SOUTHERN LNG re ELBA ISLAND LNG TERMINAL

Janet, Gil and Ed,

Please note Les' latest summary of Elba. Things seem to be coming to a head
there. Southern Co. was in town last Thursday to visit us and Les agreed to
start working on a letter of intent with Southern Co for the sale of gas from
the terminal. We have been asked to work up a good price for gas at Elba by
Les. I have started working with John Hodge and John Griffith on this.

So. Co.'s latest offer was Hub + $.12 for all 160,000 dt/d. So. Co. wants
100,000 dt/d at Elba and will give us the option of selling to them the
remaining 60,000 dt/d at Elba or Destin at our option. We have not discussed
what a price at Destin should be. So. Co. has some leverage with El Paso
that can be instrumental in helping Les with his negotiations below.
Additionally, they may be the only party that can burn the high btu gas and
significantly improve the btu issue at Elba.

We should be better prepared to talk about this by Wednesday. Let me know if
you have any questions.

---------------------- Forwarded by Phil DeMoes/Corp/Enron on 11/20/2000
07:28 AM ---------------------------

Les Webber @ ENRON_DEVELOPMENT

11/18/2000 03:47 PM
To: Doug Arnell/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Nancy
Corbet/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Daniel R
Rogers/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, byamagata@akingump.com,
masseye@arentfox.com
cc: Shelley Corman@ENRON, Phil DeMoes/Corp/Enron@ENRON, David L Fairley@ECT

Subject: SOUTHERN LNG re ELBA ISLAND LNG TERMINAL

GREETINGS:

On November 17, 2000 Southern LNG advised the FERC that it "has determined to
withdraw the Btu stabilization options from the instant certificate
application", such application being the one seeking to amend the certificate
issued by the FERC in March, 2000 authorizing Southern LNG to reactivate the
LNG terminal at Elba Island.

With this withdrawal, the El Paso organization has drawn its line in the
sand. We plan to vigorously protest this withdrawal at the FERC within the
15 day period allowed by FERC procedures. This gives us until December 2,
2000 to file which, presumably, would be extended until Monday, December 4,
2000.

Our filing will be of an adversarial nature, so the Enron organization needs
to be on board with our intended filing, which we will commence drafting on
November 20, 2000. Drafts will be circulated to the appropriate personnel,
so please advise us re any additions in that regard.

At the same time, this decision by Southern LNG will focus our resolve to
complete the commercial transaction with El Paso Merchant Energy. We have
come to accept some of the less desirable features of the Letter
Agreement/Term Sheet signed with El Paso Merchant Energy on October 13, 1999,
inasmuch as the more important aspects are very much in our favor, including
several that Southern LNG found rather unsettling. We will discuss the path
forward with El Paso Merchant Energy on November 21-22, 2000.

While we remain open to a solution to the quality issue that leaves our
commercial flexibility and optionality intact, we must be positioned to move
forward resolutely and in a timely manner with both El Paso Merchant Energy
and Southern LNG. We cannot afford to stop these processes while we discuss
alternative solutions.

On Wednesday, November 15, 2000, we gave both Mike Varagona and David Jenkins
of El Paso Merchant Energy a "heads-up" regarding our likely response to
Southern LNG's proposed letter agreement dated November 1, 2000. We
indicated we would be asking Southern LNG to bifurcate the FERC proceeding
into the Vaporizer Project, that could proceed quickly and on an independent
path to certification, and the Stabilization Project, that required
considerably more technical analyses before it could proceed. When I
contacted Mike Varagona on Friday, November 17, 2000, after we received a
copy of Southern LNG's letter to the FERC, he stated that he had not been
advised by Southern LNG regarding its decision, hence, had not been
positioned to return the favor.

Mr. Varagona will be in Houston on November 21 and 22, and he wants to meet
with us. He is still pushing for a commercial solution that sees El Paso
"take on the quality risk" in return for our firming up our volumes to El
Paso Merchant Energy at an improved price of Henry Hub plus approx. $0.08 per
MMBtu. Let there be no doubt that El Paso and Southern LNG will find a
solution to the quality issue at little or no cost. He said he would like to
prepare us an outline of an offer. to which I responded that he had nothing
to lose by doing so. The usual practice has been for Enron to do this and
for El Paso to respond with "I don't think that will work".

Mr. Varagona also indicated that he did not see how the Letter Agreement/Term
Sheet could form the basis of the commercial arrangement between our
respective companies - "It just won't work!". As a consequence, he stated
that Clarke Smith, head of El Paso Merchant Energy, has already contacted or
will shortly contact our Mike McConnell to see if they can work to resolve
this matter. Apparently, these gentlemen have developed a good working
relationship over the years. He also alluded to the possibility that Mr.
Smith may have also contacted our Stan Horton (for less than obvious reasons
to me).

Mr. Varagona further advised me that a Duke/Williams joint venture had just
acquired the rights to the Gulfstream Pipeline Project from Coastal
(divestment of this asset was required, I understand, as part of the El
Paso/Coastal merger). "This situation gives added impetus to development of
the Cypress Pipeline project by Enron and El Paso."

There is considerable merit in Enron retaining the right to market its own
gas out of the Elba Island LNG Terminal. However, we may find it desirable
to reach some commercial resolution with El Paso Merchant Energy for a
portion of our volumes that also makes the quality issue disappear. However,
should we decide to so compromise, we must either fully engage Southern LNG
in that solution or totally eliminate them from all aspects of our agreement
with El Paso. In the case of Southern LNG, we are dealing with one or more
individuals who see only one way to do things. namely their way, and who are
totally opposed to working with Enron. I would recommend any compromise with
El Paso Merchant Energy be conditioned on first reaching agreement with
Southern LNG on explicit terms acceptable to us (and checking it twice).

I would appreciate receiving your comments, if any, before Thanksgiving.

Regards.
Les Webber