To:  Enron Employees Worldwide
From:  Stephen Cooper
Date:  Thursday, May 2, 2002

As I mentioned at the employee meeting in April, this Friday, May 3, we will present to the Creditors' Committee a plan to separate our core energy assets from the estate and the issues surrounding our bankruptcy through a process called a "363 Sale."  These assets are viable businesses that represent Enron's roots.  If we are able to move quickly, we believe this 363 Sale process will allow us to maximize the value of these assets.

We intended to rollout our plan to employees early next week following the presentation to the Creditors' Committee.  However, the Wall Street Journal got a relatively final draft of our plan and were prepared to run a story today.  To ensure accuracy, we decided to work with the Journal on their story and I participated in an interview late yesterday afternoon.

I certainly regret that you have to learn about our plans from the media rather than directly from me or other members of the management team.  Yet until we present to the Creditors' Committee, we are still not at liberty to share the full details of the plan with employees.  We look forward to proceeding with our rollout early next week.  In the meantime, we've attached below the article from the Wall Street Journal.


Enron Plans Return to Its Roots --- Draft Proposal to Creditors Envisions a Smaller Firm Focused on Hard Assets
By Rebecca Smith and Mitchell Pacelle
The Wall Street Journal

	Enron Corp. plans to reorganize as a small company under a new name, according to a draft copy of the firm's plans -- returning to its roots of a decade ago, before the aggressive strategy that led to its spectacular expansion and then collapse. 
	Under plans scheduled to be presented to creditors Friday, Enron would carve out a small integrated energy company with assets of about $10 billion in North and South America. The new entity would likely take a new name in order to escape the taint of Enron's fall and the baggage of numerous investigations into its finances.
	It would then be put on the block in bankruptcy court, quickly giving Enron's creditors the choice to retain a stake in the new company -- or sell it off, whole or in parts, if more attractive bids emerge. 
	Enron lost the confidence of creditors and investors as revelations emerged last fall that the Houston-based company had hid debt and pumped up profit through a series of off-balance-sheet ventures that in some cases enriched a handful of senior executives. After failing to merge with rival Dynegy Corp., the company sought bankruptcy-court protection in December, the largest such filing in U.S. history. 
	The new plan calls for a small operating company -- for now dubbed "OpCO Energy Co." -- to own power plants, electric utilities, natural-gas pipelines and liquefied-natural-gas facilities, but little else. The biggest properties would be the Portland General Electric utility in Oregon; Elektro, a Sao Paulo-based Brazilian utility and about 15,000 miles of pipeline assets on both continents -- less than half the amount of pipes that Enron once possessed. 
	The plan would essentially make the Enron successor little different from other U.S. energy companies that provide electricity and natural gas, giving it few advantages over competitors. It would also make the new company more reliant than ever on volatile South American operations at a time when its U.S. rivals are scaling back their commitments in the region. 
	Nevertheless, Enron's new management team, headed since January by restructuring specialist Stephen Cooper, hopes that the creation of a new company will protect the assets it needs from a long bankruptcy-reorganization process that could hurt their value. Under the company's plan, all of Enron's other assets would be liquidated in that process. The number of employees would drop steeply -- from about 23,000 today (already down from a peak of 31,000 before the bankruptcy) to around 12,000. 
	"In my view, we're going to be in bankruptcy for a number of years, because of the difficulty we're going to have resolving all of the claims," Mr. Cooper said in an interview yesterday afternoon, after Enron's board had met to go over the plan. 
	A spinoff, he said, also could protect the new business from problems stemming from the bankruptcy such as customers wary of entering into new contracts and a welter of litigation and competing claims. Customers who otherwise might shun Enron could embrace the new company, Mr. Cooper predicted: "Once we're out from under, what they will see is a company with great assets and great cash flow that can stand on its own two legs." 
	Enron's creditors wield enormous influence over how the bankruptcy reorganization will unfold. Mr. Cooper and his advisers will have to convince these unsecured creditors -- who have asserted billions of dollars in claims -- that they stand to recover more of their money by turning Enron's core assets into a new company than selling them off in a fire sale. Because Enron now owes a fiduciary obligation to them, these creditors have the power to press the company to alter the plan considerably, or to proceed directly to a liquidation. 
	"The [creditors'] committee has a bunch of bright, reasonable businesspeople on it," said Mr. Cooper. "Their goal, to maximize value, is consistent with ours. I'm confident that we will be able to make a case for value maximization by adopting this approach." 
	Luc Despins, a lawyer for the creditors' committee, said he hadn't yet seen the plan and couldn't comment. 
	Protracted negotiations are likely to follow the Friday meeting. If and when Enron reaches an accord with creditors, Enron will file the plan with the bankruptcy court, which must then approve it. 
	The proposed reorganization would sweep away a decade of rapid growth, returning the company to its size in 1992, when former Chairman Kenneth Lay and then-President Richard Kinder were running the company. Four years later, Mr. Kinder left Enron and was replaced by Jeffrey Skilling, under whose leadership the company began to disparage hard assets and emphasize the energy-trading business that eventually turned Enron into a far larger concern. 
	Whether the new company can escape the taint of Enron is far from certain. "The success of OpCo as a going concern will depend on its ability to separate reputationally from Enron," the draft business plan says. In addition to winning support from creditors, Enron must disentangle itself from many complicated financial arrangements and an existing agreement to sell Portland General Electric to Northwest Natural Gas Co., a deal which hasn't yet closed. 
	In recent months, new managers have devoted considerable energy to trying to understand Enron's complicated financial arrangements. They are also trying to unravel the contents of a plethora of "SPEs" or special-purpose entities. They were created, beginning in the mid-1990s, as a way to pump up profits, hide debt and raise money from outside investors. 
	The draft plan contains a list of assets Enron wishes to retain for the new company, some of which may be entangled in these special-purpose entities. For example, Centragas, a pipeline company in Colombia, is a proposed asset of the new company. But separate, internal spreadsheets reviewed by The Wall Street Journal show that controlling interest of that pipeline already had been pledged to two investment vehicles, Rawhide LP and Whitewing LP. They, in turn, may have passed along interests to other Enron entities, Tombstone Assets LLC and Ponderosa Assets LP. 
	The company said it is trying to "unwind" many of the investment vehicles to gain clear title to the assets for the new company, but it cautioned that "the unwind and resolution of these structures may affect the financial results presented" for the new company. 
	If the new company is created as outlined, its pro forma net income -- based on past performance of the units it hopes to retain -- is projected to be $243 million this year, $352 million next year, $450 million in 2004 and $503 million by 2005. That is based on assets of $10.1 billion currently, rising to $11 billion by 2003. 
	That's a far cry from what Enron claimed at its peak. In 2000, the last year that full financial records were posted by the company, Enron said its net income was $979 million on $100.8 billion in revenue. Those numbers -- as well as financial statements in the previous three years -- were eventually retracted as Enron came under increasing scrutiny from investors and regulators. 
	The plan said the company wants to keep enough assets to form the basis of a new company because the market is "already overloaded with properties for sale" and prices aren't very good. Enron's collapse is partly to blame for that market glut, because credit standards have been tightening, forcing many energy firms to shed assets and pare debt.