1. FX Taskforce Phase One December 2000 Version Date: 4 January 2001

2. FX Taskforce Taskforce Issues and Objectives Why was there a taskforce? Overview of FX ExposureWhat FX risk do we actually have? FX Responsibility by FunctionWho should be accountable for FX? Systems OverviewsHow to capture FX exposure? Management Information FlowHow to manage FX exposure? High Level Changes RequiredWhat changes need to be made? High Level Implementation PlanWho is going to track the changes?

3. Taskforce Issues and Objectives FX Issues –Exposure is unknown –Hedging policy for trading exposure is not well understood or adhered to –Exposure is sometimes unidentifiable within the commodity book –Accountability and performance measures are unclear –A formal hedging policy does not exist for non- trading costs Objectives –Establish FX framework detailing: –Responsibilities –Internal control structure –Performance measures –Outline implementation plan identifying: –“Quick wins” –Systems implications –Management reporting –Hedging strategy i.e. authorised instruments and counterparties

4. Current Overview of FX Exposure Book to local currency exposure Translation exposure arising on consolidation Enron Corp Currency Transaction Currency Book Currency Local (EEL) Currency CHFEUR Mainly GBP* USD Economic/ inherent exposure Transaction exposure e.g. KPIs 1. Traders measured on gross margin by book currency as reported on management reports 2.2. Enron Europe’s performance is measured on USD equivalent gross margin and net income based on management reports FX Impact on a/cs Book profit and loss Book profit and loss Company profit and loss CTA reserve Respon sibility TradersFinancial OperationsTraders Monthly gross margin reporting to Houston is computed directly from Book to Group currency at month average rate Financially reported gross margin is computed from Book to Local at spot and then translated from Local to Group at month average NO ONE!

5. 650 Euro MTM Example of FX Transaction Exposure Enron Corp Currency Transaction Currency Book Currency Local (EEL) Currency CHFEURGBP USD Day 30 Power Trade: FX Hedge MTM: spot 0.66 660 -10 650 MthAve 0.939 620 -9 611 Management Reporting Day 30 P&L B/S spot 0.6 650 spot 0.6 SAP Transaction CCY 390 MthAve 1.47 390 Mth end spot 1.5 SAP Local Ledger CCY GBP 573cr 585dr CTA B/S1212cr USD SAP MonthEnd Translation Financial Reporting Implications: 1.The management reported P&L is exposed to intra month EUR/USD movements. In the above example this has resulted in a USD11 movement 2.The management reported P&L of USD611 is USD38 different to the financial P&L of USD573 3.Even though the trader has hedged the CHF trade to EUR, Enron still remain exposed to EUR/GBP (spot) and GBP/USD (spot and month average) exchange movements Day 1 Power Trade: 1000 spot 0.65 650650 MthAve 0.923 600 Summary DPR Enpower 1000 1. 2. 3.

6. Proposed FX Responsibility by Function Office of the Chair Financial Ops Commodity Trading Enforce policy/ control framework Report G&A FX exposures to FX desk Report translation exposures to Treasury Report book to local exposure to Treasury on a monthly basis Manage economic and transaction exposure to book currency Alter hedges when size of exposure changes Settlements FX Book Risk Management Execute hedges Actively manage consolidated transaction exposure Actively manage G&A FX exposure Manage the rollover of hedges, cash and funding based on forecasts from settlements Manage book to local exposure (conversion p&l) Manage Balance Sheet exposure for trading and non-trading books Manage cash to local currency or currency of funding Match cash receipts to debtors Produce cash forecast (minimum short term requirement is 30 days forward) Treasury Monitor and report economic and transaction exposure to book currency Report book to local exposure to Treasury on a daily basis

7. Two Options for Capturing FX Exposure “Plan A” Short term fix Capture FX trading economic and transaction exposure information through a front end Management Information System (MIS) which could be excel based “Plan B” – Strategic Multi-currency balance sheet for each trading desk Traders responsible managing allocated items on balance sheet to book currency This option would require balance sheet items to be broken down into profit centres

8. Systems Overview- Daily trading exposure management Book to Local exposure management Risk Management System Deals booked in transaction currency and legal entity identified Infinity FX hedges Excel Summary DPR cashflow Excel Consolidated cashflows by currency and book for managing trading transaction exposure Excel Mapping from book to local currency Excel Consolidated trading book to local exposure SAP Monthly book to local balances Monthly reconciliation Transaction exposure management Key System already exists Commodity Trading Risk Management FX Book Treasury Settlements Financial Ops System Process

9. Systems Overview- Monthly/Quarterly non-trading transaction exposure management Excel Consolidated G&A by transaction, local and group currencies Adaytum Comparison to budget (USD only) SAP Actual costs in transaction, local and group currencies Local General Ledgers (i) Actual costs in transaction currency Trial Balance Used in upload process, reporting in local currency (i) This is required for entities whose primary reporting system is not SAP such as Metals, Australia, Japan and Teesside. Apart from metals, reporting of G&A costs in transaction currency will only require monitoring annually depending on materiality and growth Excel High level calculation of FX impact on G&A and review of hedging policy as appropriate Key System already exists Commodity Trading Risk Management FX Book Treasury Settlements Financial Ops System Process

10. System Overview – Monthly translation exposure management SAP (i) Local to group currency balance sheet and P & L Excel Consolidated P&L and balance sheet translation exposure Key System already exists Commodity Trading Risk Management FX Book Treasury Settlements Financial Ops System Process (i) Hyperion (sourcing its data from SAP) is the current consolidation tool, however there are plans to use SAP as the consolidation tool in the foreseeable future

11. Management Information Flow – Trading foreign exchange transaction exposure management Commodity deal ticket identifies exposure Analysis of incremental commodity & FX hedge cashflows MIS Consolidated transaction to book currency exposure FX desk places hedge with external market Suggested KPI: Exposures are managed within defined limits Traders hedge exposures to book currency to expected date of cash receipt / payment FX desk monitors and manages consolidated transaction exposure daily Traders alter FX for significant movements in exposure amount / timing Key Commodity Trading Risk Management FX Book Treasury Settlements Financial Ops Management Information Process

12. Management Information Flow – Trading cash management Daily bank balance reporting Treasury manage cash to currency of funding / local currency Suggested KPIs Treasury should be measured on the maximum cash balance held in bank accounts overnight Treasury should be measured on investment return Unliquidated deals in maturity order Cashflows from commodity trades and FX hedges settled by settlements Daily cash position reporting Accruals - liquidated but not invoiced SAP Accounts payable Accounts receivable Infinity FX hedge cashflow Short term cashflow forecast produced by settlements Key Commodity Trading Risk Management FX Book Treasury Settlements Financial Ops Management Information Process

13. High level changes/action required to implement FX framework Office of the Chair Financial Ops Commodity Trading Consolidate and report G&A by transaction currency Consolidate and report book to local currency on a monthly basis to Treasury Report historical and forecast translation exposure to Treasury Record all commodity deals in transaction currency Alter Infinity reporting to incorporate movement in positions and profit & loss Settlements FX Book Risk Management Need to receive consolidated transaction exposure information Need to receive forecast consolidated G&A exposure by transaction currency Execute hedges for G&A, book to local and local to group as appropriate Manage the rollover of hedges based on forecasts from settlements Manage book to local exposure on a daily basis (conversion p&l) Manage translation exposure Produce a cash forecast which captures unrealised, accruals (liquidated but not invoiced) and outstanding invoice data – initially to meet short term objectives Treasury Capture consolidated economic and transaction exposure and report to FX desk Capture daily trading book to local currency exposure and report to Treasury  Review profit centre/ legal entity structure proposed by CFO and align book and local currencies where possible “Quick wins” highlighted in blue

14. High Level Implementation Plan PriorityRequired ChangeIssues to be ConsideredNext StepsSponsors 1Record all commodity deals in transaction currency Valuation implications of inputting multi-currency deals into TAGG/ Gas desk/ Enpower Quantify issue in risk systems Identify other desks where this is an issue All desk heads / Mike Jordan 1Alter Infinity reporting to incorporate movement in positions and profit & loss Ability of Infinity system to report in format required Consult with Infinity team in Houston Tani Nath / Gary Hickerson 2Capture consolidated economic and transaction exposure and report to FX desk Cashflow data needs to be in transaction currency Consider extending the collection of book gross cashflows, currently consolidated daily for the auto rho process Tani Nath / Mike Jordan 2Capture daily trading book to local currency exposure and report to Treasury Produce mapping spreadsheet based on FX source diagram Tani Nath / Mike Jordan

15. High Level Implementation Plan PriorityRequired ChangeIssues to be ConsideredNext StepsSponsors 1Consolidate and report G&A by transaction currency Quantify total G&A expenditure for 31 December 2000 by transaction currency Michael Brown / Melissa Allen 2Consolidate and report book to local currency on a monthly basis to Treasury Due to differences in trade accounting practices, it would appear that not all unrealised margin is being booked into SAP in book currency. It would also appear that not all SAP postings report both a transaction and local currency Investigate implications of issues. Design standard excel template for consolidating and reporting book to local currency Tani Nath / Melissa Allen 2Report historical and forecast translation exposure to Treasury As with above, ensure all SAP postings have both local and group currency reported Design standard excel template for consolidating and reporting translation exposure Melissa Allen / Paul Chivers 1Review profit centre/ legal entity structure proposed by CFO and align book and local currencies where possible Tax Regulatory Financial reporting Use FX source diagram to assist in identifying currency mismatches Michael Brown / Fernley Dyson 1Consider options for treasury organisation Document proposed roles of treasury function Michael Brown / John Sherriff

16. High Level Implementation Plan PriorityRequired ChangeIssues to be ConsideredNext StepsSponsors 2Produce a cash forecast which captures unrealised, accruals and outstanding invoice data – initially to meet short term objectives Consider using work achieved to date on 5 day cash forecast project Perform a feasibility study for producing a cash forecast, including whether 30 days is sufficient to meet treasury requirements Mike Jordan / Paul Chivers 3Manage the rollover of hedges based on forecasts from settlements Requires cash forecast informationFernley Dyson / Paul Chivers 3Manage book to local exposure on a daily basis Once this exposure has been captured and quantified, the management of it is dependent on policy Fernley Dyson / Paul Chivers 3Manage translation exposureOnce this exposure has been captured and quantified, the management of it is dependent on policy Fernley Dyson / Paul Chivers

17. High Level Implementation Plan PriorityRequired ChangeIssues to be ConsideredNext StepsSponsors 3Management and execution of: Consolidated transaction exposure Forecast consolidated G&A exposure Book to local and Local to group as appropriate Degree of management will depend on outcome of treasury functionality Tani Nath

18. Next Steps… 1.Review year end exposure value as at 31 December 2000 for the following: UK Gas Continental Power Spanish/Italian proposed power plants G&A Funding Metals balance sheet Trakya Sarlux J Block

19. Next Steps… 2.Continue with taskforce approach to implement agreed changes: i.Review profit centre/ legal entity structure proposed by CAO and align book and local currencies where possible ii.Establish feasibility of recording deals in transaction currency in all Risk Management Systems iii.The flexibility to hedge FX is removed from the commodity desks, with the exception of options and volumetric fluctuations iv.Book to local exposure should be regularly reported and monitored v.Forecast FX translation exposure should be captured, reported and monitored 3.Develop detailed implementation plans