Ken:

One of the initiatives implemented at Global Strategic Souring since its 
formation in February is to leverage Enron's aggregated purchasing power to 
facilitate commercial development opportunities for the Business (EBS, EES, 
EFS, and etc.) Units.

Annually, Enron spends several million dollars with COMPAQ for servers, desk 
top computers, and lap top computers.  COMPAQ has also been selected as one 
of the potential candidates to service the EnHome program.  COMPAQ is also 
one of EBS's alliance partners.

Given the magnitude of Enron's relationship with COMPAQ, we have formed an 
intercompany team comprised of representatives from EBS, EES, EFS, Global 
Strategic Sourcing, and the EnHome Program.  In our most recent meeting the 
business units reported the following:

COMPAQ has failed to define its requirements for EBS services under the 
current alliance agreement between the companies.  COMPAQ has also denied EBS 
access to expertise and installations required for product refinement and 
implementation.  (Based on the feedback I have received, I question whether 
COMPAQ intends to honor the terms and conditions of its relationship with 
EBS).
EFS only provides building services currently to a couple of Compaq's 
installations.  
EES has been in discussions with COMPAQ for several months now.  Although we 
are progressing, it would appear that we are at an impasse on the language in 
the contract necessary to support the transaction.
On the EnHome program, COMPAQ has generally been unresponsive to our 
questions and concerns for clarification and/or additional information on 
their experience in operating this type of program.
The Widows 2000 Roll-out Contract literally has taken months to complete when 
it should have only been a matter of weeks.

Ken, based on what I am seeing day-to-day, I am concerned that COMPAQ has 
lost sight of the value of our total business and the value of a healthy, 
bidirectional relationship.

Therefore, specifically given the unresponsiveness to our most recent 
requests for clarification on the EnHome Program and our concerns regarding 
there ability to operate a program of this magnitude, I have requested that 
we reopen discussions with IBM and DELL.

I will keep you apprised of future developments.

George Wasaff