Prepared in contemplation of litigation -  Attorney Client Privilege

There appears to be no succinct way to write down my thoughts on where we are 
with El Paso but I'm going to try.  

Assumption:
Kilgore's objective:  Maintain PRM accounting treatment for the swap.
Outcome of lawsuit:   Game Over for Kilgore if his accountants disagree with 
the current PRM treatment and move it to debt thus affecting his      ratios 
and revolver.

What do we want?
(i)  To be certain of payment - how important is this really?  Pretty 
important - but what is this worth is cash terms.  We clearly are in a 
position   whereby if El Paso evers transfers the contract to an entity which 
defaults on payment we are exposed.  However,  realistically what are the 
chances  of them defaulting - very low and, would we win that in court - Yes.
(ii)  To monetize the contract - secondary concern with a value to Enron of 
$15m.  There are potential ways that we could monetize the contracts   
without disclosing the contract - Joe is working on these.    If there is a 
way we can do this then our downside from this confidentiality issue is 
much   smaller as it would cost us more to monetize (thereby bringing in less 
gain - probably not much of a difference) but can we get the asset off the 
book?  We are pursuing how far we can get  in terms of 'true sale' treatment 
with V&E - they will give Joe a view on Wednesday.  There are potential 
other   ways we can ensure this is off our credit.

If we sue them?  Loss of leverage.
We potentially open up the issue to a much wider audience and potentially 
affect Kilgore's accounting treatment - the one thing he wants.  So our 
leverage has disappeared as we are no longer able to maintain the one thing 
Kilgore is looking for.

Way Forward:
We should continue to pursue a commercial solution to the payment issue and 
monetize the contract through a secondary route.  If we complete monetization 
through another route then we are exposed to non-payment which could be 
perceived as very low risk (we have potentially a one year exposure on the 
back end based on six years statute of limitations).  If we cannot get a way 
forward on the monetization , then re-review the way forward. We are at risk 
of them suing us over the confidentiality breach and that would be in New 
York.  

Good Luck!

Prepared in contemplation of litigation -  Attorney Client Privilege