Re: Assignment of Regulatory Risk Responsibility for Current Assets

yes, let's meet. I will have Sharon try to put something in the diary.

I would suggest the hardest part is "anticipating" these changes. here are
some examples: UK Climate Change Levy, even other Government Departments in
the UK are not allowed to kow what is in the Budget until the Chancellor
delivers it to Parliament. Turkish fuel consumption tax, I believe, was
modified without prior notice. In Romania, Doug Wood met with the Energy
Minister on the proposed Gas Decree, and 2 days later they passed another
draft of the decree, which had been rejected before Christmas, verbatim. Tom
Briggs can tell you that the annual revenue formula for BG TransCo, which
affects all of our UK assets, can swing up or down by 10% per annum, and
cannot be predicted/modelled (we and our consultants have tried). Decisions
by Polish regulator to price regulate generation in Poland, notwithstanding
our PPA, was another example. The list goes on. I remain a sceptic that all
of these risks, or even many of them, can be "identified" a priori. Once we
fact them, we do assess/mitigate. In Europe, I think we accept these as
"business" risks, that the regulatory team responds to. mcs

James D Steffes@EES
09/02/2000 21:02
To: Mark Schroeder/LON/ECT@ECT
cc: Richard Shapiro/HOU/EES@EES, Steven J Kean/HOU/EES@EES

Subject: Re: Assignment of Regulatory Risk Responsibility for Current Assets

Mark --

Thanks for the additions. I will add to the Asset / Responsibility Matrix.

The definition I have been using is that Regulatory Risk is a subset of
Sovereign Risk (with the other element being Political Risk). Regulatory
Risk is a "legal" action taken by a government or its agent which modifies
Enron's business environment, most often directly through modifications in
the energy and communications markets, but also in broad areas such as taxes
and export - import policies. Political Risk is a "supra-legal" action that
has the same impact (e.g., expropriation).

Currently the Regulatory Risk Working Group (Fiona Grant is member) is trying
to put in place a "standard" process to review and analyze regualtory risk
around the globe - quite an undertaking. When I use the term Regulatory Risk
Management, I am primarily talking about such a process. The key elements of
any risk management function are (1) identification, (2) assessment, (3)
mitigation / transference, and (4) audit. You would probably agree that the
most difficult problem is to try and assess the impact of any Regulatory Risk
event. The other key goal is to have a Mitigation Plan in place with an
assigned person to "manage" our activities so that Enron does not face an
associated loss.

My goal is to try an have this process in place by mid-year. That would
include having undertaken a structured review of our current Assets (the
reason for the original questions) and the ability to review pending deals.

When you come over to Houston next week I would really like to sit down and
go through my thoughts with you.

Thanks.

JDS

Mark Schroeder@ECT
02/09/2000 05:48 AM
To: James D Steffes/HOU/EES@EES
cc: Richard Shapiro/HOU/EES@EES, Steven J Kean/HOU/EES@EES, Fiona
Grant/LON/ECT@ECT, Philip Davies/LON/ECT@ECT
Subject: Re: Assignment of Regulatory Risk Responsibility for Current Assets

Jim - overnight I realised you need to add our project in Turkey (Fiona
Grant) and Poland (Philip Davies). I have not given you any one person, as
the regulatory issues seem to be country/environment specific, and instead I
have given you the names of each person with country responsibility. Indeed,
at year-end we completed a financial transaction (Project Margaux), in which
regulatory risk was reviewed. A definition of Rugulatory Risk would be
helpful, e.g., in most of these markets, trading arrangements are being
re-written, or developed for the first time, this put existing PPAs under
pressure. Would energy taxes, carbon taxes/trading, transmission pricing
(both for evacuation of power, and delivery of gas), changes in property
tax/fuel tax regimes, risk of price regulation, all be included? Do you have
checklist? We can identify these risks, what is meant by "manage"? We work
on these types of issues on a daily basis, so I am unclear as to what else is
intended or implied. thanks mcs

James D Steffes@EES
08/02/2000 17:24
To: Richard Shapiro/HOU/EES@EES, Mark Schroeder/LON/ECT@ECT
cc: Steven J Kean/HOU/EES@EES

Subject: Assignment of Regulatory Risk Responsibility for Current Assets

Rick & Mark --

One of the first steps in building our Regulatory Risk process is to
establish responsibility for the current assets owned/managed by Enron.
Having a point person that I can contact will help me immensely.

Attached is a listing of the assets that I have been able to pull together --
there may be more that you know about.

Is it possible for us to agree upon the person(s) who will manage the
Regulatory Risk with each of these assets? Please feel free to call me to
discuss.

I would like to have this assignment process complete within the month.

The same type of effort will be necessary as we review pending transactions.

Thanks.