1. Supplies are tight, prices are rising in many N.A,. Power markets (prices at 14 of 17 wholesale locations have doubled over 3 years) • economic growth fueling demand; power plant siting and construction have lagged. • most end users don’t see real time price signals (so conservation lags). • (- gas prices are also likely to become controversial as heating season approaches.) • Media: blackouts in some markets and widespread high prices have put electric markets on the front page • San Diego customers exposed to wholesale price volatility. • California blackouts/threats of blackouts report in USA Today, CNN, NY Times, WSJ and local press. • Politics: Policy makers responding awkwardly • Price caps in Northeast and California • Calls for “reregulation” in California legislature • Potential Presidential Election Issue •  Sense of crisis and high profile of electric deregulation producing both risk and opportunity BACKGROUND 1

2. OPPORTUNITIES • Regulatory • Added impetus to FERC’s RTO efforts (filings due this October) • Expedited siting legislation in California (8000MW pending approval) • Potential political pressure for administration to take bolder (emergency) action to open system • Commercial - Price volatility in power presumably raising profile of price risk management • Commercial/Industrial end user price risk management • Utility price risk management • Utility & utility marketing affiliate interest in shedding sales “books” and residential default service obligations 2

3. PUBLIC AFFAIRS ACTION PLAN • Develop key messages/advocacy • background • “soundbites” • detailed discussion • policy solutions • Develop advocacy group (Enron can’t do it alone) • editorial writers • merchant generators • marketers • political leaders/regulators • Circulate messages, organize media/political contacts, keep updated • Develop proposals • legislation for California • RTO proposals at FERC • Proposed emergency action at FERC • Develop political pressure for action. 3

4. ACTION PLAN - KEY MESSAGES • The “deregulated market” is working; the “regulated market” is not. • Our customers bought fixed price power, we hedged our positions; our customers and shareholders are just fine. • The regulated market is failing. • - utilities are prevented from hedging (they purchased an “adjustable rate mortgage” for their customers) • - The market has responded with 8,000 Megawatts of proposed new capacity (150% of the peak demand increase over the last four years). This capacity is tied up awaiting state and local approvals. •  These are problems with regulation not the open market • Opening the market is the answer • Transmission must be open and nondiscriminatory so power can move from where it is to where it is needed. • Siting and interconnection of new generation must be expedited. • Customers must have a choice; when they do, companies like Enron will help them manage their demand (not just build new supply). 4

5. ACTION PLAN - POLICY PROPOSALS • California legislation • Expedited siting • transmission • distribution • CEC override of local authority • Allow utilities to hedge outside exchange? • Demand side bidding • Others? • RTO proposals at FERC • prepackaged plan for reliability function • building the software • work within existing RTO efforts • filing at FERC • Emergency action at FERC • develop political support - Gore campaign, Gov. Davis, Richardson • draft rule (or outline) 5 h:\presentations\ElectDereg