Rick --

Some thoughts and actions from Govt Affairs.

1. On pg 2 of the Presentation, you state an equation:

Commodity Transactions + Bundled Transactions + Upsell = Total Savings.

Isn't it better to define the result as "Total Value Created" rather than 
Total Savings.  Then you can split the value between "EES Profit" and 
"Customer Savings"?

EES is creating value by (a) commodity management and (b) DSM.  They are then 
responsible for finding the balance in negotiations with the customer between 
themselves (profit) and the customer (savings).  This definition more closely 
works with the numerical findings on page 9.  

The discussion on page 11 is also confusing.   What are "EES Projected 
Savings"?  Don't you mean EES Projected Earnings?

Just a thought.  Not critical to my section.

2. Page 8 identifies $14.7 MM as the "Worst Case Stress Test" for the 39.6 
Twh of Regulated Commodity.  Govt Affairs is doing an analysis on this to 
make sure that we are comfortable with the results.  There are two problems:  
(1) a 5% parallel shift in Regulated Commodity curves is probably not the 
"Worst Case" and (2) the data from EES is difficult to obtain.

We think that a better measure would be to find the potential loss if 
regulated rates continue to grow at their historic growth factor = 1985 - 
1995 was .7% a year.   The problem is that it is difficult to compute because 
the EES systems don't give us a nice and easy structure to evaluate.  John 
Nesalge is working on this number.  

3. Page 9 identifies the Regulatory Risk Capital as $9.5MM for the Top 5 
Commodity deals.  We are checking on this.  It has been hard to compute.  
Same problems as #2.   I would say that $9.5MM is at least the overall 
Regulatory Risk Capital.  John Neslage is working on this number.

4. Page 8 uses the terms "Wholesale" and "Regulated".  Page 4 uses the terms 
"Wholesale" and "Retail".  I assume that you are thinking about the same set 
of costs / services?  If I am correct, I would change the term on page 4 to 
"Regulated Price Reduction" or otherwise explain the difference / similarity.

5. We are working on identifying the value at risk for the PG&E position 
(California CTC roll-off).  There is also a growing Regulatory Risk on 
Illinois CTC roll-off = EES is assuming that the CTC ends in Illinois one 
year earlier than the current law allows.  We may also try to calculate this 
figure.  My understanding is that these numbers will not be incorporated into 
the presentation but will be provided to Rick Buy as FYI.  Is that correct?  
John Neslage is working on these numbers.

6. Conclusion page 13.

Point #4 dealing with Regulatory Risk.

Can we change the presentation to state the following:

FINDINGS

EES' Regulated Rate forecasts do not document legal, political, and 
regulatory assumptions.  Enron Government Affairs has not uniformly validated 
key Regulated Rate forecast assumptions.  Very limited ability to hedge 
Regulated Rate risk.

EXPOSURE

We are working on trying to quantify.  Should say "Rate Growth at Historic 
85-95 Levels = $XX MM".

RECOMMENDATIONS

EES should document all legal, political, and regulatory assumptions embedded 
within Regulated Rate forecasts.  Enron Government Affairs should provide 
regular input into forecasting process to ensure Regulated Rate forecasts 
incorporate all relevant information.  Enron Government Affairs should 
perform monthly curve review process on critical rate forecasts.  


Finally, I hope that John Neslage will have these figures by end of business 
Tuesday.  Does this work?  Please call either John or Harry to coordinate.  I 
am leaving for South America today.

JDS



---------------------- Forwarded by James D Steffes/HOU/EES on 04/09/2000 
10:41 AM ---------------------------
From: Rick L Carson@ECT on 04/06/2000 05:57 PM
To: Rick Buy/HOU/ECT@ECT
cc: Don Rollins/HOU/ECT@ECT, James L Copeland/HOU/ECT@ECT, Stephanie 
McGinnis/HOU/ECT@ECT, Ted Murphy/HOU/ECT@ECT, Vladimir Gorny/HOU/ECT@ECT, 
David Gorte/HOU/ECT@ECT, Karen L Barbour/HOU/ECT@ECT, Mark Ruane/HOU/ECT@ECT, 
Jeffrey A Soo/HOU/ECT@ECT, William S Bradford/HOU/ECT@ECT, Molly 
Harris/HOU/ECT@ECT, James D Steffes/HOU/EES@EES 
Subject: EES Presentation

Rick:  Attached is our latest version of the EES presentation.  All of the 
numbers are pretty complete:  we may have a sensitivity on California CTC 
roll-off from Gov't Affairs but other than that we're just double checking 
all the numbers.  EES shows a much greater projected savings (net to EES) 
than we do on the Suiza deal so we are reconciling that issue.  The only 
other major change from what you had seen previously is to move the Owens 
deal to commodity.  Karen Barbour pointed out that there is no guaranteed 
savings on the Owens deal; only a shared savings (if savings occur).

By copy of this letter, I am asking all our team members to review the latest 
version of the presentation and be prepared to meet with you when you return.

See you soon!                Rick C.