Canada Trading Report September 18, 2001 Confidential Enron Americas Enron Assurance Services

Project Objective: Our review was designed to identify and test key policies, procedures, and controls related to 1.) Critical business processes (capture, documentation, logistics, settlements, reporting and accounting), 2.) Coordination with the Houston office surrounding key business processes, 3.) Effective identification, measuring and monitoring of foreign currency exposures locally, 4.) Adequate involvement of legal department in confirmation and contract formation, 5.) Adequate controls surrounding the financial reporting, 6.) Proper controls surrounding investments in private and public securities, and 7.) Proper security and interface controls within systems supporting business processes. AA Team Members: Enron Team Members: Tom Bauer Michael Schultz Laura Scott John ZufferliDan Dietrich Jennifer Stevenson Russell Bouwhuis Kathy Reeves Jon McKay Todd Bowen Gillian Boyer Sean Sipko Brian Gillis Kyle Kitagawa Jennifer Muse Bethany Denson Peggy Hedstrom Robert Hemstock Sharon Smith Dianne Seib Peter Keohane Jennifer Staton Cheryl Dawes Kate Joslyn Randy Otto Bill Greenizan Project Objective: Our review was designed to identify and test key policies, procedures, and controls related to 1.) Critical business processes (capture, documentation, logistics, settlements, reporting and accounting), 2.) Coordination with the Houston office surrounding key business processes, 3.) Effective identification, measuring and monitoring of foreign currency exposures locally, 4.) Adequate involvement of legal department in confirmation and contract formation, 5.) Adequate controls surrounding the financial reporting, 6.) Proper controls surrounding investments in private and public securities, and 7.) Proper security and interface controls within systems supporting business processes. AA Team Members: Enron Team Members: Tom Bauer Michael Schultz Laura Scott John ZufferliDan Dietrich Jennifer Stevenson Russell Bouwhuis Kathy Reeves Jon McKay Todd Bowen Gillian Boyer Sean Sipko Brian Gillis Kyle Kitagawa Jennifer Muse Bethany Denson Peggy Hedstrom Robert Hemstock Sharon Smith Dianne Seib Peter Keohane Jennifer Staton Cheryl Dawes Kate Joslyn Randy Otto Bill Greenizan Canada Trading Enron Assurance Services

Enron Canada Corp’s power portfolio includes a power purchase agreement with TransAlta to purchase approximately 121 million MWh. This deal extends through The second longest deal is a 5 megawatt sell to Arc Resources Ltd. at $63. The deal extends from April 16, 2001 through December 31, Enron Canada Corp’s second largest deal is a sell of 20 megawatts at $83 to Maclarcn Energy. The deal term is from February 1, 2001 through December 31, The portfolio consists mostly of financial swaps; however, the group has entered into some physical forwards and a small number of option agreements. All power trades executed by the Calgary office clear through the Alberta Power Pool. Canada Trading Current Portfolio Canada Power June 30, 2001 NOP 46.3 MMWh YTD P&L $169.6 MM *DEAL TEST - Tested 13 deals

The longest physical positions are currently with four Canadian producers (PetroCanada, Canadian Natural Resources, Tarragon, and Northstar ) totaling approximately 196 Bcf long through October Long term transportation positions (tolls) currently exist on Nova, Foothills, Northern Border, TransCanada, Alberta Natural Gas, and Pacific Gas Transmission pipelines aggregating to approximately 36 Bcf long extending through October The exotics portfolio consists of 10 natural gas basis options (Aeco, Sumas, and Chicago) with a MTM value of approximately $12.9 million. Canada has servicing arrangements with various counterparties. Some of them include Petro Canada, Suncor, Hunt Oil, and Invasion. Canada Trading Current Portfolio Canada Gas June 30, 2001 NOP 4.27 MMBtu YTD P&L $(7.1) MM *DEAL TEST - Tested 19 deals ( 10 EOL Deals )

Enron Direct provides energy gas and power solutions to the customer. There are approximately 28 Enron Direct employees in Canada. The Canada office began Enron Direct activity in March 1, The number of contracts has grown from 3 in 1st Quarter 2001 to 33 in 2nd Quarter Enron Direct enters into contracts with commercial customers as opposed to industrial customers. Enron Direct has outsourced the data management portion of the settlements activity to Vallejo; however, has retained the invoicing and collections function. Typical term of Enron Direct contracts is approximately 3 years. Increases in tariff rates and transportation costs flow through to the customer in their monthly billings. Currently, Enron Direct transactions are captured in excel spreadsheets and valued using excel models on a daily basis. Canada Trading Current Portfolio Enron Direct June 30, 2001 NOP Included in EES YTD P&L $5.3 M

Tested 30 Deals Canada Trading Deal Test Summary Summary of key deal test findings Power 1 confirmation was not executed 4 confirmations were sent to the counterparty subsequent to trade date plus two. Of the 4 confirmations, 3 were prepared by legal due to the nature of the deals and one was an originated deal, thereby, requiring trader review. One deal was entered into the system with a “temp status,” and was not changed until 2 days later when the curve was finally updated. Gas 2 confirmations were not fully executed by the counterparty. 1 trader was not included on the Authorized Trader List. AALLP noted that from May May 2001 the Authorized Trader List for Canada was not properly updated by Houston. Summary of key deal test findings Power 1 confirmation was not executed 4 confirmations were sent to the counterparty subsequent to trade date plus two. Of the 4 confirmations, 3 were prepared by legal due to the nature of the deals and one was an originated deal, thereby, requiring trader review. One deal was entered into the system with a “temp status,” and was not changed until 2 days later when the curve was finally updated. Gas 2 confirmations were not fully executed by the counterparty. 1 trader was not included on the Authorized Trader List. AALLP noted that from May May 2001 the Authorized Trader List for Canada was not properly updated by Houston. Attributes tested Deal Capture Deal executed by an authorized trader Complete deal ticket Deal correctly captured in EnPower Counterparty set-up in Global Counterparty Documentation Timely confirmation procedure Executed contract and/or confirmation Contract, confirmation and deal ticket agree Confirmation signed by authorized personnel Proper confirmation status in DCAF Broker confirm agrees to deal ticket Valuation Proper curve utilized to value deal Proper bridge of deal terms into the valuation engine Settlements Invoice terms complete and accurate Floating price agrees to publication, if applicable Proper general ledger booking Proper approval of manual disbursements Attributes tested Deal Capture Deal executed by an authorized trader Complete deal ticket Deal correctly captured in EnPower Counterparty set-up in Global Counterparty Documentation Timely confirmation procedure Executed contract and/or confirmation Contract, confirmation and deal ticket agree Confirmation signed by authorized personnel Proper confirmation status in DCAF Broker confirm agrees to deal ticket Valuation Proper curve utilized to value deal Proper bridge of deal terms into the valuation engine Settlements Invoice terms complete and accurate Floating price agrees to publication, if applicable Proper general ledger booking Proper approval of manual disbursements

Canada Trading Enron Assurance Services High Priority Items

Canada Trading Observations High Priority Enron Assurance Services

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Canada Trading Observations Low Priority Enron Assurance Services

Canada Trading Observations Low Priority Enron Assurance Services