RE: Charge Methodology

Sorry - xxx (below) was supposed to be replaced with $54.50 per transaction, which is based on 2 * the July00-Dec00 transaction count. Note this results in $40 million of recovery, which includes Amita's costs.

If you just look at $35 million recovery, the per-transaction fee is $47.68.

This structure has the advantage that it is a little closer to the current cost allocation methodology, but this methodology is not well known by the business units.

I actually started drafting this email with Alternative 1 as the recommendation, but decided that if we have to sell this internally, the brokerage lookalike structure would be easer to sell and defend.

Dave

-----Original Message-----
From: Zipper, Andy
Sent: Wednesday, April 18, 2001 1:35 PM
To: Forster, David
Subject: RE: Charge Methodology

Okay. good start.

I like the idea of a minimum for each product, and I like staying with existing structure for new products. Let's look at alternative 1, the flat fee per trade, and see what it would need to be to yield $35mm in revs based on average tradecount YTD, i.e. extraplolate that out for rest of year for a pro forma.

Thoughts ?

-----Original Message-----
From: Forster, David
Sent: Wednesday, April 18, 2001 9:29 AM
To: Zipper, Andy
Subject: Charge Methodology

Andy,

Attached are some ideas for possible charge structures for EnronOnline. I am recommending something which will probably be surprising, given our conversation. Let's discuss when you have a moment.

Dave

Recommendation

a) For new commodity areas, continue to charge a set up fee in accordance with our previously agreed schedule. (e.g. $350,000 for new Market Area)

b) Charge a per-volume maintenance fee which is comparable to industry brokerage fees, with a minimum charge equivalent to $4,000 per Product * Total number of Products).

This method results in a total charge of approx. $46.5 million pa. (providing coverage for existing charges, some growth and London's charges)

This method is recommended because it balances a fee to reflect real expenditure of effort on behalf on Enron Online staff (the per Product minimum) with a structure which is recognizeable (and hopefully more easily sold) to the traders.

This structure is primarily not cost-driven, but is value-driven; those who derive the greatest value pay the highest costs.

Example Charges

Here are some example charges if we use the recommended method:

Commodity Charge

US Nat Gas $24,282,875
US Power $ 5,163,563
Metals $ 5,798,144
Crude & Products $ 3,578,560
Norwegian Power $ 380,869
Global Credit $ 400,000
Coal $ 966,265
Bandwidth $ 312,000

Or, by Group:

ENA $30,647,772
EEL $ 8,774,844
EGM $ 6,741,955
EIM $ 106,250
EBS $ 312,000
Total: $46,582,821

Sensitivity

With the recommended structure, if transactions for 2001 are:

a) The same as the last half of 2000 * 2, then we recover approx. $46 million.
b) Double, then we recover approx. $90 million
c) Half, then we recover approx.$24 million
c) Zero, then we recover approx. $6.4 million

Alternatives - Basic Structure

Any of the following could be combined to create additional alternatives:

Alternative 1: As per the recommended structure, but charge a flat per-transaction fee instead of a per volume fee. This would result in a charge of $xx per transaction.

Alternative 2: Charge by Product Types (we currently have 358, so full charge would be approx. $112,000 per Product Type)

Alternative 3: Charge by Products (we currently have 1500 per day, so full charge would be approx. $27,000 per Product)

Alternative 4: Charge by Country/Commodity (we currently have 61, so full charge would be approx. $656,000 per Country/Commodity)

Alternative 5: Use the same methodology as currently used for the cost allocation (55% of cost allocation based on number of transactions and 45% based on Country/Commodity Markets Served) This would result in transaction charges of approx. xxx per transaction and $295,000 per Market served.

Alternatives - Different Structures

Alternative 5: Separate Marketing costs and charge directly to business units based on activity

Alternative 6: Separate Development costs as a separate item not covered by the basic charge structure, but recovered solely through increases in EnronOnline business.