<PAGE>
                      UNITED STATES SECURITIES AND EXCHANGE
                                   COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2001



                         Commission File Number 1-13159
                                   ENRON CORP.
             (Exact name of registrant as specified in its charter)


               Oregon                                      47-0255140
---------------------------------------------    -------------------------------
  (State or other jurisdiction of                (I.R.S. Employer Identification
   incorporation or organization)                           Number)


          Enron Building
        1400 Smith Street
         Houston, Texas                                     77002
---------------------------------------------    -------------------------------
   (Address of principal executive                        (Zip Code)
             offices)


                                 (713) 853-6161
   --------------------------------------------------------------------------
              (Registrant's telephone number, including area code)



       Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]    No [ ]


       Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

             Class                              Outstanding at October 31, 2001
----------------------------------------        -------------------------------

  Common Stock, No Par Value                           743,904,638 shares



                                     1 OF 75


<PAGE>

                          ENRON CORP. AND SUBSIDIARIES

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                        Page No.
                                                                                        --------
<S>                                                                                     <C>
EXPLANATORY NOTE                                                                              3

PART I. FINANCIAL INFORMATION



       ITEM 1.      Financial Statements

              Consolidated Income Statement - Three
                    Months Ended September 30, 2001 and 2000 and
                    Nine Months Ended September 30, 2001 and 2000                             4
              Consolidated Balance Sheet - September 30, 2001
                    and December 31, 2000                                                     5
              Consolidated Statement of Cash Flows - Nine
                    Months Ended September 30, 2001 and 2000                                  7
              Notes to Consolidated Financial Statements                                      8

       ITEM 2.      Management's Discussion and Analysis of
                    Financial Condition and Results of Operations                            43

PART II. OTHER INFORMATION

       ITEM 1.      Legal Proceedings                                                        74

       ITEM 6.      Exhibits and Reports on Form 8-K                                         74
</TABLE>





                                       2
<PAGE>



                                EXPLANATORY NOTE


    As explained in a November 8, 2001 Form 8-K filed by Enron Corp. (Enron)
with the Securities and Exchange Commission (SEC), Enron will be filing restated
consolidated financial statements for the fiscal years ended December 31, 1997
through 2000 and for the first and second quarters of 2001 but it has not yet
done so. As a result, the previously issued financial statements for these
periods and the audit reports covering the year-end financial statements for
1997 through 2000 should not be relied upon. In addition, as discussed in Note 2
herein, Enron's Board of Directors has formed a Special Committee to conduct an
independent investigation and review of transactions between Enron and certain
related parties. The Special Committee has retained the law firm of Wilmer,
Cutler & Pickering (Wilmer, Cutler) as its counsel. Wilmer, Cutler has retained
Deloitte & Touche LLP to provide related accounting advice to the law firm. The
Special Committee began its review on October 26, 2001. Management believes
that, based on information currently available to it, the consolidated financial
statements set forth herein were compiled in accordance with generally accepted
accounting principles and fairly depict the financial condition and results of
operations of Enron, and include adjustments designed to capture the anticipated
restatements. Information gathered during the Special Committee's investigation,
however, may impact the unaudited results set forth herein, including the
adjustments designed to reflect the necessary restatements as well as the
information set forth in the November 8, 2001 Form 8-K. In addition, Enron has
been advised by Arthur Andersen LLP, Enron's independent auditors, that, due to
their need to complete review procedures and the ongoing Special Committee
investigation, Arthur Andersen LLP is unable at this time to finalize its review
of Enron's consolidated financial statements set forth herein in accordance with
established professional standards and procedures for conducting such reviews,
as established by generally accepted auditing standards, which review is
required by Rule 10-01(d) of Regulation S-X.




                                       3
<PAGE>


                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS
                          ENRON CORP. AND SUBSIDIARIES
                          CONSOLIDATED INCOME STATEMENT
                     (In Millions, Except Per Share Amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                       Three Months Ended                  Nine Months Ended
                                                                          September 30,                      September 30,
                                                                 -------------------------------------------------------------------
                                                                     2001              2000             2001              2000
                                                                 -------------------------------------------------------------------
                                                                                     Restated         Restated          Restated
                                                                                    See Note 3       See Note 3        See Note 3
<S>                                                              <C>                <C>             <C>              <C>
Revenues                                                             $46,877          $29,834          $138,718          $59,887
                                                                     -----------------------------------------------------------
Costs and Expenses
     Cost of gas, electricity and other products                      45,742           28,036           133,762           55,494
     Operating expenses                                                  929              943             2,942            2,340
     Depreciation, depletion and amortization                            293              257               746              617
     Investment losses                                                   768                -               768                -
     Taxes, other than income taxes                                       62               65               228              190
                                                                     -----------------------------------------------------------
                                                                      47,794           29,301           138,446           58,641
                                                                     -----------------------------------------------------------

Operating Income (Loss)                                                 (917)             533               272            1,246
Other Income and Deductions
     Equity in earnings (losses) of unconsolidated
      affiliates                                                         194               72               440              246
     Gains (losses) on sales of non-merchant assets                       (1)              45                49              135
     Interest income                                                      91               50               237              121
     Other income (loss), net                                            (33)             (21)              (17)              60
                                                                     -----------------------------------------------------------
Income (Loss) Before Interest, Minority
 Interests and Income Taxes                                             (666)             679               981            1,808
Interest and Related Charges, net                                        201              259               630              643
Dividends on Company-Obligated Preferred
 Securities of Subsidiaries                                               20               20                56               59
Minority Interests                                                        33               24                90              115
Income Tax Expense (Benefit)                                            (276)              73                (1)             194
                                                                     -----------------------------------------------------------
Net Income (Loss) Before Cumulative Effect
 of Accounting Changes                                                  (644)             303               206              797
Cumulative Effect of Accounting Changes,
 net of tax                                                                -                -                19                -
                                                                     -----------------------------------------------------------
Net Income (Loss)                                                       (644)             303               225              797
Preferred Stock Dividends                                                 20               21                61               62
                                                                     -----------------------------------------------------------
Earnings (Loss) on Common Stock                                      $  (664)         $   282          $    164          $   735
                                                                     ===========================================================

Earnings (Loss)Per Share of Common Stock
     Basic
         Before Cumulative Effect of Accounting
          Changes                                                  $ (0.87)          $  0.39         $   0.19           $  1.02
         Cumulative Effect of Accounting Changes                           -                -            0.03                  -
                                                                     -----------------------------------------------------------
              Basic Earnings (Loss) per Share                      $ (0.87)          $  0.39         $   0.22           $  1.02
                                                                   =============================================================
     Diluted
         Before Cumulative Effect of Accounting
          Changes                                                  $ (0.87)          $  0.35         $   0.18           $  0.94
         Cumulative Effect of Accounting Changes                           -                -            0.02                  -
                                                                     -----------------------------------------------------------
              Diluted Earnings (Loss) per Share                    $ (0.87)          $  0.35         $   0.20           $  0.94
                                                                   =============================================================

Average Number of Common Shares Used in
 Computation
     Basic                                                               761              729               753              719
                                                                   =============================================================
     Diluted                                                             761              858               806              848
                                                                   =============================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       4
<PAGE>


                  PART I. FINANCIAL INFORMATION - (CONTINUED)
                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                 (In Millions)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                          September 30,         December 31,
                                                                                              2001                  2000
                                                                                      ------------------------------------------
                                                                                                                  Restated
                                                                                                                 See Note 3
<S>                                                                                   <C>                        <C>
ASSETS

Current Assets
     Cash and cash equivalents                                                              $ 1,001               $ 1,240
     Trade receivables (net of allowance for doubtful
      accounts of $437 and $35, respectively)                                                 9,208                10,491
     Other receivables                                                                        1,231                 1,559
     Assets from price risk management activities                                             9,041                12,018
     Inventories                                                                                836                   953
     Deposits                                                                                 2,543                 2,433
     Other                                                                                      987                 1,333
                                                                                            -----------------------------
         Total Current Assets                                                                24,847                30,027
                                                                                            -----------------------------
Investments and Other Assets
     Investments in and advances to unconsolidated
      affiliates                                                                              7,131                 5,599
     Assets from price risk management activities                                             9,687                 8,990
     Goodwill                                                                                 3,548                 3,720
     Other                                                                                    5,655                 4,857
                                                                                            -----------------------------
         Total Investments and Other Assets                                                  26,021                23,166
                                                                                            -----------------------------
Property, Plant and Equipment, at cost
     Natural gas transmission                                                                 6,311                 6,916
     Electric generation and distribution                                                     3,589                 4,766
     Fiber-optic network and equipment                                                          728                   350
     Construction in progress                                                                 1,135                 1,161
     Other                                                                                    2,860                 2,256
                                                                                            -----------------------------
                                                                                             14,623                15,449
     Less accumulated depreciation, depletion
      and amortization                                                                        3,708                 3,716
                                                                                            -----------------------------
         Net Property, Plant and Equipment                                                   10,915                11,733
                                                                                            -----------------------------

Total Assets                                                                                $61,783               $64,926
                                                                                            =============================
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.




                                       5
<PAGE>


                   PART I. FINANCIAL INFORMATION - (CONTINUED)
                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                  (In Millions)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                          September 30,         December 31,
                                                                                              2001                  2000
                                                                                      ------------------------------------------
                                                                                                                  Restated
                                                                                                                 See Note 3
<S>                                                                                   <C>                        <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
     Accounts payable                                                                       $ 7,787               $ 9,577
     Liabilities from price risk management activities                                        8,893                10,495
     Short-term debt                                                                          6,434                 2,192
     Customers' deposits                                                                      1,770                 4,277
     Other                                                                                    2,121                 2,200
                                                                                            -----------------------------
         Total Current Liabilities                                                           27,005                28,741
                                                                                            -----------------------------

Long-Term Debt                                                                                6,544                 8,665
                                                                                            -----------------------------

Deferred Credits and Other Liabilities
     Deferred income taxes                                                                    1,947                 1,679
     Liabilities from price risk management activities                                        9,847                 9,519
     Other                                                                                    3,552                 2,692
                                                                                            -----------------------------
         Total Deferred Credits and Other Liabilities                                        15,346                13,890
                                                                                            -----------------------------

Minority Interests                                                                            2,387                 2,437
                                                                                            -----------------------------

Company-Obligated Preferred Securities of Subsidiaries                                          903                   904
                                                                                            -----------------------------

Shareholders' Equity
     Second preferred stock, cumulative, no par value                                           115                   124
     Mandatorily Convertible Junior Preferred Stock,
      Series B, no par value                                                                  1,000                 1,000
     Common stock, no par value (net of notes receivable
      of none and $172, respectively)                                                         8,132                 7,926
     Retained earnings                                                                        2,495                 2,613
     Accumulated other comprehensive income                                                  (1,527)               (1,198)
     Common stock held in treasury                                                             (477)                  (28)
     Restricted stock and other                                                                (140)                 (148)
                                                                                            -----------------------------
         Total                                                                                9,598                10,289
                                                                                            -----------------------------

Total Liabilities and Shareholders' Equity                                                  $61,783               $64,926
                                                                                            =============================
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.



                                       6
<PAGE>


                   PART I. FINANCIAL INFORMATION - (CONTINUED)
                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (In Millions)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                   Nine Months Ended
                                                                                                     September 30,
                                                                                        --------------------------------------
                                                                                               2001                 2000
                                                                                        --------------------------------------
                                                                                                                  Restated
                                                                                                                 See Note 3
<S>                                                                                     <C>                     <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash
 provided by (used in) operating activities
     Net income                                                                               $   225             $   797
     Cumulative effect of accounting changes, net of tax                                          (19)                  -
     Depreciation, depletion and amortization                                                     746                 617
     Deferred income taxes                                                                       (134)                  8
     Gains on sales of non-merchant assets                                                        (49)               (135)
     Investment losses                                                                            768                   -
     Changes in components of working capital:
         Net margin deposit activity                                                           (2,349)                541
         Other working capital                                                                   (312)               (580)
     Net assets from price risk management activities                                             190                (830)
     Merchant assets and investments:
         Realized (gains) losses on sales                                                         (48)                  6
         Proceeds from sales                                                                      643                 728
         Additions                                                                               (663)             (1,418)
         Unrealized losses                                                                        241                 129
     Other, net                                                                                     8                 264
                                                                                              ---------------------------
Net Cash Provided by (Used in) Operating Activities                                              (753)                127
                                                                                              ---------------------------
Cash Flows From Investing Activities
     Capital expenditures                                                                      (1,584)             (1,539)
     Equity investments                                                                        (1,172)               (858)
     Proceeds from sales of non-merchant assets                                                 1,711                 222
     Acquisition of subsidiary stock                                                                -                (485)
     Business acquisitions, net of cash acquired                                                  (82)               (773)
     Other investing activities                                                                  (239)               (147)
                                                                                              ---------------------------
Net Cash Used in Investing Activities                                                          (1,366)             (3,580)
                                                                                              ---------------------------
Cash Flows From Financing Activities
     Issuance of long-term debt                                                                 4,060               2,725
     Repayment of long-term debt                                                               (3,903)               (579)
     Net increase in short-term borrowings                                                      2,365               1,694
     Issuance of common stock                                                                     199                 182
     Net redemption of company-obligated preferred
      securities of subsidiaries                                                                    -                 (95)
     Dividends paid                                                                              (394)               (396)
     Net (acquisition) disposition of treasury stock                                             (398)                354
     Other financing activities                                                                   (49)                (12)
                                                                                              ---------------------------
Net Cash Provided by Financing Activities                                                       1,880               3,873
                                                                                              ---------------------------
Increase (Decrease) in Cash and Cash Equivalents                                                 (239)                420
Cash and Cash Equivalents, Beginning of Period                                                  1,240                 333
                                                                                              ---------------------------
Cash and Cash Equivalents, End of Period                                                      $ 1,001             $   753
                                                                                              ===========================

Changes in Components of Other Working Capital
     Receivables                                                                              $   987             $(3,363)
     Inventories                                                                                    1                 339
     Payables                                                                                  (1,764)              2,899
     Other                                                                                        464                (455)
                                                                                              ---------------------------
         Total                                                                                $  (312)            $  (580)
                                                                                              ===========================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.



                                       7
<PAGE>



                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     BASIS OF PRESENTATION

       As discussed in Note 3, on November 8, 2001, Enron Corp. (Enron)
announced that it will restate its Consolidated Financial Statements for the
years ended December 31, 1997 through 2000 and for the first and second quarters
of 2001. As a result, the previously-issued financial statements for these
periods and the audit reports covering the year-end financial statements for
1997 through 2000 should not be relied upon.

       As further discussed in Note 2, the Securities and Exchange Commission
(SEC) has opened a formal investigation of certain related party transactions.
Additionally, Enron's Board of Directors (Board) has formed a special committee
(Special Committee) to conduct an independent investigation and review of
transactions between Enron and certain related parties. The Special Committee
also was charged with taking any disciplinary action that it deems appropriate,
communicating with the SEC and recommending to the Board any other appropriate
actions. The duration of the SEC and Special Committee investigations, and the
ultimate results of those investigations, have not yet been determined.

       The consolidated financial statements included herein have been prepared
by Enron without audit pursuant to the rules and regulations of the SEC.
Contrary to the rules of the SEC, the Consolidated Financial Statements included
herein have not been reviewed by an independent public accountant using
professional standards and procedures for conducting such reviews, as
established by generally accepted auditing standards, because of the ongoing
investigation by the Special Committee, as discussed above, and the need of
Arthur Andersen LLP, Enron's independent auditors, to complete their review
procedures.

       These statements reflect all adjustments (consisting of the anticipated
restatement items discussed in Note 3, and normal recurring entries) which are,
in the opinion of management, necessary for a fair statement of the financial
results for the interim periods. The Consolidated Financial Statements included
herein have been adjusted to reflect the impacts of the anticipated restatements
discussed in Note 3 based on Enron's current understanding of the relevant facts
as of the date of filing of this report. For the impacts on Enron's Consolidated
Financial Statements for the years ended December 31, 1997 through 2000 and for
the first and second quarters of 2001, see Note 3. It is possible that the
investigation by the Special Committee will identify additional or different
information concerning these matters which may require additional or different
restatements. Accordingly, Enron will not file amendments to its annual reports
on Forms 10-K for the years ended December 31, 1997 through 2000, or its
quarterly reports on Forms 10-Q for the quarterly periods ended March 31, 2001
and June 30, 2001 to reflect the restatements of Enron's Consolidated Financial
Statements until the Special Committee has completed its investigation.



                                       8

<PAGE>


                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

       Consistent with SEC requirements for interim reporting, certain
information and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Enron believes that the
disclosures are adequate to make the information presented not misleading.

       Certain reclassifications have been made in the 2000 amounts to conform
with the 2001 presentation.

2.     RECENT EVENTS

       FINANCIAL CONDITION. Following Enron's announcement of its third quarter
2001 results on October 16, 2001, there was a significant decrease in Enron's
common share price and subsequent decreases in the credit ratings of Enron's
long-term debt to BBB- and Baa3 (the lowest level of investment grade) with a
warning that further downgrades were possible. This situation resulted in a loss
of investor confidence and significantly affected Enron's ability to raise
capital.

       Maintaining an investment grade credit rating is a critical element in
maintaining liquidity for Enron's wholesale business which, together with the
natural gas pipeline operations and the retail business, comprise Enron's core
businesses discussed below. As a part of their standard contractual
arrangements, Enron and its trading counterparties regularly post cash deposits
or letters of credit to collateralize a portion of their trading obligations.
A downgrade to below investment grade could lead to a substantial increase in
the level of cash required for collateral and margin deposits with Enron's
wholesale trading partners. Additionally, Enron and its subsidiaries have
outstanding surety bonds and other instruments related to construction projects
and other performance obligations. Under certain circumstances, the issuers of
such sureties may request collateral.

       Liquidity Actions. Enron has implemented a financial strategy to restore
investor confidence and will continue its initiatives in this regard. Enron has
taken the following steps to assure its customers and investors that it can
fulfill its commitments in the ordinary course of business:

       o  Enron borrowed approximately $3.0 billion from its committed lines of
          credit to repay outstanding and expiring commercial paper obligations
          of approximately $1.9 billion and to provide immediate cash liquidity.
          This action to convert Enron's committed lines of credit to cash was
          done to eliminate any doubt as to their availability in the future;

       o  In an effort to further enhance short-term liquidity, on November 13,
          2001, Enron (through its wholly-owned subsidiary) obtained
          $550 million in a new secured line of credit from JP Morgan Chase
          Bank (Chase) and Citicorp North America, Inc. (Citicorp), secured by
          Enron's Transwestern Pipeline Company assets. Enron anticipates
          obtaining $450 million in a new secured line of credit on or about
          November 20, 2001 from Chase and Citicorp secured by Northern
          Natural Gas Company assets. These proceeds will be used to further
          supplement short-term liquidity and to retire maturing obligations;


                                       9
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       o  On November 13, 2001, Enron received a $1.5 billion equity infusion in
          the form of a preferred stock investment in Northern Natural Gas
          Company, an Enron subsidiary (Northern), from Dynegy Inc. (Dynegy) in
          connection with the merger agreement signed between Enron and Dynegy
          discussed below.

       o  Enron anticipates the receipt of over $800 million in net proceeds
          from asset sales scheduled to close by year-end. However, the closings
          of these sale transactions are pending certain regulatory and other
          approvals that will impact whether such transactions close and the
          ultimate timing of the closings. Of the net proceeds, approximately
          $250 million, or a portion thereof, may be required to repay an
          obligation that may become a demand obligation due to a recent credit
          rating downgrade discussed below and in Note 9.

       Enron is also engaged in discussions with various institutions about
investing in Enron equity. Enron is diligently pursuing a program to raise an
incremental $500 million to $1 billion of private equity from these sources in
the near future. There can be no assurance, however, that such program will be
successful. Depending on the terms and amounts of such investments, Enron may be
required to increase its authorized capital, which would require the approval of
its stockholders.

       Restructuring Plan. As a result of the merger agreement with Dynegy,
discussed below, and the loss of investor confidence, Enron has initiated an
action plan for restructuring its business. The key aspects of the action plan
involve (i) concentrating primarily on its core businesses; (ii) taking
aggressive steps to rationalize the existing cost structure; (iii) accelerating
the process of divesting non-core businesses and assets; (iv) restructuring
scheduled maturities of debt and other obligations; (v) completing the
investigation by the Special Committee and its advisors with respect to related
party transactions; (vi) reviewing and strengthening Enron's corporate
governance; and (vii) expanding certain disclosures with a focus on increased
transparency. Management and the Board have not completed nor approved a
restructuring plan. Such restructuring plan is currently being prepared and,
therefore, Enron is unable to estimate the timing of implementation or the
financial impacts. Enron's fourth quarter 2001 results of operations will likely
be negatively impacted by severance, restructuring and other charges resulting
from the repositioning of many of Enron's businesses.

       In order to focus on Enron's core businesses and rationalize their cost
structure, management is in the process of dividing Enron into three fundamental
groups of businesses - Core, Non-Core and Under Review. Following is a
description of each group of businesses:

       o  Core Businesses are the consistent franchise businesses for which
          Enron has a distinct competitive advantage. These businesses,
          collectively, generate significant earnings and cash flows. These
          businesses include:

          o  Gas and power businesses in North America and Europe;
          o  Coal businesses in North America and Europe;
          o  Retail businesses in North America and Europe; and
          o  Natural gas pipeline businesses.

       o  Non-Core businesses are businesses that do not provide value to
          Enron's core businesses. These primarily are part of Enron's global
          assets and broadband services segments. Enron has approximately $8
          billion


                                       10
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          invested in these businesses and the return from these investments is
          below acceptable rates. Accordingly, Enron is developing a plan to
          exit these businesses in an orderly fashion. Enron expects that the
          sale of these non-core businesses will generate cash proceeds that
          will be used to repay debt. Should the exit strategy, currently being
          prepared, result in a lower value than Enron's current carrying value,
          then Enron may be required to record related asset writedowns,
          possibly as early as the fourth quarter of 2001.

       o  Businesses Under Review are businesses that Enron believes have strong
          future prospects; however, under the restructuring program, Enron is
          in the process of looking closely at the capital requirements and
          near-term growth prospects of these businesses. These businesses are
          primarily Enron's wholesale businesses outside of power and gas, which
          include both energy-related and industrial markets activities. The
          in-depth assessment of each of these businesses will be completed very
          quickly to determine the resources Enron intends to expend in these
          areas.

       Impact of Recent Events. The recent deterioration in Enron's credit
rating and decline in its stock price has caused a negative impact on Enron's
projected 2001 fourth quarter profitability. This is primarily the result of a
reduced level of transaction activity by Enron's trading counterparties,
particularly in longer-term transactions. It is too early to determine the
impact these events will have on Enron's fourth quarter 2001 operating results.
Additionally, the fourth quarter of 2001 will likely be negatively impacted by
severance, restructuring and other charges resulting from the repositioning of
many of Enron's businesses consistent with the restructuring plan, as well as
potential writedowns as discussed in Note 8.

       Enron has various financial arrangements which require Enron to maintain
specified credit ratings. The November 12, 2001 downgrade in Enron's senior
unsecured debt rating to BBB- by Standard & Poor's has caused a ratings event
related to a $690 million note payable that, absent Enron posting collateral,
will become a demand obligation on November 27, 2001. See Note 9 for a
description of this obligation. Consistent with the restructuring plan discussed
above, Enron is currently working with the lenders to develop a mutually
acceptable amendment or waiver to the transaction documents in order to avoid an
early Enron payment obligation.

       In the event Enron were to lose its investment grade credit rating and
Enron's stock price was below a specified price, a note trigger event would
occur. This could require Enron to repay, refinance or cash collateralize
additional facilities totaling $3.9 billion, which primarily consist of $2.4
billion of debt in Osprey Trust (Osprey) and $915 million of debt in Marlin
Water Trust (Marlin). In the event such a trigger event occurs and Enron cannot
timely issue equity in an amount sufficient to repay the notes or restructure
the obligations, Enron is obligated to pay the difference in cash. For a
description of the Marlin and Osprey Trusts, both of which are unconsolidated
affiliates, and the related debt obligations, see Note 8.

       In the event that Enron fails to pay any debt obligations when due,
including when such obligations may be accelerated, or is unable to refinance or
obtain a waiver of or amendment to such obligations, a series of events would
begin which could impact Enron's compliance with the terms of its Revolving
Credit Agreements and certain other obligations, including bank debt facilities.


                                       11
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       It is not possible to predict whether any or all of the actions described
above (including the sale of non-core businesses and assets and the refinancing
or waiver of Enron obligations that may become immediately payable upon
scheduled maturities or due to an acceleration event) will be adequate to
maintain Enron's investment grade credit rating or enable Enron to refinance or
otherwise restructure its debt obligations that become due. An adverse outcome
with respect to any of these matters would likely have a material adverse impact
on Enron's ability to continue as a going concern.

       MERGER WITH DYNEGY AND RELATED EQUITY FINANCING. On November 9, 2001,
Enron and Dynegy announced the execution of a definitive agreement providing for
a merger of the two companies. The merger agreement contemplates that both Enron
and Dynegy will merge with separate subsidiaries of a newly formed holding
company to be named Dynegy Inc. (New Dynegy). As a result of the mergers, both
Enron and Dynegy would become wholly owned subsidiaries of New Dynegy. However,
the merger agreement provides that both parties will cooperate with each other
in analyzing and determining an alternative structure that results in a single
corporation with substantially all the senior debt (other than that of regulated
utility subsidiaries) of the two companies.

       Under the terms of the merger agreement, Enron shareholders will receive
0.2685 shares of New Dynegy Class A common stock per share of Enron common
stock, subject to adjustment as provided below. Dynegy shareholders will receive
one share of New Dynegy Class A common stock or Class B common stock for their
existing shares of Dynegy Class A common stock or Class B common stock,
respectively. As a result of the merger, Dynegy's current stockholders will own
approximately 64 percent of the common stock of New Dynegy and Enron's
stockholders will own approximately 36 percent.

       The proposed merger is subject to the approval of Enron's and Dynegy's
shareholders, regulatory approvals and other customary conditions, including the
absence of any event after November 9, 2001 that would have a material adverse
effect on Enron, excluding the effects of general economic and industry
conditions. If Enron's liabilities and expenses from and after November 9, 2001
associated with all pending or threatened litigation matters, in the reasonable
judgment of Dynegy, exceed, or are reasonably likely to exceed, $2 billion in
the aggregate (net of proceeds of insurance and litigation reserves reflected in
Enron's financial statements), the amount of such excess over $2 billion will be
taken into account in determining whether a material adverse effect on Enron has
occurred, and, in any event, if the amount of such excess exceeds, or is
reasonably likely to exceed, $1.5 billion, a material adverse effect on Enron
will be deemed to have occurred. Assuming all approvals are obtained and
conditions satisfied or waived, the merger is expected to close by the end of
the third quarter of 2002.

       The merger agreement also provides that, in the event the merger
agreement is terminated in certain circumstances involving a competing offer to
acquire Enron or a change in the Board's recommendation of the merger, Enron
would pay Dynegy a break-up fee of $350 million. Dynegy must pay a similar fee
to Enron in the event of corresponding actions with respect to Dynegy.

       Under the merger agreement, Enron is entitled to issue up to $2 billion
of additional equity prior to closing of the merger. However, the Enron merger
ratio is subject to downward adjustment if Enron issues equity at an Enron
common stock price below the implied Enron common stock price determined


                                       12
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

by multiplying the Enron merger exchange ratio by the then current Dynegy common
stock price.

       In connection with the merger agreement, Dynegy entered into a
subscription agreement with Enron and Northern pursuant to which Dynegy agreed
to purchase 1,000 shares of Northern's Series A preferred stock for $1.5
billion. This purchase was consummated on November 13, 2001. Additionally,
Dynegy has agreed to invest an additional $1 billion in Enron at the closing of
the merger.

       The preferred stock provides for cumulative dividends at the rate of 6%
per annum (subject to declaration by the Northern board of directors) payable
annually beginning on January 31, 2003, or, at Northern's option, quarterly.
Unpaid dividends accrue additional dividends at 6% per annum. Upon any
liquidation or winding up of Northern, the holders of the preferred stock would
be entitled to receive, in preference to the holders of the Northern common
stock, an amount equal to $1.5 million per share plus accrued and unpaid
dividends, if any. If the merger agreement is terminated for various specified
reasons, Northern may redeem the preferred stock in whole, but not in part, at a
redemption price equal to the $1.5 billion liquidation preference amount plus
any accrued and unpaid dividends.

       In connection with the subscription agreement, Dynegy entered into an
option agreement with a subsidiary of Enron that indirectly owns the common
stock of Northern, under which a Dynegy subsidiary has the option to purchase
all of the equity of that Enron subsidiary. The option will become exercisable
only upon certain specified terminations of the merger agreement. The exercise
price for the option is $23 million, plus the amount by which Northern's
indebtedness under its bank credit facility and senior notes is less than $950
million (or minus the amount by which such indebtedness exceeds $950 million),
subject to adjustment for the amount of working capital at the time of the
exercise. If the option is exercised by Dynegy, Enron will have certain rights
to repurchase the ownership of Northern for 90 (or under some scenarios 180)
days at a substantially equivalent exercise price adjusted for changes in
working capital and debt after the purchase by Dynegy.

       Also in connection with the purchase of the Northern preferred stock,
Dynegy entered into an exchange agreement with Enron under which each share of
the Northern preferred stock may be exchanged for shares of Enron common stock.
Dynegy has the option to cause such an exchange if the merger agreement is
terminated in certain circumstances relating to a competing third party
acquisition proposal relating to Enron or if the Board withdraws or changes, in
a manner adverse to Dynegy, its approval or recommendation of the merger with
Dynegy or recommends a competing third party acquisition proposal. Enron has the
option to cause such an exchange if the merger agreement is terminated in
certain circumstances relating to a competing third party acquisition proposal
relating to Dynegy or if Dynegy's board of directors withdraws or changes, in a
manner adverse to Enron, its approval or recommendation of the merger with Enron
or recommends a competing third party acquisition proposal. If the exchange
right is exercised, each share of Northern preferred stock would be exchanged
for approximately 169,300 shares of Enron common stock (or approximately 169.3
million shares in the aggregate), subject to adjustment based on changes to the
Enron merger exchange ratio pursuant to the merger agreement. The exchange
agreement will terminate if the proposed merger is consummated, the option under
the option agreement described above is exercised or the preferred stock is
redeemed in accordance with its terms.


                                       13
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       The exchange agreement further provides that if Dynegy is prevented from
receiving Enron common stock under the exchange agreement because the regulatory
and other specified conditions for the issuance have not been satisfied, Dynegy
will have the right to assign its rights under the exchange agreement to any
third party or Enron will issue to Dynegy shares of a new class of Enron
preferred stock convertible into an equivalent number of shares of Enron common
stock. If the conditions for Dynegy to receive Enron common stock are not
satisfied after twelve months, Dynegy may instead elect to withdraw its exercise
of the exchange right and exercise its rights under the option agreement, or
receive equivalent consideration from Enron.

       Subsequent to the execution of the merger agreement with Dynegy, Kenneth
L. Lay, Enron's Chairman and Chief Executive Officer, waived his right to
receive approximately $60.6 million under the change of control terms in his
employment contract with Enron, with respect to the merger with Dynegy.

       SEC INVESTIGATION. On October 17, 2001, the SEC requested that Enron
voluntarily provide information regarding certain related party transactions. On
October 31, 2001, the SEC opened a formal investigation of the matters that were
the subject of recent press reports and that were previously the subject of the
SEC informal inquiry. Enron is cooperating fully with the SEC relative to its
investigation. Enron cannot predict the term of the SEC investigation or its
potential outcome.

       SPECIAL COMMITTEE. Based on various reports and information concerning
Enron's transactions with certain related parties, on October 31, 2001 the Board
elected William K. Powers Jr., Dean of the University of Texas School of Law, to
the Board, and appointed Dean Powers as Chairman of a newly formed Special
Committee. The Special Committee is responsible for conducting an independent
investigation and review of transactions between Enron and certain related
parties. The Special Committee also was charged with taking any disciplinary
action that it deems appropriate, communicating with the SEC and recommending to
the Board any other appropriate actions. The other members of the Special
Committee are independent directors Frank Savage, CEO of Savage Holdings LLC,
Paulo Ferraz Pereira, Executive Vice President of investment bank Group Bozano,
and Herbert S. Winokur, Jr., Chairman and CEO of Capricorn Holdings, Inc.

       The Special Committee has retained the law firm of Wilmer, Cutler &
Pickering (Wilmer, Cutler) as its counsel. The firm's representation is led by
William R. McLucas, former Director of the Division of Enforcement of the SEC.
Wilmer, Cutler has retained Deloitte & Touche LLP to provide related accounting
advice to the law firm. The Special Committee began its review on October 26,
2001. The review will include an analysis of both the underlying substance and
business purposes of the transactions, as well as an analysis of their financial
impact on Enron and, to the extent information is available, on the related
parties. The duration of the Special Committee's review, and the ultimate
results of that review, have not yet been determined. Accordingly, Enron cannot
predict the ultimate results of the Special Committee investigation and the
related impact on Enron's reported Consolidated Financial Statements.


                                       14
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.     RESTATEMENT

       On November 8, 2001, Enron announced that it will restate its
Consolidated Financial Statements for the years 1997 through 2000 and the first
and second quarters of 2001 to (1) reflect its conclusion that three previously
unconsolidated entities did not meet certain accounting requirements and should
have been included in Enron's consolidated financial statements, (2) reflect an
adjustment to shareholders' equity described below and (3) include prior-year
proposed audit adjustments and reclassifications (which were previously
determined to be immaterial in the years originally proposed). Specifically,
Enron has concluded that based on a review of related party transactions:

       o  The financial activities of Chewco Investments, L.P. (Chewco), a
          related party which was an investor in Joint Energy Development
          Investments Limited Partnership (JEDI), should have been consolidated
          into Enron's consolidated financial statements beginning in November
          1997;

       o  The financial activities of JEDI, in which Enron was an investor and
          which were consolidated into Enron's financial statements beginning in
          the first quarter of 2001, should have been consolidated beginning in
          November 1997; and

       o  The financial activities of a wholly-owned subsidiary of LJM Cayman,
          L.P. (LJM1), a private investment limited partnership for which the
          general partner's managing member was Andrew S. Fastow, former
          Executive Vice President and Chief Financial Officer of Enron (see
          Note 4), should have been consolidated into Enron's consolidated
          financial statements beginning in 1999.

       The Consolidated Financial Statements included herein reflect such
anticipated restatements based on Enron's current understanding of the relevant
facts as of the date of the filing of this report. It is possible that the
Special Committee's investigation (discussed in Note 2) will identify additional
or different information concerning these matters which will require additional
or different restatements. As a result, Enron will not issue amendments to its
annual reports on Forms 10-K for the years ended December 31, 1997 through 2000
or its quarterly reports on Forms 10-Q for the quarterly periods ended March 31,
2001 and June 30, 2001 to reflect the impacts of the anticipated restatements on
Enron's Consolidated Financial Statements until the Special Committee has
completed its investigation. Additionally, Enron has announced that the
previously-issued financial statements for these periods and the audit reports
covering the year-end financial statements for 1997 through 2000 should not be
relied upon.

       The effects of the anticipated restatements, based on Enron's
understanding of the relevant facts as of the date of the filing of this report,
are outlined below and a description of the anticipated restatements follows the
table (dollars in millions, except per share amounts). Certain amounts in the
following table differ from those included in Enron's November 8, 2001 Form 8-K
due to further refinement of the identified restatement items.


                                       15
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Amounts are subject to change pending the results of the Special Committee
investigation.)

<TABLE>
<CAPTION>
                                                                                             1st Qtr    2nd Qtr
                                                 1997        1998       1999       2000       2001       2001
                                            -------------------------------------------------------------------
<S>                                         <C>            <C>          <C>         <C>     <C>         <C>

Net income as reported                        $   105(a)   $   703    $   893    $   979    $   425     $  404
Restatements:
     Consolidation of JEDI and Chewco             (28)        (133)      (153)       (91)         6          -
     Consolidation of LJM1 subsidiary               -            -        (95)        (8)         -          -
     Raptor equity adjustment                       -            -          -          -          -          -
     Prior period proposed audit
      adjustments and reclassifica-
      tions                                       (51)          (6)       (10)       (38)        29          5
                                              ----------------------------------------------------------------

Net Income Restated                           $    26      $   564    $   635    $   842    $   460     $  409
                                              ================================================================

Diluted shares outstanding, as
 reported                                         555          695        769        814        872        891
DILUTED SHARES RESTATED                           553          686        755        801        862        891

Diluted EPS as reported                          0.16         1.01       1.10       1.12       0.49       0.45
DILUTED EPS RESTATED                             0.02         0.82       0.78       0.97       0.53       0.46

Total assets as reported                      $22,552      $29,350    $33,381    $65,503    $67,260    $63,392
Restatements:
     Consolidation of JEDI and Chewco             451          160        181       (161)         6          6
     Consolidation of LJM1 subsidiary               -            -       (222)         -          -          -
     Raptor equity adjustment                       -            -          -       (172)    (1,000)    (1,000)
     Prior period proposed audit
      adjust ments and reclassifica-
      tions                                       (79)         (68)       (68)      (244)    (1,087)       431
                                              ----------------------------------------------------------------

TOTAL ASSETS RESTATED                         $22,924      $29,442    $33,272    $64,926    $65,179    $62,829
                                              ================================================================

Debt as reported                              $ 6,254      $ 7,357    $ 8,152    $10,229    $11,922    $12,812
Restatements:
     Consolidation of JEDI and Chewco             711          561        685        628          -          -
     Consolidation of LJM1 subsidiary               -            -          -          -          -          -
     Raptor equity adjustment                       -            -          -          -          -          -
     Prior period proposed audit
      adjustments and reclassifica-
      tions                                         -            -          -          -          -          -
                                              ----------------------------------------------------------------

DEBT RESTATED                                 $ 6,965      $ 7,918    $ 8,837    $10,857    $11,922    $12,812
                                              ================================================================

Equity as reported                            $ 5,618      $ 7,048    $ 9,570    $11,470    $11,727    $11,740
Restatements:
     Consolidation of JEDI and Chewco            (258)        (391)      (544)      (814)         6          6
     Consolidation of LJM1 subsidiary               -            -       (166)        60         60         60
     Raptor equity adjustment                       -            -          -       (172)    (1,000)    (1,000)
     Prior period proposed audit
      adjustments and reclassifica-
      tions                                       (51)         (57)      (136)      (255)      (287)       (19)
                                              ----------------------------------------------------------------

EQUITY RESTATED                               $ 5,309      $ 6,600    $ 8,724    $10,289    $10,506    $10,787
                                              ================================================================
</TABLE>

(a) After effect of significant contract restructuring charge totaling $463
    million (after tax).


                                       16
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DESCRIPTION OF RESTATEMENT ITEMS

       Chewco and JEDI Consolidation. Enron's decision that Chewco should be
consolidated beginning in November 1997 is based on recently obtained
information that Chewco did not meet the accounting criteria to qualify as an
adequately capitalized unconsolidated special purpose entity (SPE). See Note 4
for a discussion of Chewco and a description of an SPE. As a result of Chewco's
failure to meet these criteria, JEDI, in which Chewco was a limited partner,
also did not qualify for nonconsolidation treatment. When the consolidation of
these two entities are taken into account, Enron's prior-year reported debt
amounts are increased by both JEDI's and Chewco's borrowings. In addition,
Enron's net income is reduced for specific JEDI revenues previously allocated to
Chewco, relating to the appreciation in value of Enron stock held by JEDI, which
eliminates upon consolidation. This, in effect, reduces Enron's share of JEDI's
earnings. The net effect reduces Enron's prior-years' reported net income and
shareholders' equity amounts.

       LJM1 Subsidiary Consolidation. Enron's decision that the LJM1 subsidiary
should be consolidated in 1999 and 2000 is based on Enron's current assessment
that the subsidiary did not qualify for nonconsolidation treatment because of
inadequate capitalization.

       In 1999, Enron entered into a series of transactions involving a third
party and LJM1. The effect of the transactions was (i) Enron and the third party
amended certain forward contracts to purchase shares of Enron common stock,
resulting in Enron having forward contracts to purchase Enron common shares at
the market price on that day, (ii) LJM1 received 6.8 million shares of Enron
common stock subject to certain restrictions, 3.1 million shares of which it
contributed to the LJM1 subsidiary and (iii) Enron received a note receivable
from LJM1, which was repaid in December 1999, and certain financial instruments
hedging Enron's investment in the stock of Rhythms NetConnections, Inc. Enron
recorded the assets received and equity issued at estimated fair value. In
connection with the transactions, LJM1 agreed that Mr. Fastow would have no
pecuniary interest in such Enron common shares and would be restricted from
voting on matters related to such shares. In March 2000, Enron and LJM1 entered
into an agreement to terminate the financial instruments. In connection with
this agreement, Enron received the 3.1 million shares of Enron common stock held
by the LJM1 subsidiary. A put option, which was originally entered into in the
first quarter of 2000 and gave LJM1 the right to sell shares of Enron common
stock to Enron at a strike price of $71.31 per share, was terminated under this
agreement. In return, Enron paid approximately $26.8 million to LJM1.

       Consolidation of the LJM1 subsidiary has the effect of eliminating the
income recognized by Enron on derivative transactions with this LJM1 subsidiary,
thus reducing Enron's net income in 1999 and 2000. Shareholders' equity has been
reduced in 1999 and increased in 2000 to reflect the elimination of Enron common
stock contributed by LJM1 to the LJM1 subsidiary.

       Shareholders' Equity Reduction. Enron's previously-announced $1.2 billion
reduction of shareholders' equity primarily involves the correction of an
accounting error made in the second quarter of 2000 and in the first quarter of
2001. As described in more detail below and in Note 4, four SPEs known as Raptor
I-IV (collectively, Raptor) were created in 2000 to permit Enron to hedge market
risk in certain of its investments. (LJM2 Co-Investment, L.P. (LJM2), a private
investment limited partnership for which the general partner's managing member
was Mr. Fastow, invested in these entities, but the related-party nature of the
transaction is not relevant to the accounting correction.) As part of the
capitalization of these entities, Enron issued


                                       17
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

common stock in exchange for a note receivable. Enron increased notes receivable
and shareholders' equity to reflect this transaction. Enron now believes that,
under generally accepted accounting principles, the note receivable should have
been presented as a reduction to shareholders' equity (similar to a shareholder
loan). This treatment would have resulted in no net increase to shareholders'
equity. The net effect of this initial accounting entry was to overstate both
notes receivable and shareholders' equity by approximately $172 million (which
represented less than 2% of shareholders' equity at the time) in each of the
second quarter, third quarter and year-end financial statements of Enron for the
year 2000.

       In the first quarter of 2001, Enron entered into a series of transactions
with Raptor that could have obligated Enron to issue Enron common stock in the
future in exchange for notes receivable. Enron accounted for these transactions
using the accounting treatment described in the preceding paragraph. This
resulted in an additional overstatement of both notes receivable and
shareholders' equity by $828 million. As a result of these errors, shareholders'
equity and notes receivable were overstated by a total of $1 billion in the
unaudited balance sheets of Enron at March 31, 2001 and June 30, 2001.

       In the third quarter of 2001, as a result of deterioration in the credit
quality of the Raptor SPEs caused by the decline in New Power Holdings, Inc.'s
(NPW) stock price, the increase in Raptor's exposure under derivative contracts
with Enron and the increasing dilutive effect on Enron's earnings per share
calculation, Enron acquired LJM2's equity in the SPEs for $35 million and
terminated the entities. Consistent with the original treatment, Enron accounted
for this transaction as a reduction to Enron shareholders' equity and notes
receivable by $1.2 billion. Of this amount, $270 million related to the amount
by which the fair value of contracts to deliver Enron shares exceeded the value
of the notes receivable, which is not related to the restatement discussed
above.

       Audit Adjustments. The restatements include prior-year proposed audit
adjustments and reclassifications which were determined to be immaterial in the
periods originally proposed.

4.     RELATED PARTY TRANSACTIONS

       On November 8, 2001, Enron released information in a Form 8-K regarding
the two LJM limited partnerships formed by Enron's former chief financial
officer, his role in the partnerships, the business relationships and
transactions between Enron and the partnerships, and the economic results of
those transactions as known thus far, and transactions between Enron and certain
other Enron employees. Following is the information that was provided.

       THE LJM LIMITED PARTNERSHIPS AND TRANSACTIONS WITH ENRON. LJM1 and LJM2
(collectively, LJM) are private investment limited partnerships that were formed
in 1999. Andrew S. Fastow was (from inception through July 2001) the managing
member of the general partners of LJM1 and LJM2. Enron believes that the LJM
partnerships have as limited partners a significant number of institutions and
other investors that are not related parties to Enron. These partnerships are a
subject of the Special Committee's investigation and it is possible that this
investigation will identify additional or different information concerning
matters described herein.


                                       18
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Enron, like many other companies, utilizes a variety of structured
financings in the ordinary course of its business to access capital or hedge
risk. Many of these transactions involve "special purpose entities," or "SPEs."
Accounting guidelines allow for the non-consolidation of SPEs with the
sponsoring company's financial statements in certain circumstances. Accordingly,
certain transactions between the sponsoring company and the SPE may result in
gain or loss and/or cash flow being recognized by the sponsor, commonly referred
to by financial institutions as "monetizations."

       The LJM Partnerships. Enron believes that, under the LJM1 and LJM2
limited partnership agreements (as with many similar agreements in private
equity investing), the general partners are entitled to receive a percentage of
the profits in excess of their portions of total capital contributed to the
partnerships depending upon the performance of the partnerships' investments.
Enron also believes that the general partners are entitled to receive annual
management fees based in part on formulas that take into account the total
amount of capital committed and/or invested by the limited partners. Enron now
believes that Mr. Fastow earned in excess of $30 million relating to his LJM
management and investment activities. Enron believes that the initial capital
commitments of all partners to LJM1 were $16 million, and aggregate capital
commitments of all partners to LJM2 were $394 million.

       LJM1 and LJM2 were described to the Enron Board of Directors as potential
sources of capital to buy assets from Enron, potential equity partners for Enron
investments and counterparties to help mitigate risks associated with Enron
investments. The Board also was informed that LJM1 and LJM2 intended to transact
business with third parties. Prior to approving Mr. Fastow's affiliation with
LJM1 and LJM2, the Board determined that Mr. Fastow's participation in the
partnerships would not adversely affect the interests of Enron. The Board
approved the initial transaction with LJM1 and recognized that Enron could (but
was not required to) engage in additional transactions with LJM.

       The Board directed that certain controls be put into place relating to
Mr. Fastow's involvement with the partnerships and transactions between Enron
and the partnerships. The Board required review and approval of each transaction
by the Office of the Chairman, the Chief Accounting Officer and the Chief Risk
Officer. The Board also recognized the ability of the Chairman of the Board to
require Mr. Fastow to resign from the partnerships at any time and directed that
the Audit and Compliance Committee conduct annual reviews of transactions
between Enron and LJM1 and LJM2 completed during the prior year to ensure the
Board's requirements as to controls were met. Whether these controls and
procedures were properly implemented is a subject of the Special Committee's
investigation.

       Enron believes that, as of July 31, 2001, Mr. Fastow sold his interests
in LJM1 and LJM2 to Michael J. Kopper, and that Mr. Fastow ceased to be the
managing member of LJM's general partners. Prior to that time, Mr. Kopper
reported to Mr. Fastow as a non-executive officer of an Enron division. Mr.
Kopper resigned from Enron immediately before Enron believes he purchased Mr.
Fastow's interests in LJM. Mr. Fastow is no longer working for Enron.


                                       19
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       General Summary of LJM Transactions. From June 1999 through September
2001, Enron and Enron-related entities entered into 24 business relationships in
which LJM1 or LJM2 participated. These relationships were of several general
types, including: (1) sales of assets by Enron to LJM2 and by LJM2 to Enron; (2)
purchases of debt or equity interests by LJM1 or LJM2 in Enron-sponsored SPEs;
(3) purchases of debt or equity interests by LJM1 or LJM2 in Enron affiliates or
other entities in which Enron was an investor; (4) purchases of equity
investments by LJM1 or LJM2 in SPEs designed to mitigate market risk in Enron's
investments; (5) the sale of a call option and a put option by LJM2 on physical
assets; and (6) a subordinated loan to LJM2 from an Enron affiliate. The
financial results of these transactions are summarized below.

<TABLE>
<CAPTION>

                                                                                                    Impact of LJM
                                                                                                    Transaction s
                                                                   Cash and                          on Enron's
                                                    LJM           Other Value        LJM Net          Restated
(In Millions)                                   Investment      Received by LJM     Cash Flow     Pre-Tax Earnings
                                                ------------------------------------------------------------------
<S>                                             <C>             <C>                 <C>           <C>
Nine Months Ended September 30, 2001

Sales of Assets                                     $    -           $    -            $    -        $   0.7

Purchases of Equity/Debt in Enron-
 Sponsored Special Purpose Entities                      -             52.5             52.5               -

Investments in Enron Affiliates                        3.4             17.8             14.4               -

Portfolio Special Purpose Entities                       -             75.5             75.5          (166.2)(a)

Call Option                                              -                -                 -              -

Transactions with LJM and Other Entities                 -                -                 -              -

Transaction with LJM and Whitewing                       -                -                 -              -
                                                    --------------------------------------------------------

     Total                                         $  3.4            $145.8           $142.4         $(165.5)
                                                   =========================================================


Nine Months Ended September 30, 2000

Sales of Assets                                    $ 30.0(b)          $   -           $(30.0)        $  67.0

Purchases of Equity/Debt in Enron-
 Sponsored Special Purpose Entities                  83.3              63.0            (20.3)              -

Investments in Enron Affiliates                      64.3              48.9            (15.4)              -

Portfolio Special Purpose Entities                  127.1             109.0            (18.1)           48.6(a)

Call Option                                           8.2               0.9             (7.3)              -

Transactions with LJM and Other Entities              7.5              11.7              4.2               -

Transaction with LJM and Whitewing                       -              -                -                 -
                                                    --------------------------------------------------------

     Total                                         $320.4            $233.5           $(86.9)        $ 115.6
                                                   =========================================================
</TABLE>

(a)   Enron's pre-tax earnings impact of transactions with LJM2 through the
      Raptor SPEs was approximately $545 million and $49 million for the nine
      months ended September 30, 2001 and 2000, respectively, excluding the
      pre-tax charge described below. During the nine months ended September 30,
      2001 and 2000, the Raptor SPEs hedged losses related to Enron investments
      of $453 million and $35 million, respectively. The 2001 pre-tax earnings
      amount includes a $710 million pre-tax charge in the quarter ended
      September 30, 2001 related to the termination of the Raptor SPEs.

(b)   This amount excludes a seller financed note from Enron to LJM of
      approximately $70 million.




                                       20
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                    Impact of LJM
                                                                                                    Transactions
                                                                   Cash and                          on Enron's
                                                    LJM           Other Value        LJM Net          Restated
(In Millions)                                   Investment      Received by LJM     Cash Flow     Pre-Tax Earnings
                                                ------------------------------------------------------------------
<S>                                             <C>             <C>                 <C>           <C>
2000

Sales of Assets                                    $ 30.0(b)         $ 32.4           $  2.4         $  86.6

Purchases of Equity/Debt in Enron-
 Sponsored Special Purpose Entities                 100.7              64.4            (36.3)              -

Investments in Enron Affiliates                      66.5              51.2            (15.3)              -

Portfolio Special Purpose Entities                  127.1             148.5             21.4           532.0(a)

Call Option                                          11.3              12.5              1.2               -

Transactions with LJM and Other Entities              7.5              11.7              4.2               -

Transaction with LJM and Whitewing                   40.3                 -            (40.3)              -
                                                   ---------------------------------------------------------

     Total                                         $383.4            $320.7           $(62.7)        $ 618.6
                                                   =========================================================

1999

Sales of Assets                                     $    -           $    -            $    -        $     -

Purchases of Equity/Debt in Enron-
 Sponsored Special Purpose Entities                  73.8              15.4            (58.4)            2.4

Investments in Enron Affiliates                      44.5               1.0            (43.5)           16.9

Portfolio Special Purpose Entities                   64.0              95.2(c)          31.2               -

Call Option                                              -                -                 -              -

Transactions with LJM and Other Entities                 -                -                 -              -

Transaction with LJM and Whitewing                       -             38.5             38.5               -
                                                    --------------------------------------------------------

     Total                                         $182.3            $150.1           $(32.2)        $  19.3
                                                   =========================================================

Estimated Fair Value of Existing
 LJM Investments                                                                      $ 43.6(d)
                                                                                      ======
</TABLE>

(a)   Enron's pre-tax earnings impact of transactions with LJM2 through the
      Raptor SPEs was approximately $532 million in 2000. During 2000, the
      Raptor SPEs hedged losses related to Enron investments of $501 million.

(b)   This amount excludes a seller financed note from Enron to LJM of
      approximately $70 million.

(c)   This amount represents Enron's estimate of the value received in Enron
      common stock, a portion of which was restricted. The estimate was based on
      a 36% discount off the market price on the date of issuance for shares
      that were restricted and estimated proceeds received by LJM from the sale
      of the unrestricted shares.

(d)   This amount represents Enron's estimated fair value of the six investments
      made by LJM that remained outstanding as of September 30, 2001.


                                       21
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Sales of Assets. In June 2000, LJM2 purchased dark fiber optic cable from
Enron for a purchase price of $100 million. LJM2 paid Enron $30 million in cash
and the balance in an interest-bearing note for $70 million. Enron recognized
$67 million in pre-tax earnings in 2000 related to the asset sale. Pursuant to a
marketing agreement with LJM2, Enron was compensated $20 million for marketing
the fiber to others and other fees for providing operation and maintenance
services to LJM2 with respect to the fiber. This arrangement gave Enron profit
potential in proceeds received after LJM2 achieved a specified return level.
LJM2 sold a portion of the fiber to industry participants for $40 million. LJM2
sold the remaining dark fiber assets for $113 million in December 2000 to an SPE
that was formed to acquire the fiber. In December 2000, LJM2 used a portion of
the proceeds to pay in full the note and accrued interest owed to Enron. At the
time of LJM2's sale of the fiber to the SPE, Enron entered into a derivative
contract which served as credit support for the benefit of some of the debt
holders of a third-party investor in the SPE. This credit support provided the
lender with a specified rate of return. As a result, Enron's credit exposure
under the $70 million note was replaced with $61 million in remaining exposure
under the derivative contract. LJM2 earned $2.4 million on its resale of the
fiber.

       Purchases of Equity/Debt in Enron-Sponsored SPEs. Between September 1999
and December 2000, LJM1 or LJM2 purchased equity or debt interests in nine
Enron-sponsored SPEs. LJM1 and LJM2 invested $175 million in the nine SPEs.
These transactions enabled Enron to monetize assets and generated pre-tax
earnings to Enron of $2 million in 1999.

       Enron believes that LJM received cash of $15 million, $64 million and $53
million in 1999, 2000 and 2001, respectively, relating to its investments in
these entities. In three instances, third-party financial institutions also
invested in the entities. LJM invested on the same terms as the third-party
investors. In one of these nine transactions, Enron entered into a marketing
agreement with LJM2 that provided Enron with the right to market the underlying
equity. This arrangement gave Enron profit potential in proceeds received after
LJM2 achieved a specified return level. In six of these nine transactions, Enron
repurchased all or a portion of the equity and debt initially purchased by LJM.

       The SPEs owned, directly or indirectly, a variety of operating and
financial assets. For example, Yosemite Securities Trust was a finance entity
which facilitated Enron's ability to raise funds in the capital markets through
the use of credit-linked notes, a standard financing arrangement offered by
investment banks. Osprey Trust is beneficially-owned by a number of financial
institutions and is a limited partner in Whitewing Associates, L.P., an Enron
unconsolidated affiliate (Whitewing) (see Note 8). Enron is the other partner.
Whitewing purchased certain Enron investments for future sale.

       In addition, as a result of these transactions, Enron was able to
monetize equity interests with investment banks. These monetizations resulted in
Enron's recognizing $146 million and $5 million in pre-tax earnings in 2000 and
the nine months ended 2001, respectively, and $252 million in cash inflows, all
in 2000.

       Investment in Enron Affiliates. In two transactions, LJM2 made direct and
indirect investments in stock (and warrants convertible into stock) of NPW. NPW
initially was a wholly-owned subsidiary of Enron, subsequently included other
strategic and financial investors, and in October 2000 became a


                                       22
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

public company. NPW is engaged in the retail marketing and sale of natural gas,
electricity and other commodities, products and services to residential and
small commercial customers in the United States. In January 2000, LJM2 invested
$673,000 in Cortez Energy Services LLC (Cortez), a limited liability company
formed by Enron and LJM2, and Enron contributed five million shares of NPW stock
to Cortez. In July 2000, in a private placement, LJM2 purchased warrants
exercisable for NPW stock for $50 million on the same terms as third-party
investors. Enron believes that LJM2 still owns these investments.

       In September 1999, LJM1 acquired from Enron a 13% equity interest in a
company owning a power project in Brazil for $10.8 million, and acquired
redeemable preference shares in a related company for $500,000. Enron recognized
a $1.7 million loss on the sale of these interests to LJM1. Enron recognized
revenues of $65 million, $14 million and $5 million from a commodity contract
with the company owning the power project in 1999, 2000 and 2001, respectively.
As part of an exclusive marketing arrangement to sell LJM1's equity in the
project to third parties and to limit LJM1's return, Enron paid LJM1 a $240,000
fee in May 2000. In 2001, Enron repurchased LJM1's 13% equity interest and the
redeemable preference shares for $14.4 million. Enron currently owns this equity
interest and consolidates the Brazilian company.

       In December 1999, LJM2 paid Enron $30 million for a 75% equity interest
in a power project in Poland. Enron recognized a $16 million gain in 1999 on the
sale. Enron paid $750,000 to LJM2 as an equity placement fee. In March 2000,
Enron repurchased 25% of the equity in the Polish power project from LJM2 for
$10.6 million, and Whitewing acquired the remaining 50% from LJM2 for $21.3
million. Enron and Whitewing still own their respective equity interests.

       In December 1999, LJM2 acquired a 90% equity interest in an Enron entity
with ownership rights to certain natural gas reserves for $3 million. As a
result, Enron recognized $3 million in revenue from an existing commodity
contract. Subsequently, LJM2 assigned a portion of its ownership interest in the
entity to Enron and Whitewing at no cost (to achieve certain after-tax
benefits). Enron believes LJM2 continues to own its remaining interest.

       Portfolio SPEs. Enron and LJM established a series of SPEs to mitigate
market exposures on Enron investments, including investments in NPW, Rhythms
NetConnections, Inc., and other technology, energy, and energy-related
companies. LJM made $191 million in equity investments in five separate SPEs
($127 million in the four Raptor SPEs and $64 million related to the Rhythms
SPE), three of which (Raptor I, II and IV) were also capitalized with Enron
stock and derivatives which could have required the future delivery of Enron
stock. Raptor III was capitalized with an economic interest in warrants
convertible into stock of NPW. The Rhythms SPE is discussed in Note 3 in the
"LJM1 Subsidiary Consolidation" section. Enron subsequently engaged in hedging
transactions with these SPEs, which included price swap derivatives, call
options and put options. The derivatives and options generally were intended to
hedge Enron's risk in certain investments having an aggregate notional amount of
approximately $1.9 billion.

       In the first quarter of 2001, Enron entered into a series of transactions
with the Raptor SPEs that could have obligated Enron to issue Enron common stock
in the future in exchange for notes receivable. These transactions, along with a
transaction entered into in 2000, obligated Enron to deliver up to 30 million
shares of Enron common stock to the Raptor SPEs in March 2005.

                                       23
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Such transactions were to have been accounted for as equity transactions when
settled.

       In the third quarter of 2001, as a result of deterioration in the credit
quality of the Raptor SPEs caused by the decline in Enron and NPW's stock price,
the increase in Raptor's exposure under derivative contracts with Enron and the
increasing dilutive effect on Enron's earnings per share calculation, Enron
acquired LJM2's equity in the SPEs for $35 million and terminated the entities.

       Enron recognized pre-tax earnings (losses) (as restated) relating to risk
management activities of none, $532 million and ($166) million in 1999, 2000 and
2001, respectively, including the effect of a $710 million pre-tax charge
recognized in 2001, related to the decline in credit quality and ultimate
termination of the Raptor SPEs. During 2000 and the nine months ended September
30, 2001, the Raptor SPEs hedged losses of $501 million and $453 million,
respectively. The Rhythms SPE was used to hedge Enron's exposure arising from an
investment in the stock of Rhythms NetConnections, Inc. However, it was
subsequently determined that it did not meet the criteria to qualify as an
adequately capitalized unconsolidated SPE. See Note 3 for a discussion of the
restatements related to the Rhythms SPE.

       In total, LJM1 and LJM2 invested $191 million and received $319 million
(an estimated $95 million of which is non-cash value from the receipt of 3.6
million shares of Enron restricted stock) related to their investments in these
five SPEs.

       Call Option. In May 2000, Enron purchased a call option from LJM2 on two
gas turbines at the same time that LJM2 contracted to purchase the gas turbines
from the manufacturer. Enron paid LJM2 $1.2 million for this right during a
seven-month period in 2000. The call option gave Enron the right to acquire
these turbines from LJM2 at negotiated fair market value, which was $11.3
million. The call option was subsequently assigned from Enron to an
Enron-sponsored SPE capitalized by a third-party financial institution. In
December 2000, the call option was exercised by the SPE, which acquired the
turbines from LJM2 at cost.

       Transactions with LJM and Other Entities. Enron sold its contractual
right to acquire a gas turbine to a utility for $15.8 million in July 2000.
Enron recognized a pre-tax gain of $3.5 million on the transaction. At the same
time, the utility entered into a put option agreement with LJM2 relating to the
turbine under which the utility paid LJM2 $3.5 million. Subsequently, upon the
execution of an engineering, procurement and construction contract with a
wholly-owned subsidiary of Enron, the utility assigned the contractual right to
acquire the gas turbine to that subsidiary.

       In December 1999, Enron sold an equity investment in Enron Nigeria Barge
Ltd. to an investment bank and provided seller financing. In June 2000, LJM2
purchased this equity investment directly from the investment bank for $7.5
million and the assumption of the seller-financed note from Enron. In September
2000, LJM2 sold the equity investment to an industry participant for $31.2
million. The proceeds from LJM2's sale were used by LJM2 to repay the principal
and interest on the note from Enron in the amount of $23.0 million. The
remaining $8.2 million repaid LJM2's $7.5 million purchase price and provided a
profit of $700,000 to LJM2.

       Transaction between LJM and Whitewing. In December 1999, a wholly-owned
subsidiary of Whitewing entered into a $38.5 million credit agreement with


                                       24
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LJM2, the borrower. The loan had a term of one year and carried an interest rate
of LIBOR+2.5%. The loan amount (including interest) of $40.3 million was repaid
by LJM2 in 2000.

       Currently Outstanding LJM2 Transactions. Enron believes that LJM2
currently has interests in six of the investments described above in which LJM2
originally invested $124 million, and that LJM2 has received cash inflows of $27
million from these investments. These investments include $23 million in equity
in two Enron-sponsored SPEs, $32.5 million in equity in Osprey Trust, $3 million
in equity in an Enron affiliate and $50.7 million in direct equity investments
in NPW (representing two transactions).

       Enron and LJM2 also entered into various agreements relating to cash
management services, employee services and office space provided by Enron to
LJM2. In addition, Enron paid LJM2 a management fee for certain transactions,
and other transaction fees described above. Enron also reimbursed LJM2 for
transaction-related expenses (such as legal and tax fees and other costs)
associated with some of the transactions described above.

       OTHER EMPLOYEE TRANSACTIONS. From June 1993 through November 1997, an
Enron subsidiary was the general partner of JEDI and a third-party, the
California Public Employees' Retirement System (CalPERS), was the limited
partner. In November 1997, JEDI made a liquidating distribution to CalPERS of
$383 million. Concurrently, Chewco purchased a limited partnership interest in
JEDI for $383 million, $132 million of which was financed by an interest-bearing
loan from JEDI to Chewco, and $240 million of which was borrowed from a
third-party financial institution (supported by a guarantee from Enron). The
balance of the transaction (approximately $12 million) was principally funded by
a contribution from a third party. Enron has subsequently determined that a
portion of this contribution was cash collateralized. Based on current
information, Enron believes that a non-executive officer of an Enron division,
Michael J. Kopper, was an investor in the general partner of Chewco and, at the
time of the purchase, also was the manager of the Chewco general partner. These
events resulted in inadequate capitalization of Chewco to meet the SPE
accounting guidelines. The restatement resulting from the Chewco transaction is
discussed in Note 3.

       From December 1997 to December 2000, Chewco received distributions of
$433 million from JEDI. Among other things, Chewco used a portion of these
distributions to make repayments on its JEDI loan and to repay an additional
borrowing from the third-party financial institution.

       In December 1999, Chewco purchased a $15 million equity interest in
Osprey Trust, an Enron-sponsored SPE, from LJM1.

       In March 2001, Enron purchased Chewco's limited partnership interest in
JEDI for $35 million. In September 2001, Enron paid an additional $2.6 million
to Chewco in connection with a tax indemnification agreement between JEDI,
Chewco and Enron. Of the total purchase consideration, $26 million was used by
Chewco to make a payment on the JEDI loan. Chewco currently has an outstanding
balance due on the JEDI loan of $15 million. JEDI is currently a wholly-owned
subsidiary of Enron.

       Enron now believes that Mr. Kopper also was the controlling partner of a
limited partnership that (through another limited partnership) purchased
interests in affiliated subsidiaries of LJM1 in March 2000. Enron also now
believes that four of the six limited partners of the purchaser were, at the
time of the investment, non-executive officers or employees of Enron, and a


                                       25
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

fifth limited partner was an entity associated with Mr. Fastow. These officers
and employees, and their most recent job titles with Enron, were Ben Glisan,
Managing Director and Treasurer of Enron Corp.; Kristina Mordaunt, Managing
Director and General Counsel of an Enron division; Kathy Lynn, Vice President of
an Enron division; and Anne Yaeger, a non-officer employee. Enron has terminated
the employment of Mr. Glisan and Ms. Mordaunt. Ms. Lynn and Ms. Yaeger are no
longer associated with Enron and Enron believes they are now associated with
LJM2. At the time these individuals invested in the limited partnership, LJM1
had ceased entering into new transactions with Enron. However, some pre-existing
investments involving LJM1 and Enron were still in effect, and Enron believes
that these investments resulted in distributions or payments to LJM1 and to the
limited partnership in which these individuals invested.

       Pursuant to a services agreement among Enron, LJM1 and LJM2, Enron made
available to LJM1 and LJM2 a portion of the time of certain of its employees to
provide administrative assistance to the general partners of LJM1 and LJM2. Mr.
Kopper, Ms. Lynn and Ms. Yaeger, among other Enron employees, were made
available to LJM1 or LJM2 from time to time during their employment by Enron.

       OTHER TRANSACTIONS. In the first nine months of 2001, Enron received
approximately $241.8 million from Whitewing, an unconsolidated equity affiliate,
related to monetizations. During the first nine months of 2001, Enron acquired
investments from Whitewing for approximately $28.8 million. No gains were
recorded by Enron in connection with these transactions. Management believes
that the terms of these transactions are reasonable compared to those which
could have been negotiated with third parties.

5.     SUPPLEMENTAL CASH FLOW INFORMATION

       Net cash paid for income taxes for the first nine months of 2001 and 2000
was $168 million and $37 million, respectively. Cash paid for interest for the
same periods, net of amounts capitalized, was $640 million and $573 million,
respectively.

       BUSINESS ACQUISITIONS. In September 2001, Retail Services contributed
subsidiary companies with net book value of $103 million in the formation of a
new company, ServiceCo Holdings Inc. (ServiceCo). Also contributing to the
formation of ServiceCo was a third party financial investor and technology
partner. ServiceCo provides facility management services to retail customers.
Retail Services received an 86% interest in ServiceCo in return for its
contributions.

       In the third quarter of 2000, Enron, through a wholly-owned subsidiary,
acquired all of the outstanding common shares of MG plc, a leading independent
international metals market-making business that provides financial and
marketing services to the global metals industry, for approximately $413 million
in cash. Enron recorded goodwill of approximately $354 million. As of the date
of acquisition, MG plc's balance sheet primarily consisted of approximately $1.7
billion of metals inventory and $1.6 billion of short-term debt.

       In 2000, Enron entered into an agreement with Azurix Corp. (Azurix) under
which the holders of Azurix's approximately 39 million publicly traded shares
would receive cash of $8.375 in exchange for each share. On March 16, 2001,
Azurix shareholders approved the agreement whereby Enron paid approximately $330
million for an equivalent number of shares held by the public and all publicly
traded shares of Azurix were redeemed.


                                       26
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       OTHER. In September 2001, Enron acquired LJM's interests in the four
Raptor SPEs for $35 million (see Note 3 "Description of Restatement Items" and
Note 4).

6.     LITIGATION AND OTHER CONTINGENCIES

       Enron is a party to various claims and litigation, the significant items
of which are discussed below.

RECENT SECURITIES, FRAUD AND DERIVATIVE LAWSUITS

       Since October 16, 2001, multiple class action lawsuits have been filed
against Enron and certain current and former officers and/or directors (the
Defendants) in the District Court for the Southern District of Texas. The
lawsuits allege that the Defendants violated sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and rule 10b-5 promulgated thereunder, by
issuing a series of material misrepresentations to the market during different
class periods ranging from June 1, 1999 to October 30, 2001, thereby
artificially inflating the price of Enron common and/or preferred stock. The
lawsuits generally claim that the alleged misrepresentations and omissions
involved the Broadband Services Division, transactions with the LJM entities and
Azurix and Enron's accounting for various transactions. The plaintiffs generally
seek to recover compensatory damages, expert fees, attorney's fees, costs of
court and pre- and post-judgment interest. Enron expects that these lawsuits
will be consolidated into a single action and Enron intends to vigorously defend
these lawsuits.

       Enron also is a nominal defendant in numerous shareholder derivative
lawsuits pending in state courts in Texas and Oregon and in the United States
District Court for the Southern District of Texas. These lawsuits, which were
filed after October 16, 2001, purport to assert derivative claims on behalf of
Enron against certain current and/or former officers and directors of Enron,
outside firms providing professional services to Enron and various other
companies. The claims asserted in these lawsuits include breach of the duty of
disclosure, abuse of control, fraud, unjust enrichment and money had and
received. The plaintiffs seek actual and punitive damages, restitution, a
constructive trust, an accounting, injunctive relief, attorney's fees, expert
fees, pre- and post-judgment interest and court costs. These lawsuits were filed
very recently and Enron is investigating its responsibilities with respect to
them. Enron has also received requests from shareholders under Section 16(b) of
the Securities Exchange Act of 1934 to recover short-swing profits from
officers, directors and certain other parties. Enron is currently investigating
these requests.

       On November 12, 2001, a shareholder filed a class action in state court
in Houston, Texas against Enron, its directors and Dynegy, seeking to enjoin the
merger between Enron and Dynegy. The petition alleges that Enron's directors
breached their fiduciary duties to Enron's shareholders by agreeing to sell
Enron for inadequate consideration, for improper purposes and without an
adequate investigation of the alternatives available to Enron. The shareholder
seeks to enjoin the merger. Enron intends to vigorously defend this lawsuit.

       Although the outcome of these various lawsuits cannot be determined, the
resolution of these matters could well have material impact on Enron's financial
condition and/or results of operations. The cost of any resolution is not
currently estimable. In addition, as explained in Note 2 (see "Merger with
Dynegy and Related Equity Financing"), the completion of the merger with


                                       27
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dynegy is conditioned on the absence of any event after November 9, 2001 that
would have a material adverse effect on Enron. Pursuant to the merger agreement,
if Enron's liabilities and expenses from and after November 9, 2001 associated
with all pending or threatened litigation matters, in the reasonable judgment of
Dynegy exceed, or are reasonably likely to exceed, $2 billion in the aggregate
(net of proceeds of insurance and litigation reserves reflected in Enron's
financial statements), the amount of such excess over $2 billion will be taken
into account in determining whether a material adverse effect on Enron has
occurred, and, in any event, if the amount of such excess exceeds, or is
reasonably likely to exceed, $1.5 billion, a material adverse effect on Enron
will be deemed to have occurred.

OTHER LITIGATION

       Intratex. In 1995, a number of parties (the Plaintiffs) filed suit in
Harris County District Court in Houston, Texas, against Intratex Gas Company
(Intratex), Houston Pipe Line Company and Panhandle Gas Company (collectively,
the Enron Defendants), each of which is a wholly-owned subsidiary of Enron. The
Plaintiffs were either sellers or royalty owners under numerous gas purchase
contracts with Intratex, many of which have terminated. Early in 1996, the case
was severed by the Court into two matters to be tried (or otherwise resolved)
separately. In the first matter, the Plaintiffs alleged that the Enron
Defendants committed fraud and negligent misrepresentation in connection with
the "Panhandle program," a special marketing program established in the early
1980s. This case was tried in October 1996 and resulted in a verdict for the
Enron Defendants. In the second matter, the Plaintiffs allege that the Enron
Defendants violated state regulatory requirements and certain gas purchase
contracts by failing to take the Plaintiffs' gas ratably with other producers'
gas at certain times between 1978 and 1988. The trial court certified a class
action with respect to ratability claims. On March 9, 2000, the Texas Supreme
Court ruled that the trial court's class certification was improper and remanded
the case to the trial court. The case was then severed again into two lawsuits
asserting two separate theories of recovery. The trial court granted summary
judgment in favor of the Enron Defendants in one of the lawsuits. The Plaintiffs
have appealed. The Enron Defendants deny the Plaintiffs' claims and have
asserted various affirmative defenses, including the statute of limitations. The
Enron Defendants believe that they have strong legal and factual defenses, and
intend to vigorously contest the claims. Although no assurances can be given,
Enron believes that the ultimate resolution of these matters will not have a
material adverse effect on its financial position or results of operations.

       San Juan Gas. On November 21, 1996, an explosion occurred in the Humberto
Vidal Building in San Juan, Puerto Rico. The explosion resulted in fatalities,
bodily injuries and damage to the building and surrounding property. San Juan
Gas Company, Inc. (San Juan Gas), an Enron affiliate, operated a propane/air
distribution system in the vicinity, but did not provide service to the
building. Enron, San Juan Gas, four affiliates and their insurance carriers were
named as defendants, along with several third parties, including The Puerto Rico
Aqueduct and Sewer Authority, Puerto Rico Telephone Company, Heath Consultants
Incorporated, Humberto Vidal, Inc. and their insurance carriers, in numerous
lawsuits filed in U.S. District Court for the District of Puerto Rico and the
Superior Court of Puerto Rico. These suits seek damages for wrongful death,
personal injury, business interruption and property damage allegedly caused by
the explosion. After nearly four years without determining the cause of the
explosion, all parties agreed not to litigate further that issue, but to move
these suits toward settlements or trials to determine whether each plaintiff was
injured as a result of the explosion and, if so, the lawful damages attributable
to such injury. The

                                       28
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

defendants agreed on a fund for settlements or final awards. Numerous claims
have been settled and ten cases involving 18 plaintiffs were scheduled for trial
in the United States District Court beginning on December 10, 2001. Five of
these cases involving 11 plaintiffs have been resolved. No cases have yet been
scheduled for trial in the Superior Court. Although no assurances can be given,
Enron believes that the ultimate resolution of these matters will not have a
material adverse effect on its financial position or results of operations.

       Trojan Investment Recovery. In early 1993, PGE ceased commercial
operation of the Trojan nuclear power generating facility. The Oregon Public
Utility Commission (OPUC) granted PGE, through a general rate order, recovery
of, and a return on, 87 percent of its remaining investment in Trojan.

       The OPUC's general rate order related to Trojan has been subject 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
Utility Board (CUB).

       In August 2000, PGE entered into agreements with the CUB and the staff of
the OPUC to settle the litigation related to PGE's recovery of its investment in
the Trojan plant. Under the agreements, the CUB agreed to withdraw from the
litigation and to support the settlement as the means to resolve the Trojan
litigation. The OPUC approved the accounting and ratemaking elements of the
settlement on September 29, 2000. As a result of these approvals, PGE's
investment in Trojan is no longer included in rates charged to customers, either
through a return on or a return of that investment. Collection of ongoing
decommissioning costs at Trojan is not affected by the settlement agreements or
the September 29, 2000 OPUC order. With the CUB's withdrawal, the URP is the one
remaining significant adverse party in the litigation. The URP has indicated
that it plans to continue to challenge the settlement and the original OPUC
order allowing PGE recovery of and a return on its investment in Trojan.
Although no assurances can be given, Enron believes that the ultimate resolution
of these matters will not have a material adverse effect on its financial
position or results of operations.

       Azurix Litigation. In October 2000, several class actions were filed
against Enron, Azurix and several of Enron's officers and directors, alleging
that some or all of the defendants violated Section 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 11, 12
and 15 of the Securities Act of 1933. The plaintiffs alleged that defendants
made misrepresentations and omissions related to Azurix's performance between
June 9, 1999 and August 8, 2000. The lawsuits were consolidated into one lawsuit
in the United States District Court for the Southern District of Texas. The
plaintiffs seek rescission and compensatory damages, expert fees and attorney's
fees. The defendants have moved to dismiss this lawsuit. Enron intends to
vigorously defend this lawsuit. Although no assurances can be given, Enron
believes that the ultimate resolution of these matters will not have a material
adverse effect on its financial position or results of operations.

OTHER CONTINGENCIES

       Environmental Matters. Enron is subject to extensive federal, state and
local environmental laws and regulations. These laws and regulations require
expenditures in connection with the construction of new facilities, the
operation of existing facilities and for remediation at various operating

                                       29
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

sites. The implementation of the Clean Air Act Amendments is expected to result
in increased operating expenses. These increased operating expenses are not
expected to have a material impact on Enron's financial position or results of
operations.

       Enron's natural gas pipeline companies conduct soil and groundwater
remediation on a number of their facilities. Enron does not expect to incur
material expenditures in connection with soil and groundwater remediation.

       Enron has received a request for information from the Environmental
Protection Agency (EPA) asking for data regarding certain spills and discharges
since 1998 on oil pipelines operated by Enron and its subsidiaries. EOTT Energy
Partners, L.P. (EOTT), an unconsolidated affiliate of Enron, is the only entity
that has extensive domestic oil pipeline operations, and Enron's response will
include information on EOTT pursuant to the request. The responsive information
was originally to be filed with the EPA on or prior to November 7, 2001. In
October 2001, Enron received an extension from the EPA to file the responsive
information on or before January 31, 2002. Enron cannot predict the outcome of
the EPA inquiry but believes that the ultimate outcome will not have a material
adverse effect on its financial position or results of operations.

       Developments in the California Power Market. During 2000, prices for
wholesale electricity in California significantly increased as a result of a
combination of factors, including higher natural gas prices, reduction in
available hydroelectric generation resources, increased demand, over-reliance on
the spot market for electricity and limitations on supply. California's
regulatory regime instituted in 1996 permitted wholesale price increases but
froze retail prices below market levels. The resulting disparity between costs
of supply and customer revenues caused two of California's public utilities,
Pacific Gas & Electric Company (PG&E) and Southern California Edison Company
(SCE), to accrue substantial unrecovered wholesale power costs and certain
obligations related to the difference between third party power purchase costs
and frozen rates charged to retail customers. PG&E and SCE have defaulted on or
are challenging payments owed for certain outstanding obligations, including
wholesale power purchased through the California Power Exchange (the Power
Exchange), from the California Independent System Operator (the Independent
System Operator), and from qualifying facilities. In addition, PG&E and the
Power Exchange each have filed a voluntary petition for bankruptcy.

       Various legislative, regulatory and legal remedies to the energy
situation in California have been implemented or are being pursued, and may
result in restructuring of markets in California and elsewhere. Additional
initiatives are likely at the Federal, state and local level, but it is not
possible to predict their outcome at this time.

       Enron has entered into a variety of transactions with California
utilities, the Power Exchange, the Independent System Operator, end users of
energy in California, and other third parties, and is owed amounts by certain of
these entities. Enron has established reserves related to such activities and
believes that the combination of such reserves in accounts receivables and other
credit offsets with such parties are adequate to cover its exposure to
developments in the California power market. Due to the uncertainties involved,
the ultimate outcome of the California power situation cannot be predicted, but
Enron believes these matters will not have a material adverse impact on Enron's
financial position or results of operations.


                                       30
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       India. Enron indirectly owns 50% of the net voting interest in Dabhol
Power Company (Dabhol), which owns a 740 megawatt power plant and is
constructing an additional 1,444 megawatt power plant together with an LNG
regasification facility (collectively Phase II) in India. Enron accounts for its
investment in Dabhol under the equity method and the debt of Dabhol is
non-recourse to Enron. As of September 30, 2001, Enron's investment in and
advances to Dabhol and related activities was $1.2 billion. This amount is
included in "non-core businesses" as discussed in Note 2.

       Dabhol has been in dispute with the Maharashtra State Electricity Board
(MSEB), the purchaser of power from Dabhol, and the Government of Maharashtra
(GOM) and the federal government of India (GOI), the guarantors of payments by
the MSEB pursuant to the terms and conditions of the power purchase agreements
(PPA) and the other project documents. The contract disputes relate principally
to (a) the failure by the MSEB to pay certain capacity and energy payments under
the PPA, and the failure of the GOM and GOI to satisfy certain guarantee
obligations under the project documents and (b) MSEB's statements that MSEB has
"rescinded" the PPA and MSEB is therefore no longer bound by the PPA. As a
result of such disputes, the 740 megawatt power plant is not being dispatched by
MSEB, the Phase II lenders have stopped funding the continued construction of
Phase II, the construction contractors have terminated the construction
contracts for non-payment and Dabhol has suspended all construction activities.
Additionally, the lenders to Dabhol have assumed control of Dabhol's bank
accounts in order to monitor the use of its remaining available funds. There is
no assurance that Dabhol will be able to resolve the disputes with MSEB, GOM and
GOI to its favor and to successfully collect on and to enforce any judgment or
settlement. However, Dabhol believes that the MSEB's actions are in clear
violation of the terms of the PPA, and Dabhol intends to pursue all available
legal remedies under the project documents which would entitle Enron to receive
an amount in excess of its investment.

       On November 5, 2001, Dabhol delivered notice stating its intent to sell
and transfer the power plant and the LNG regasification facility to MSEB
pursuant to the provisions of the PPA. Most recently, certain of the Indian
financial institutions providing loans to the project have obtained court orders
temporarily preventing Dabhol from terminating the PPA. These same lenders are
seeking broader orders requiring Dabhol to restart the power plant pending the
resolution of disputes between Dabhol and MSEB. In addition, the India
Commissioner of Customs has recently passed orders adversely altering the custom
duty rates applicable to substantial portions of the project and other rulings
detrimental to the project. Dabhol intends to appeal these orders. Based on the
latest developments, Enron cannot predict the outcome of this dispute. However,
the ultimate outcome of these proceedings or negotiations may have a material
adverse effect on Enron's financial position and results of operations.

7.     SALE OF PORTLAND GENERAL

       On October 5, 2001, Enron entered into an agreement with Northwest
Natural Gas Company (NW Natural) for the sale of Portland General for $1.9
billion, comprised of $1.55 billion in cash, $200 million in NW Natural
preferred stock and common stock purchase units, $50 million in NW Natural
common stock and the assumption of Enron's $75 million balance on its customer
benefits obligation, which was stipulated in its 1996 agreement to purchase
Portland General. In addition to the purchase price, NW Natural will assume
approximately $1.1 billion in Portland General debt and preferred stock. The
proposed transaction, which is subject to customary regulatory approvals, is
expected to close by the fourth quarter of 2002; however, no assurances can be


                                       31
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


given that such regulatory approvals will be obtained. Enron currently believes
that the after-tax gain on the sale of Portland General will not be material.
However, certain regulatory and other contingencies could negatively impact
Enron's current estimate. Enron's carrying amount of Portland General as of
September 30, 2001 was approximately $1.6 billion. Income before interest,
minority interest and income taxes for Portland General was $108 million and
$241 million for the nine month periods ended September 30, 2001 and 2000,
respectively.

8.       UNCONSOLIDATED EQUITY AFFILIATES

       Summarized below is a description related to two of Enron's
unconsolidated equity affiliates for which Enron has committed to issue equity
to satisfy obligations of these equity affiliates. As discussed in Note 2,
Enron's current common share stock price, liquidity situation and credit ratings
may significantly impact Enron's ability to satisfy these obligations solely
with equity issuances.

       WHITEWING ASSOCIATES L.P. Whitewing is an entity formed by Enron and
various investors, investing through an entity named Osprey, to acquire and own
energy-related assets and other investments. Osprey is capitalized with
approximately $2.4 billion in debt and $220 million in equity. The Osprey debt
is supported by the assets within Whitewing, which include Enron Mandatorily
Convertible Junior Preferred Stock, Series B (which is convertible into 50
million shares of Enron common stock), and a contingent obligation of Enron to
issue additional shares, if needed, to retire such debt obligation. In the event
that the sale of equity is not sufficient to retire such obligations, Enron is
liable for the shortfall.

       At November 16, 2001, Whitewing held assets with a book value of
approximately $4.7 billion. This includes approximately $1.3 billion in energy
related projects in Europe and South America, including European power plants,
and an electric distribution company in Brazil, approximately $600 million of
merchant investments, approximately $600 million in demand notes due from Enron
and other assets of $100 million. The merchant portfolio includes both private
and publicly traded entities and consists of oil and gas investments, power
generation and energy investments and technology related and other investments.
In addition, Whitewing holds Mandatorily Convertible Junior Preferred Stock,
Series B, mentioned above, and a contingent obligation of Enron to issue
additional shares, if needed, which together have a combined book value of
approximately $2.1 billion. This contingent obligation is in the form of a
derivative instrument. As such, both Enron and Whitewing account for this
contingent obligation at fair value. As a result, Enron recognizes losses
associated with this obligation as a reduction of "Revenues" in the accompanying
consolidated income statement. However, the loss is offset as Enron recognizes
its share of Whitewing's earnings through "Equity in Earnings of Unconsolidated
Affiliates" in the accompanying consolidated income statement. As of September
30, 2001, the amount due Whitewing under such derivative totaled approximately
$1.0 billion and is included in "Other Liabilities" in the accompanying
consolidated balance sheet. Such amount has increased by approximately $600
million as a result of the decline in Enron's common stock price subsequent to
September 30, 2001 through November 16, 2001. Based on the subsequent decline in
the Enron stock price through November 16, 2001, there would currently exist an
approximate $700 million pre-tax charge to earnings due to the shortfall in the
recovery of Enron's book investment. Enron is currently evaluating the fair
value of Whitewing's other assets mentioned above in conjunction with the
restructuring plan discussed in Note 2



                                       32
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which will impact the amount of any writedown of Enron's investment in
Whitewing, possibly as early as the fourth quarter.

       ATLANTIC WATER TRUST. Atlantic Water Trust is an entity formed by Enron
and unrelated institutional investors, investing through an entity named Marlin,
for the purpose of acquiring and holding an interest in Azurix Corp. (Azurix).
The primary asset of Azurix is Wessex Water Services Ltd. (Wessex), a regulated
water utility in the UK. Atlantic Water Trust currently owns 67% of Azurix, with
Enron owning the remaining 33%. Marlin was capitalized with approximately $915
million in debt and $125 million in equity. The Marlin debt is supported by the
assets of Atlantic Water Trust and Enron's contingent obligation to cause the
sale of Enron equity, if needed, in an amount sufficient to retire such
obligations. In the event that the sale of equity is not sufficient to retire
such obligations, Enron is liable for the shortfall.

       DESCRIPTION OF TRIGGER EVENTS. Osprey and Marlin's debt obligations
contain certain "Note Trigger Events" to protect the note holders, including (i)
an Enron senior unsecured debt rating below investment grade by any of the three
major credit rating agencies concurrent with an Enron stock closing price of
$59.78 per share or below in the case of Osprey and $34.13 per share or below in
the case of Marlin; (ii) a cross default to Enron senior obligations in excess
of $50 million and $100 million for Osprey and Marlin, respectively; and (iii)
the requirement that an amount sufficient to redeem the notes be deposited with
a trustee 120 days prior to maturity dates of January 15, 2003 and July 15, 2003
for Osprey and Marlin, respectively. As of November 16, 2001 the Enron stock
closing price was $9.00 per share.

       In the event a Note Trigger Event was to occur, Enron has 21 days to file
a registration statement for the issuance of equity to repay the notes and such
registration statement has 90 days from the Note Trigger Event to become
effective. Any Enron registration statement filed cannot become effective until
Enron files its restated audited consolidated financial statements which is not
expected until completion of the Special Committee investigation. In the event
that Enron does not file its registration statement or the registration
statement is not effective during the respective time requirements, Enron must
pursue a private placement of equity, if permitted. If Enron cannot timely sell
equity in an amount sufficient to repay the notes, Enron is obligated to pay the
difference in cash.

       In the event that Enron fails to pay any debt obligations when due,
including when such obligations may be accelerated, or is unable to refinance or
obtain a waiver of or amendment to such obligations, a series of events would
begin which could impact Enron's compliance with the terms of its Revolving
Credit Agreements and certain other obligations, including bank debt facilities.

       Either as a result of the restructuring plan discussed in Note 2 or to
raise cash to repay Enron's obligations discussed above, Enron may sell the
assets of Whitewing and/or Atlantic Water Trusts for amounts below their
carrying values. The net proceeds from the sale of such assets can be used to
repay Enron's obligations discussed above. Accordingly, Enron may be required to
record asset writedowns, possibly as early as the fourth quarter of 2001.


                                       33
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.     MINORITY INTERESTS

       Enron consolidates a limited partnership (the Limited Partnership), for
which the consolidated third party's ownership interest is reflected in minority
interests on Enron's balance sheet in the amount of $691 million at September
30, 2001. The Limited Partnership assets include a $690 million note payable
from Enron and certain merchant investments, both domestic and international.
Enron anticipates the receipt of approximately $250 million from the sale of one
of the Limited Partnership's investments, a local gas distribution company in
Brazil, upon the closing of the sale which is pending certain regulatory and
other approvals. Enron may be required to use the net proceeds upon the closing
of the sale, or a portion thereof, to repay a portion of the note payable.

       The November 12, 2001 downgrade in Enron's senior unsecured debt rating
to BBB- by Standard & Poor's has caused a ratings event related to the Limited
Partnership. This ratings event started a nine business day period during which
Enron has the right, until November 26, 2001, to post an unsecured letter of
credit equal to Enron's note payable, to repay the note payable with the Limited
Partnership investing such proceeds in permitted investments, or to purchase the
investors' interest in the Limited Partnership. To the extent that Enron does
not satisfy this requirement by November 27, 2001, the investors have the right
to immediately begin to liquidate the Limited Partnership assets. Additionally,
as a result of the rating downgrade, the investors, subject to certain actions,
are able to accelerate and assign the note payable. Consistent with the
restructuring plan discussed in Note 2, Enron is currently working with the
lenders to develop a mutually acceptable amendment or waiver to the transaction
documents in order to avoid an early Enron payment obligation.

       Either as a result of the restructuring plan discussed in Note 2 or to
raise cash to repay Enron's obligation discussed above, Enron may sell the
Limited Partnership assets for amounts below their carrying values. The net
proceeds from the sale of such assets can be used to repay Enron's obligation.
Accordingly, Enron may be required to record asset writedowns, possibly as early
as the fourth quarter of 2001.

       It is not possible to predict whether Enron will be able to favorably
complete the actions described above. In the event that Enron fails to pay any
debt obligations when due, including when such obligations may be accelerated,
or is unable to refinance or obtain a waiver of its obligations, a series of
events would begin which could impact Enron's compliance with the terms of its
Revolving Credit Agreements and certain other obligations, including bank debt
facilities.



                                       34
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.    EARNINGS PER SHARE

       The computation of basic and diluted earnings per share is as follows (in
millions, except per share amounts):


<TABLE>
<CAPTION>
                                                                                            Nine Months Ended
                                                                   Third Quarter               September 30,
                                                             ---------------------------------------------------
                                                                2001         2000(b)        2001(b)      2000(b)
                                                             ---------------------------------------------------
<S>                                                          <C>             <C>            <C>          <C>
Numerator:
     Basic
         Income (loss) before cumulative effect
          of accounting changes                                 $(644)       $ 303          $ 206        $ 797
         Preferred stock dividends:
              Second preferred stock                               (4)          (5)           (12)         (13)
              Series B Preferred Stock                            (16)         (16)           (49)         (49)
                                                              -------------------------------------------------
         Income (loss) available to common
          shareholders before cumulative
          effect of accounting changes                           (664)         282            145          735
         Cumulative effect of accounting
          changes                                                   -            -             19            -
                                                              -------------------------------------------------
         Income (loss) available to common
          shareholders                                          $(664)       $ 282          $ 164        $ 735
                                                              =================================================
Diluted
         Income (loss) available to common
          shareholders before cumulative
          effect of accounting changes                          $(664)       $ 282          $ 145        $ 735
         Effect of assumed conversion
          of dilutive securities(a):
              Second preferred stock                                -            5              -           13
              Series B Preferred Stock                              -           16              -           49
                                                              -------------------------------------------------
         Income (loss) before cumulative effect
          of accounting changes                                  (664)         303            145          797
         Cumulative effect of accounting
          changes                                                   -            -             19            -
                                                              -------------------------------------------------
         Income (loss) available to common
          shareholders after assumed
          conversions                                           $(664)       $ 303          $ 164        $ 797
                                                              =================================================
Denominator:
     Denominator for basic earnings per
      share - weighted-average shares                             761          729            753          719
     Effect of assumed conversion of
      dilutive securities(a):
         Preferred stock:
              Second preferred stock                                -           35              -           35
              Series B Preferred Stock                              -           50              -           50
         Stock options                                              -           44             23           44
         Equity instruments                                         -            -             30            -
                                                              -------------------------------------------------
     Dilutive potential common shares                               -          129             53          129
                                                              -------------------------------------------------
     Denominator for diluted earnings per
      share - adjusted weighted-average
      shares and assumed conversions                              761          858            806          848
                                                              =================================================
Basic earnings (loss) per share:
     Before cumulative effect of
       accounting changes                                     $ (0.87)       $0.39          $0.19        $1.02
     Cumulative effect of accounting
      changes                                                       -            -           0.03            -
                                                              -------------------------------------------------
Basic earnings (loss) per share                               $ (0.87)       $0.39          $0.22        $1.02
                                                              =================================================
Diluted earnings (loss) per share:
     Before cumulative effect of
      accounting changes                                      $ (0.87)       $0.35          $0.18        $0.94
     Cumulative effect of accounting
      changes                                                       -            -           0.02            -
                                                              -------------------------------------------------
     Diluted earnings (loss) per share                        $ (0.87)       $0.35          $0.20        $0.94
                                                              =================================================
</TABLE>

(a)  For the three months ended September 30, 2001, the dividends and conversion
     of the second preferred stock and the Series B Preferred Stock, stock
     options and equity instruments have been excluded from the computation
     because they are anti-dilutive. For the nine months ended September 30,
     2001, the dividends and conversion of the second preferred stock and the
     Series B Preferred Stock have been excluded from the computation because
     they are anti-dilutive.

(b)  Restated (see Note 3).



                                       35
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.    COMPREHENSIVE INCOME

       Comprehensive income (loss) includes the following (in millions):


<TABLE>
<CAPTION>
                                                                                      Nine Months Ended
                                                            Third Quarter                September 30,
                                                      ----------------------------------------------------
                                                          2001        2000(a)        2001(a)      2000(a)
                                                      ---------------------------------------------------
<S>                                                   <C>             <C>            <C>           <C>
Net income (loss)                                        $(644)       $ 303          $ 225         $ 797
Other comprehensive income (loss)
 (net of tax):
     Foreign currency translation
      adjustment                                            48         (117)          (301)(b)      (286)
     Derivative instruments:
         Cumulative effect of
          accounting changes                                 -            -             25             -
         Deferred gain on derivative
          instruments associated with
          hedges of future cash flows                       17            -             (5)            -
         Recognition in earnings of
          previously deferred losses
          related to derivative
          instruments used as cash
          flow hedges                                      (34)           -            (55)(c)         -
         SFAS 71 deferral of net gains
          to regulatory asset                               12            -             12             -
     Change in value of available-
      for-sale investments                                 (16)          (8)            (5)          (22)
                                                         -----------------------------------------------
Total comprehensive income (loss)                        $(617)       $ 178          $(104)        $ 489
                                                         ===============================================
</TABLE>

(a)  Restated (see Note 3).

(b)  Change primarily reflects the decline in value of the Brazilian real and
     the British Pound.

(c)  Includes an after-tax gain of $10 million related to the discontinuation of
     a cash flow hedge on a forecasted transaction that became probable of not
     occurring.

     The accumulated other comprehensive income at September 30, 2001 was a $1.5
billion reduction in Shareholders' Equity. Of this amount, $1.1 billion relates
to currency translation impacts for assets in Brazil.

12.    BUSINESS SEGMENT INFORMATION

       As discussed in Note 2, management is in the process of dividing Enron
into three fundamental groups of businesses - Core, Non-Core and Under Review.
The following business segment information does not reflect the results of this
on-going evaluation.

       As discussed in Note 3, the Consolidated Financial Statements included
herein have been adjusted to reflect the impacts of the anticipated restatements
based on Enron's current understanding of the relevant facts. The following
business segment information reflects the impact of such adjustments.

       Enron's business is divided into reporting segments, defined as
components of an enterprise about which financial information is available and
evaluated regularly by the Office of the Chairman, which serves as the chief
operating decision making group.


                                       36
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       In August 2001, after Jeff Skilling resigned from his position as CEO,
Ken Lay, Chairman of the Board, assumed the additional responsibilities of CEO.
In addition, Greg Whalley and Mark Frevert were promoted to president and chief
operating officer and vice chairman, respectively, and joined Mr. Lay in the
Office of the Chairman. The Office of the Chairman serves as Enron's chief
operating decision maker in allocating resources to and assessing the
performance of its business units. In connection with these events, Enron
reorganized the manner in which its business units report to the Office of the
Chairman. Enron's new reporting segments are Wholesale - Americas, Wholesale -
Europe and Other Commodity Markets, Retail Services, Natural Gas Pipelines,
Portland General, Global Assets, Broadband Services and Corporate and Other.
Year 2000 results in the following table have been restated to reflect this
change.

       Additionally, beginning in 2001, the commodity-related risk management
activities of Retail Services' North American customer contracts were
transferred to the Americas segment, consolidating all North American energy
commodity risk management activities within one segment. In 2001, Retail
Services' business includes origination of new commodity and energy asset
management and services contracts, execution of energy asset management and
services activity and management of customer relationships. Year 2000 results in
the following tables have been updated to reflect this change.


                                       37
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                               Europe
                                                                 and
                                                                Other                             Natural
                                                              Commodity          Retail             Gas
(In Millions)                               Americas(c)        Markets         Services(c)       Pipelines
---------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>              <C>               <C>
Three Months Ended
 September 30, 2001

Unaffiliated revenues(a)                      $28,581           $16,401         $  504               $ 135
Intersegment revenues(b)                          371                 7             (3)                  3
                                              ------------------------------------------------------------
     Total revenues                           $28,952           $16,408         $  501               $ 138
                                              ------------------------------------------------------------

Income (loss) before interest,
 minority interests and
 income taxes                                 $   717           $   (21)        $   13               $  85
---------------------------------------------------------------------------------------------------------------

Nine Months Ended
 September 30, 2001

Unaffiliated revenues(a)                      $83,859           $49,023         $1,691               $ 530
Intersegment revenues(b)                        1,249              (555)            46                   4
                                              ------------------------------------------------------------
     Total revenues                           $85,108           $48,468         $1,737               $ 534
                                              ------------------------------------------------------------

Income (loss) before interest,
 minority interests and
 income taxes                                 $ 1,960           $   235         $   99               $ 295
---------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>


                                             Portland          Global           Broadband        Corporate
(In Millions)                                 General          Assets           Services       and Other(d)          Total
--------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>              <C>            <C>                   <C>
Three Months Ended
 September 30, 2001

Unaffiliated revenues(a)                       $  894            $  422         $ (125)              $  65         $ 46,877
Intersegment revenues(b)                           11                 2              -                (391)               -
                                               ----------------------------------------------------------------------------
     Total revenues                            $  905            $  424         $ (125)              $(326)        $ 46,877
                                               ----------------------------------------------------------------------------

Income (loss) before interest,
 minority interests and
 income taxes                                  $  (17)           $ (268)        $ (357)              $(818)         $  (666)
---------------------------------------------------------------------------------------------------------------------------

Nine Months Ended
 September 30, 2001

Unaffiliated revenues(a)                       $2,367            $1,131         $  (25)              $ 142         $138,718
Intersegment revenues(b)                          136                 3             (1)               (882)               -
                                               ----------------------------------------------------------------------------
     Total revenues                            $2,503            $1,134         $  (26)              $(740)        $138,718
                                               ----------------------------------------------------------------------------

Income (loss) before interest,
 minority interests and
 income taxes                                  $  108            $ (275)         $(494)              $(947)        $    981
----------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       38
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


                                                               Europe
                                                                 and
                                                                Other                             Natural
                                                              Commodity          Retail             Gas
(In Millions)                               Americas(c)        Markets         Services(c)       Pipelines
-------------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>              <C>               <C>
Three Months Ended
 September 30, 2000(e)

Unaffiliated revenues(a)                      $20,374           $ 7,566         $  514               $ 130
Intersegment revenues(b)                          548              (407)            21                   3
                                              ------------------------------------------------------------
     Total revenues                           $20,922           $ 7,159         $  535               $ 133
                                              ------------------------------------------------------------

Income (loss) before interest,
 minority interests and
 income taxes                                 $   549            $   53         $   27               $  83
-------------------------------------------------------------------------------------------------------------------

Nine Months Ended
 September 30, 2000(e)

Unaffiliated revenues(a)                      $39,678           $15,578         $1,210               $ 503
Intersegment revenues(b)                          764              (416)            59                   8
                                              ------------------------------------------------------------
     Total revenues                           $40,442           $15,162         $1,269               $ 511
                                              ------------------------------------------------------------

Income (loss) before interest,
 minority interests and
 income taxes                                 $ 1,009           $   265         $   79               $ 289
-------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

                                             Portland          Global           Broadband        Corporate
(In Millions)                                 General          Assets           Services       and Other(d)          Total
--------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>              <C>            <C>                   <C>
Three Months Ended
 September 30, 2000(e)

Unaffiliated revenues(a)                       $  663            $  394          $ 162               $  31          $29,834
Intersegment revenues(b)                           66                14              -                (245)               -
                                               ----------------------------------------------------------------------------
     Total revenues                            $  729            $  408          $ 162               $(214)         $29,834
                                               ----------------------------------------------------------------------------

Income (loss) before interest,
 minority interests and
 income taxes                                  $   74            $   19          $ (20)              $(106)          $  679
---------------------------------------------------------------------------------------------------------------------------

Nine Months Ended
 September 30, 2000(e)

Unaffiliated revenues(a)                       $1,442            $1,136          $ 335               $   5          $59,887
Intersegment revenues(b)                          115                14              -                (544)               -
                                               ----------------------------------------------------------------------------
     Total revenues                            $1,557            $1,150          $ 335               $(539)         $59,887
                                               ----------------------------------------------------------------------------

Income (loss) before interest,
 minority interests and
 income taxes                                  $  241            $  117          $ (38)              $(154)         $ 1,808
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)  Unaffiliated revenues include sales to unconsolidated affiliates.

(b)  Intersegment sales are made at prices comparable to those received from
     unaffiliated customers and in some instances are affected by regulatory
     considerations.

(c)  The 2000 amounts have been changed to reflect the new segment presentation.
     In the prior year, Retail Services reported revenues and IBIT of $1,476
     million and $30 million, respectively, for the third quarter of 2000.
     Updated full year 2000 revenues and IBIT were $1,766 million and $173
     million, respectively. Operating results in 2001 include servicing charges
     from Americas for management of Retail Services' risk management
     activities. These servicing charges are reflective of the applicable level
     of risk management services provided and have been presented on a basis
     consistent with how such charges are reported internally.

(d)  Includes consolidating eliminations.

(e)  Restated (see Note 3).


                                       39
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Total assets by segment are as follows (in millions):

<TABLE>
<CAPTION>

                                                                  September 30,        December 31,
                                                                      2001                2000(a)
                                                              ---------------------------------------
<S>                                                           <C>                      <C>
Americas                                                            $26,735               $31,131
Europe and Other Commodity Markets                                   14,756                11,812
Retail Services                                                       1,476                 1,279
Natural Gas Pipelines                                                 3,457                 3,527
Portland General                                                      4,254                 4,773
Global Assets                                                         7,593                 7,892
Broadband Services                                                    1,277                 1,327
Corporate and Other                                                   2,235                 3,185
                                                                    -----------------------------
       Total Assets                                                 $61,783               $64,926
                                                                    =============================
</TABLE>

(a)  Restated (see Note 3).

       The decrease in assets of the Americas segment is primarily related to
the decline in per unit commodity prices and the sale of five peaking power
plants. The increase in assets of the Europe and Other Commodity Markets segment
is due to the growth of the segment's commodity business.

13.    DERIVATIVE INSTRUMENTS

       On January 1, 2001, Enron recognized an after-tax non-cash gain of $19
million in earnings and deferred an after-tax non-cash gain of $25 million in
"Accumulated Other Comprehensive Income" (OCI), a component of shareholders'
equity, and reclassified $277 million from "Long-Term Debt" to "Price Risk
Management Liabilities" to reflect the initial adoption of Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 must be applied to all
derivative instruments and requires that such instruments be recorded in the
balance sheet either as an asset or a liability measured at its fair value
through earnings, with special accounting permitted for certain qualifying
hedges as described in the following paragraphs.

       In the ordinary course of business, Enron enters into derivative
instruments, as defined in SFAS No. 133, as part of its normal risk management
operations, which are subject to parameters established by Enron's Board of
Directors. The adoption of SFAS No. 133 has no impact on the way Enron accounts
for its risk management business activities.

       On a much more limited basis, Enron's other businesses enter into
derivative instruments, such as forwards, swaps and other contracts, to hedge
certain non-trading risks, including interest rate risk, commodity price risk
and foreign currency exchange rate risk. Enron primarily uses cash flow hedges,
for which Enron's objective is to provide protection against variability in cash
flows due to an associated variable risk. Enron accounts for such hedging
activity by initially deferring the gain or loss related to the fair value
changes in derivative instruments in OCI. The deferred change in fair value is
then reclassified into income concurrently with the recognition in income of the
cash flow item hedged. The net after-tax amount expected to be reclassified from
OCI within the next 12 months is approximately $5 million. Enron recognized a
loss of approximately $13 million related to ineffectiveness in cash flow
hedges. Enron has also entered into a limited number of fair value hedges to
protect the fair value of

                                       40
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

certain liabilities from variability caused by fluctuations in either interest
rates or foreign currency exchange rates. Enron accounts for these hedges by
recognizing the fair value of both the derivative instrument and the hedged item
into income concurrently. There was no material ineffectiveness in fair value
hedges during the first nine months of 2001. Certain of Enron's unconsolidated
affiliates entered into net investment hedges to protect against the foreign
currency exposure related to foreign operations. Enron recorded an increase of
approximately $15 million in OCI related to such hedges in 2001. Enron also
holds a limited number of derivative instruments in its non-risk management
businesses, which do not meet the requirements of SFAS No. 133 for hedge
accounting, but provide Enron with an economic hedge of an associated risk.

       The maximum amount of time over which cash flow exposure in forecasted
transactions is hedged, excluding hedges of variable interest rate risk on
existing financial instruments, is approximately 20 years. Derivative contracts
are entered into with counterparties who are equivalent to investment grade.
Accordingly, Enron does not anticipate any material impact to its financial
position or results of operations as a result of nonperformance by the third
parties on derivative instruments related to non-risk management business
activities.

       In August 2001, the OPUC issued a general rate order that, among other
things, excluded all SFAS No. 133 mark-to-market valuations for determining net
variable power costs in setting PGE base rates. This action was further
supported by an accounting order issued by the OPUC in June 2001 directing
deferral as a regulatory asset or liability under SFAS 71 the effects of SFAS
133 mark-to-market on contracts subject to regulation. As a result, subsequent
to August 2000, PGE began recording a regulatory asset or regulatory liability
pursuant to SFAS 71 to fully offset the net effects of unrealized gains and
losses in earnings and OCI.

       PGE's net after-tax amount expected to be reclassified from OCI and to be
fully offset by recording a regulatory asset or regulatory liability within the
next 12 months is approximately $5 million.

14.    NEW ACCOUNTING PRONOUNCEMENTS

       In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142). SFAS No. 142, which must be applied to fiscal
years beginning after December 15, 2001, modifies the accounting and reporting
of goodwill and intangible assets.

       The pronouncement requires entities to discontinue the amortization of
goodwill, reallocate all existing goodwill among its reporting segments based on
criteria set by SFAS No. 142 and perform initial impairment tests by applying a
fair-value-based analysis on the goodwill in each reporting segment. Any
impairment at the initial adoption date shall be recognized as the effect of a
change in accounting principle. Subsequent to the initial adoption, goodwill
shall be tested for impairment annually or more frequently if circumstances
indicate a possible impairment.


                                       41
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONCLUDED)
                          ENRON CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Under SFAS No. 142, entities are required to determine the useful life of
other intangible assets and amortize the value over the useful life. If the
useful life is determined to be indefinite, no amortization will be recorded.
For intangible assets recognized prior to the adoption of SFAS No. 142, the
useful life should be reassessed. Other intangible assets are required to be
tested for impairment in a manner similar to goodwill.

       At September 30, 2001, Enron's goodwill related to consolidated entities
was approximately $3.5 billion. Additionally, unconsolidated equity affiliates
of Enron have approximately $1.9 billion of goodwill. Estimated annual
amortization of such goodwill is approximately $195 million, of which
approximately $65 million relates to unconsolidated equity affiliates. Enron is
in the process of evaluating the application of SFAS No. 142 in light of recent
events discussed in Note 2.

       In August 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143, which must be applied to fiscal years
beginning after June 15, 2002, addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Enron is in the process of evaluating
the impact of SFAS No. 143 on the financial statements.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144, which must be
applied to fiscal years beginning after December 15, 2001, addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. Enron is in the process of evaluating the impact of SFAS No. 144 on the
financial statements.




                                       42
<PAGE>



                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                          ENRON CORP. AND SUBSIDIARIES


EXPLANATORY NOTE

       As explained in a November 8, 2001 Form 8-K filed by Enron Corp. (Enron)
with the Securities and Exchange Commission (SEC), Enron will be filing restated
consolidated financial statements for the fiscal years ended December 31, 1997
through 2000 and for the first and second quarters of 2001 but it has not yet
done so. As a result, the previously issued financial statements for these
periods and the audit reports covering the year-end financial statements for
1997 through 2000 should not be relied upon. In addition, as discussed in Note 2
to the Consolidated Financial Statements, Enron's Board of Directors has formed
a Special Committee to conduct an independent investigation and review of
transactions between Enron and certain related parties. The Special Committee
has retained the law firm of Wilmer, Cutler & Pickering (Wilmer, Cutler) as its
counsel. Wilmer, Cutler has retained Deloitte & Touche LLP to provide related
accounting advice to the law firm. The Special Committee began its review on
October 26, 2001. Management believes that, based on information currently
available to it, the consolidated financial statements set forth herein were
compiled in accordance with generally accepted accounting principles and fairly
depict the financial condition and results of operations of Enron, and include
adjustments designed to capture the anticipated restatements. Information
gathered during the Special Committee's investigation, however, may impact the
unaudited results set forth herein, including the adjustments designed to
reflect the necessary restatements as well as the information set forth in the
November 8, 2001 Form 8-K. In addition, Enron has been advised by Arthur
Andersen LLP, Enron's independent auditors, that, due to their need to complete
review procedures and the ongoing Special Committee investigation, Arthur
Andersen LLP is unable at this time to finalize its review of Enron's
consolidated financial statements set forth herein in accordance with
established professional standards and procedures for conducting such reviews,
as established by generally accepted auditing standards, which review is
required by Rule 10-01(d) of Regulation S-X.

RECENT EVENTS

       As discussed in "Liquidity, Capital Resources and Outlook" below,
following Enron's announcement of its third quarter 2001 results on October 16,
2001 there was a significant decrease in Enron's common share price and
subsequent decreases in the long-term credit ratings of Enron's debt. This
situation resulted in the loss of investor confidence and significantly affected
Enron's ability to raise capital. Additionally, on November 9, 2001, Enron and
Dynegy Inc. (Dynegy) announced the execution of a definitive merger agreement
between the two companies. As a result of the Dynegy merger agreement and the
loss of investor confidence, Enron has initiated an action plan for
restructuring its businesses. The key aspects of the action plan involve (i)
concentrating primarily on Enron's core businesses; (ii) taking aggressive steps
to rationalize the existing cost structure; (iii) accelerating the process of
divesting non-core businesses and assets; (iv) restructuring scheduled
maturities of debt and other obligations; (v) completing the investigation by
the Special Committee with respect to related party transactions; (vi) reviewing
and strengthening Enron's corporate governance; and (vii) expanding certain
disclosures with a focus on increased transparency. Management and the



                                       43
<PAGE>


                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


Board have not completed nor approved a restructuring plan. Such restructuring
plan is currently being prepared and, therefore, Enron is unable to estimate the
timing of implementation or the financial impacts. Enron's fourth quarter 2001
results of operations will likely be negatively impacted by severance,
restructuring and other charges resulting from the repositioning of many of
Enron's businesses.

       In order to focus on Enron's core businesses and rationalize their cost
structure, management is in the process of dividing Enron into three fundamental
groups of businesses - Core, Non-Core and Under Review. For a description of
each group of businesses, see "Liquidity, Capital Resources and Outlook" below.

       The recent deterioration in Enron's credit rating has caused a negative
impact on Enron's projected 2001 fourth quarter profitability. This is primarily
the result of a reduced level of transaction activity by Enron's trading
counterparties, particularly longer-term transactions. However, it is too early
to determine the exact impact these events will have on Enron's fourth quarter
2001 operating results. Additionally, the fourth quarter of 2001 will likely be
negatively impacted by severance, restructuring and other charges resulting from
the repositioning of many of Enron's businesses consistent with the
restructuring plan as well as potential writedowns as discussed in "Liquidity,
Capital Resources and Outlook - Unconsolidated Equity Affiliates" below.

RESULTS OF OPERATIONS - THIRD QUARTER 2001 VS. THIRD QUARTER 2000

       The following review of Enron's results of operations should be read in
conjunction with the Consolidated Financial Statements. The Consolidated
Financial Statements included herein have been adjusted to reflect the
anticipated impacts of the restatements discussed in Note 3. For the impacts on
Enron's Consolidated Financial Statements for the years ended December 31, 1997
through 2000 and for the first and second quarters of 2001, see Note 3 to the
Consolidated Financial Statements. While these restatements reflect Enron's
current understanding of the relevant facts, it is possible that the Special
Committee's investigation will identify additional or different information
concerning these matters and Enron cannot predict what impact the information
gathered by the Special Committee may have on the financial information included
in this report. As a result, Enron will not issue amendments to its annual
reports on Forms 10-K for the years ended December 31, 1997 through 2000, or its
quarterly reports on Forms 10-Q for the quarterly periods ended March 31, 2001
and June 30, 2001 to reflect the anticipated restatements of Enron's
Consolidated Financial Statements until the Special Committee has completed its
investigation.

CONSOLIDATED NET INCOME

       Enron reported a loss of $644 million in the third quarter of 2001
compared to $303 million of earnings in the third quarter of 2000. The
significant decrease relates to losses on investing activities discussed in
"Corporate and Other", the impairments by Azurix Corp. discussed in "Global
Assets" and charges recorded by Broadband Services. Enron's business is divided
into eight reporting segments.

       Wholesale - Americas. The Wholesale - Americas segment (Americas)
consists of Enron's gas and power market-making operations and merchant energy
activities in North and South America.


                                       44
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       Wholesale - Europe and Other Commodity Markets. The Wholesale - Europe
and Other Commodity Markets segment (Europe and Other) includes Enron's European
gas and power operations and Enron's other commodity businesses, such as metals,
coal, crude and liquids, weather, forest products and steel.

       Retail Services. Retail Services is extending Enron's energy expertise
and capabilities to end-use retail customers in the industrial and commercial
business sectors to manage their energy requirements and reduce their total
energy costs.

       Natural Gas Pipelines. The Natural Gas Pipelines segment includes Enron's
interstate natural gas pipelines, primarily Northern Natural Gas Company
(Northern), Transwestern Pipeline Company (Transwestern), Enron's 50% interest
in Florida Gas Transmission Company (Florida Gas) and Enron's interests in
Northern Border Partners, L.P. and EOTT Energy Partners, L.P. (EOTT).

       Portland General. This segment consists of Portland General Electric, an
electric utility in the northwestern U.S.

       Global Assets. The Global Assets segment includes energy-related assets
that are not part of Enron's wholesale or retail energy operations. Major assets
of this segment include Elektro, an electric utility in Brazil; Dabhol, a power
plant in India; natural gas pipelines in South America; Enron Renewable Energy
Corp. (EREC), which develops and constructs wind-generated power projects; and
Enron's investment in Azurix Corp.

       Broadband Services. Enron's broadband services business (Broadband
Services) provides customers with broadband services, including network
intermediation services.

       Corporate and Other. Corporate and Other includes the operations of
Enron's methanol and MTBE plants as well as overall corporate activities of
Enron.

INCOME BEFORE INTEREST, MINORITY INTERESTS AND INCOME TAXES

       The following table presents income (loss) before interest, minority
interests and income taxes (IBIT) for each of Enron's operating segments (in
millions):


<TABLE>
<CAPTION>
                                                            Third Quarter
                                                     --------------------------
                                                        2001              2000
                                                     --------------------------
<S>                                                  <C>                <C>
Americas                                                 $ 717            $ 549
Europe and Other                                           (21)              53
Retail Services                                             13               27
Natural Gas Pipelines                                       85               83
Portland General                                           (17)              74
Global Assets                                             (268)              19
Broadband Services                                        (357)             (20)
Corporate and Other                                       (818)            (106)
                                                         ----------------------
     Income (loss) before interest and taxes             $(666)           $ 679
                                                         ======================
</TABLE>

WHOLESALE SERVICES BUSINESS

       Enron's Wholesale Services business is comprised of two segments,
Americas and Europe and Other (collectively Wholesale Services). Wholesale
Services builds its business through the creation of networks involving
selective asset ownership, contractual access to third-party assets and
market-making activities. Each market in which it operates utilizes these


                                       45
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

components in a slightly different manner and is at a different stage of
development. This network strategy has enabled Enron to establish a leading
position in its markets. Activities may be integrated into a bundled product
offering for Enron's customers.

       Wholesale Services manages its portfolio of contracts and assets in order
to maximize value, minimize the associated risks and provide overall liquidity.
In doing so, it uses portfolio and risk management disciplines, including
offsetting or hedging transactions, to manage exposures to market price
movements (commodities, interest rates, foreign currencies and equities).
Additionally, Wholesale Services manages its liquidity and exposure to
third-party credit risk through monetization of its contract portfolio or
third-party insurance contracts.

       Additionally, Wholesale Services invests in debt and equity securities of
energy-related businesses, which may also utilize its products and services.
With these merchant investments, Enron's influence is much more limited relative
to assets developed or constructed. Earnings from these activities, which are
accounted for on a fair value basis and are included in revenues, result from
changes in the market value of the securities. Wholesale Services uses risk
management disciplines, including hedging transactions, to manage the impact of
market price movements on its merchant investments.

AMERICAS

       Significant components of Americas' results are as follows (in millions):

<TABLE>
<CAPTION>

                                                            Third Quarter
                                                     ---------------------------
                                                         2001              2000
                                                     ---------------------------
<S>                                                  <C>                <C>
Revenues                                               $28,952          $20,922
Cost of sales                                           28,550           20,197
                                                       ------------------------
     Gross margin                                          402              725
Operating expenses                                         145              168
Depreciation and amortization                               54               22
Equity in earnings                                         515               43
Other, net                                                  (1)             (29)
                                                       ------------------------
     IBIT                                              $   717          $   549
                                                       ========================
</TABLE>


                                       46

<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       Americas markets, transports and provides energy commodities as reflected
in the following table (including intercompany amounts):

<TABLE>
<CAPTION>

                                                             Third Quarter
                                                     ---------------------------
                                                        2001              2000
                                                     ---------------------------
<S>                                                  <C>                <C>
Physical Volumes (BBtue/d)(a):
     Gas                                                26,659           25,253
     Power(b)                                           31,507           17,777
                                                       ------------------------
         Total                                          58,166           43,030
                                                       ========================

Power Volumes Marketed (Thousand MWh)(c)               289,853          163,556
                                                       ========================

Financial Settlements (Notional)(Bbtue/d)              247,467          163,995
                                                       ========================
</TABLE>

(a)  Billion British thermal units equivalent per day.

(b)  Represents electricity volumes, converted to BBtue/d.

(c)  Thousand megawatt-hours.

       Gross margin of Americas, excluding the impact of a change in value of
Enron's contingent obligation to Whitewing (Whitewing Obligation) discussed in
Note 8 to the Consolidated Financial Statements, increased $260 million in the
third quarter of 2001 as compared to the third quarter of 2000, primarily as a
result of increased earnings from both gas and power marketing operations,
partially offset by a decline in the value of merchant investments. Gas and
power marketing operations benefited from price volatility in the third quarter
of 2001. In the third quarter of 2001, the Whitewing Obligation resulted in a
decrease in revenues of approximately $583 million with a corresponding increase
in equity in earnings of unconsolidated affiliates.

       Operating expenses decreased $23 million in the third quarter of 2001 as
compared to the same period in 2000, primarily as a result of the sale of
certain Houston Pipeline Company assets in the second quarter of 2001.
Depreciation and amortization increased $32 million primarily as a result of
increased amortization related to intangible assets acquired in the second
quarter of 2001 and other assets and depreciation associated with
computer-related equipment placed into service in 2001.

       Equity in earnings, excluding the impact of the Whitewing Obligation,
decreased $111 million in the third quarter of 2001 as compared to the same
period of 2000 primarily as a result of the decline in the value of merchant
investments held by unconsolidated equity affiliates. Other, net in the third
quarter of 2000 included charges related to losses on transactions in foreign
currencies, partially offset by interest income.


                                       47
<PAGE>
                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


EUROPE AND OTHER

       Significant components of Europe and Other's results are as follows (in
millions):

<TABLE>
<CAPTION>

                                                            Third Quarter
                                                    ----------------------------
                                                       2001              2000
                                                    ----------------------------
<S>                                                 <C>                 <C>

Revenues                                              $16,408           $7,159
Cost of sales                                          16,174            6,900
                                                      ------------------------
     Gross margin                                         234              259
Operating expenses                                        218              208
Depreciation and amortization                              21               19
Equity in earnings                                         (7)              (5)
Other, net                                                 (9)              26
                                                      ------------------------
     Income (loss) before interest and taxes          $   (21)         $    53
                                                      ========================
</TABLE>

       Europe and Other markets and provides energy and other commodities as
reflected in the following tables (including intercompany amounts):

<TABLE>
<CAPTION>
                                                             Third Quarter
                                                     ---------------------------
                                                        2001              2000
                                                     ---------------------------
<S>                                                  <C>              <C>
Physical Volumes (BBtue/d)(a):
     Gas                                                 9,338            3,595
     Power(b)                                           11,306            1,080
     Crude oil and liquids                               9,410            5,754
                                                       ------------------------
         Total                                          30,054           10,429
                                                       ========================

Power Volumes Marketed (Thousand MWh)(c)               104,006            9,932
                                                       ========================

Financial Settlements (Notional)(Bbtue/d)               71,930           48,179
                                                       ========================

Other Commodity Volumes:
     Crude oil and liquids (MM Bbl)                        157              105
     Coal (thousand tons)                               21,770            9,942
     Weather (notional value $MM)                          304              164
     LNG (BBtue)                                         8,874                -
     Metals (thousand tons)                              2,362              969
     Forest products (thousand tons)                       899              101
     Steel (thousand tons)                                 648                -
</TABLE>

(a)  Billion British thermal units equivalent per day.

(b)  Represents electricity volumes, converted to BBtue/d.

(c)  Thousand megawatt-hours.

       Gross margin of Europe and Other decreased $25 million in the third
quarter of 2001 as compared to the third quarter of 2000, primarily as a result
of lower earnings from European power marketing operations, an adjustment to
reflect an increase in credit reserves in the crude oil and liquids marketing
business and the settlement of certain construction related receivables for less
than book value subsequent to September 30, 2001 but prior to the filing date of
the Form 10-Q (these amounts were not reflected in Enron's announcement of its
third quarter 2001 results on October 16, 2001), partially offset by increased
earnings from the European gas marketing operations and steel, coal and liquids
marketing.

       Operating expenses for Europe and Other increased $10 million in the
third quarter of 2001 as compared to the same period of 2000 primarily due to
the expansion into new markets and the growth of the European operations.


                                       48
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       Other, net in the third quarter of 2001 included charges related to
losses on transactions in foreign currencies partially offset by interest
income. Other, net in the third quarter of 2000 primarily reflected interest
income.

RETAIL SERVICES

       Retail Services sells or manages the delivery of natural gas,
electricity, liquids and other commodities to industrial and commercial
customers located in North America and Europe. Retail Services also provides
full energy management services. This integrated product includes the management
of commodity delivery, energy information and energy assets, and price risk
management activities.

       Significant components of Retail Services' results are as follows (in
millions):

<TABLE>
<CAPTION>

                                                            Third Quarter
                                                    ----------------------------
                                                       2001              2000
                                                    ----------------------------
<S>                                                 <C>                <C>
Revenues                                                $ 501            $ 535
Cost of sales                                             261              406
                                                        ----------------------
     Gross margin                                         240              129
Operating expenses                                        142              115
Depreciation and amortization                              10               10
Equity losses and impairment of New Power
 Holdings, Inc.                                           (76)             (15)
Other, net                                                  1               38
                                                        ----------------------
     IBIT                                               $  13            $  27
                                                        ======================
</TABLE>

       Revenues decreased $34 million in the third quarter of 2001 compared to
the third quarter of 2000 primarily as a result of lower retail gas sales
partially offset by an increase in long-term energy contracts originated in 2001
and the monetization of interests in a merchant asset for a gain of $21 million.
Gross margin increased $111 million in the third quarter of 2001 compared to the
third quarter of 2000 due to long-term energy contracts originated in 2001 and
the gain associated with the monetization of a merchant asset discussed above.
Operating expenses increased $27 million primarily as a result of risk
management support service expenses in 2001 and higher computer system-related
expenditures. Equity losses for both periods reflect Retail Services' portion of
losses of New Power Holdings, Inc. (NPW), formerly The New Power Company. In the
third quarter of 2001, Retail Services recorded a $58 million charge which is
included in equity losses to reduce its carrying value in its investment in NPW.
Other, net in the third quarter of 2000 consisted primarily of gains associated
with Retail Services' monetization of a portion of its interest in NPW.


                                       49
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


NATURAL GAS PIPELINES

       The following table summarizes total volumes transported for each of
Enron's interstate natural gas pipelines.

<TABLE>
<CAPTION>

                                                            Third Quarter
                                                    ----------------------------
                                                       2001              2000
                                                    ----------------------------
<S>                                                 <C>                 <C>

Total Volumes Transported (BBtu/d)(a)
     Northern Natural Gas                               2,770            3,009
     Transwestern Pipeline                              1,823            1,746
     Florida Gas Transmission                           1,927            1,649
     Northern Border Pipeline                           2,295            2,420
</TABLE>

(a)  Reflects 100% of each entity's throughput volumes.

       Significant components of Natural Gas Pipelines' results are as follows
(in millions):

<TABLE>
<CAPTION>
                                                            Third Quarter
                                                    ----------------------------
                                                       2001              2000
                                                    ----------------------------
<S>                                                  <C>               <C>

Net revenues                                            $ 136            $ 132
Operating expenses                                         74               74
Depreciation and amortization                              17               17
Equity in earnings                                         18               28
Other, net                                                 22               14
                                                        ----------------------
     IBIT                                               $  85            $  83
                                                        ======================
</TABLE>

       Revenues, net of cost of sales (net revenues) of Natural Gas Pipelines
increased $4 million in the third quarter of 2001 compared to the third quarter
of 2000 primarily due to higher transportation rates and volumes at
Transwestern. Equity in earnings decreased $10 million in the third quarter of
2001 as compared to the same period in 2000 primarily due to lower operating
results from Florida Gas and the monetization of Enron's investment in EOTT. In
2001, other, net consisted primarily of a gain related to the expiration of an
Enron guarantee to fund the EOTT partnership. Other, net for the third quarter
of 2000 included a gain related to the sale of compressor-related equipment.


                                       50
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


PORTLAND GENERAL
       Statistics for Portland General for the third quarter of 2001 and 2000
are as follows:

<TABLE>
<CAPTION>
                                                           Third Quarter
                                                    ----------------------------
                                                      2001              2000
                                                    ----------------------------
<S>                                                 <C>                <C>
Electricity Sales (Thousand MWh)(a)
     Residential                                       1,432            1,444
     Commercial                                        1,870            1,964
     Industrial                                        1,207            1,249
                                                       ----------------------
         Total Retail                                  4,509            4,657
     Wholesale                                         4,062            5,703
                                                       ----------------------
         Total Electricity Sales                       8,571           10,360
                                                       ======================

Average Billed Revenue (cents per kWh)                  9.51             6.89

Resource Mix
     Coal                                                 16%               9%
     Combustion Turbine                                   16               14
     Hydro                                                 4                4
                                                         --------------------
         Total Generation                                 36               27
     Firm Purchases                                       58               63
     Secondary Purchases                                   6               10
                                                         --------------------
         Total Resources                                 100%             100%
                                                         ====================

Average Variable Power Cost (Mills/kWh)(b)             119.3             48.8

Retail Customers (end of period, thousands)              732              722
</TABLE>


(a)  Thousand megawatt-hours.

(b)  Mills (1/10 cent) per kilowatt-hour.

       Significant components of Portland General's results are as follows (in
millions):

<TABLE>
<CAPTION>


                                                            Third Quarter
                                                    ----------------------------
                                                       2001              2000
                                                    ----------------------------
<S>                                                  <C>                 <C>
Revenues                                                $ 905            $ 729
Purchased power and fuel                                  822              522
                                                        ----------------------
     Net revenues                                          83              207
Operating expenses                                         68               85
Depreciation and amortization                              32               59
Other, net                                                  -               11
                                                        ----------------------
     Income (loss) before interest and taxes            $ (17)           $  74
                                                        ======================
</TABLE>

       Net revenues decreased $124 million in the third quarter of 2001 compared
to the third quarter of 2000. The decrease was due to increased power costs
resulting from general market conditions, including lower hydroelectric
generation. Portland General entered into power contracts in prior periods to
ensure adequate supply for the recent quarter at prices that were significantly
higher than actual settled prices during the third quarter of 2001. Although the
rate mechanism in place anticipated and substantially mitigated the effect of
the higher purchased power costs, only the amount in excess of a defined
baseline was recoverable from ratepayers. Increased power cost recovery was
incorporated into Portland General's new fifteen-month rate structure, which
became effective October 1, 2001 and included an average 40 percent rate
increase.


                                       51
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       Operating expenses decreased primarily as a result of lower maintenance
costs and lower regulatory and overhead expenses. Depreciation and amortization
decreased in 2001 primarily as a result of a favorable energy efficiency rate
mechanism adjustment, partially offset by increased regulatory amortization.
Third quarter 2001 other, net included the impact of a decline in the value of
investments. Other, net in 2000 consisted primarily of a gain on the sale of a
generation-related asset.

       On October 8, 2001, Enron entered into an agreement with Northwest
Natural Gas Company (NW Natural) for the sale of Portland General for $1.9
billion, comprised of $1.55 billion in cash, $200 million in NW Natural
preferred stock and common stock purchase units, $50 million in NW Natural
common stock and the assumption of Enron's $75 million balance on its customer
benefits obligation, which was stipulated in its 1996 agreement to purchase
Portland General. In addition to the purchase price, NW Natural will assume
approximately $1.1 billion in Portland General debt and preferred stock. The
proposed transaction, which is subject to customary regulatory approvals, is
expected to close by the fourth quarter of 2002. Enron currently believes that
the after-tax gain on the sale of Portland General will not be material.
However, certain regulatory and other contingencies could negatively impact
Enron's current estimate. Enron's carrying amount of Portland General as of
September 30, 2001 was $1.6 billion. Income before interest, minority interest
and income taxes for Portland General was $108 million and $241 million for the
nine month periods ended September 30, 2001 and 2000, respectively.

GLOBAL ASSETS

       Significant components of Global Assets' results are as follows (in
millions):

<TABLE>
<CAPTION>

                                                            Third Quarter
                                                    ----------------------------
                                                       2001              2000
                                                    ----------------------------
<S>                                                 <C>                <C>
Revenues                                                $ 424            $ 408
Cost of sales                                             286              244
Operating expenses                                        107              126
Depreciation and amortization                              46               50
Equity in earnings (losses)                              (263)              22
Other, net                                                 10                9
                                                        ----------------------
     Income (loss) before interest and taxes            $(268)           $  19
                                                        ======================
</TABLE>

       Revenues increased $16 million in the third quarter of 2001 compared to
the third quarter of 2000 due to an increase in project revenues at EREC,
partially offset by a decrease in revenues from Elektro which had curtailed
power sales due to the reduction in available hydro-generated power. Cost of
sales increased $42 million in the third quarter of 2001 compared to the third
quarter of 2000 due to an increase in costs at EREC, partially offset by a
decrease in costs at Elektro. Operating expenses decreased due to reduced
developmental activities partially offset by higher costs in EREC's
European operations.

       Equity in earnings (losses) for the third quarter of 2001, reflect the
recognition of a loss of $287 million related to asset impairments by Atlantic
Water Trust (the parent of Azurix Corp.), an equity method investment. These
impairments primarily reflect Azurix's planned disposition of its North American
and certain South American service-related businesses. See


                                       52
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

"Unconsolidated Equity Affiliates" below for a discussion of Atlantic Water
Trust.

BROADBAND SERVICES

       Enron's network services intermediation business allows customers to
manage unexpected fluctuation in the price, supply and demand of network-related
requirements, including bandwidth and storage. The Enron Intelligent Network
(the EIN), a nationwide fiber optic network, which connects 25 pooling points in
North America, Europe and Japan, provides the infrastructure for Broadband
Services' products.

       Significant components of Broadband Services' results are as follows (in
millions):

<TABLE>
<CAPTION>
                                                             Third Quarter
                                                     ---------------------------
                                                        2001              2000
                                                     ---------------------------
<S>                                                  <C>                 <C>
Revenues                                               $(125)           $ 162
Cost of sales                                              8                9
                                                       ----------------------
     Gross margin                                       (133)             153
Operating expenses                                       135              123
Depreciation and amortization                             84               52
Equity in earnings                                        (4)               -
Other, net                                                (1)               2
                                                       ----------------------
     Loss before interest and taxes                    $(357)           $ (20)
                                                       ======================
</TABLE>

       In the third quarter of 2001, Broadband Services recorded charges
totaling $277 million due to the continued weak market conditions in the
broadband and communications sectors. The charges related to the content
services business ($160 million), costs associated with restructuring Broadband
Services' business ($83 million) and the write down of the value of certain
broadband-related long-lived assets and excess network equipment to net
realizable value ($34 million). The amount related to the content services
business included the write-off of the value of Broadband Services' investment
in content services entities, the impairment of related assets and a valuation
adjustment on a derivative instrument associated with the content systems
business. The adjustment to the derivative instrument was reflected in revenue
resulting in negative revenue for 2001. Gross margin for the third quarter 2001
also reflects continued weakness in market conditions which negatively impacted
results of operations. Third quarter 2000 gross margin benefited from the
significant increase in the market value of Broadband Services' merchant
investments.

CORPORATE AND OTHER

       Corporate and Other realized a loss before interest, minority interests
and taxes of $818 million in the third quarter of 2001 compared to a loss of
$106 million in the same period of 2000.

       In September 2001, as a result of deterioration in the credit quality of
the Raptor SPEs caused by a decline in NPW's stock price, the increase in
Raptor's exposure under derivative contracts with Enron and the increasing
dilutive effect on Enron's earnings per share calculation, Enron acquired, for
approximately $35 million, LJM's interests in the Raptor SPEs which were created
in 2000 to hedge certain of Enron's merchant and other investments. See Notes 3
and 4 to the Consolidated Financial Statements. Enron recorded charges totaling
$710 million ($462 million after tax) related to the acquisition of the Raptor
SPEs and a charge of $48 million ($31 million after-tax) to write down Enron's
investment in NPW warrants acquired in connection with the termination of the
Raptor SPEs.


                                       53
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


INTEREST AND RELATED CHARGES, NET

       Interest and related charges, net is reported net of interest capitalized
of $22 million and $3 million for the third quarter of 2001 and 2000,
respectively. The net expense decreased $58 million in the third quarter of 2001
as compared to the same period of 2000, primarily due to decreased debt levels
and lower interest rates resulting from general market conditions within the
U.S.

INCOME TAX EXPENSE

       Income taxes decreased during the third quarter of 2001 as compared with
the same period of 2000 primarily as a result of pretax losses due to charges
related to the asset impairments by Azurix, the restructuring of Broadband
Services and the losses associated with the Raptor SPEs. The projected effective
tax rate for 2001 is lower than the statutory rate mainly due to differences
between the book and tax basis of certain assets and stock sales.



                                       54
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2001 VS.
NINE MONTHS ENDED SEPTEMBER 30, 2000

       The following review of Enron's results of operations should be read in
conjunction with the Consolidated Financial Statements. The Consolidated
Financial Statements included herein have been adjusted to reflect the
anticipated impacts of the restatements discussed in Note 3 to the Consolidated
Financial Statements. For the impacts on Enron's Consolidated Financial
Statements for the years ended December 31, 1997 through 2000 and for the first
and second quarters of 2001, see Note 3 to the Consolidated Financial
Statements. While these restatements included herein reflect Enron's current
understanding of the relevant facts, it is possible that the Special Committee's
investigation will identify additional or different information concerning these
matters and Enron cannot predict what impact the information gathered by the
Special Committee may have on the financial information included in this report.
As a result, Enron will not issue amendments to its annual reports on Forms 10-K
for the years ended December 31, 1997 through 2000, or its quarterly reports on
Forms 10-Q for the quarterly periods ended March 31, 2001 and June 30, 2001 to
reflect the anticipated restatements of Enron's Consolidated Financial
Statements until the Special Committee has completed its investigation.

CONSOLIDATED NET INCOME

     Enron reported net income of $225 million for the first nine months of 2001
compared to $797 million during the same period in 2000. The significant
decrease relates to losses on investing activities discussed in Corporate and
Other, the impairments by Azurix Corp. discussed in Global Assets and charges
recorded by Broadband Services.

INCOME BEFORE INTEREST, MINORITY INTERESTS AND INCOME TAXES

       The following table presents IBIT for each of Enron's operating segments
(in millions):

<TABLE>
<CAPTION>

                                                           Nine Months Ended
                                                             September 30,
                                                     ---------------------------
                                                        2001              2000
                                                     ---------------------------
<S>                                                  <C>                 <C>

Americas                                                $1,960           $1,009
Europe and Other                                           235              265
Retail Services                                             99               79
Natural Gas Pipelines                                      295              289
Portland General                                           108              241
Global Assets                                             (275)             117
Broadband Services                                        (494)             (38)
Corporate and Other                                       (947)            (154)
                                                        -----------------------
     IBIT                                               $  981           $1,808
                                                        =======================
</TABLE>




                                       55
<PAGE>


                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

AMERICAS

       Significant components of Americas' results are as follows (in millions):

<TABLE>
<CAPTION>

                                                          Nine Months Ended
                                                            September 30,
                                                    ----------------------------
                                                        2001              2000
                                                    ----------------------------
<S>                                                 <C>                  <C>
Revenues                                                $85,108          $40,442
Cost of sales                                            83,137           38,969
                                                        ------------------------
     Gross margin                                         1,971            1,473
Operating expenses                                          610              513
Depreciation and amortization                               132               71
Equity in earnings                                          718              118
Other, net                                                   13                2
                                                        ------------------------
     IBIT                                               $ 1,960          $ 1,009
                                                        ========================
</TABLE>

       Americas markets, transports and provides energy commodities as reflected
in the following table (including intercompany amounts):

<TABLE>
<CAPTION>

                                                          Nine Months Ended
                                                            September 30,
                                                    ----------------------------
                                                        2001              2000
                                                    ----------------------------
<S>                                                 <C>                 <C>
Physical Volumes (BBtue/d)(a):
     Gas                                                 26,787           23,152
     Power(b)                                            25,642           14,287
                                                        ------------------------
         Total                                           52,429           37,439
                                                        ========================

Power Volumes Marketed (Thousand MWh)(c)                700,007          391,459
                                                        ========================

Financial Settlements (Notional)(Bbtue/d)               228,900          128,266
                                                        ========================
</TABLE>

(a)  Billion British thermal units equivalent per day.

(b)  Represents electricity volumes, converted to BBtue/d.

(c)  Thousand megawatt-hours.

       Gross margin of Americas, excluding the impact of a change in value of
Enron's contingent obligation to Whitewing (Whitewing Obligation) discussed in
Note 8 to the Consolidated Financial Statements, increased $1,271 million in the
first nine months of 2001 as compared to the first nine months of 2000,
primarily as a result of increased earnings from both power and gas marketing
operations. The sale of five peaking power plants in 2001 favorably impacted
gross margin from power marketing. The power and gas intermediation businesses
both benefited from price volatility in the 2001. Gross margin from merchant
investments was lower in the first nine months of 2001 as compared to the same
period of 2000 primarily due to a decline in the value of investments in 2001
and a significant increase in the value of power-related investments in 2000.
The Whitewing Obligation resulted in a decrease in revenues of approximately
$773 million with a corresponding increase in equity in earnings.

       Operating expenses increased by $97 million in the first three quarters
of 2001 compared to the same period in 2000 primarily due to the growth of
Americas' commodity intermediation business. Depreciation and amortization
increased $61 million primarily as a result of increased amortization related to
intangible assets acquired in the second quarter of 2001 and other assets and
depreciation associated with computer equipment placed into service in 2001.

                                       56
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       Equity in earnings, excluding the impact of the Whitewing Obligation,
decreased $173 million in the first nine months of 2001 as compared to the same
period of 2000 primarily as a result of the decline in the value of merchant
investments held by unconsolidated equity affiliates combined with increases in
the value of merchant investments during the first nine months of 2000.

EUROPE AND OTHER

       Significant components of Europe and Other's results are as follows (in
millions):

<TABLE>
<CAPTION>

                                                           Nine Months Ended
                                                             September 30,
                                                     ---------------------------
                                                         2001              2000
                                                     ---------------------------
<S>                                                  <C>                 <C>

Revenues                                                $48,468          $15,162
Cost of sales                                            47,524           14,455
                                                         -----------------------
     Gross margin                                           944              707
Operating expenses                                          683              427
Depreciation and amortization                                65               50
Equity in earnings                                            9                3
Other, net                                                   30               32
                                                        ------------------------
     IBIT                                               $   235          $   265
                                                        ========================
</TABLE>

       Europe and Other markets, transports and provides energy and other
commodities as reflected in the following table (including intercompany
amounts):

<TABLE>
<CAPTION>

                                                           Nine Months Ended
                                                             September 30,
                                                     ---------------------------
                                                         2001              2000
                                                     ---------------------------
<S>                                                  <C>                 <C>

Physical Volumes (BBtue/d)(a):
     Gas                                                  8,438            3,192
     Power(b)                                             7,798            1,086
     Crude Oil and Liquids                                8,776            5,640
                                                        ------------------------
         Total                                           25,012            9,918
                                                        ========================

Power Volumes Marketed (Thousand MWh)(c)                212,906           29,777
                                                        ========================

Financial Settlements (Notional)(Bbtue/d)                64,672           40,782
                                                        ========================

Other Commodity Volumes:
     Crude Oil and Liquids (MM Bbl)                         434              300
     Coal (thousand tons)                                67,209           28,643
     Weather (notional value $MM)                           779              512
     LNG (BBtue)                                         17,664                -
     Metals (thousand tons)                               6,904            2,946
     Forest Products (thousand tons)                      2,094              182
     Steel (thousand tons)                                  887                -
</TABLE>

(a)  Billion British thermal units equivalent per day.

(b)  Represents electricity volumes, converted to BBtue/d.

(c)  Thousand megawatt-hours.

       Gross margin of Europe and Other increased $237 million in the first nine
months of 2001 as compared to the first nine months of 2000, primarily as a
result of increased earnings from European power and gas marketing operations
and steel, coal and liquids marketing partially offset by lower earnings from


                                       57
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

Enron's metals marketing operations, an adjustment to reflect an increase in
credit reserves in the crude oil and liquids marketing business and the
settlement of certain construction related receivables for less than book value
subsequent to September 30, 2001 but prior to the filing date of the Form 10-Q
(these amounts were not reflected in Enron's announcement of its third quarter
2001 results on October 16, 2001).


       Operating expenses for Europe and Other increased $256 million in the
first nine months of 2001 as compared to the same period of 2000 and
depreciation and amortization increased $15 million primarily due to the
expansion into new markets and the growth of the European operations.

       Equity in earnings in the first nine months of 2001 increased as compared
to the same period of 2000 primarily due to the earnings from an affiliate
formed in 2001 to hold Enron's investment in forest product-related assets.
Other, net in both 2001 and 2000 primarily consisted of interest income.

RETAIL SERVICES

       Significant components of Retail Services' results are as follows (in
millions):


<TABLE>
<CAPTION>

                                                          Nine Months Ended
                                                            September 30,
                                                    ----------------------------
                                                       2001              2000
                                                    ----------------------------
<S>                                                 <C>                <C>

Revenues                                               $1,737           $1,269
Cost of sales                                           1,084              935
                                                       -----------------------
     Gross margin                                         653              334
Operating expenses                                        474              284
Depreciation and amortization                              29               27
Equity in losses and impairments of NPW                  (104)             (32)
Other, net                                                 53               88
                                                       -----------------------
     IBIT                                              $   99           $   79
                                                       =======================
</TABLE>

       Revenues increased $468 million in the first nine months of 2001 compared
to the same period in 2000 primarily as a result of long-term energy contracts
originated in 2001 and the growth of Retail Services' European operations. Gross
margin increased $319 million in the first nine months of 2001 compared to the
same period in 2000 due to long-term energy contracts originated in 2001 and the
monetization of interests in a merchant asset for a gain of $21 million.
Operating expenses increased $190 million primarily as a result of risk
management support service expenses in 2001 and higher employee and computer
system-related expenditures. Equity losses for both periods reflect Retail
Services' portion of losses of NPW and in 2001 a charge of $58 million to reduce
the carrying value of its investment in NPW. Other, net in 2001 and 2000
consisted primarily of gains associated with Retail Services' monetization of a
portion of its interest in NPW.




                                       58
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


NATURAL GAS PIPELINES

       The following table summarizes total volumes transported for each of
Enron's interstate natural gas pipelines.

<TABLE>
<CAPTION>

                                                           Nine Months Ended
                                                             September 30,
                                                     ---------------------------
                                                        2001              2000
                                                     ---------------------------
<S>                                                  <C>                <C>

Total Volumes Transported (BBtu/d)(a)
     Northern Natural Gas                                3,139            3,464
     Transwestern Pipeline                               1,847            1,639
     Florida Gas Transmission                            1,578            1,601
     Northern Border Pipeline                            2,362            2,438
</TABLE>

(a)  Reflects 100% of each entity's throughput volumes.

       Significant components of Natural Gas Pipelines' results are as follows
(in millions):

<TABLE>
<CAPTION>

                                                           Nine Months Ended
                                                             September 30,
                                                     ---------------------------
                                                        2001              2000
                                                     ---------------------------
<S>                                                  <C>                <C>

Net revenues                                             $ 500            $ 499
Operating expenses                                         236              232
Depreciation and amortization                               51               50
Equity in earnings                                          48               45
Other, net                                                  34               27
                                                         ----------------------
     IBIT                                                $ 295            $ 289
                                                         ======================
</TABLE>

       Revenues, net of cost of sales (net revenues) of Natural Gas Pipelines in
the first nine months of 2001 were comparable to the prior period. In 2001,
increased revenues generated by Transwestern from transportation and operational
gas sales and increased storage revenues received by Northern, were offset by
lower sales of gas storage inventory by Northern. Operating expenses, including
depreciation expense, in the first nine months of 2001 increased primarily as a
result of higher gas prices and other costs associated with the volumes
transported by Transwestern and other pipeline expenses. Equity in earnings
increased $3 million in the first nine months of 2001 compared to the same
period in 2000 primarily due to higher operating results from EOTT and Florida
Gas. In 2001, other, net consisted primarily of a gain related to the expiration
of an Enron guarantee to fund the EOTT partnership. In 2000, other, net
consisted of gains related to an energy commodity contract and the sale of
compressor-related equipment.


                                       59
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


PORTLAND GENERAL

       Statistics for Portland General for the first nine months of 2001 and
2000 are as follows:

<TABLE>
<CAPTION>
                                                          Nine Months Ended
                                                            September 30,
                                                     ---------------------------
                                                       2001              2000
                                                     ---------------------------
<S>                                                  <C>               <C>

Electricity Sales (Thousand MWh)(a)
     Residential                                        5,151            5,285
     Commercial                                         5,475            5,605
     Industrial                                         3,546            3,653
                                                       -----------------------
         Total Retail                                  14,172           14,543
     Wholesale                                          9,836           14,893
                                                       -----------------------
         Total Electricity Sales                       24,008           29,436
                                                       =======================

Average Billed Revenue (cents per kWh)                   9.97             5.18

Resource Mix
     Coal                                                  15%              10%
     Combustion Turbine                                    17               10
     Hydro                                                  6                6
                                                          --------------------
         Total Generation                                  38               26
     Firm Purchases                                        56               66
     Secondary Purchases                                    6                8
                                                          --------------------
         Total Resources                                  100%             100%
                                                          ====================

Average Variable Power Cost (Mills/kWh)(b)              113.3             32.6

Retail Customers (end of period, thousands)               732              722
</TABLE>

(a)  Thousand megawatt-hours.

(b)  Mills (1/10 cent) per kilowatt-hour.

       Significant components of IBIT are as follows (in millions):

<TABLE>
<CAPTION>

                                                          Nine Months Ended
                                                            September 30,
                                                     ---------------------------
                                                       2001              2000
                                                     ---------------------------
<S>                                                  <C>                <C>

Revenues                                               $2,503           $1,557
Purchased power and fuel                                2,028              976
                                                       -----------------------
     Net revenues                                         475              581
Operating expenses                                        229              239
Depreciation and amortization                             138              152
Other, net                                                  -               51
                                                       -----------------------
     IBIT                                              $  108           $  241
                                                       =======================
</TABLE>

       Net revenues decreased $106 million in the first nine months of 2001
compared to the same period in 2000. The decrease was due to increased power
costs resulting from general market conditions, including lower hydroelectric
generation. Portland General entered into power contracts in prior periods to
ensure adequate supply for the recent quarter at prices that were significantly
higher than actual settled prices during the third quarter of 2001. Although the
rate mechanism in place anticipated and substantially mitigated the effect of
the higher purchased power costs, only the amount in excess of a defined
baseline was recoverable from ratepayers. Increased power cost recovery was
incorporated into Portland General's new fifteen-month rate structure, which
became effective October 1, 2001 and included an average 40 percent rate
increase.


                                       60
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       Operating expenses decreased primarily as a result of lower maintenance
costs and lower regulatory and overhead expenses. Depreciation and amortization
decreased in 2001 primarily as a result of a favorable energy efficiency rate
mechanism adjustment, partially offset by increased regulatory amortization. In
2000, other, net consisted primarily of a gain on the sale of a
generation-related asset and was favorably impacted by certain regulatory
events.

GLOBAL ASSETS

       Significant components of Global Assets' results are as follows (in
millions):

<TABLE>
<CAPTION>
                                                          Nine Months Ended
                                                            September 30,
                                                     ---------------------------
                                                       2001              2000
                                                     ---------------------------
<S>                                                  <C>               <C>

Revenues                                               $1,134           $1,150
Cost of sales                                             719              669
Operating expenses                                        352              364
Depreciation and amortization                             134              134
Equity in earnings (losses)                              (240)             112
Other, net                                                 36               22
                                                       -----------------------
     Income (loss) before interest and taxes           $ (275)          $  117
                                                       =======================
</TABLE>

       Revenues decreased $16 million in the first nine months of 2001 compared
to the same period in 2000 due to a decrease in revenues from Elektro which had
curtailed power sales due to the reduction in available hydro-generated power,
partially offset by an increase in project revenues at EREC. Cost of sales
increased $50 million in the first nine months of 2001 compared to the same
period in 2000 due to an increase in costs at EREC, partially offset by a
decrease in costs at Elektro. Operating expenses decreased due to reduced
developmental activities, partially offset by higher costs in EREC's European
operations.

       Equity in earnings (losses) for the nine months ended September 30, 2001
reflects the recognition in the third quarter 2001 of a loss of $287 million
related to asset impairments by Atlantic Water Trust (the parent of Azurix
Corp.), an equity method investment. These impairments primarily reflect
Azurix's planned disposition of its North American and certain South American
service-related businesses. See "Unconsolidated Equity Affiliates" below for a
discussion of Atlantic Water Trust. Equity earnings in 2000 consisted of a gain
from the monetization of a power plant by an equity method affiliate.


                                       61
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

BROADBAND SERVICES

       Significant components of Broadband Services' results are as follows (in
millions):

<TABLE>
<CAPTION>
                                                          Nine Months Ended
                                                            September 30,
                                                     ---------------------------
                                                       2001              2000
                                                     ---------------------------
<S>                                                  <C>                 <C>
Revenues                                                $ (26)           $ 335
Cost of sales                                              59               64
                                                        ----------------------
     Gross margin                                         (85)             271
Operating expenses                                        290              249
Depreciation and amortization                             114               63
Equity in earnings                                         (1)               1
Other, net                                                 (4)               2
                                                        ----------------------
     Loss before interest and taxes                     $(494)           $ (38)
                                                        ======================
</TABLE>


       In the third quarter of 2001, Broadband Services recorded charges
totaling $277 million due to the continued weak market conditions in the
broadband and communications sectors. The charges related to the content
services business ($160 million), costs associated with restructuring Broadband
Services' business ($83 million) and the write down of the value of certain
broadband-related long-lived assets and excess network equipment to fair value
less estimated costs to sell ($34 million). The amount related to the content
services business included the write-off of the value of Broadband Services'
investment in content services entities, the impairment of related assets and a
valuation adjustment on a derivative instrument associated with the content
systems business. The cumulative adjustments to the derivative instrument were
reflected in revenues resulting in negative revenues for 2001. Gross margin for
the nine months ended September 30, 2001 also reflects continued weaknesses in
market conditions which negatively impacted results of operations. Gross margin
for 2000 primarily reflects earnings from sales of excess dark fiber, an
increase in the market value of Broadband Services' merchant investments and an
increase in the value of the derivative instrument associated with the content
systems business.

CORPORATE AND OTHER

       Corporate and Other realized a loss before interest, minority interests
and taxes of $947 million in the first nine months of 2001 compared to a loss of
$154 million for the same period in 2000.

       In September 2001, as a result of deterioration in the credit quality of
the Raptor SPEs caused by a decline NPW's stock price, the increase in Raptor's
exposure under derivative contracts with Enron and the increasing dilutive
effect on Enron's earnings per share calculation, Enron acquired, for
approximately $35 million, LJM's interests in the Raptor SPEs which were created
in 2000 to hedge certain of Enron's merchant and other investments. See Notes 3
and 4 to the Consolidated Financial Statements. Enron recorded charges totaling
$710 million ($462 million after tax) related to the acquisition of the Raptor
SPEs and a charge of $48 million ($31 million after-tax) to write down Enron's
investment in NPW warrants acquired in connection with the termination of the
Raptor SPEs.

INTEREST AND RELATED CHARGES, NET

       Interest and related charges, net, is reported net of interest
capitalized of $45 million and $28 million for the first nine months of 2001 and
2000, respectively. Net expense decreased $13 million in the first nine months
of 2001 as compared to the same period of 2000, primarily due to lower interest
rates resulting from general market conditions within the U.S.


                                       62
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

INCOME TAX EXPENSE

       Income taxes decreased during the first three quarters of 2001 as
compared with the same period of 2000 primarily as a result of pretax losses
related to the asset impairments recorded by Azurix Corp., the restructuring of
Broadband Services and the losses associated with the Raptor SPEs. The projected
effective tax rate for 2001 is lower than the statutory rate mainly due to
differences between the book and tax basis of certain assets and stock sales.

       Enron recorded tax benefits in shareholders' equity related to stock
options exercised by employees of approximately $174 million in the first nine
months of 2001.

CUMULATIVE EFFECT OF ACCOUNTING CHANGES

       On January 1, 2001, Enron recognized an after-tax non-cash gain of $19
million in earnings and deferred an after-tax non-cash gain of $25 million in
"Accumulated Other Comprehensive Income," a component of shareholders' equity,
and reclassified $277 million from "Long-Term Debt" to "Other Liabilities" to
reflect the initial adoption of Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). SFAS No. 133 must be applied to all derivative instruments and requires
that such instruments be recorded in the balance sheet either as an asset or a
liability measured at its fair value through earnings, with special accounting
permitted for certain qualifying hedges.

NEW ACCOUNTING PRONOUNCEMENTS

       In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142). SFAS No. 142, which must be applied to fiscal
years beginning after December 15, 2001, modifies the accounting and reporting
of goodwill and intangible assets.

       The pronouncement requires entities to discontinue the amortization of
goodwill, reallocate all existing goodwill among its reporting segments based on
criteria set by SFAS No. 142 and perform initial impairment tests by applying a
fair-value-based analysis on the goodwill in each reporting segment. Any
impairment at the initial adoption date shall be recognized as the effect of a
change in accounting principle. Subsequent to the initial adoption, goodwill
shall be tested for impairment annually or more frequently if circumstances
indicate a possible impairment.

       Under SFAS No. 142, entities are required to determine the useful life of
other intangible assets and amortize the value over the useful life. If the
useful life is determined to be indefinite, no amortization will be recorded.
For intangible assets recognized prior to the adoption of SFAS No. 142, the
useful life should be reassessed. Other intangible assets are required to be
tested for impairment in a manner similar to goodwill.

       At September 30, 2001, Enron's goodwill related to consolidated entities
was approximately $3.5 billion. Additionally, unconsolidated equity affiliates
of Enron have an additional approximately $1.9 billion of goodwill. Estimated
annual amortization of such goodwill is approximately $195 million, of which
approximately $65 million relates to unconsolidated equity affiliates. Enron is
in the process of evaluating the application of SFAS No. 142 in light of the
recent events discussed above.

        In August 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143, which must be applied to fiscal years
beginning after June 15, 2002, addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Enron is in the process of evaluating
the impact of SFAS No. 143 on the financial statements.

      In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144, which must be
applied to fiscal years beginning after December 15, 2001, addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. Enron is in the process of evaluating the impact of SFAS No. 144 on the
financial statements.






                                       63
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


FINANCIAL CONDITION

CASH FLOWS

<TABLE>
<CAPTION>
                                                           Nine Months Ended
                                                             September 30,
                                                     ---------------------------
(In Millions)                                           2001              2000
                                                     ---------------------------
<S>                                                  <C>               <C>
Cash provided by (used in):
     Operating activities:
         Operating activities excluding net
          margin deposit activity                     $ 1,596          $  (414)
         Net margin deposit activity                   (2,349)             541
                                                      ------------------------
              Operating activities                    $  (753)         $   127
                                                      ========================

     Investing activities                             $(1,366)         $(3,580)
     Financing activities                             $ 1,880          $ 3,873
</TABLE>

       Cash used in operating activities totaled $753 million in the first nine
months of 2001 as compared to cash provided by operating activities of $127
million in the same period last year. Cash used in operating activities in the
first nine months of 2001 reflects cash provided by operations and price risk
management activities, offset by net cash used related to margin deposit
activity. Excluding net margin deposit activity, cash provided by operating
activity was $1,596 million. Enron received significant cash deposits as credit
collateral during the fourth quarter of 2000 resulting from volatility in the
power and gas markets. During the first nine months of 2001, net deposits of
$2,349 million were returned as general price levels in the commodity prices
have declined. Net cash provided by operating activities in the first nine
months of 2000 primarily reflects earnings and proceeds from the sale of
merchant assets and investments, partially offset by cash used in acquiring
merchant assets and investments and working capital requirements.

       Cash used in investing activities totaled $1,366 million in the first
nine months of 2001 as compared to $3,580 million in the same period of 2000.
Cash used in the first nine months of 2001 reflects investments in
unconsolidated equity affiliates and capital expenditures. Investments in
unconsolidated equity affiliates in 2001 include the acquisition of a company
whose assets include a newsprint mill and related assets, a power generation
related entity and the purchase of all publicly traded shares of Azurix Corp.
Capital expenditures in 2001 related to Wholesale Services' energy network.

       Cash provided by financing activities totaled $1,880 million in the first
nine months of 2001 as compared to $3,873 million during the same period of
2000. The first nine months of 2001 include the net issuances of short- and
long-term debt of $2,522, partially offset by payments of dividends.


                                       64
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


LIQUIDITY, CAPITAL RESOURCES AND OUTLOOK

       Following Enron's announcement of its third quarter 2001 results on
October 16, 2001, there was a significant decrease in Enron's common share price
and subsequent decreases in the credit ratings of Enron's long-term debt to BBB-
and Baa3 (the lowest level of investment grade) with a warning that further
downgrades were possible. This situation resulted in a loss of investor
confidence and significantly affected Enron's ability to raise capital.

       Maintaining an investment grade credit rating is a critical element in
maintaining liquidity for Enron's wholesale business which, together with the
natural gas pipeline operations and the retail business, comprise Enron's core
businesses discussed below. As a part of their standard contractual
arrangements, Enron and its trading counterparties regularly post cash deposits
or letters of credit to collateralize a portion of their trading obligations. A
downgrade to below investment grade could lead to a substantial increase in the
level of cash required for collateral and margin deposits with Enron's wholesale
trading partners. Additionally, Enron and its subsidiaries have outstanding
surety bonds and other instruments related to construction projects and other
performance obligations. Under certain circumstances, the issuers of such
sureties may request collateral.

       LIQUIDITY ACTIONS. Enron has implemented a financial strategy to restore
investor confidence and will continue its initiatives in this regard. Enron has
taken the following steps to assure its customers and investors that it can
fulfill its commitments in the ordinary course of business:

       o  Enron borrowed approximately $3.0 billion from its committed lines of
          credit to repay outstanding and expiring commercial paper obligations
          of approximately $1.9 billion and to provide immediate cash liquidity.
          This action to convert Enron's committed lines of credit to cash was
          done to eliminate any doubt as to their availability in the future;

       o  In an effort to further enhance short-term liquidity, on November 13,
          2001, Enron (through its wholly-owned subsidiary) obtained $550
          million in a new secured line of credit from JP Morgan Chase Bank
          (Chase) and Citicorp North America, Inc. (Citicorp), secured by
          Enron's Transwestern Pipeline Company assets. Enron anticipates
          obtaining $450 million in a new secured line of credit on or about
          November 20, 2001, from Chase and Citicorp secured by Northern's
          assets. These proceeds will be used to further supplement short-term
          liquidity and to retire maturing obligations;

       o  On November 13, 2001, Enron received a $1.5 billion equity infusion in
          the form of a preferred stock investment in Northern from Dynegy Inc.
          (Dynegy) in connection with the merger agreement signed between Enron
          and Dynegy;

       o  Enron anticipates the receipt of over $800 million in net proceeds
          from asset sales scheduled to close by year-end. However, the closings
          of these sale transactions are pending certain regulatory and other
          approvals that will impact whether such transactions close and the
          ultimate timing of the closings. Of the net proceeds, $250 million, or
          a portion thereof, may be required to repay an obligation that may
          become a demand obligation due to a recent credit rating downgrade
          discussed below and in "Impact of Recent Events" and "Minority
          Interests" below.



                                       65
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       Enron is engaged in discussions with various institutions about investing
in Enron equity. Enron is diligently pursuing a program to raise an incremental
$500 million to $1 billion of private equity from these sources in the near
future. There can be no assurance, however, that such program will be
successful. Depending on the terms and amounts of such investments, Enron may be
required to increase its authorized capital, which would require the approval of
its shareholders.

       RESTRUCTURING PLAN. As a result of the Dynegy merger agreement and the
loss of investor confidence, Enron has initiated an action plan for
restructuring its business. The key aspects of the action plan involve (i)
concentrating primarily on its core businesses; (ii) taking aggressive steps to
rationalize the existing cost structure; (iii) accelerating the process of
divesting non-core businesses and assets; (iv) restructuring scheduled
maturities of debt and other obligations; (v) completing the investigation by
the Special Committee and its advisors with respect to related party
transactions; (vi) reviewing and strengthening Enron's corporate governance; and
(vii) expanding certain disclosures with a focus on increased transparency.
Management and the Board have not completed nor approved a restructuring plan.
Such restructuring plan is currently being prepared and, therefore, Enron is
unable to estimate the timing of implementation or the financial impacts.
Enron's fourth quarter 2001 results of operations will likely be negatively
impacted by severance, restructuring and other charges resulting from the
repositioning of many of Enron's businesses.

       In order to focus on Enron's core businesses and rationalize their cost
structure, management is in the process of dividing Enron into three fundamental
groups of businesses - Core, Non-Core and Under Review. Following is a
description of each group of businesses:

       o  Core Businesses are the consistent franchise businesses for which
          Enron has a distinct competitive advantage. These businesses,
          collectively, generate significant earnings and cash flows. These
          businesses include:

          o Gas and power businesses in North America and Europe;
          o Coal businesses in North America and Europe;
          o Retail businesses in North America and Europe; and
          o Natural gas pipeline businesses.

       o  Non-Core businesses are businesses that do not provide value to
          Enron's core businesses. These primarily are part of Enron's global
          assets and broadband services segments. Enron has approximately $8
          billion invested in these businesses and the return from these
          investments is below acceptable rates. Accordingly, Enron is
          developing a plan to exit these businesses in an orderly fashion.
          Enron expects that the sale of these non-core businesses will generate
          cash proceeds that will be used to repay debt. Should the exit
          strategy, currently being prepared, result in a lower value than
          Enron's current carrying value, then Enron may be required to record
          related asset writedowns, possibly as early as the fourth quarter of
          2001.

       o  Businesses Under Review are businesses that Enron believes have strong
          future prospects; however, under the restructuring program, Enron is
          in the process of looking closely at the capital requirements and
          near-term growth prospects of these businesses. These businesses are
          primarily Enron's wholesale businesses outside of power and gas, which
          include both energy-related and industrial markets activities. The
          in-



                                       66
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

          depth assessment of each of these businesses will be completed very
          quickly to determine the resources Enron intends to expend in these
          areas.

       IMPACT OF RECENT EVENTS. The recent deterioration in Enron's credit
rating has caused a negative impact on Enron's projected 2001 fourth quarter
profitability. This is primarily the result of a reduced level of transaction
activity by Enron's trading counterparties, particularly longer-term
transactions. It is too early to determine the impact these events will have on
Enron's fourth quarter 2001 operating results. Additionally, the fourth quarter
of 2001 will likely be negatively impacted by severance, restructuring and other
charges resulting from the repositioning of many of Enron's businesses
consistent with the restructuring plan, as well as potential writedowns as
discussed in "Unconsolidated Equity Affiliates" below.

       Enron has various financial arrangements which require Enron to maintain
specified credit ratings. The November 12, 2001 downgrade in Enron's senior
unsecured debt rating to BBB- by Standard & Poor's has caused a ratings event
related to a $690 million note payable that, absent Enron posting collateral,
will become a demand obligation on November 27, 2001. See "Minority Interests"
below for a description of this obligation. Consistent with the restructuring
plan discussed above, Enron is currently working with the lenders to develop a
mutually acceptable amendment or waiver to the transaction documents in order to
avoid an early Enron payment obligation.

       In the event Enron loses its investment grade credit rating and Enron's
stock price is below a specified price, a note trigger event would occur. This
could require Enron to repay, refinance or cash collateralize additional
facilities totaling $3.9 billion, which primarily consist of $2.4 billion of
debt in Osprey Trust (Osprey) and $915 million of debt in Marlin Water Trust
(Marlin). For a description of the Marlin and Osprey Trusts, both of which are
unconsolidated affiliates, and related debt obligations, see "Unconsolidated
Equity Affiliates" below. In the event a Note Trigger Event occurs, Enron must
either issue equity in an amount sufficient to repay the notes or Enron is
obligated to pay the difference in cash.

       In the event that Enron fails to pay any debt obligations when due,
including when such obligations may be accelerated, or is unable to refinance or
obtain a waiver of such obligations, a series of events would begin which could
impact Enron's compliance with the terms of its Revolving Credit Agreements
certain other obligations, including bank debt facilities.

       It is not possible to predict whether any or all of the actions described
above (including the sale of non-core businesses and assets and the refinancing
or waiver of Enron obligations that may become immediately payable upon
scheduled maturities or due to an acceleration event) will be adequate to
maintain Enron's investment grade credit rating or enable Enron to refinance or
otherwise restructure its debt obligations that become due. An adverse outcome
with respect to any of these matters would likely have a material adverse impact
on Enron's ability to continue as a going concern.

       NEAR TERM MATURITIES OF DEBT AND OTHER SIGNIFICANT OBLIGATIONS. As
discussed above, a key aspect of Enron's restructuring plan is restructuring
scheduled maturities of debt and the obligations discussed below in
"Unconsolidated Equity Affiliates" and "Minority Interests." The following
summarizes the maturities of debt and these obligations by quarter through 2002
as of November 16, 2001 (in millions), assuming no accelerations as a result
of events of default:


                                       67
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                               Outstanding Balance                                          Maturities
                      -------------------------------------   ----------------------------------------------------------------------
                         September 30,       November 16,        Remaining                            2002
                                                                             -------------------------------------------------------
                             2001                2001             4Q 2001        1Q           2Q              3Q              4Q
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                <C>                <C>              <C>         <C>              <C>              <C>
Short-Term Debt               $6,434           $6,564(a)       $2,140(a)(b)     $ 72         $2,125(c)       $1,600(a)       $627(d)
Long-Term Debt                 6,544            7,782               -              -              -               -            74
Unconsolidated
 Equity
 Affiliates(e)                     -            1,819               -              -              -           1,819(e)          -
Minority
 Interests(f)                    691              690             690(f)           -              -               -             -
</TABLE>

(a)  Short-term debt includes $1,267 million related to Enron's zero coupon
     convertible senior notes that mature in 2021. Of this amount, $94 million
     is included as a maturity in the fourth quarter of 2001 which reflects the
     convertible redemption value of the notes at November 16, 2001 based on
     Enron's then current stock price. The remaining amount has been included as
     a maturity in the third quarter of 2002, assuming closing of the Dynegy
     merger as currently structured, at which time the holder of the notes may
     request Enron to repurchase the notes at issue price plus accrued original
     issue discount through repurchase date.

(b)  Includes $1,026 million of demand notes payable to unconsolidated equity
     affiliates (including $616 million due to Whitewing, see (e) below) under
     long-term revolving credit agreements for cash management purposes which
     can be requested as needed by the unconsolidated equity affiliates.

(c)  Includes $1.75 billion of amounts borrowed under the revolving credit
     agreements.

(d)  Includes $550 million borrowed under the new secured lines of credit
     discussed above.

(e)  As discussed in "Unconsolidated Equity Affiliates" below, in the event that
     Enron has not repaid its obligations to Osprey and Marlin prior to their
     respective maturity dates of January 15, 2003 and July 15, 2003, Enron is
     required to deposit an amount sufficient to redeem the notes 120 days prior
     to the maturity dates. As such, the $2.4 billion deposit requirement
     related to the Osprey obligation less $616 million of demand notes due to
     Whitewing included in short-term debt has been reflected as a scheduled
     maturity in the third quarter of 2002.

(f)  As discussed below in "Minority Interests," absent Enron repaying the note,
     posting collateral or obtaining a waiver from the lenders, a $690 million
     note payable will become a demand obligation on November 27, 2001.

       As discussed in "Liquidity Actions" above, on November 19, 2001, Enron
closed a $450 million new secured line of credit which will mature in the fourth
quarter of 2002.

       CASH LIQUIDITY. As reflected on its Consolidated Balance Sheet as of
September 30, 2001, Enron had $1.0 billion in cash and cash equivalents. Of this
amount, $656 million related to domestic cash managed by Enron's corporate
treasury department. At November 16, 2001, Enron had $1.2 billion of domestic
cash managed by Corporate treasury. Cash inflows during this period primarily
consisted of net collections from business operations and trade settlements, the
borrowing from committed lines of credit, obtaining new secured lines of credit,
the equity infusion from Dynegy and receipt of collateral deposits from trading
partners. Cash outflows during this period primarily consisted of operating
costs of business operations and trade settlements, repaying expiring commercial
paper obligations and maturing short- and long-term debt and payment of
collateral deposits to trading partners.

       CREDIT LINES. As a result of Enron's loss of investor confidence
discussed above, Enron exited the commercial paper market for its short-term
liquidity needs and borrowed under its committed lines of credit (approximately
$3.0 billion) to repay outstanding and expiring commercial paper obligations of
approximately $1.9 billion and to provide additional cash liquidity. Of its $3.3
billion in committed credit lines, at November 16, 2001, Enron had unused
commercial paper lines of credit of $103 million.


                                       68
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       CREDIT RATINGS. Enron's credit ratings at September 30, 2001 and the date
of this filing are as follows:

<TABLE>
<CAPTION>

                                         Moody's                   Standard & Poor's                    Fitch
                             ----------------------------------------------------------------------------------------------
                                September 30,                  September 30,                 September 30,
Debt Instrument                     2001          Current          2001          Current         2001           Current
---------------------------------------------------------------------------------------------------------------------------
<S>                           <C>               <C>             <C>             <C>
Senior unsecured debt               Baa1         Baa3           BBB plus        BBB minus     BBB plus        BBB minus

Subordinated debt                   Baa2         Ba1            BBB             BBB minus     BBB             BB

Commercial paper                    P-2          Not Prime      A-2             A-3           F2              F3
</TABLE>

       Additionally, each of the above rating agencies have issued warnings that
further downgrades are possible.

       UNCONSOLIDATED EQUITY AFFILIATES. Summarized below is a description
related to two of Enron's unconsolidated equity affiliates for which Enron has
committed to issue equity to satisfy obligations of these equity affiliates. As
discussed above, Enron's current common share stock price, liquidity situation
and credit ratings may significantly impact Enron's ability to satisfy these
obligations solely with equity issuances.

       Whitewing Associates L.P. Whitewing is an entity formed by Enron and
various investors, investing through an entity named Osprey, to acquire and own
energy-related assets and other investments. Osprey is capitalized with
approximately $2.4 billion in debt and $220 million in equity. The Osprey debt
is supported by the assets within Whitewing, which include Enron Mandatorily
Convertible Junior Preferred Stock, Series B (which is convertible into 50
million shares of Enron common stock), and a contingent obligation of Enron to
issue additional shares, if needed, to retire such debt obligation. In the event
that the sale of equity is not sufficient to retire such obligations, Enron is
liable for the shortfall.

       At November 16, 2001, Whitewing held assets with a book value of
approximately $4.7 billion. This includes approximately $1.3 billion in energy
related projects in Europe and South America, including European power plants,
and an electric distribution company in Brazil, approximately $600 million of
merchant investments, approximately $600 million in demand notes due from Enron
and other assets of $100 million. The merchant portfolio includes both private
and publicly traded entities and consists of oil and gas investments, power
generation and energy investments and technology related and other investments.
In addition, Whitewing holds Mandatorily Convertible Junior Preferred Stock,
Series B, mentioned above, and a contingent obligation of Enron to issue
additional shares, if needed, which together have a combined book value of
approximately $2.1 billion. This contingent obligation is in the form of a
derivative instrument. As such, both Enron and Whitewing account for this
contingent obligation at fair value. As a result, Enron recognizes losses
associated with this obligation as a reduction of "Revenues" in the accompanying
consolidated income statement. However, the loss is offset as Enron recognizes
its share of Whitewing's earnings through "Equity in Earnings of Unconsolidated
Affiliates" in the accompanying consolidated income statement. As of September
30, 2001, the amount due Whitewing under such derivative totaled approximately
$1.0 billion and is included in "Other Liabilities" in the accompanying
consolidated balance sheet. Such


                                       69
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

amount has increased by approximately $600 million as a result of the decline in
Enron's common stock price subsequent to September 30, 2001 through November 16,
2001. Based on the subsequent decline in the Enron stock price through November
16, 2001, there would currently exist an approximate $700 million charge to
earnings due to the shortfall in the recovery of Enron's book investment. Enron
is currently evaluating the fair value of Whitewing's other assets mentioned
above in conjunction with the restructuring plan discussed above which will
impact the amount of any writedown of Enron's investment in Whitewing, possibly
as early as the fourth quarter.

       Atlantic Water Trust. Atlantic Water Trust is an entity formed by Enron
and unrelated institutional investors, investing through an entity named Marlin
Water Trust (Marlin), for the purpose of acquiring and holding an interest in
Azurix Corp. (Azurix). The primary asset of Azurix is Wessex Water Services Ltd.
(Wessex), a regulated water utility in the UK. Atlantic Water Trust currently
owns 67% of Azurix, with Enron owning the remaining 33%. Marlin was capitalized
with approximately $915 million in debt and $125 million in equity. The Marlin
debt is supported by the assets of Atlantic Water Trust and Enron's contingent
obligation to cause the sale of Enron equity to retire such obligations. In the
event that the sale of equity is not sufficient to retire such obligations,
Enron is liable for the shortfall.

       Description of Trigger Events. Osprey and Marlin's debt obligations
contain certain "Note Trigger Events" to protect the note holders, including (i)
an Enron senior unsecured debt rating below investment grade by any of the three
major credit rating agencies concurrent with an Enron stock closing price of
$59.78 per share or below in the case of Osprey and $34.13 per share or below in
the case of Marlin; (ii) a cross default to Enron senior obligations in excess
of $50 million and $100 million for Osprey and Marlin, respectively; and (iii)
the requirement that an amount sufficient to redeem the notes be deposited with
a trustee 120 days prior to maturity dates of January 15, 2003 and July 15, 2003
for Osprey and Marlin, respectively. As of November 16, 2001 the Enron stock
closing price was $9.00 per share.

       In the event a Note Trigger Event was to occur, Enron has 21 days to file
a registration statement for the issuance of equity to repay the notes and such
registration statement has 90 days from the Note Trigger Event to become
effective. Any Enron registration statement filed cannot become effective until
Enron files its restated audited consolidated financial statements which is not
expected until completion of the Special Committee investigation. In the event
that Enron does not file its registration statement or the registration
statement is not effective during the respective time requirements, Enron must
pursue a private placement of equity, if permitted. If Enron does not sell
equity in an amount sufficient to repay the notes, Enron is obligated to pay the
difference in cash.

       In the event that Enron fails to pay any debt obligations when due,
including when such obligations may be accelerated, or is unable to refinance or
obtain a waiver of such obligations, a series of events would begin which could
impact Enron's compliance with the terms of its Revolving Credit Agreements and
certain other obligations, including bank debt facilities.


                                       70
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


       Either as a result of the restructuring plan discussed above or to raise
cash to repay Enron's obligations discussed above, Enron may sell the assets of
Whitewing and/or Atlantic Water Trusts for amounts below their carrying values.
The net proceeds from the sale of such assets can be used to repay Enron's
obligations discussed above. Accordingly, Enron may be required to record asset
writedowns, possibly as early as the fourth quarter of 2001.

       MINORITY INTERESTS. Enron consolidates a limited partnership (the Limited
Partnership), for which the consolidated third party's ownership interest is
reflected in minority interests on Enron's balance sheet in the amount of $691
million at September 30, 2001. The Limited Partnership assets include a $690
million note payable from Enron and certain merchant investments, both domestic
and international. Enron anticipates the receipt of approximately $250 million
from the sale of one of the Limited Partnership's investments, a local gas
distribution company in Brazil, upon the closing of the sale which is pending
certain regulatory and other approvals.

       The November 12, 2001 downgrade in Enron's senior unsecured debt rating
to BBB- by Standard & Poor's has caused a ratings event related to the Limited
Partnership. This ratings event started a nine business day period during which
Enron has the right, until November 26, 2001, to post an unsecured letter of
credit equal to Enron's note payable, to repay the note payable with the Limited
Partnership investing such proceeds in permitted investments, or to purchase the
investors' interest in the Limited Partnership. To the extent that Enron does
not satisfy this requirement by November 27, 2001, the investors have the right
to immediately begin to liquidate the Limited Partnership assets. Additionally,
as a result of the rating downgrade, the investors, subject to certain actions,
are able to accelerate and assign the note payable. Consistent with the
restructuring plan discussed above, Enron is currently working with the lenders
to develop a mutually acceptable amendment or waiver to the transaction
documents in order to avoid an early Enron payment obligation.

       Either as a result of the restructuring plan discussed above or to raise
cash to repay Enron's obligation discussed above, Enron may sell the Limited
Partnership assets for amounts below their carrying values. The net proceeds
from the sale of such assets can be used to repay Enron's obligation.
Accordingly, Enron may be required to record asset writedowns, possibly as early
as the fourth quarter of 2001.

       It is not possible to predict whether Enron will be able to favorably
complete the actions described above. In the event that Enron fails to pay any
debt obligations when due, including when such obligations may be accelerated,
or is unable to refinance or obtain a waiver of its obligations, a series of
events would begin which could impact Enron's compliance with the terms of its
Revolving Credit Agreements and certain other obligations, including bank debt
facilities.

CAPITALIZATION

       As discussed above in "Liquidity, Capital Resources and Outlook," since
September 30, 2001, Enron has borrowed from committed lines of credit and new
secured lines of credit and received an equity infusion


                                       71
<PAGE>


                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES

from Dynegy. These events have increased Enron's debt as a percentage of total
capitalization.

       Total capitalization at September 30, 2001 was $25.9 billion. Debt as a
percentage of total capitalization increased to 50.2% at September 30, 2001 as
compared to 44.3% at December 31, 2000. The increase in the ratio reflects
increased debt levels, including the issuance in January 2001 of $1.25 billion
of notes payable and increased net short-term borrowings in 2001 and the
transactions with LJM discussed in Note 4 to the Consolidated Financial
Statements and the impact of the decline in value of certain foreign currencies.

FINANCIAL RISK MANAGEMENT

       Enron's Wholesale segments, Americas and Europe and Other, offer price
risk management services primarily related to commodities associated with the
energy sector (natural gas, crude oil, natural gas liquids and electricity).
Enron's other businesses also enter into forwards, swaps and other contracts
primarily for the purpose of hedging the impact of market fluctuations on
assets, liabilities, production and other contractual commitments. Enron
utilizes value at risk measures that assume a one-day holding period and a 95%
confidence level.

       Summarized below illustrates the value at risk for each component of
market risk (in millions):

<TABLE>
<CAPTION>
                                                            September 30,         December 31,
                                                                2001                  2000
                                                       --------------------------------------------
<S>                                                    <C>                          <C>

Total Market Risk:
     Commodity price                                              $60                 $ 66
     Interest rate                                                  1                    -
     Foreign currency exchange rate                                 -                    -
     Equity                                                        59                   59
Non-Trading Market Risk:
     Commodity price                                                5                    2
     Interest rate                                                  7(a)                 -
     Foreign currency exchange rate                                 9                    8
     Equity                                                         2                    7
</TABLE>

(a)  This increase is a result of contracts to hedge interest rate risks
     associated with Yen-denominated notes issued by Enron during 2000.



                                       72
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
                          ENRON CORP. AND SUBSIDIARIES


INFORMATION REGARDING FORWARD LOOKING STATEMENTS

       This Report and the Form 10-K include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements other than statements of
historical facts contained in these documents are forward-looking statements.
Forward-looking statements include, but are not limited to, statements relating
to expansion opportunities for the Transportation Services, extension of Enron's
business model to new markets and industries, transaction volumes in the U.S.
power market, commencement of commercial operations of new power plants and
pipeline projects, completion of the sale of certain assets, growth in the
demand for retail energy outsourcing solutions, completion of the merger with
Dynegy and effectiveness of Enron's action plan for restructuring its businesses
including restructuring scheduled maturities of debt and other obligations and
other efforts to assure adequate liquidity. When used in this document, the
words "anticipate," "believe," "estimate," "expects," "intend," "may,"
"project," "plan," "should" and similar expressions are intended to be among the
statements that identify forward-looking statements. Although Enron believes
that its expectations reflected in these forward-looking statements are based on
reasonable assumptions, such statements involve risks and uncertainties and no
assurance can be given that actual results will be consistent with these
forward-looking statements. Important factors that could cause actual results to
differ materially from those in the forward-looking statements herein include
Enron's ability to maintain an investment grade credit rating; Enron's ability
to implement its action plan for restructuring its businesses outlined in this
Form 10-Q; Enron's ability to complete its merger with Dynegy, as well as the
sale of certain assets; developments in and the outcome of pending litigation
including securities class action litigation; the effectiveness of Enron's risk
management activities; willingness of counterparties to engage in financial risk
management and other contracts with Enron without requiring collateral for
obligations or increasing existing collateral requirements; the ability of
counterparties to financial risk management instruments and other contracts with
Enron to meet their financial commitments to Enron; and Enron's ability to
access the capital markets and equity markets during the periods covered by the
forward-looking statements, which will depend on general market conditions and
Enron's ability to maintain the credit ratings for its unsecured senior
long-term debt obligations; success in marketing natural gas and power to
wholesale customers; the ability of Enron to penetrate new retail natural gas
and electricity markets (including energy outsourcing markets) in the United
States and foreign jurisdictions; the timing, extent and market effects of
deregulation of energy markets in the United States, including the current
energy market conditions in California, and in foreign jurisdictions; other
regulatory developments in the United States and in foreign countries, including
tax legislation and regulations; political developments in foreign countries;
the extent of efforts by governments to privatize natural gas and electric
utilities and other industries; the timing and extent of changes in commodity
prices for crude oil, natural gas, electricity, foreign currency and interest
rates; the timing and success of Enron's efforts to develop international power,
pipeline and other infrastructure projects.


                                       73
<PAGE>



                           PART II. OTHER INFORMATION
                          ENRON CORP. AND SUBSIDIARIES



ITEM 1. Legal Proceedings

       See Part I. Item 1, Note 6 to Consolidated Financial Statements entitled
"Litigation and Other Contingencies," which is incorporated herein by reference.

ITEM 6. Exhibits and Reports on Form 8-K

(a)    Exhibits.

       Exhibit 10 Amendment No. 3 to Employment Agreement between Enron Corp.
       and Kenneth L. Lay effective August 13, 2001.

(b)    Reports on Form 8-K

       Current Report on Form 8-K filed November 8, 2001, containing information
concerning (i) requirement of prior year financial statements to be restated,
(ii) the Special Committee appointed by Enron's Board of Directors to review
transactions between Enron and related parties and (iii) transactions between
Enron and other Enron employees.

       Current Report on Form 8-K filed November 13, 2001, containing
information concerning credit facility commitment letters for Transwestern
Pipeline Company and Northern Natural Gas Company.

       Current Report on Form 8-K filed November 14, 2001, containing
information concerning the proposed merger between Enron Corp. and Dynegy Inc.


                                       74
<PAGE>


                                   SIGNATURES



       Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                        ENRON CORP.
                                        (Registrant)


Date:  November 19, 2001                By: Richard A. Causey
                                            ------------------------------------
                                            Richard A. Causey
                                            Executive Vice President and Chief
                                             Accounting Officer
                                            (Principal Accounting Officer)





                                       75
<PAGE>




                                 EXHIBIT INDEX


ITEM 6. Exhibits and Reports on Form 8-K

(a)    Exhibits.

       Exhibit 10 Amendment No. 3 to Employment Agreement between Enron Corp.
       and Kenneth L. Lay effective August 13, 2001.