S,rgio: 

As we agreed, I prepared this list of key regulatory points to be agreed 
among ourselves. The idea is that this list should serve as a basis for 
Enron's advocacy plan. As you pointed out, life has been so hectic and we 
have been in some many battle fields,  that we did not have too much time to 
discuss and agree on our update, own view. Therefore, some of us, including 
myself, may have lost sight on what is ultimately good to Enron given the 
complexity of issues and their state of flux. Given the potentially 
conflicting coalitions we are part of, this should also serve as a basis for 
defining our position and role in each of those institutions. Finally, this 
could also serve as a basis for our internal and external communication 
plans. 


Overall Guiding Principles

1) As an overrarching objective for Enron all over the world, we defend, 
inter alia, markets, competition both at retail and wholesale levels, 
contract sanctity, free prices and customer choice.

2) We will balance our short term and long term interests to maximize company 
shareholder's value;

3) We will focus our advocacy efforts on issues which have more impact on 
shareholder's value;  we will constantly talk to our multiple internal users  
to understand their needs and how those can be translated in terms of 
regulatory support;

4) We will use several coalition groups to defend our interests; We  will 
select the coalition groups more aligned with our own interests; 

5) In case Enron's interests conflict with the interests of the coalitions we 
are part of, we will defend and express our interests individually; we will 
let our coalition groups know when our interest conflict with the general 
view on a particular subject and that we will express our views separately. 

6) As a consequence of the above, the first step is to have our own view. If 
we do not know what the right way is, any alternative may look equally good 
or bad.



10 Commandment list  - Issues Related to the Current Situation of the Energy 
Sector in Brazil

1) We want the Wholesale Energy Market (MAE) to operate effectively asap. We 
acknowledge that COEX, the stakeholder board has not worked properly over the 
last 2 years. The consensus building process and the nature of the zero sum 
game issues have prevented COEX to be effective. We advocate professional, 
independent boards instead, as we do in most markets we participate 
worldwide. Informativo Regulat?rio # 3 represent our best view on the subject 
for Brazil;

2) Therefore, we applaud ANEEL in its recent initiatives to fix, inter alia: 
(i) the ineffectiveness of COEX, by replacing it by COMAE, a professional 
board; (ii) introducing penalties and guarantees for financial settlement 
(COEX was not able to introduce any in the last two years, which has resulted 
in a US$ 300 million default); (iii) we acknowledge that the Ordinances 
published by ANEEL to fix the market are legally weak and may be challenged; 
(iv) therefore, we should help ANEEL in drafting a new Market Agreement to 
enhance the governance of the new board, make MAE the organizational 
structure more effective and introduce penalties and guarantees which do not 
overpenalize our long positions (loss sharing) ; (v) we will do  our best to 
convince our peers about the proposed changes: however, if the agreed level 
is too superficial to be useful in drafting the new MAE agreement, we will 
present our view to ANEEL separately; (vi) we will advocate that companies 
trading in the free market should have a non-discriminatory treatment within 
MAE and COMAE. (vii) we will  strive to have e seat at COMAE appointed by the 
free trading association.

3) We will advocate free market prices and no caps on the wholesale spot 
price, even during rationing. (in fact, already capped at about R$ 300/MWh, 
which represents the embedded cost of deficit). This conceptual view is 
perfectly consistent with our expected Elektro, Eletrobolt, and wholesale 
position - all of them long. We will strongly oppose any government 
temptation to set additional caps on spot prices. On the contrary, we will 
support any initiative to review the current cost of deficit, which we 
believe to be underestimated. We have recently supported, as strongly 
suggested by our trading group, ANEEL's proposal to significantly raise the 
cost of deficit, particularly during rationing. We advocate that any caps on 
spot prices create disencentives to capacity expansion and therefore will 
aggravate the rationing crisis.

4) We defend Contract sanctity. In this regard, we will fight with Aneel to 
have the pass-through of non-controllable costs for Elektro, such as power 
purchases costs. Aneel has given its own interpretation to the concession 
contract, whereby any cost increase occurring between two successive tariff 
reviews should not be recovered. We defend the idea of a tracking account or 
a similar mechanism. We will take the necessary measures against ANEEL, 
either individually or as part of the distribution coalition group to defend 
our interests.

4) Along the same lines of Contract Sanctity, we will defend Annex V, which 
is a contractual provision to scale down Initial Contract volumes upon 
rationing. According to several Elektro's analysis developed thus far, 
preserving Annex VI will represent a substantial benefit to Elektro, even 
able to offset the negative impact our foregone revenues during rationing. If 
Annex V is revoked and the reduction of Initial Contracts is calculated on 
the basis of actual load redution, as proposed in the rumor mill, we will 
forego US$ 60 million in terms of EBITDA. We will refuse to negotiate with 
our suppliers (e.g. Duke, AES) any changes in the Initial Contracts which 
entail any transfer of risk/costs between generators and distributors. We 
will also express our protest to any Brazilian Government authorities tempted 
to change the Annex V, under the assumption that contract sanctity is being 
violated and that this creates additional regulatory uncertainty. We will 
also claim that revoking Annex V will jeopardize the success of the rationing 
plan because of the "free ride" effect. We will not advocate any bail-out of 
companies negatively affected by Annex V because they poorly evaluated the 
impact of Annex V when companies were privatized. We will argue that Annex V 
was designed specifically to deal with rationing situations and therefore 
there is not any excuse to  change the rules now. We will not agree to set 
additional caps on spot, not even the proposal to maintaing it as it is 
(which will represent about US$ 10 million to Elektro). (Caps are actually a 
disguised way of partially revoking Annex V)

5) We will support Aneel's Resolution 145, recently published, whereby any 
new generation (back-up, self generator), no matter its size, is allowed to 
sell to any market player, at freely negotiated prices (before they could 
sell to the host utility only). Similarly, we support any other initiative to 
give a non-discriminatory treatment to  new generation, which should be free 
to trade energy at freely negotiated basis.

6) We will support the use of correct economic signals to foster demand 
reduction during rationing. To avoid California's mistakes, we will advocate 
that the correct signals should link the wholesale and retail prices. We will 
advocate the government to establish a quota system and establish an overlay 
of correct economic signals (MAE spot prices)  for those exceding their 
quotas. We will oppose rolling blackouts on the grounds that it does not 
provide the best economic allocation of a scarce resource; nor it is 
effective for a long-term energy rationing (as opposed to California, where 
the issue was peak shaving). Furthermore, as recently pointed out by CERA, 
rolling black outs as initially proposed in Brazil are a significant 
departure from markets and will open new avenues for market  intervention and 
contract breaches. We will rebuff those who argue that there is no demand 
elasticity in electricity prices. By linking the success of the rationing 
program to free movements to the MAE price we are protecting our long 
positions both at Eletrobolt and at Elektro. We acknowledge that the increase 
in electricity prices may create a taste for energy rationing measures in the 
medium term. While the financial  impact  of energy rationing  has not been 
quantified for Elektro, we also assume the appetite for markets and energy 
services may create new business opportunities for Enron .

7) We will support ANEEL in its attempts to open the market to retail 
competition in 2003 (proposed threshold level of 50 kW). We  do not accept a 
commonly accepted argument that minimum contracting requirements for 
distribution companies are inconsistent with the opening of the retail 
market. Instead, regulatory safeguards should be put in place to prevent 
distribution companies to become stranded, by sharing this burden among the 
captive and free market segments. California CTC is an example, but 
government should look at best practices.

8) We will advocate for competition at the natural gas as a key ingredient to 
competition in the electricity market  (Informativo Regulat?rio # 1). We will 
also advocate for open access in the pipelines. We will express our contrary 
views against any discriminatory measure trying to protect Petrobr?s role as 
the sole gas supplier, in order to avoid effective competition in the natural 
gas.

9) We will leverage our best expertise to propose a solid capacity plan to 
the government, able to alleviate the energy crisis in the medium term. We 
will talk about the necessary actions to be taken to eliminate regulatory 
risks faced by generators and distributors. We will express our views on how 
to create a healthy contracting environment,  to foster competition and 
expand capacity. We will oppose any measures which create a non-level playing 
field, both at the production or consumption side. If emergency actions are 
needed, they should be used on a temporary basis only (e.g. Petrobr?s' being 
the sole provider of gas molecules and FX hedge).

9) Finally, we should take advantage of the current window of opportunities 
and all the power granted to the Ministry of Rationing to (or at least try 
to) get  the energy sector fixed toward a more competitive industry.  We 
acknowledge that the crisis will be used as a scapegoat why privatization and 
that  the competitive model has not worked. We will express our opposite 
views and we will propose pragmatic measures instead.  We acknowlege that it 
will be very difficult to reach consensus among so diverse parties/interests. 
COEX is a typical example on how the endless search for consensus was 
tantamount to lack of efficiency of the overall process. Given that, we 
should express our coherent, market based views to the Government. We will 
use our coalition groups on a selective basis whenever this attitude 
strengthens our points of view. In case conflicts emerge, we will preserve 
the coherence of our ideas as a whole.  


LM