Inventory Accounting

As follow up from our staff meeting on Monday, here's the SEC position on
inventory accounting;

Energy trading companies that apply EITF 98-10 (which Enron does), can carry
inventory purchased from non affiliates at fair value (spot price).

I spoke with John Vickers and he agrees that EGM is appropriately utilizing
fair value accounting for it's inventory acquired from 3rd parties. We do
need to identify situations where we acquire inventory from an affiliate and
determine appropriate treatment. I am aware of this situation in Crude &
Products (Scott, I'll set up a meeting to discuss), however please advise if
there are any situations outside of Crude & Products that may be of issue.

Tom 3-0475