Proposed Changes to Business Practices Based on the California

Mime-Version: 1.0
Content-Type: text/plain; charset=us-ascii
Content-Transfer-Encoding: 7bit
X-From: Mark E Haedicke
X-To: Mark Frevert, Greg Whalley, John J Lavorato, Louise Kitchen, Rick Buy, Tim Belden, David W Delainey, Steven J Kean, Richard Shapiro, William S Bradford
X-cc:
X-bcc:
X-Folder: \Mark_Haedicke_Oct2001\Notes Folders\Sent
X-Origin: HAEDICKE-M
X-FileName: mhaedic.nsf

Over the past several months, we have reviewed in detail our trading
contracts and the companies through which we conduct our trading business in
California. In order to reduce Enron's non-market risks ( e.g. legal, credit
and regulatory) in the volatile commodity markets in California or any "
future California", we propose the following changes:

1. Mandatory Uniform Set-Off Provisions in All Trading Contracts for All
Commodities -- set-off language varies commodity by commodity in trading
contracts. Set-off is one of the most critical tools available to Enron in a
major default situation and it is critical to have set-off language and to
have it be uniform commodity to commodity so that Enron can get the best
advantage from set-off and not just the least common denominator.

2. Master Netting Agreements For Appropriate Counterparties With Multiple
Masters With Significant Opposite Exposures -- where it is necessary to have
multiple masters with a counterparty, a "bridge" should be put in place
between the masters whenever there is significant opposite exposures under
the two or more masters.

3. Merge EPMI into ENA -- power trades are done through EPMI. Merging
EPMI into ENA and conducting power trades through ENA is much more efficient
from both a credit and legal point of view.

4. No Automatic Termination for a Bankruptcy Event -- in the PGE/SCE
situation, it should be the non-defaulting party's (Enron in this case)
option to terminate rather than an automatic termination on "inability to pay
debts as they become due".

Let me know if you have any other proposed changes to our trading contracts
or entities through which we conduct our trading. I believe these changes
will (i) improve efficiency, (ii) reduce risks, (iii) develop the opportunity
to do more business with certain counterparties and (iv) substantially
improve Enron's position in the next California type market. The long range
goal is to conduct as much as possible of the trading business through a
single entity and a single or limited number of standardized agreements.