-----Original Message-----
From: Knodel, Mark G. [mailto:mark.knodel@ubspainewebber.com]
Sent: Thursday, October 25, 2001 8:27 AM
Subject: A few words on Enron from our analyst


A FEW WORDS ON ENRON
As detailed in past notes including our most recent "Progress, But Much More
Work Ahead", we have been highly critical of Enron for some time.  In fact,
with the benefit of hindsight 20/20 vision, the reality is we should have
downgraded our rating a long time ago.  
Looking ahead, despite the positive move forward in replacing its CFO, there
are serious issues and questions remaining.  These include those pertaining
to: 1) multiple shareholder lawsuits from past management statements
regarding the overall underlying performance of the company while there was
insider selling; 2) the reality that - beyond potential conflicts of
interest - the high profile partnerships in question helped to insulate
ENE's earnings from substantial downward portfolio valuations; 3) additional
- albeit smaller - charges are likely down the road as other assets are
revalued; 4) the successful execution of pending material asset sales such
as Portland General; 5) the leverage within its more traditional off-balance
sheet vehicles that could ultimately wind up on its books and cause earnings
dilution under the unlikely scenario that the company is to be downgraded
three notches to below investment grade; and 6) the ability of management to
regain credibility with the Street.
On the other hand, counterparties continue to actively trade with Enron.  It
is still the market maker.  In the event of a "push-comes-to-shove"
liquidity crunch, we believe the company could generate substantial cash by
selling a variety of other assets including its Pipelines segment.  At a
minimum, if ENE shares were to deteriorate much further, we would view it as
a potential acquisition target for other substantially larger and better
capitalized entities looking to immediately become a sizable player in the
global unregulated wholesale / retail energy space.
When all is said and done, to the best of our ability in distilling all of
the facts and pushing aside the growing level of baseless arb-driven noise
surrounding this complex situation, we believe the risk/reward dynamics in
ENE shares have improved.  That is, though there are no guarantees and
headline volatility will be the norm for some time, we believe the odds of
this company becoming completely illiquid are low; while the odds of it
regaining some level of stature and/or returning an attractive return to
shareholders from current levels over the next 12-18 months are
medium-to-high.  We also believe that the collateral damage to the rest of
the space (such as Dynegy and El Paso) is overdone, providing an attractive
buying opportunity.  With nothing but our client's best interest in mind, we
will continue to vigilantly monitor this situation. 
STOCKS RATED STRONG BUY 
El Paso Corporation
Dynegy Inc.
Equitable Resources 
Calpine Corporation
AES Corporation 
Enron Corp.

STOCKS RATED BUY  
Williams
Kinder Morgan, Inc.
TECO Energy
Atmos Energy
KeySpan Energy
UGI Corp.
South Jersey Industries

STOCKS RATED HOLD
AGL Resources
Energen
National Fuel Gas Co.
NW Natural
ONEOK, Inc
Questar Corporation
Sempra Energy
Southwest Gas
UtiliCorp United
WGL Holdings 


Mark G. Knodel
First Vice President-Investments
UBS-PaineWebber, Inc.
713-654-0218
713-654-0379 fax
800-553-3119 Watts line
http://www.painewebber.com/FA/KRW.html - personal web-site



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