I have the final audit report from AA.  It was delivered with the 
reconciliation that we requested AA to perform.

If you remember, AA finished their study about the time of the final 
negotiations with AEP.  After discussions with Brian
the audit was findings were put on hold.

I agree with Ed about AA being caught in the middle.  They were really 
functioning as our internal audit staff, plus
trying to stay neutral about their findings.  If Enron is going to audit the 
last year of service ending April, I would like to
go ahead and notify Reliant/Entex and find another firm to perform the audit. 

Let me know the next steps if any.

Thanks

bob

 -----Original Message-----
From:  Gottlob, Edward  
Sent: Friday, April 20, 2001 12:31 PM
To: Redmond, Brian
Cc: Martin, Thomas A.; Gray, Barbara; Ducote, James; Blevins, Brad; 
Schneider, Steve HPL; Coffey Jr., Jim; Carroll, Lillian; Hall, Bob M; Herod, 
Brenda F.
Subject: Re: ENTEX

A summary of AA's final audit results was never delivered to me, Brenda and 
Bob (I have added Brenda and Bob to the distribution) were handling the AA 
audit team and I have never seen a compilation of the items we agreed to in 
our last meeting with AA just before the HPL sale negotiations started.  This 
does not mean Bob or Brenda may not have the information but I have never 
seen it.  (Confidentially, I think AA was struggling with their role in this 
because Entex/Reliant is such a large customer of theirs)  In our last 
meeting we agreed to use the audit issues as leverage to clarify the intent 
of the contract.  Who were the other suppliers, how were they allocated, 
clear definition of which citygates HPL served off-system and access to 
balancing information on a real time basis for planning purposes.  A better 
understanding of Entex's transportation agreement on Midcon and a more 
proactive role in the management of the transportation contract  Or, if we 
could not get some of this information and cooperation, HPL would reduce its 
role with Entex to deliveries at HPL's sales point (basically out of HPL's 
asset) into Midcon, etc.

Clarification of contract issues will help HPL identify those Entex markets 
we can consider incremental on other pipelines (currently Entex/Midcon claims 
some Midcon citygates are outside the 10 bcf commitment and additive to 
Midcon's supply contract with Entex (part of HPL's audit issues is that there 
is no definitive agreement on which ones).  Indentification has the affect of 
determining those Entex markets HPL should spend their capital on because 
theoretically we have the other markets via the transportation agreement.

Other issues revolve around Entex's allocation proceedure for R/C and 
industrial gas users.  As you all know, there is a significant difference in 
price between the two.  Entex's allocation proceedure needs to be clearly 
documented and supported.  HPL is in the unusual position of having its 
customer (Entex) determine the allocation and whether or not the customer 
(Entex) has met all its obligations, naturally, the customer rarely falls 
short of its contractual requirements with this process.

Any monies recovered in this process belong to the desk, it was their 
performance risk, storage revenue, P/L etc that was at risk during the 
contract year.  Additionally, a new audit period for the last contract year 
will be at the end of this month.  If Enron is going to pursue this, it would 
be appropriate to contact Entex for preperation for an additional audit.  I 
suggest we avoid the AA conflict (we should have enough work papers etc. to 
support the effort) and go with one of the other large audit firms who has no 
alliance to Reliant or Entex.


From: Brian Redmond/ENRON@enronXgate on 04/19/2001 07:52 PM
To: Thomas A Martin/ENRON@enronXgate, Edward D Gottlob/HOU/ECT@ECT, Barbara N 
Gray/HOU/ECT@ECT, James I Ducote/HOU/ECT@ECT, Brad Blevins/HOU/ECT@ECT, Steve 
HPL Schneider/HOU/ECT@ECT, Jim Coffey/ENRON@enronXgate
cc: Lillian Carroll/ENRON@enronXgate 
Subject: ENTEX


Team:

I met with Brad Blevins and Jim Ducote today regarding credits and 
obligations (implied, documented or otherwise) between Entex, ENA and HPL.  
We need to pull the above group together to get a consistent view on:

1. The definition and transfer of ENA obligations to Entex and reserves 
against those obligations to HPL/AEP.

2. The creation of an A/R invoice to Entex for payment based on the 
definitive results of the audit.

Brad/Jim:  can you email the note you gave me today to the above group.

Tom/Ed:  can you pull together a summary of the results of the audit showing 
what Entex owes HPL and what Entex owes ENA.

Lillian: can you arrange a meeting with the above group to discuss.

Thanks,
Brian