Project Doorstep London Preliminary Findings 17 th April

Project Doorstep - London Preliminary Findings 17 th April, 2000

Project Doorstep - London Preliminary Findings Product Type Number of Deals Tested UK Gas 10 Continental Gas 5 UK Power 10 Continental Power 15 Global Liquids Petrochems Crude NGL Resid Refined Plastics 2 6 2 3 2 1 Total Deals Tested 56

Project Doorstep - London Preliminary Findings Effective Controls h. Trading P & L and positions reported to Enron management in Houston on a daily basis h. Taped trader phone lines h. Clear segregation of duties exist between Trading Support functions h. Top Commercial & Commercial Support personnel are very controls-minded and are knowledgeable about their roles within the controls process h. Power traders input deals directly in the system and review confirmations for accuracy h. Coordination group implemented in Global Products to act as a liaison between Trading & Trading Support and ensure proper controls are maintained over operational data h. Invoices and payments are reviewed by Settlements Management before being sent to counterparties to ensure proper support is in place for invoiced terms

Project Doorstep - London Preliminary Findings Observation Action Step h. Significant positions (spread options) are being valued in Excel models h. Finalize and complete Socrates system which will capture and value deal optionality in a more robust and controlled manner h. Gas and Power Scheduling reports directly to Commercial h. Implement Coordination group within Gas and Power to serve as a liaison between Trading and Trading Support that will be responsible for deal entry into operating systems and related reconciliations involving operational and trading information h. No established procedures in place for legal review of confirmation templates or new deal types requiring documentation h Formalize and document procedures and requirements for legal review of transaction documentation h. Continental Power documentation process is manually intensive and requires a large number of resources to ensure documentation requirements are met h. Implement DCAF II for Continental Power which will reduce the risk of manual errors and enhance the efficiency of the Documentation process

Project Doorstep - London Preliminary Findings Observation Action Step h No front-end deal capture process for h Require Gas Trading to input deals directly UK & Continental Gas Trading - Documentation inputs deals into system via Gas Trading written deal log - No subsequent review of system deal ticket or confirm by trader into Trade Blotter from which Documentation will validate deals h Incomplete credit exposures captured by Credit Aggregation System h Develop IT solution and streamline processes to ensure all h Continental Power utilizes Excel spreadsheets for power scheduling purposes h. Enhance Empower to meet the scheduling requirements of Continental Power h Inconsistent use of “New Counterparty” designation in deal capture h Require compliance with credit policies regarding deals counterparty exposure is captured by credit Aggregation System transacted with new counterparties to ensure proper credit approval