San Juan Index

Liane,

As we discussed yesterday, I am concerned there has been an attempt to
manipulate the El Paso San Juan monthly index. A single buyer entered the
marketplace on both September 26 and 27 and paid above market prices
($4.70-$4.80) for San Juan gas with the intent to distort the index. At the
time of these trades, offers for physical gas at significantly (10 to 15
cents) lower prices were bypassed in order to establish higher trades to
report into the index calculation. Additionally, these trades are out of
line with the associated financial swaps for San Juan.

We have compiled a list of financial and physical trades executed from
September 25 to September 27. These are the complete list of trades from
Enron Online (EOL), Enron's direct phone conversations, and three brokerage
firms (Amerex, APB, and Prebon). Please see the attached spreadsheet for a
trade by trade list and a summary. We have also included a summary of gas
daily prices to illustrate the value of San Juan based on several spread
relationships. The two key points from this data are as follows:

1. The high physical prices on the 26th & 27th (4.75,4,80) are much greater
than the high financial trades (4.6375,4.665) on those days.

2. The spread relationship between San Juan and other points (Socal &
Northwest) is consistent between the end of September and
October gas daily. It doesn't make sense to have monthly indeces that
are dramatically different.

I understand you review the trades submitted for outliers. Hopefully, the
trades submitted will reveal counterparty names and you will be able to
determine that there was only one buyer in the 4.70's and these trades are
outliers. I wanted to give you some additional points of reference to aid in
establishing a reasonable index. It is Enron's belief that the trades at
$4.70 and higher were above market trades that should be excluded from the
calculation of index.

It is our desire to have reliable and accurate indeces against which to
conduct our physical and financial business. Please contact me
anytime I can assist you towards this goal.

Sincerely,

Phillip Allen