Doorstep Review Process

Doorstep reviews are by design a quick look at commercial activities and the
mid and back office support for those activities in our wholesale
businesses. (EBS and EES will be included in 2001.) The controls around
mid and back office activities are best understood by conducting a deal test
- i.e. following the process and documentation around a series of
transactions from the inception of a deal through the collection of cash.
Asking someone to explain their processes and controls is more the act of
explaining what we think happens. Doing a deal test tells us what does
happen. And it is when there are differences between the controls that we
believe to be in place and what actually happens, that we identify where
operational, and perhaps financial, risk is created.

These reviews are not designed to replace the internal audit work for which
Enron has contracted with Arthur Andersen. As such, they are purposely
designed to be conducted in a shorter timeframe than AA's reviews and to
produce less paperwork. It is both the quick assessment of control gaps and
potential operational risk, and the quick solutions to correct these, that
are valuable in these reviews. These reviews also look for ways to leverage
success stories from one office to another in terms of best in class
practices or practical solutions to shared problems. Briefly, the doorstep
review process would follow this set of steps:

1) Cross-functional doorstep review team arrives at subject office. This
is usually unannounced, but key personnel in the subject office may be
notified of the review a few days prior to the team's arrival to be certain
that key individuals in that office will be not be out of town.

2) Doorstep team lead will meet with the head of the subject office to tell
them about the parameters of the review and to ask their co-operation in
making information and personnel available to complete the review.

3) The review is conducted, including information sessions with key
commercial personnel to understand the business conducted in the office and
key control/operations personnel to understand the business processes. The
deal test is conducted on a relevant sample of deals to verify the process
and controls that were followed in the life of the transactions.

4) The doorstep team usually has a rough draft of key points by the end of
the review, which includes both controls that are working well and those
which may not be working as designed. Potential action items are suggested.
This information is reviewed with the head of the office, as they are usually
very interested in knowing what can be done to improve controls to support
their business. There are times when the head of an office will suggest an
additional point to be added to the list of action items, knowing that with
this focus he/she can get help in accomplishing certain efforts to support
the growth of their business. The doorstep team lets the head of the office
know to whom this information will be communicated and the timing for doing
so.

5) Starting late in 2000, the findings from doorstep reviews would next be
reviewed with Ted Murphy and me. Ted's viewpoint would be from Risk Controls
and mine from the mid and back office operations point of view. Ted and I,
assisted by Cassandra Schultz and Shona Wilson, would work with appropriate
personnel in the subject offices to understand who would assume
responsibility for addressing action items noted from the doorstep review and
to determine the appropriate time period for completing these action items.
Then on a quarterly basis, Ted and I would meet with Rick Buy and Rick Causey
to give them a recap of doorstep reviews completed during that quarter,
doorstep findings that had been handled, updates on any outstanding doorstep
findings and plans for the next quarter. Through most of 2000, the doorstep
teams met with Rick and Rick within a few days of returning from each
doorstep review. This immediate feedback step was passed to Ted and me
sometime late in 2000. We did agree that we would meet with Rick and Rick
before the quarterly review if certain doorstep findings were of particular
concern or if we felt that they needed to be informed on an issue in a more
timely manner than quarterly.

Steps 1 through 4 were followed in the review of the scrap metals business in
Germany. Shona did conduct a debriefing session with the managing directors
in charge of the scrap metal business. Her impression was that they were not
concerned over the length of time that it was taking to implement the
integration plan nor over the somewhat irregular payment methods that were
discovered during the deal test that are not in keeping with Enron's
practices. Shona also debriefed with Mike Jordan, and I believe that Fernley
was involved in that session as well. At my suggestion, she also contacted
Joe Gold to inform him of her findings. I do not know what the timing was
for Joe to get back to Shona, relative to Rick Buy's e:mail message.

Michael, I understand that you may have felt blind-sided by the e:mail from
Rick Buy on his concerns over the scrap metal business. And if that was the
case, I apologize for that. While Shona did debrief with Mike and Fernley, I
know that she did not review the teams findings directly with you. If you
would like to be included in a direct debriefing with the doorstep team when
they review businesses that are managed by EEL, we can certainly add that as
a clear step from this point going forward. The out of the ordinary step in
this doorstep review was Shona's call to Rick Buy and Rick Causey to alert
them to the doorstep team's concerns over irregular payment methods and the
level of interest in controls that she perceived from the commercial managing
directors. I attribute that to a miscommunication between Shona and
myself. Although we had changed the process at year end so that the
download after doorstep was to be with Ted and me, as Shona and I voice
mailed back and forth she thought that I had asked that she initiate a
meeting with Rick and Rick. This meeting should have been with Ted and me.
In leaving a voice mail for the two Rick's about setting up a meeting, Shona
mentioned some concerns. Rick Buy is the one that called her back and asked
for more detail. She definitely covered both the teams findings and the
integration plan that was underway with Rick Buy. We don't, however, control
which points Rick chooses to focus on or those to which he chooses to react.

To reiterate, the findings from these doorstep reviews are shared with the
heads of the subject offices at the close of the reviews. The effort here is
to help identify control issues that could create risk to a business and to
offer solutions and resources that may be available from across the entire
Enron organization. The key is quick discovery and quick resolution. The
findings create a dialogue between the business units, RAC and Operations,
which I believe is healthy. We purposefully have chosen not to
"over-wordsmith" the findings or to delay discussing concerns that can be
surfaced through these reviews. Frankly, I believe that these reviews can
reveal things that are sometimes missed in AA's reviews from a practical
perspective and afford us the opportunity to mitigate operational risk.

I would be glad to discuss any details of the doorstep review process with
you. We certainly want you to be informed and to view this process as
valuable input for you in managing EEL's business. Mike Jordan and certain
members of his team will be involved with doorstep reviews for other
businesses outside EEL later in the year. We are certainly open to any
suggestions you may have on getting the most out of this process.