Proposed Changes Based on California Energy Shortages

MY MEMO
----- Forwarded by Elizabeth Sager/HOU/ECT on 04/02/2001 04:37 PM -----

Mark E Haedicke
03/28/2001 03:33 PM

To: Elizabeth Sager/HOU/ECT@ECT
cc:
Subject: Proposed Changes Based on California Energy Shortages

Your comments
----- Forwarded by Mark E Haedicke/HOU/ECT on 03/28/2001 03:33 PM -----

Mark E Haedicke
03/28/2001 12:31 PM

To: Mark Frevert/NA/Enron, Greg Whalley/HOU/ECT, John J Lavorato/Corp/Enron,
Louise Kitchen/HOU/ECT, Rick Buy/HOU/ECT, Bradford Larson/HOU/ECT, Tim
Belden/HOU/ECT, David W Delainey/HOU/EES, Steven J Kean/NA/Enron, Richard
Shapiro/NA/Enron
cc:
bcc:
Subject: Proposed Changes Based on California Energy Shortages

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. Mandatory Master Netting Agreements For Counterparties With Multiple
Masters With Significant Opposite Exposures -- where it is necessary to have
multiple masters with a counterparty, a "bridge" should be put 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 --

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)substanially improve
Enron's position in the next California type market. The long range goal is
conduct as much as possible of the trading business through a single entity
and a single or limited number standardized agreements.