Frank,

We have already done a number of things to help reduce AEP's exposure to Enron, none of which were required contractually.  We made a margin payment of $50,000,000.  We arranged ring-trades with Allegheny which reduced your exposure by over $90,000,000.  We have proposed a number of assignments which would reduce your exposure to Enron incrementally.  

Conversely, pursuant to our contracts AEP has failed to pay a $1,311,625.46 swap settlement that was due on 11/8/01.  Additionally, a margin call which was due to Enron on 11/8/01 in the amount of $19,250,000 and remains unpaid.  Additionally, AEP has failed to continue to trade with Enron which was not our understanding of the agreement.

Enron maintains its investment grade credit rating and is receiving $1.5 billion of additional funded equity capital from Dynegy as announced on Friday.  We are more than happy to continue helping you to reduce exposures in mutually agreeable manners but do not agree to the below list of requests.  We need you to address these above issues before we can progress on these exposure reductions.

Regards,
Bill





 -----Original Message-----
From: 	ksbrown1@aep.com@ENRON   On Behalf Of fhilton@aep.com
Sent:	Tuesday, November 13, 2001 12:19 PM
To:	wbradfo@ect.enron.com
Subject:	 


Per our conversation on November 12, 2001, AEP has reassessed it's risk tolerance for Enron Corporation.  In light of the current status, we propose the following things to be done to allow for normal trading and other business activity to commence: 
        A fully executed Master Set Off Agreement (MSA) with an Adequate Assurance provision and no MAC clauses. 
        An agreement that allows for same day margining 
        Cash collateral or Letter of Credit to bring exposure down to zero 
        Work towards executing an EEI Agreement 
        HPL post closing settlement payment must be paid as agreed by both parties 
        Settlement of all payments due and past due 

These are the critical issues we feel must be addressed to get things back to normal.  We appreciate all that has been done thusfar in working to mitigate our exposure, however, we now feel that more should be done to protect what we have at risk. 

I look forward to your reply, should you have any questions, comments or otherwise, please give me a call. 

Best Regards, 

Frank Hilton 
Managing Director, 
Chief Credit Officer