Re: West Coast Gas

Attached is the e-mail that I revised pursuant to our discussions. I have
also sent to Bob Carter, the ENA lawyer on the National Gypsum deal. As you
can see, he does not see any issues that would prevent sending to my contact
at National Gypsum.

Do you have additional comments or changes?

(Also, I will pursue getting the name of the entity that sent it to National
Gypsum.)
---------------------- Forwarded by Richard Rathvon/Corp/Enron on 12/04/2000
12:04 PM ---------------------------

Bob.Carter@enron.com on 12/04/2000 10:46:29 AM
To: Richard.D.Rathvon@enron.com
cc:

Subject: Re: West Coast Gas

Looks good to me.

Richard D
Rathvon@ENRON To: Bob Carter/HOU/ECT@ECT
Sent by: cc:
Richard Subject: Re: West Coast
Gas(Document link: Bob Carter)
Rathvon@ENRON

12/04/2000
10:36 AM

I want to send this to our customer, National Gypsum, but thought you
should review prior to it going out. Do you have any comments?

I've talked with several people familar with gas sales and distribution in
the southwestern portion of the US. Summarized below is their collective
response:

1. The pipeline capacity is limited due to an order by the Federal
Energy Regulatory Commission (FERC), and FERC has jurisdiction over the
interstate sale and distribution of natural gas. The Department of
Transportation has jursidiction only over certain safety issues resulting
from the gas explosion.
2. The spot market has risen in the Arizona area -- currently it is
at $ __ for 30-day ___. The reason prices are high is due to the
excessive demand in California for natural gas for its power plants. Thus,
gas is flowing into California -- the only way gas will flow east away from
California is in response to higher prices.
3. Enron is not "holding back supplies to the area". Enron is not a
producer of natural gas, does not have ANY physical supplies, and does not
have or utilize storage capacity in this area. Also, Enron controls
pipeline capacity over the El Paso Gas Pipeline of only 80,000 cf per day
-- this pipeline has a capacity of 4 BILLION cf per day (at full capacity).
The dominant holder of capacity on this pipleline is a gas marketing
subsidiary of El Paso Gas. Moreover, there are numerous marketers of
natural gas in the area, ensuring competition and pricing visibility and
liquidity. Thus, there is no way that Enron could control or influence the
price of physical suppliles in the area.
4. Gas trading generally occurs over monthly or seasonal (e.g.,
winter) periods, not annual periods. And, the winter season for which
marketers generally quote prices is considered to be November to March (not
on December 1 as the note below suggests).
5. Finally, Enron would not want to hold back physical supplies to
the area. Enron is primarily a trader of natural gas, engaged in the
buying and selling of the non-physical and financial side of natural gas
supplies. Through Enron On Line, Enron is both a seller AND a buyer,
making margins on trades of positions in natural gas. Thus, Enron would
be disadvantaged by not selling gas positions, even if it could hold back
physical supplies to the area, because it is not engaged in buying and
selling of positions in natural gas.

"Lowe, Carol" <CPLowe@NationalGypsum.com< on 11/30/2000 04:46:56 PM

To: "Richard D. Rathvon (E-mail)" <Richard.D.Rathvon@enron.com<
cc: "Kellie Metcalf (E-mail)" <kellie_metcalf@enron.net<

Subject: West Coast Gas

Rich,

The following information was included in an email that was sent to our
executives and CEO. The tone leaves a negative impression for Enron. Can
you or someone at Enron comment on Enron's role or lack thereof with
respect
to this item? I am afraid this will taint our plans if not addressed
quickly. I want to circulate Enron's side of the story.

Carol

Excerpt from email circulated today:

Due to the lingering effects of the August gas pipeline explosion in New
Mexico that killed 10 people, coupled with some possible market
manipulation
by Enron, we're facing a potential problem at Phoenix in the short term and
possibly all three western plants longer term. The pipeline which is owned
by El Paso Gas is back in operation, but is being limited to 50% of
capacity. Weather has turned cold, spiking demand for gas in the region.
Enron appears to be holding back supplies to the area until at least
December 1st, when many of its contracts set the index price for the
following year. Consequently, gas prices on the spot market in Arizona are
hitting $25 per MMBTU. The situation has caused several marketers to
declare force majeure. If our marketer does so, we'll be curtailed. As
you
probably know, we don't have any backup fuel capabilities at these three
plants. The U.S. Dept of Transportation controls this and is reported to
be
getting involved. Will keep you posted as it unfolds.