1. Enron Europe Project Doorstep Enron Australia Pty. Ltd. Sydney, Australia April 2001 Enron Europe Project Doorstep Enron Australia Pty. Ltd. Sydney, Australia April 2001 Confidential DRAFT

2. Project Participants Enron Europe We performed an on-site review of processes, procedures and controls that support the trading and operations activities of Enron Australia Pty. Ltd. located in Sydney, Australia. Our review procedures included interviews with key office personnel on April 23-24, 2001. We also performed a test of commodity transactions from deal execution through settlement. For further understanding of objectives or observations, please contact Brent Price at Brent Price, Enron Global Markets Paul Quilkey, Managing Director & Objectives (713) 853-7647 or bprice@enron.com Juan Camarillo, Enron Assurance Services Ramond Yeow, Director - Trading Heidi Mason, CFO Justin De Hertog, Risk Manager Christian Werner, Risk Manager - Weather Takehiro Miyai, Manager – Coal Trading Jez Peters, Associate – Coal Trading Allan Ford, Manager - RAC David Minns, Senior Legal Counsel Dzung Tran, Trading Support 1 1 Sydney Office Review – 04/01 Confidential The objective of this review Doorstep Team Members Office Personnel Interviewed Questions?

3. Summary of Office Highlights Office Profile Primary emphasis of office is marketing risk management products in Power, Weather and Coal The office has thirty-eight local office personnel and one Ex-pat (the Managing Director) Transaction Data (1Q2001) Enron Europe 2 2 Sydney Office Review – 04/01 Confidential Counterparties Counterparties are primarily Power retailers and generators 408 Power trades (401 swaps and 7 swaptions) were executed with a total volume of 10.12TWh Three counterparties make up approximately forty-nine percent of volumes (See page 5) 7 Weather trades were executed, all of which were financial swaps - Weather is consolidated in 9 Coal deals were executed, all of which were physical - Coal is carried in the EGM London risk books Financial Data Year-to-date profit from trading operations was A$10.2 million P&L is primarily impacted by curve shifts and new deals The one day VaR at 3/30/01 was US$488,312; VaR limit for Enron Australia is US$3 million Competitors include Duke, TXU and Utilicorp Power P&L is consolidated within EEL; Coal & Weather P&L is consolidated within EGM Most deals executed have been in Power which are all financial with some having physical characteristics - Settlement Residue Auctions (A regional basis spread position) The office has several originators who focus on Power asset opportunities, as well as Metals Middle and Back Office support services are provided to Japan and EGM Weather (Houston); Australian Coal activity is supported by EGM operations in London EGM Houston risk books

4. Organization Chart - Commercial Staff Enron Europe 3 3 Sydney Office Review – 04/01 Confidential OriginationCoalPortfolio Management David Bartnik Director Raymond Yeow Director Stephen Lowe Director Jerven Zhang Analyst Troy Wilson Analyst Trading Finance Peter Doherty Director Connell Burke Manager Karl Tomlinson Trd Analysis Paul Smith Manager Sarah Brown Associate Cheryl Smith Associate Takehiro Miyai Manager Metals Owen Murphy General Mgr RAC John Suttle Manager Max Soble Director Robert Heynen Director Jez Peters Associate EBS Patrick Leahy Manager Allan Ford Manager Paul Quilkey MD EAPL Metals – Bacon/ Hainsworth Coal – Staley/McClellan Beyer RAC - Murphy

5. Organization Chart - Admin & Support Staff Enron Europe 4 4 Sydney Office Review – 04/01 Confidential Admin IT/Sys Dev Public Affairs LEGALHR Accounting RiskWeather Jennifer Savage PA to MD Elliott Katz Manager IT/Ops David Minns Snr Legal Counsel Alison Keogh Secretary (Legal) Fiona Skinner Admin Assist. (Coal) Charbel Aklian Assistant Accountant Roz Ti Accountant Melissa Pullar HR Rep Heidi Mason Snr Director Christian Werner Weather Risk Mgr Justin Timothy Associate PCG Rob McGrory Manager Dzung Tran Trading Support Rachel Bejma Manager Justin Den Hertog Manager Megan Smaller Admin Assist. (Reception) Colin Wood Specialist Dave Waterworth Enrgy Mrkt Sys Edward Hwang Settlements Heidi Mason Snr Director Paul Quilkey MD EAPL

6. Southern Hydro Partnership 6% Snowy Hydro Trading Pty Limited 3% SG Australia Limited 3% TXU Trading 10% Energy Australia 4% Duke Energy Australia Trading & Marketing Pty 6% CS Energy Limited 3% Citipower Pty 17% Pulse Energy Pty Ltd 1% Yallourn Energy Pty Ltd 4% Advance Energy 1% AGL Electricity Limited 2% Westpac Banking Corporation 2% Northpower 22% RMB Australia Limited 2% Powercor Australia Limited 1% Ergon Energy Pty Ltd 6% Integral Energy 4% Macquarie Generation 1% Tarong Energy Corporation Limited 2% Enron Europe Power Counterparties by Volume – 2001 YTD 5 5 Sydney Office Review – 04/01 Confidential

7. 0 5 10 15 20 25 Jan FebMarApr May Jun Jul Aug Sep Oct NovDec 0 5 10 15 20 25 20002001 YTD Enron Europe Comparison of Power Volumes Traded (’00 vs. ’01) 6 6 Sydney Office Review – 04/01 Confidential (TWh)

8. Enron Europe Power Profitability: High Returns on Low Risk 7 7 Sydney Office Review – 04/01 Confidential

9. Control Strengths Observations and Action Steps Enron Europe 8 8 Sydney Office Review – 04/01 Confidential Risk Management (RM) creates a weekly risk and market review report that is submitted to local Ninety-five percent of Power Counterparties have signed ISDA Master Agreements. Requirement by NEMMCO (National Electricity Market Management Company) for all management and London. RM also creates a monthly curve validation and profit & loss report, regulated traders or brokers in the Power Markets to utilize only the Austraclear clearing system. All Austraclear members must go through an approval process, and counterparty performance Confirmation process is working effectively whereby counterparty confirms are typically executed within seven days (except ENA - Weather transactions, which may take 3-4 months). Middle and Back Office puts high priority on reporting daily against the Global Standards established by the Risk Controls Group in Houston. Local office management actively provides oversight to commodities traded outside of Enron Australia P&L responsibility (i.e. Coal and Weather). Credit consolidated across commodities to calculate total Australian credit exposure. Segregation of duties exists between cash settlements and reconciliations. Houston Treasury controls access to cash receipts and disbursements in the Austraclear clearing system; authorized local office personnel have no access to cash accounts except is guaranteed by NEMMCO. which is reviewed by RAC. for local G&A expenditures.

10. Observations and Action Steps ObservationRoot CauseAction Step Owner & Target Date SRA’s (A$ 9 million portfolio value) are not captured in Enpower and are valued in excel pivot tables. The characteristics of SRA’s do not allow for input into Enpower without refining Enpower IT programming. Accelerate efforts to get SRA deals into Enpower as this has been an issue since last Doorstep. Resource has been allocated in Sydney to the task and is currently testing the enhancements programmed to date. It takes approximately four hours to run the P&L and DPR from Enpower and as a result is run overnight. This becomes a problem if books need to be re-calculated and prevents the trading group from receiving daily P&L until at least 10: 30 next day.. 1 2 No. Enron Europe 9 9 Sydney Office Review – 04/01 Confidential Low Medium High Priority Code: Priority Code Problems exist within the Enpower version being utilized by Enron Australia that have not been adequately addressed. Identify IT resource that can assist users to significantly reduce the calculation run-time. New programmer hired in Sydney is currently reviewing the options for improvement, but Houston will be required to make any major improvements. Heidi Mason 6/30/01 Heidi Mason 6/30/01

11. Observations and Action Steps Enron Europe 10 Sydney Office Review – 04/01 Confidential ObservationRoot CauseAction Step Owner & Target Date No. Low Medium High Priority Code: Code Priority 4 Enron Australia uses the Australian dollar as its functional currency and the US$ as its reporting currency and thus is exposed to currency valuation changes. Implementation by Treasury of an adequate Corporate policy to ensure currency translation risk is not an issue for remote offices. This issue was raised previously by the Sydney office with Management but no final resolution to date. A corporate-level policy will be developed in the near future. Enron Australia has F/X translation risk when monthly P&L is converted to US Dollars for reporting purposes. F/X transaction risk does not exist because all transactions are executed in Australian dollars and are not converted into another currency. David Port 9/30/01 No Credit Watch Report is distributed for commercial personnel to reference. In addition, Coal Trading is actively pursuing markets in credit risk areas such as China and Indonesia. 3 Credit support has been managed in Houston and part-time in Sydney by a RAC resource which has prevented a complete set of credit tools from being developed. John Suttle (RAC) will be filling this role for Enron Australia when he relocates in the next few months. John Suttle 6/30/01

12. Deal Test Sample Summary of Deal Test Summary of Findings Other Enron Europe 11 Sydney Office Review – 04/01 Confidential 10 Power Trades 01 Settlement Residue Auction Trade 02 Weather Trades 02 Coal Trades - only tied contract to deal log as settlement takes place in London Did not substantially verify Credit’s approval to check if counterparty was approved and within 1 deal ticket did not show evidence of sign-off by Head Trader. Local procedures require that 1 trade did not have an executed ISDA, which is in the process of being executed. limits at deal execution. However, credit approval and tracking process should be improved when permanent credit individual is relocated from Houston. Head Trader sign-off on all system deal tickets In general, local office was able to easily retrieve requested documentation and has effectively segregated most of the important duties.

13. Market Structure Office Analysis Framework Enron Europe 12 Sydney Office Review – 04/01 Confidential Deals are financial, primarily OTC, and traded for quarterly or yearly terms. Physical trading market does not exist as all physical power within Australia is dispatched to users through a compulsory pool operated by the National Electricity Market Management Company (NEMMCO) Market is still in its early development stage and focus is on educating potential customers on the advantages of weather derivatives. Enron Australia has executed sixteen Weather transactions since June 2000 with the majority of those transactions done with Aquila/Utilicorp. Deals are physical and were executed primarily in markets in Japan, Indonesia and Australia. Current strategy is to continue to develop these markets and also expand into China and Malaysia. Origination currently working to expand Enron presence in the Asia/Pacific market and facilitate potential cross-commodity transactions. Transactions conducted in the region will be executed through London Metals Group. Business units currently studying feasibility of placing commercial resources in Sydney. Power Weather Coal Metals Broadband/Pulp & Paper