Please excuse the long e-mail below - I knew we'd never get a chance to all 
get together, and this is somewhat urgent as I have to complete the Finance 
Committee presentation for the upcoming BOD meeting by the end of next week, 
and it will include trading results for the 1st quarter, reported in 
accordance with the risk management policy.  Due to issues noted below, this 
may require immediate attention by your staff as we have a few short days to 
come up with the best quality numbers we can.  I talked to Beth already, and 
MRM met with Chris Abel's group to see if there was a short cut, but our 
joint conclusion was that the business unit controllers need to be involved 
in this process as you are the experts on your businesses and can apply the 
best judgment to decide on the trading results to be reported to the BOD.  
We'll probably need to go with our best estimate of 3/30 #s as of end of the 
day next Tuesday or Wednesday at the latest.

As you recall, the February 12th BOD meeting resulted in a clarification that 
the BOD approved trading limits were limits on the generic commodity groups 
defined, and accordingly the trading results must be reported consistent with 
that limit structure (management reporting can be different of course).  
Chris Abel's global energy operations group has prepared a "RAC" DPR that 
attempts to aggregate the commodity groups in accordance with the risk 
management policy, so that top management and the BOD can see Enron's 
exposure to individual commodities on a consolidated basis.    (A)  This DPR 
will not impact actual sharing of P/L from a management reporting/business 
unit perspective - this is purely for market risk management purposes and 
reporting to the BOD.  But commercial management will need to review and sign 
off on the RAC DPR and monitor limits accordingly, as these limits are at an 
Enron level.

The specific trading results we need for the BOD presentation are the first 
quarter P/L and average daily VaR, by commodity group.  The first RAC DPR 
available is as of 3/30 - so while it has cumulative P/L, VaR is only as of  
3/30.  (Note - we're also comparing to 1Q 2000, but we're not going to 
attempt to resolve cross-commodity reporting for that period except at a high 
level).

Your participation is needed in resolving: 1) cross-commodity reporting per 
the new RAC DPR - both retroactively for the 1st quarter, and going forward, 
and 2) ROVAR (return on average daily VaR by commodity group) for the 1st 
quarter.  This aggregation of cross-commodity activity has been completed by 
Chris as of 3/30, so he has what he believes to be P/L aggregated for the 
quarter in accordance with the policy. What we don't have is VaR on a daily 
basis as the first time it was calculated on an aggregated basis was on 
3/30.  Obviously we're not going to be able to go back and calculate daily 
VaR for the entire quarter by commodity group aggregated in this new manner - 
especially within a week.  So it appears we'll need to "swag" average daily 
VaR - by reviewing the cross commodity positions aggregated at 3/30, by 
considering cross-commodity activity you're aware of that took place 
throughout the quarter, and using our best estimate of the impact on VaR for 
this cross commodity activity.  

Due to this adjustment in historical reporting practices, we feel a certain 
level of due diligence is required for us to  feel confident we're reporting 
to the BOD in accordance with the policy. And since we only have a few days, 
I thought a team approach to tackling the review would facilitate a prompt 
resolution of material issues, and then you and Chris' group can work out 
your processes and procedures on how to handle going forward as you see fit.  
When you consider materiality, please involve your Market Risk contact - 
while a transaction/position/book may not be material to gas or power, it may 
be material to Global Products,  Weather, etc..

Would you please help us with the following:
? Confirm your review of Chris' aggregation on the RAC DPR at 3/30 (Chris' 
staff can walk you through)
? are all the cross-commodity positions you're aware of being reported 
correctly?
? is there other cross-commodity activity not present at 3/30 and 
consequently not aggregated for the quarter's results, but actually present 
during the first quarter and material? If so, estimate impact on P/L and 
average daily VaR.
? we're not expecting an exhaustive search or analysis - perhaps you can 
simply discuss this issue with the traders who handle this type of activity 
to get a feel, and if they point on specific material transactions, we can 
address those; you can determine best approach
? are there certain books in RisktRAC that have cross-commodity positions 
imbedded/combined - either held currently or those that generated significant 
VaR or P/L during the quarter?  Going forward these will need to be reported 
separately to facilitate risk reporting, but in the next week what we need is 
an estimate of the impact on the corresponding commodities, or a conclusion 
that the impact is immaterial.
? Once you've reviewed the summary of cross commodity activity per the RAC 
DPR and per your own knowledge, help us estimate the impact on the respective 
commodities' average daily VaR for the quarter - you can discuss with your 
market risk contact your recommendation on a reasonable "swag" approach.


After considering the information above, please provide your assessment on 
whether you are in fact able to capture and report all the cross-commodity 
activity, and if not, identify the issues involved and whether it is 
something that market risk needs to address, or if it will simply take more 
time to resolve the reporting details.

If you have other recommendations on how to get comfortable with the trading 
results for the quarter, please feel free to pursue those.  I do not mean to 
imply I know how to do your jobs, or that you're not doing them - I simply 
want to coordinate with you to ensure the #s we report to the BOD are the 
numbers you agree with, and that if they're not completely accurate given 
recent implementation, that we are able to articulate and estimate the 
potential misstatement, if any.  As you are the experts on your businesses' 
results, I simply wanted to make sure I closed the loop with what we in MRM 
understand regarding your reporting of the cross-commodity activity and 
trading results and the application of the policy.

On a separate note, we need you to identify P/L related to special 
transactions that flowed through the DPR, but do not really represent trading 
activity - examples in the past are SFAS 125 transactions and other unique 
gain/loss events - we're reporting 1Q 2001 and 1Q 2000, so whatever we can 
recall about last year will also be considered. We will be sending you a 
reconciliation from the DPR to the BOD package that we use to document any 
special adjustments, and will discuss this with you to come to an agreement 
on adjustments to the DPR reporting to derive true trading activity. These 
adjustments should be minimal, but we'd like your input to conclude.  


Thank you for your cooperation,

Regards,
Cassandra Schultz
x30429
713 858 2618 cell
936 321 2185 home


(A)  For example, North American Electricity limits represent Enron's 
consolidated NA Electricity trading activity, without regard to which 
business unit or commodity group actually executes the trades or holds 
positions. So if Power has some gas positions for hedges or other reasons, 
these gas trades need to be removed from Power VaR and P/L and combined with 
Gas' VaR and P/L, etc..  Heating oil positions held outside Global Products 
should be aggregated with Global Products; Global Products' positions in gas 
and power should be aggregated with gas and power, with corresponding 
adjustment to Global Products' results.