PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION

Jeff,

Per your request, I am writing a brief note to follow up on our
telephone conversation today.  As we discussed, Enron plans to change
the structure of Enron Telecommunications, Inc. from a regular C
corporation to an LLC.  As we discussed previously, this change in
structure will require the approval of the California Public Utilities
Commission, because it is a change of control under the definitions of
the Public Utilities Code.  You indicated that someone inside Enron was
concerned that, during the course of the CPUC,s review of the request
for transfer of control, the CPUC could get access to the books and tax
returns of ETI,s parent EBS or other Enron entities, which Enron would
find unattractive.  You asked me to discuss whether this was possible.

At a general level, the CPUC in the past has asserted jurisdiction over
entities affiliated with entities regulated by the CPUC.  Depending on
the facts at hand, a variety of provisions in the PU Code grant this
jurisdiction.  However, the CPUC rarely uses its jurisdiction to look
into the books and tax returns of an affiliate of a nondominant
telecommunications carrier, unless the affiliate is the entity seeking
to acquire control of the carrier.  For nondominant telecommunications
carriers, the Commission applies a fairly light regulatory touch,
because such carriers have no market power.  You should also be aware
that there are other provisions in the PU Code that protect carrier's
financial information from public disclosure.

Thus, although it is possible that the Commission would seek to review
the books and/or tax returns of EBS or another Enron entity in
connection with the change to an LLC, it is unlikely.  ETI is a
nondominant carrier, and there is no real change in the ownership of
ETI, because EBS will still be ETI,s owner (i.e., EBS will own an LLC,
rather than a C corporation), nor is there any change in the management
personnel of ETI.

The one wild card is that Enron's name is quite well known to the
Commission because of Enron's presence in the energy market.  While this
logically and legally should make no difference, it could conceivably
trigger increased Commission scrutiny of the transfer of control.

Please let me know if you need more information or want to discuss
further.

SPB