Q: Kathy, I have a conflict today at 1pm. We either need to reschedule or meet next week. Let me know. I have lost your phone number. DG
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A: 3/20

Q: Here are my thoughts on some of Pug's comments (Karen has faxed the memo from Pug I believe): 1 Roles of Audit and Finance Committees I agree with the distinction he draws and I don't see why the entire Board should not see risk/return information. We can tweak the policy to bring this to the fore. 2 Post-Audit I'll talk to Gorte 3 Capital Allocation Complex. Charges for risk capital would not be as difficult as allocating funding. Building balance sheets is key. 4 Trading Limits In my last tome I have effectively limited the use of D-VaR to the levels specified by the concentration buckets, so I think we have satisfied that concern. With position limits I would argue that ones needs them where VaR does not "callibrate" well, for example with Steel trading where there is no observable options market, you need more metrics to tell you about the risk. Conversely in US Gas I think the market is fairly deep and the VaR tells us much about the risk. Also, in a similar fashion to "model approval" under Basle Capital Adequacy rules, the quality of the risk administration process and other controls could make us more comfortable about just using VaR. 5 Reporting Policy Section 4.1.2.3.1 talks about violations and notifications. He is asking should he not be called for a five day loss (c) and an ETL excess (d), in addition to the usual corporate VaR breach and one day loss > VaR. I think the five day loss actually would warrant a Pug call because under the new method (5 day loss > 225% of VaR), the number could be very large (but also less likely). For ETL I would advise against having a Pug call on this since we still need to get the metric bedded down properly (and all the usual arguments about the math played out). The phrase "at their discretion" to which he refers means that the Risk Committee can tell who they like about violations, as they deem necessary - so its just built-in flexibility. 6 Liquidity We are cranking this right now. Other news Gas off approximately 15c across the strip today - Friday was quiet. George has made $9m over the last 5 days as crude has come off 50 - 60c ENE is $36 (horrible) DP
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A: Pug's Fax

Q: Kenny - I picked up your voice mail. Apologies if this is not timely as I've been out this week. So, you may have already gotten this same info and update from Mike, but here goes. I understand that you are really wanting a push to get this deal done asap. Mike and I feel the same way as we still are very supportive of the deal and recognize the impact on momentum that extended contract negotiations can have. I would like to manage your expectations on the timing, though. As you know, we visited with Enron legal for the first time on Monday, May 21. At the end of the meeting, Enron took the to-do to cycle edits based on our commercial and business principle discussions. We received the revised contract on Monday, June 4. Realistically speaking, the contract has been rewritten. We are hopeful that the business and commercial terms that have been agreed upon are still in tact, but regardless, the new document will take us some time to digest, reflect, and comment. Mike, Mark, and Brian are reviewing the contract in detail today and tomorrow. You and I should expect to receive their summary comments and feedback early next week. When I have gotten them, I will call to schedule review time with you as well. Thanks,
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A: TSH Contract

Q: The attached letter is being delivered this morning to the FERC commissioners. Since the letter concerns a matter currently pending before the commission it will also be served on the parties. We plan to talk to the press about it as well. A number of other companies and organizations are also submitting letters and we have helped prepare an EPSA filing which focusses specifically on California. Our best information at this point is that the FERC staff report regarding California is generally accurate, and therefore, favorable. While it will mention periodic exercises of market power, it is expected to lay blame for California's woes at the feet of California's own decisions about market structure. It is further expected that the report will not provide a basis for ordering refunds. On the other hand, the Commission's order (to be considered tomorrow along with the staff's report) is expected to at least put refunds on the table for comment and to discuss, and perhaps implement, further price caps. This is just our best guess at this point. the Commission has put special emphasis on putting the report and order under wraps until wednesday.
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A:
Hoecker letter