enron's sudden bankruptcy, public attention has tumed not only to the financial
practices that brought the company down, but to what its far-flung political operations say about
the country's campaign finance system.

Some Democrats in Congress are spoiling for an opportunity to use Lay and Enron to embarrass
the Republican Party, which received most of the company’s largess over the years. They want to
look into such things as Enron's relationship with Phil Gramm (R-Tex.), ranking minority
member on the Senate Banking Committee and chairman of the committee at a time when his
wife, Wendy L. Gramm, was serving on Enron's board, Last year, Gramm's committee approved
legislation that included a key provision exempting parts of Enron's massive energy trading
operation from federal oversight.

"| think the Enron story is going to tum out to be an enormous political story," said Rep. Henry
A. Waxman (D-Calif), ranking minority member on the House Energy and Commerce
Committee.

The ties of Lay to the White House and GOP leaders, he added, were so multilayered that
Republicans are likely to be reluctant to pursue them. But he made clear that he intends to do so
and expects the Democratic-controlled Senate to follow suit.

Enron also cultivated relationships with Democrats, however, Lay played golf in Vail, Colo.,
with President Bill Clinton, and Enron gave hundreds of thousands of dollars to Democratic
campaign committees and Democrats in the House and Senate, including Sen, Charles E.
Schumer (N.Y.) and Rep. Martin Frost (Tex.), the ranking minority member on the House Rules
Committee.

A Routine Cost for Some

Advocates of campaign finance reform say the Enron case vividly illustrates the ties between
politics and big money, though it's unclear that the company's political operations were radically
different from others for whom political contributions have become a routine cost of doing
business.

01300000000104


JOHN A. URQUHART
FavTieid, Connecticut

Santor Advaor to the Chairman, Enron
Corp. President, John A. Urquhart
Associanes, and Former Sertor View
Prupicent of Inckatrial and Power 5)
Generst Electric Company

JONI WAKEHANA ©"
London, Engtand

Former UK: Secretary of State for Energy
and Leader of the Houses of Lords and
Corea

HERBERT S. WANOKUR, AR **
Grosermich, Connecticut

President. Winokur Holdings, inc. anc
Former Senior Executes View President.
Renn Central Corparation

* Excative Commitive

© Audtit Commretton

Finance Comrmattons

© Compensation Committee
TM Nom ewting Corenittee
Denotes Cruireman

FROM (AYE TO RIGHT:

Tap rome Jot Mumuuisotn, Jeffrey A Sieg arxt
Frank Seago

Mickive rene Chars A LelMaistre, Rone C. Chart
Herbert S Winakur Je, Kermenn L Lay Wendy &
Gramm, Robert K Jivadieke. Jone Wiskahyen anc
Robert A. Better

Borrow row: Jon Duncan, Pauto V. Fevraz
Poretra, John A. Urguiert, formant P Biake J
Kent L Hanrison and Jerre J Mayer

02803

01300000001412


Significant components of IIT are as folios:

Sammons) _ 20001
Not revenues $650 5626—~—«$640
Operating expenses m0 28
Degeeciation anc amertiztion o 6 0
Equty earniegs a 38 ae
‘Ouner, nee 25

25
Income before interest and taxes a 35)

Net Rewonues

Reveriuus net of cost of sales, of Transportation Services
increased $24 million (4%) during 2000 and declined $14 milion
(2%) during 1999 a compared to 1998. In 2000, Trarspartation
Services’ interstate pipelines produced strong financial results.
The wolurines transported by Trantaestern incremud 13 percent in
2000 ss compared to 198, Northern's 2000 gross margin was
comparable to 1909 despite an B percere decline in volumes
transported. Net revenues in 2000 were favorably impacted by
transportation reverses from Transwemenn's Gallup, New Mexico
exparsion and by sales from Northern's gas storage inventory.
The decrease in net revenue i 1999 compared to 1908 was
primarily due to the expiration, in Qetober 1998, of certain tare
‘sition cost recowery surcharges, partially offsec by a Northern sale
of gas storage inventory in 1999

Cperating Expenses

Operating expenses. including depreciation and amortize
than, of Transportation Services increased $17 million (5%) during
2000 primarily as a result of higher overhead costs related to
information technology and employee benefits. Operating
expenses decreased $16 million (5%) during 1996 primarity 2s =
result of the expirsvon of certain tranution com recovery sur-
charges which had been recovered through revenues,

Equity Earnings

Equity i earnings of unconsolidated equity offiliates
jsemed $25 mifon and $6 million in 2000 anc 1999, respectively
‘The Increase in equity earnings in 2000 as compared to 1999
primarily relates to Enron's investment in Florida Gas. The increase
in carnings in 1999 as compared to 1986 vas primarily # result of
higher earnings from Narharn Border Pipstine and BOTT,

Other, Net

Over, net decreased $21 million in 2000 as compared to
1999 after Increasing $21 milion in 1999 as compared to 1888,
Included irr 2000 were gains related! to an energy comnodity
contract and the sale of compresorrelated equipment, while
the 1899 amount inchuded interest income earned in connection
with the financing of an acquisition by EOTT. The 1988 amount
inchided gains from the sale of ar interest in ars equity inwest-
ment, substantially offset by charges related to tigation.

Portland General. Portland General resized WIT 2s follows:

frimimons) 20001999984
Revenues $2256 $1.75 81.186
Purchawad power and fuct eS
Operating expenses wees
Deprecation and amortization 8 il
: 0 a
Income before ivterest and taxes $41 9280

Revernies, net af purchawed power and fuel costs, incromud
$55 mificn in 2000 2s compared to 1999, The increase is primarily
the result of a significant increase in the price of power soki and

an increase in wholmale sales, parially offver by higher purchasnd
Power snd furl costs, Operating expenses increased primarily dus
to incremad plat maintenance costs related to period overhauls
Deprecation and amortization incrname 9 2000 primarily as a
reudt of increased regulatory amortization. Other, net wn 2000
included the Wmpact of an Oregon Public Utility Commission
(OPUC) order allowing cartain deregulation costs to be deferred
and recovered through rate cases, the settlement of litigation
related to the Trajan nuclear power generating facility and gains
on the sale of certain generstion-related assets

Reverues. net of purchmed power and furl costs, decreased
35 million in 1999 as compared to 1988. Revunues incruaved pri-
marily a5 @ result of an increase in the number of customers
served by Portland General, Higher purchayed powwr end fuel
costs, which increased 42 percent in 1998, offset the increase in
revenues, Other income. net increased $31 rrsilicn in 1999 as
compared to 1938 primanly a3 a result of » gain recogrezed ont
the sale of certain assets,

In 1998, Enron entered into an agreement to sell Portland
Genera! Electric Company to Sierra Pacific Resources. See Note 2
1o the Consolidated Financial Statements.

Statistics for Portland General are a6 follows:

zoo 19901998
7Axd 408 7,108
7527 (1,992 6781
A912 4483
19872 (19250 (Nee
18543 12.672 90.989
3,201.07 28313
1% 1% 6%
2 8 2
6 3 3
co] 7 v
so 7 “
5 ” 7
Weo% 10 «180
Aavengn variable perene cont (Mibu we) (Bh
Generation “5 113 BG
Firen purchases MO 2323
Secondary purchases 136 0187286
Total average variable power cost = «37.2188
Retail customers fend of period thoussncd 725 378 To
Ja) PPacurnaend erect tours
(8) NOW (179 cart par Awe snoa
Outlook

Enron Transportation Services is expected to provide state
‘earnings and cash flaws curing 2001. The four major natural ges
Piodines have strong competitive positions ie their respective
markets as a result of efficient operating practices, competitive
rater and favorable market conditions Enron Transportation
Sexvices expects to continue to pune domand-driven apansion
opportunities Flond= Gas expects to complete an expansion that
will increme throughput by 188 million cubic feet per day
(Midcfic) by mid-2001. Florida Gas has received preliminary
approwsl from the Federal Energy Regulatory Commission for an
exparnion of 428 MMcIid. expected to be completed by early
2003, and 6 also pursing an expansion of 150 MMotic that &
expected to be completed in méd-2003. Trarmwestem completed
an expansion of 140 MMefid in May 2000 and & puruing an
expernion of 50 MMctid that is expected to be completed in 2007

02770

01300000001379


IssueAlerts email Page 4 of 5

avert additional losses in non-core businesses such as broadband, water and retail,
into which Enron sunk large sums of capital but which have yet to produce
measurable returns.

If Enron's stock remains in the basement, takeover rumors will undoubtedly
continue. However, Enron is challenged at this point to undertake a substantial
modification of its business model, which may include the complete divestiture of
all of its non-core businesses outside of the energy trading core. If a takeover were
to take place, it would probably occur soon (while Enron's stock remains low and its
core business remains strong) and with a buyer that seeks a large trading
operation and experience in risk management. None of the companies mentioned
as possible buyers at this time completely fall under this description, but given
Shell's strong interest in wholesale markets I would contend that this potential
partnership makes the most sense. However, any company that makes a serious
bid for Enron would have to be very risk tolerant, considering the ongoing
uncertainty surrounding the company with regard to pending lawsuits and the SEC
investigation.

In addition, it is significant that Enron is pursuing additional financing, which
indicates that the company intends to bolster its financial position and avoid any
takeover attempts. Nevertheless, various credit rating agencies such as Moody's
are in the process of evaluating the company for potential credit downgrades. A
credit rating downgrade would raise Enron's cost of borrowing, which in turn could
cut into the profitability of the company's business as a whole. The end result is
that, if Enron's financial position does not improve substantially in the near term, it
will remain in a very vulnerable position and a very real target for various takeover
measures.

An archive list of previous IssueA/ert articles is available at
www.scientech.com

We encourage our readers to contact us with their comments. We look forward to
hearing from you. Nancy Spring

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01300000001354


Lay joined the Union of Concerned Scientists and environmental groups in calling for curbs on
carbon in the atmosphere, The Clinton administration was supportive, but this year the Bush
administration reneged on a campaign pledge to impose limits on greenhouse gas emissions from
coal-burning power plants.

A multimillion-dollar lobbying campaign in Congress to secure legislation requiring states to
institute retail electricity deregulation fared even worse.

Enron hired former New York representative Bill Paxon, a leading conservative, to run
Americans for Affordable Electricity, which commissioned studies and recruited business
support for deregulation, But the legislation never made it out of a congressional subcommittee.
At the same time, Enron was growing restive over the slow pace of deregulation in the wholesale
electricity market, the core of its business. Large parts of the country, especially the Southeast,
were still monopolized by regulated utilities that limited the opportunity for trading gas,
electricity and energy derivatives.

Political Pragmatism

Enron's political pragmatism was demonstrated in the 1998 New York Senate election, when it
dropped its support of the Republican incumbent, Alfonse M. D'Amato, after Democrat Schumer
endorsed Enron's goal of wholesale deregulation, sources said. Lay reciprocated by hosting
several fundraisers for Schumer, and Enron's political action committee contributed $7,500 to the
Schumer campaign.

The company’s lobbying team expanded along with its political spending. It outgrew the two-
person operation that existed in 1989 and began to reflect Enron's interest in everything from
pipeline safety and derivatives trading to Overseas Private Investment Corp. loan guarantees. By
last year, its lobbying expenses exceeded $2 million a year and covered a raft of big-name
consultants, such as former Montana governor Marc F, Racicot, the new Republican National
Committee chairman, and former top aides to House Majority Leader Richard K. Armey (R-
Tex.) and House Majonty Whip Tom DeLay (R-Tex.)

The hazards of Enron's efforts to connect with both parties were evident last year, when shortly
before the November election, the company picked a Clinton administration Treasury official,
Linda Robertson, to run its Washington office.

A perturbed DeLay, whose campaign and related funds had received more than $100,000 from
Enron and Lay, briefly "excommunicated" Enron, a House source said. Robertson was not
invited to a series of meetings of electricity lobbyists held in DeLay’s office last July, though an
Enron official did finally attend the sessions.

Enron had more success when Congress overwhelmingly approved legislation last year
containing a provision precluding the Commodity Futures Trading Commission (CFTC) from
regulating Enron's trading in energy derivatives. These instruments are traded largely between
electricity dealers and big wholesale consumers, which use them to hedge against price swings
that could adversely affect their businesses.

01300000000107