Problem: BODY: Rod, We need to make sure Enron Treasury understands the $300 million plus of NEPCO cash will have to flow back in the next year. I have been involved in two situations where some smart people in the treasury functions did not really understand this impact. There is more cash to come from the projects, but for the most part that represents the profits and that cash will not really be ours until we have cleared the retainages and LOC's. If we can get a couple of new projects in NEPCO, we might be able to sustain the balance, but nothing is secure at this time. Keith
======
A: SUBJECT: NEPCO Cash

Problem: BODY: After the budget session, I thought I needed to make sure one more process is started and in order. Insurance costs have risen and there may be a disconnect between expectations and actual results. I would like to think that we can develop the proper insurance program for Wessex and other Operating Companies in a short time. I think we will need to determine what levels of insurance and deductibles are needed and then what is the right information to send out in the request for quotes. This is so that everyone is dealing with the same information. I would argue that we should be able to price the deal in the market and then give the group program a right to match the deal. I think the next step is yours, to tell us what levels of insurance and deductibles are needed and then follow that up with the information to go out in the RFP. However, it will be necessary to establish some ground rules. In the event the Operating Company (OC) wishes to secure a "market price" for their insurance: 1. The OC may nominate a broker to secure pricing. The Broker is subject to CRM's (Corporate Risk Management working for EGS-Enron Global Services) approval. Such approval will not be unreasonably withheld. An appeal of an adverse decision from CRM to the CEO of EGS is possible. 2. CRM will specify and the operating company will supply to CRM, the necessary underwriting information. 3. The OC will specify the types of insurance and coverages, limits, and deductibles they require for their business. 4. CRM will provide the underwriting data and coverage specifications to the competing brokers. 5. The competing brokers will be directed by and report to CRM during the bid process and thereafter, if the broker is appointed. 6. CRM will receive the proposals from the brokers, evaluate and report the results, with recommendations, to the operating company and the appropriate senior manager within Enron. 7. OC will elect the program and price they prefer and CRM will have the right to provide such coverage or direct the appropriate broker in the placement of a separate program. 8. For locations outside the U.S. the OC may request using their nominated broker for servicing their day to day insurance needs, provided the broker becomes a "correspondent" within the established Enron Broker Network. This will ensure continued co-ordination of the insurance programs. I think a progam like this can get everyone closer to a satisfactory conclusion in the process. Please let me know your thoughts on the proposed program, because obviously we need to get started ASAP.
======
A: SUBJECT: Insurance Issues

Problem: BODY: I reviewed the latest draft of AA's management rep. letter and caught a few innaccuracies in the way AA described the deal. I attach a revised draft of the letter, with a redline version to highlight for you the changes I think we need to make to keep it accurate. First, AA only listed two of the four agreements that comprise the deal. They apparently forgot that we had created a second SBA. Additionally, at Transcanada's request, we put the transaction fee into a separate letter agreement this year. You will recall that last year, Sempra wanted the transaction fee put right in the SBA. Second, AA's bullet no. 4, as originally drafted, states that Northern does not intend to enter into an option to purchase any base gas during the term of the agreement. That statement is confusing given that Article VI.B of the Monthly Pack Agreement includes an account balance cash out mechanism that is a form of purchase option. That cash out mechanism was in Kent's bullets describing the deal and has been in every draft of the documents that AA looked at, so I assume they are OK with the mechanism and were just inartful in drafting bullet no. 4. My simple fix was to leave AA's language alone but to add an "except for" reference at the beginning of bullet no. 4. Third, AA's draft of bullet nos. 5 and 6 includes the somewhat ambiguous references to "other agreements" and "additional agreements" respectively. Since AA's list of the agreements in the intro paragraph was incomplete, these references in bullet nos. 5 and 6 were also innacurate. Now that I have made the list of agreements in the intro paragraph complete, I've clarified the bullets by adding the "other than those agreements referenced above" language to both bullets. The couple of other changes in bullet 5 simply clarify the meaning. Finally, I've modified the signature blocks per conversation with Bill to delete MKM and myself. I am certainly willing and able to sign this letter, but MKM is not up to speed on the deal and has not reviewed the agreements. Getting her up to speed enough to sign the letter would take some time. Additionally, Bill's thought was that MKM and I are his direct reports anyway, so it doesn't serve much purpose to have the subordinates sign if the top guy has signed. Please give me a call if you have any questions or want to discuss these matters.
======
A:
SUBJECT: Mgt. Rep. Letter