UC/CSU

Ken -

Good morning.

As a follow up to the voice mail that I left for you, following are some
background and preparatory notes for a potential phone call today between
Chancellor Reed and yourself. Communications and indications from the UC/CSU
team are that he may call you today as a follow up to your discussion with
him on February 2, 2001. As I mentioned at the Executive Committee meeting
on Tuesday, 2/20/01, all things are moving along well in California with our
clients, PG&E and SCE. The current exception to the "smooth sailing" is
UC/CSU. Tom Riley, the account manager for UC/CSU, has prepared the
following outline of business concerns, sequence of events and suggested
talking points.

Ken, thank you for your assistance and continued participation with this
client.

Regards - Dan

******************************************************************************
*********************
Business Concerns

UC and CSU have business concerns regarding Enron's action to De-DASR their
accounts. They have not communicated their concerns with enough detail that
would allow us to address them, but I have been able to surmise that they
consist of the following:

1. UC/CSU is now a bundled access customer instead of a direct access
customer. AB-1X, recently signed by Gov. Davis, has ban language preventing
large commercial/industrial customers from going Direct Access. Per Jeff
Dasovich of Enron Gov. Affairs, it is not clear, but possible, that if we had
not De-DASRed the accounts, that UC/CSU might have been grandfathered as a
direct access customer. Further, SB-27X (still pending), which is Senator
Bowen's attempt to reverse the ban language of AB-1X, may have a financial
ramification for customers switching to and from Direct Access status.
Dasovich is investigating further.

2. UC and CSU bought approximately 130 meters from Enron as we implemented
the contract. Our action is forcing the utility to remove these
University-owned meters, meaning that their meters will become useless. We
are currently using those meters to provide daily 15 minute interval data as
required in our contract. (Our operations and billing group have come up with
a transition plan that SCE has agreed to. SCE would install dual-sockets
allowing for the installation of the SCE meter, while keeping our meter in
tact, mitigating their concern. At this point, UC and CSU are not listening
to our business solutions so we have not received feedback from them on this
solution).

3. We have a contractual obligation to be the Universities scheduling
coordinator (SC). As a result of our action, we are no longer their SC.
They are concerned this may inhibit our ability to act as their SC for their
recent proposal to the ISO under the Demand Reduction Program.

Sequence of Events

February 1 - I informed the UC/CSU electricity oversight board leaders and
contract administrators of Enron's decision. I walked through the power
point presentation. They expressed no concerns at that point, and even
expressed appreciation we were standing by our contract. I sent the UC and
CSU contract administrators the letter later that day advising them of our
decision.

February 2 - Ken Lay called Chancellor Reed assuring the Chancellor that we
will honor the contract. I have since heard that this call was extremely
well received and that the CSU campus VPs have been advised of the call and
Ken's assurances that were communicated. We offered the call to the UC
President as well, but were channeled to his SVP. By the time I made contact
with the SVPs administrator, we had begun receiving letters (below), so I
backed off on arranging the call.

February 5 - UC and CSU contract administrators inform us they have been
speaking to their regulatory advisor and asked for some clarifications.
Maureen Palmer and I speak to the contract administrators and answer their
questions.

February 8/9 - UC and CSU send letters to their PG&E and SCE account managers
advising them they have concerns regarding Enron's decision, and that they
(PG&E and SCE) should only De-DASR on the Universities' request.

February 12 - I received a letter from the UC/CSU contract administers asking
for clarifications regarding our action, and requesting we re-DASR their
accounts.

February 14 - I responded with a letter providing them with responses to
their clarification questions, but did not offer to re-DASR their accounts as
they had requested.

February 16 - UC informed me they were unhappy we did not comply with their
request to re-DASR and indicated they would be sending another letter. I
suspect this letter will express potential legal recourses.

February 20 - CSU and UC informed they would hold off on the letter pending
outcome of a call between Chancellor Reed and Ken Lay.

Throughout the entire process, I have been asking that the business
administrators meet with us so Enron can hear their concerns. I gather CSU
would like to do this, however, UC is more inclined to write letters and seek
legal remedies.

Suggested Talking Points for Call and Desired Outcome

1. We were faced with a difficult business decision, and made our California
decision with our customers in mind. We have kept our contracts in tact.
Other energy service providers have left the market and their customers.

2. We are an energy outsourcing company. We should source supply from the
"best available" source in the marketplace. We feel we have a contractual
right to have made the decision.

3. Desired outcome is that we want to sit down with the University business
administrators to listen to and address their concerns. We have not been
afforded this opportunity to date though we have offered. However, the
Chancellor needs to understand we are not willing to re-DASR their accounts
in the meantime.

I will be available for the debrief with Ken if desired. I can be reached at
925-543-3703 (office), or 925-548-0326 (mobile) if you have any questions.

Regards, Tom
******************************************************************************
*********************