EES Update - Task Force Issues

fyi
---------------------- Forwarded by Michael Tribolet/Corp/Enron on 12/13/2000
07:10 AM ---------------------------

From: Vladimir Gorny @ ECT 12/12/2000 06:28 PM

To: Ted Murphy/HOU/ECT@ECT, Michael Tribolet/Corp/Enron@Enron
cc:

Subject: EES Update - Task Force Issues

1. EES P&L Recap - Last 5-days:

Trading P&L Total P&L (included origination, prudency changes, etc.)
12/5 Loss of 31.9 million Loss of 27.3 million
12/6 Loss of 30.1 million Loss of 28.2 million
12/7 Loss of 16.4 million Loss of 16.2 million
12/8 Loss of 28.6 million Loss of 28.7 million
12/11 Loss of 16.8 million Loss of 23.5 million
12/12 likely more losses (~$25 million)

Total Loss of 123.8 million Loss of 123.9 million

As of 12/11 EES VaR was $6.7 MM

2. Hedging Positions:

On Sunday night, December 10th, Tim Belden and John Lavorato have offered Don
Black to flatten EES 2001 West positions at a given price (I suspect in the
range of $100 million). EES declined.

In the last few days Belden has helped EES flatten their Jan/01 positions and
is currently working on hedging remaining Q1/01 exposure. In Belden's view,
it is going to be rather difficult to substantially lay-off EES exposure to
third parties in the next few weeks. Liquidity has completely dried-up, most
trading counterparties have flattened their books and are not willing to take
on a lot of exposure. Nonetheless, EES is trying hard to hedge their exposure
and have been taking off positions (2001 NP/COB Spread) in the last few days
and will continue to do so as liquidity permits.

3. Deal Analysis - the following deals are expected to close before year-end:

VaR Incremental VaR
Eli Lilly $1.57 MM TBD by Minal
Pilkington $0.7 MM TBD by Minal
ECS $1.0 MM TBD by Minal
CHE TBD by Minal TBD by Minal
JC Penney waiting for positions

I have asked Dennis to estimate how much of the market risk embedded in these
deals they will be able to hedge in the market or through ENA. Then, we will
be able to determine whether EES requires a temporary VaR increase and
process a request, accordingly (the $2 million allocation expires after
12/15).

JC Penney is estimated to be the largest deal ever executed by EES with 6300
sites, behind some 200 utilities, over 240 models and significant positions.
It is my understanding that current deal NPV is estimated at $10 million,
before credit reserve. Given that this deal will add significant incremental
market, credit and EAM (rather iffy engineers' estimates) risks to the
portfolio, I suggest to discuss deal economics with the deal team before
committing more resources to it.

Vlady.