RE: ENTEX

I have the final audit report from AA. It was delivered with the
reconciliation that we requested AA to perform.

If you remember, AA finished their study about the time of the final
negotiations with AEP. After discussions with Brian
the audit was findings were put on hold.

I agree with Ed about AA being caught in the middle. They were really
functioning as our internal audit staff, plus
trying to stay neutral about their findings. If Enron is going to audit the
last year of service ending April, I would like to
go ahead and notify Reliant/Entex and find another firm to perform the audit.

Let me know the next steps if any.

Thanks

bob

-----Original Message-----
From: Gottlob, Edward
Sent: Friday, April 20, 2001 12:31 PM
To: Redmond, Brian
Cc: Martin, Thomas A.; Gray, Barbara; Ducote, James; Blevins, Brad;
Schneider, Steve HPL; Coffey Jr., Jim; Carroll, Lillian; Hall, Bob M; Herod,
Brenda F.
Subject: Re: ENTEX

A summary of AA's final audit results was never delivered to me, Brenda and
Bob (I have added Brenda and Bob to the distribution) were handling the AA
audit team and I have never seen a compilation of the items we agreed to in
our last meeting with AA just before the HPL sale negotiations started. This
does not mean Bob or Brenda may not have the information but I have never
seen it. (Confidentially, I think AA was struggling with their role in this
because Entex/Reliant is such a large customer of theirs) In our last
meeting we agreed to use the audit issues as leverage to clarify the intent
of the contract. Who were the other suppliers, how were they allocated,
clear definition of which citygates HPL served off-system and access to
balancing information on a real time basis for planning purposes. A better
understanding of Entex's transportation agreement on Midcon and a more
proactive role in the management of the transportation contract Or, if we
could not get some of this information and cooperation, HPL would reduce its
role with Entex to deliveries at HPL's sales point (basically out of HPL's
asset) into Midcon, etc.

Clarification of contract issues will help HPL identify those Entex markets
we can consider incremental on other pipelines (currently Entex/Midcon claims
some Midcon citygates are outside the 10 bcf commitment and additive to
Midcon's supply contract with Entex (part of HPL's audit issues is that there
is no definitive agreement on which ones). Indentification has the affect of
determining those Entex markets HPL should spend their capital on because
theoretically we have the other markets via the transportation agreement.

Other issues revolve around Entex's allocation proceedure for R/C and
industrial gas users. As you all know, there is a significant difference in
price between the two. Entex's allocation proceedure needs to be clearly
documented and supported. HPL is in the unusual position of having its
customer (Entex) determine the allocation and whether or not the customer
(Entex) has met all its obligations, naturally, the customer rarely falls
short of its contractual requirements with this process.

Any monies recovered in this process belong to the desk, it was their
performance risk, storage revenue, P/L etc that was at risk during the
contract year. Additionally, a new audit period for the last contract year
will be at the end of this month. If Enron is going to pursue this, it would
be appropriate to contact Entex for preperation for an additional audit. I
suggest we avoid the AA conflict (we should have enough work papers etc. to
support the effort) and go with one of the other large audit firms who has no
alliance to Reliant or Entex.

From: Brian Redmond/ENRON@enronXgate on 04/19/2001 07:52 PM
To: Thomas A Martin/ENRON@enronXgate, Edward D Gottlob/HOU/ECT@ECT, Barbara N
Gray/HOU/ECT@ECT, James I Ducote/HOU/ECT@ECT, Brad Blevins/HOU/ECT@ECT, Steve
HPL Schneider/HOU/ECT@ECT, Jim Coffey/ENRON@enronXgate
cc: Lillian Carroll/ENRON@enronXgate
Subject: ENTEX

Team:

I met with Brad Blevins and Jim Ducote today regarding credits and
obligations (implied, documented or otherwise) between Entex, ENA and HPL.
We need to pull the above group together to get a consistent view on:

1. The definition and transfer of ENA obligations to Entex and reserves
against those obligations to HPL/AEP.

2. The creation of an A/R invoice to Entex for payment based on the
definitive results of the audit.

Brad/Jim: can you email the note you gave me today to the above group.

Tom/Ed: can you pull together a summary of the results of the audit showing
what Entex owes HPL and what Entex owes ENA.

Lillian: can you arrange a meeting with the above group to discuss.

Thanks,
Brian