RE: Enfolio Master Firm Purchase/Sale Agreement

Dan, I offer my apologies once again for the delayed response. It would be
nice if the California energy crisis would evaporate the away gas vaporizes
under normal atmospheric conditions, so that my work load could ease
dramatically. But, no such luck.

With respect to your modifications to 4.2(iv)(b), 4.2(v), (4.2((vi), the
definition of "Act", the changes to "Arbitration Disputes to be Arbitrated",
they are acceptable. However, at the risk of being a nitpicker, the word
"parties" in the language added to the "Arbitration Disputes to be
Arbitrated" paragraph should read "Parties."

Also, on or before the Effective Date, it would be appreciated if the City
could receive a list of the initial contact staff members of Enron who are
located on the trade floor.

For your information, the certified copy of the resolution no. 8040, adopted
March 12, 2001 by the city council, authorizing the city manager to sign the
Enfolio contract, will be delivered in the very near future. I could fax to
you as soon as I get a fax number. Please omit the draft resolution and the
deleted opinion of counsel in the final dispatch to me. If the red-line and
strike-out changes [introductory paragraph, 4.2(iv)(b), 4.2(v) and (vi),
Act, Arbitration Disputes to be Arbitrated] could be removed, that would be
great.

The City has another inquiry. The OFO language on page 2 of Appendix "1"
suggests that Enron is not responsible for OFO-related charges if it doesn't
receive properly or timely notice of an OFO condition. Is this so?
Further, under what conditions would the City be required to give Enron
notice of an OFO? Finally, EFOs are not addressed in this contract. Do the
words "or other order or notice from a Transporter" in the Operational Flow
Orders paragraph contemplate EFOs?

I'm optimistic that we can wrap this up pretty soon. Look forward to your
response to this e-mail. Thanks, Grant.

-----Original Message-----
From: Dan.J.Hyvl@enron.com [mailto:Dan.J.Hyvl@enron.com]
Sent: Thursday, March 22, 2001 2:36 PM
To: grant_kolling@city.palo-alto.ca.us
Cc: Kim.Ward@enron.com
Subject: RE: Enfolio Master Firm Purchase/Sale Agreement

Grant,
Sorry for the delay in responding to your additional inquiries.
7. Re 4.2(iv)(b) - I would propose the clause to read: "(b) file a
petition or otherwise commence, authorize or acquiesce in the commencement
of a proceeding or cause under any bankruptcy or similar law of the
protection of creditors, or have such petition filed against it and such
proceeding remains undismissed for 30 Days, provided if a petition is filed
against the Affected Party and the Affected Party is actively pursuing all
steps to have such proceeding dismissed and provides the other party with
reasonable documentation supporting its actions to cause such proceeding to
be dismissed, then such Affected Party shall have an additional 30 Days to
effectuate such dismissal,"
8. Re 4.2 (v) and 4.2 (vi) - "20 or more Gas Days" is acceptable.
13. I will change the definition of "Act" as you suggest.
21. I propose that language be added whereby the parties shall first
attempt to settle the matters to be resolved by the use of binding
Arbitration by mon-binding mediation and if that does not resolve the issue
to the satisfaction of the parties, such matter shall thereafter be
resolved by the use of binding Arbitration. Is this an acceptable
resolution?
22. We cannot agree to any list of parties who are authorized to
enter into transactions under the contract. Our position is that whoever
answers the trading phone during trading hours is authorized to bind the
company. However, we will provide the City with an initial contact list of
the people on the trading floor whom the city can contact as of the date
the contract is signed; however, the persons who are authorized to enter
into a transaction with the city will not be limited to the initial contact
list. Of course, the city could always attempt to contact someone on the
initial contact list. Will an initial contact list be acceptable?

Please let me have your thoughts concerning the above.
Dan.

"Kolling, Grant"

<grant_kolling@city.palo-a To:
"'Dan.J.Hyvl@enron.com'"
lto.ca.us< <Dan.J.Hyvl@enron.com<

cc:

03/16/2001 05:09 PM Subject: RE:
Enfolio Master Firm
Purchase/Sale
Agreement

Dan, please accept my apologies for replying so late. I was out of town
again, and am back at trying to complete 5+ days of work within 3 days.

Thanks for accepting a lot of our requests. Let me follow up with a couple
of additional inquiries.

7. Re 4.2(iv), please suggest language as you've indicated in sentence 2.
Anything along the lines you've proposed likely will be agreeable.

8. Re 4.2(v) and (vi). How about 20 days?

13. Definition of "Act." I suggest you refer to Article 11, sections 5 and
9 of the California Constitution, to be more specific. Section 3 is not
regularly cited as the line of authority to the best of my knowledge,
though
I can see how the language could lead one to cite it.

21. In California, the concept of binding mediation is not recognized, if
I
have understood our outside counsel at prior mediations in which I've
participated. Mediation is non-binding. As a practical matter, it can
cost
almost as much in terms of time, money and effort to proceed to mediation,
but the "rules of engagement" are not as tight as are found in arbitration.
We avoid the rigid procedures. I believe Enron should consider this
approach at times. Having gone through a couple, I would not recommend to
my client that we would proceed any further once the mediator makes a
proposal that's acceptable to the parties. The cost of arbitration is not
worth it. That's why we in California tend to prefer mediation to
arbitration.

22. I have to insist on behalf of my client that we assemble some list.
Surely, Enron can submit a list of people that will be initially approved
to
engage in authorized transactions. We can do the same. We've had an
unfavorable experience with another Texas-based
energy company regarding the scope of its representative's authority. We
don't want to litigate the issue of due authority. That list would help
It's not a matter of the city claiming the authority to back out of the
contract, because someone arguably didn't have the authority. There are a
ton of cases which would make it extremely difficult to make that claim.

Thanks. Grant.
-----Original Message-----
From: Dan.J.Hyvl@enron.com [mailto:Dan.J.Hyvl@enron.com]
Sent: Thursday, March 08, 2001 3:13 PM
To: grant_kolling@city.palo-alto.ca.us
Cc: Kim.Ward@enron.com
Subject: RE: Enfolio Master Firm Purchase/Sale
Agreement

<< File: 2001-002ctr.doc << << File: 0071988 RESO Enron.doc
<<
(See attached file: 2001-002ctr.doc)

Grant,
I have reviewed your requested changes and have made
the changes which
do not require explanation or clarification. Those changes
are reflected
in the above document. Let me go over your list of items:
1. I have deleted the word "DRAFT".
2. I have left a blank for the date within the month
of March 2001
when the contract would be executed by the City.
3. I have changed the word "may" to "shall".
4. Maximum Daily Delivery Point Quantity does not fit
in a
Deficiency Default, it is just the maximum quantity that can
be handled by
a party at a particular point. I do not think their is an
omission.
5. I have added the word "reasonable".
6. The procedue for how the Termination Payment is
determined is
provided, if the City disagrees with the method and values
provided in the
statement and is unable to convince the Company to revise,
the statement,
then the issue is to be resolved in arbitration. At the
point that a
Termination Payment calculation is necessary, a long drawn
out period
should not be necessary to attain closure.
7. We need to limit the duration to 30 days, neither
party should
be required to wait 60 days before it could accelerate the
other party's
obligations under the Contract. We might be able to add
language to extend
the period if we had some documentation stating the steps
that a party was
pursuing to cause the proceeding to be dismissed and the
other party was
otherwise kept whole from a credit exposure.
8. I have kept the 30 days because 5 days is too
short a period.
During a holiday period, one scheduling error could cover
the entire
period. Article 3 has language which provides a remedy for
a party if a
scheduling default extends for more than 5 days during any
month.
9. The reason is because Enron Corp. is the rated
entity and no
separate rating applies to ENA.
10. I have changed "a" to "the"
11. I have eliminated the 60 day limitation on the
duration of an
event of Force Majeure.
12. This merely addressed the possibility of a
imbalance amount being
due when a pipeline aggregates imbalances using multiple
points, and the
language would allocated the payment based on the amount of
the imbalance
that a particular party may have caused. I think the
language is clear as
written.
13. The definition of Act was one of the items that I
had requested
that you review and complete as necessary so that all
appropriate statutes
were referenced. I am still waiting for your language. I
started filling
it in using language that had been provided by the City.
14. I added the word "reasonable".
15. I have made the requested change relating to
GAAAP.
16. This is a late payment provision and as such a
believe that the
provision should be more than a party's rating, as such I
have kept the 2%
over prime language.
17. These amounts were determined by the credit group
and any change
needs to be discussed with that group. BBB- is considered
investment
grade and I understand that Enron Corp.'s rating is BBB.
ENA is not a
rated entity and that is why the language relates to Enron
Corp.'s rating.
18. The elimination of the opinion of counsel did not
change the
requirements relating to the representations that we expect
the City to
have made. If the City cannot make these representations,
then we need to
know that before we execute the Contract.
19. I have added the word "reasonable".
20. The party that has the Transport Agreement with
the Transporter
should have the legal right to obtain the information based
on its
contract.
21. It is our position that any dispute be arbitrated.
We can agree
to meditation if we can make the outcome binding on the
parties. I am
willing to discuss any changed language that you might care
to offer.
22. We have found that personnel of both our Company
and that of our
Customers change so rapidily that the list is not workable
and merely
allows a party to back out of transactions it does not like
on the basis
that the person who agreed to such transaction was not on
the list.
Therefore , we object to any listing of approved parties who
can transact.
We believe that each party should be responsible for the
actions of its
employees and should stand behind any transactions that
those parties may
enter into pursuant to the terms and provisions of the
Contract.

I will be out of the office on Friday, but will be in
all next week if
you care to discuss any of these matters.

"Kolling, Grant"

<grant_kolling@city.palo-a To:
"'Dan.J.Hyvl@enron.com'"
lto.ca.us<
<Dan.J.Hyvl@enron.com<, "Kolling, Grant"

<grant_kolling@city.palo-alto.ca.us<
03/02/2001 03:43 PM cc:
Kim.Ward@enron.com

Subject: RE: Enfolio Master Firm

Purchase/Sale Agreement

<<0071988 RESO Enron.doc<<

Dan:

First, I've attached the proposed resolution which
authorizes the City
Manager to execute the Enfolio agreement.

More importantly, I need to inform you that our senior
management has
reviewed the referenced contract; I have been asked to
present additional
changes to the agreement for Enron's consideration and to
raise questions
about certain of its terms and conditions.

Let me start from page 1, top to bottom, and proceed to the
end of the
exhibits.

1. There is the word "DRAFT" above the title of the Enfolio
agreement
which
should be deleted.

2. The introductory paragraph, line 5, should not contain
the words "1st
of
January, 2001." It should be left blank, until the parties
have signed the
contract. Otherwise, the City will be in breach as of the
date it signs
the
contract, because Article 2, section 2.1 requires the City
to proffer the
to-be-approved-by-Council resolution as of 1/1/01.

3. Article 2, Section 2.4, line 2. The City (Customer)
wants Enron
(Company) to confirm every recorded telephonic Transaction,
as defined.
Therefore, the City requests the word "may" should be
changed to "shall."

4. Article 3, Sections 3.1 and 3.2, first sentence:
Buyer's Requested
Quantity refers to the DCQ or MaxDQ. Seller's failure to
Schedule the
Buyer's Requested Quantity shall constitute a Seller's
Deficiency Default.
How does a Maximum Daily Delivery Point Quantity fit into a
Seller's
Deficiency Default if the Buyer's Requested Quantity does
not include a
Maximum Daily Delivery Point Quantity? What is the reason
for the
omission?

5. Article 4, Section 4.1, lines 15 and 23: Line 23 refers
to "reasonable
attorneys' fees" yet line 15 refers to "attorneys' fees."
To be internally
consistent, line 15 should say "reasonable attorneys' fees."

6. Section 4.1, right hand column, lines 3-4. A statement
showing the
determination of the Termination Payment will be prepared.
It's unclear
whether the City is entitled to review and challenge the
determination
before a dispute is referred to arbitration. The City
should be entitled
to
receive a copy of the determination and to question it
before it is
obligated to pay the Termination Payment. Please clarify,
or permit the
City to exercise these rights.

7. Section 4.2(iv) specifies that a Triggering Event will
exist if a
bankruptcy petition is undismissed within 30 days. Is this
(under
bankruptcy laws) the minimum period of time within which one
may seek
dismissal of a bankruptcy petition? Please refer to the 11
USC section
that
backs up this provision, or change to 60 days.

8. Section 4.2(v) and (vi): Please change "30 days" to "5
days." The
City
is concerned with the number of days that Enron may be
permitted to fail to
Schedule before a Triggering Event is triggered by Enron.

9. Section 4.2(ix): this language discusses a default by
Enron Corp.
(ENA's parent?), but no mention is made of ENA's default in
this regard?
Please explain.

10. Section 4.5, line 4: Is "a Company" supposed to refer
to "the Company"
?

11. Article 5. The City is uncomfortable with the force
majeure provision
as drafted. It states that the parties must perform even if
a FM event
(earthquake) would prevent either or both parties from
performing with the
60-day period stated therein. There is no such limitation
under California
law in the absence of a contract provision to the contrary.

12. Article 7, Section 7.2: Could Enron translate the last
sentence? We
don't understand it.

13. Appendix "1": Act: Please explain why Section 3 is
referred to?

14. Appendix "1", Claims, line 4: Please add "reasonable"
before
"attorneys' fees.

15. Appendix "1", GAAP: This should read: "GAAP means
generally accepted
accounting principles, consistently applied, with respect to
Company, and
governmental generally accepted accounting principles,
consistently
applied,
with respect to Customer."

16. Appendix "1", Interest Rate: Please delete "two
percent over". The
City has a AAA bond rating, therefore, the City believes
the 2% over prime
should not apply to it.

17. Appendix "1", Material Adverse Change: What does Enron
believe the
City's Net Worth to be? The $400 million threshold is
mentioned. Also,
what is ENA's bond rating? Is "BBB-" an investment grade
rating?

18. Representations and Warranties: Because we have agreed
that the
opinion of counsel will not be required, the reps and
warranties are being
deleted. But the "Representations and Warranties" is
nevertheless included
in the agreement. Item (i) should be deleted, because the
City has not
undertaken a court search as is our custom and practice
whenever we issue
an
opinion. We would like to delete "and (vii) it is not ...
Party."

19. Operational Flow Orders, line 8: Please add
"reasonable" before
"attorneys' fees."

20. Financial Matters, line 8: What is meant by "to the
extent it has a
legal right of access thereto and/or ...etc."

21. Arbitration, Disputes to be Arbitrated. We do not as a
matter of
legal
policy agree to arbitration, but we will mediate disputes.
Is Enron
amenable to mediation? This process is less formal and less
costly in my
opinion.

22. Authority for Transactions. Staff would like the
Agreement to include
a list of employees for Company and Customer who are
authorized to trade on
behalf of their employers. Could a statement be added to
this section to
this effect? Then, we could attach the list(s) as an
Exhibit C.

Thank you so much for considering these issues. There are
others which I
hope to receive from staff next week and which I will
forward to you for
response.

Look forward to hearing from you soon. I will be out of
town after today
until Wednesday, March 7.

Sincerely,

Grant Kolling
-----Original Message-----
From: Dan.J.Hyvl@enron.com
[mailto:Dan.J.Hyvl@enron.com]
Sent: Tuesday, February 27, 2001 6:16 AM
To: grant_kolling@city.palo-alto.ca.us
Cc: Kim.Ward@enron.com
Subject: Re: Enfolio Master Firm Purchase/Sale
Agreement

<< File: 2001-002ctr.doc <<
(See attached file: 2001-002ctr.doc)

Grant,
I have incorporated the language you provided
to me in
the attached
document. I have been informed by the Corporate
Secretary's
office that
they will issue a Certificate of Incumbency
showing that the
person
executing the contract for ENA is authorized to
execute
contracts for ENA.
No other party signs as to form or terms, however,
the
officer executing
for ENA will require that the deal person and I
initial on
the line next to
his signature. I have reviewed the proposed draft
resolution. ENA will
accept the enacted resolution and will not require
that the
City Attorney
issue an opinion. If the attached contract is
acceptable,
please print off
2 originals, have them approved, signed and
forward to me
for ENA's
approval and signature. Once the contract is
fully
executed, I will return
one fully executed original to you for the City's
file.

(See attached file: 0071988 RESO Enron.doc)