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)