FYI

-----Original Message-----
From: Schneider, Chip 
Sent: Monday, June 10, 2002 1:00 PM
To: Bartlett, Jeff; Concannon, Ruth; Gray, Barbara N.; Jayne South
(E-mail); Mark Ellenberg (E-mail); McMichael Jr., Ed; Sharp, Greg;
Stephen Youngman (E-mail)
Subject: Today's discussion with Bridgeline


I spoke with Hugh Connett this morning regarding the letter sent to Brdigeline.  His comments are as follows:

1.  Generally, Hugh is adamant that the proposed offer to sell gas to Bridgeline be solely for the gas and not include any discount component for storage and transportation.

2.  He is also firm that we pay for one month of transport and storage to move the gas off-system.  He envisions full service  under the contracts during this period such that all scheduling and other provisions under the contract are followed as in the normal course of business.  The plan would be for us to try to get all of the gas out of storage in month.  To the extent that residual gas remains, Bridgeline may be willing to buy it to avoid triggering another month of services under the contracts.

3.  Hugh wanted clarification on the segregated account.  He wants this concept back in and is not comfortable with any potential lien attachment afforded under Section 7-209 of the Louisiana UCC.

4.  Hugh stuck to the issues related to the movement/sale of gas out and storage and did not attempt to link the removal of the gas to rejection of the contracts.  As stated above, however, he was very clear on separating the commodity price from the cost of service on the system.

5.  He had little to say on withdrawal of the pending motions, but was clear that he wanted to preserve all of his rights.

As pointed out to me by Ruth Concannon, please note that the volumes in today's letter are incorrect and will be corrected in future communication with the company.  I did point this out to Hugh and he confirmed Ruth's storage volume of 1,930,552 Dth.  He was not able to yet confirm the imbalance gas of 24,390 Dth in ENA's favor.  We will be working with Bridgeline over the next few days to finalize the reconciliation.

Conclusion:

1.  Basically, Bridgeline is looking for another $650k or so from us to move the gas out of storage.
2.  Purchase of the gas is another matter and they would be willing to entertain doing so at an attractive price.
3.  They want to preserve all rights relative to any and all claims.
4.  They want a segregated account for proceeds in an amount up to their claim.

Discussion:

1.  To move this along, we need to consider that 40% of the payments made to Bridgeline (e.g. the $607k + the $650k) accrue to ENA in the partnership.  Of the $650k they want, we've basically conceded $145k in our gas pricing structure.  Can we justify more from a commercial perspective to bring this to resolution?  We may be able to.
2.  I need to do more homework with Ed and his team on buyers for gas at the Napoleonville delivery point.  What is a reasonable clearing price to expect at this point?  Can ENA sell the gas in a month?
3.  I need more input from the legal folks on the segregated account matter.
4.  Does the triggering of transport capacity under the contract for the first time since bankruptcy add substance to Bridgeline's claims from a legal perspective?  Can we agree with them otherwise?
5.  Before we consider paying more money, should we consider a turnover action?  Under a turnover, would ENA be responsible for the same storage and transport charges that they are requesting?  If so, we probably should consider this and the potentially adverse consequences to forcing removal of the gas via these means.

I would like to get back to Bridgeline today or tomorrow.  Hugh and Randy will be out for the remainder of the week beginning Wednesday.

Please let me know your thoughts ASAP.

Regards,

Chip Schneider
VP-Enron North America Corp.
Tel:   (713) 853-1789
Fax:  (713) 646-3059
Cell:  (713) 306-1184
Location:  ECN711c