Enron AR2000

Enron Annual Report 2000
Enron manages efficient, flexible networks to reliably deliver physical products at predictable prices. In 2000 Enron used its networks to deliver a record amount of physical natural gas, electricity, bandwidth capacity and other products. With our networks, we can significantly expand our existing businesses while extending our services to new markets with enormous potential for growth.
CO NTENTS
1 FI N A N CI A L H I G H LI G H TS 2 LETTER T O SH A RE H O L D ERS 9 E N R O N W H O LES A LE SERV ICES 14 E N R O N E N ER G Y SERV ICES 16 E N R O N BR O A D B A N D SERV ICES 18 E N R O N TR A N SP O RTATI O N SERV ICES 20 FI N A N CI A L RE V IE W 53 O U R V A L U ES 54 B O A R D O F D IRECT O RS 56 E N R O N C O RP O R ATE P O LIC Y C O M M ITTEE 56 SH A RE H O L D ER I N F O R M ATI O N
FINANCIAL HIGHLIGHTS
(Unaudited: in millions, except per share data)
2000
1999
1998
1997
1996
Revenues Net income: O perating results Items impacting comparability Total Earnings per diluted common share: O perating results Items impacting comparability Total Dividends paid per common share Total assets Cash from operating activities (excluding working capital) Capital expenditures and equity investments NYSE price range High Lo w Close December 31
$100,789
$ 40,112
$ 31,260
$ 20,273
$ 13,289
$ $
1,266 (287) 979
957 (64) 893
698 5 703
515 (410) 105
493 91 584
$ $ $
1.47 (0.35) 1.12 0.50
1.18 (0.08) 1.10 0.50 33,381
1.00 0.01 1.01 0.48 29,350
0.87 (0.71) 0.16 0.46 22,552
0.91 0.17 1.08 0.43 16,137
$ 65,503
$ $
3,010 3,314
2,228 3,085
1,873 3,564
276 2,092
742 1,483
90 916 41 38 83 18
44 78 28 34 44 38
29 38 19 116 28 1732
22 916 17 12 20 2532
23 34 17 516 21 916
100.8
1,266 1.18
1.47
957
40.1 31.3 20.3
97
98
99
00
99
00
99
00
($ in billions)
Income ($ in millions)
Earnings Per Diluted Share (in dollars)
REVENUES
OPERATING RESULTS 1,415%
350% 89% (9%) S&P 500 Enron S&P 500 Enron 129%
383%
S&P 500
Enron
One Year
Five Years
Ten Years
CUMULATIVE TOTAL RETURN (through December 31, 2000)
ENRO N A N N U AL REPORT 2000
TO OUR SHAREHOLDERS
outdistance the competition

and solidify our leadership in each of our major businesses. In our largest business, wholesale services, we experienced an enormous increase of 59 percent in physical energy deliveries. Our retail energy business achieved its highest level ever of total contract value. Our newest business, broadband services, signicantly accelerated transaction activity, and our oldest business, the interstate pipelines, registered increased earnings. The companys net income reached a record $1.3 billion in 2000.
Enrons performance in 2000 was a success by any measure, as we continued to
Enron has built unique and strong businesses t h a t h ave tre m e n d o us o p p ort u nities f or gro w t h. These businesses w holesale services, retail energy services, bro a d b a n d services a n d tra nsp ort a tio n services ca n b e sig nifica n tly exp a n d e d w it hin t h eir very larg e existin g m ark e ts a n d ext e n d e d t o ne w markets with enormous gro w th potential. A t a minimum, w e see our market opportunities company-wide tripling over the next ve years. Enron is laser-f ocused on earnings per share, a n d w e exp ect t o co n tin u e stro n g e arnin gs p erf ormance. We will leverage our extensive business net w orks, market kno wledge and logistical expertise to produce high-value bundled products f or an increasing number o f global customers. Competitive Advantages O ur targeted markets are very large and are undergoing f undamental changes. Energy deregulation and liberalization continue, and customers are driving demand f or reliable delivery o f energy
f aster, exible and more reliable connectivity. Enron is in a unique position to provide the products and services n e e d e d in t h ese e nviro n m e n ts. O ur siz e, experience and skills give us enormous competitive advantages. We have: Robust net w orks o f strategic assets that w e o w n or have contractual access to, w hich give us greater exibility and speed to reliably deliver widespread logistical solutions. Unparalleled liquidity and market-making abilities that result in price and service advantages. Risk m a n a g e m e n t skills t h a t e n a ble us t o o ff er reliable prices as w ell as reliable delivery. In n ova tive t ech n olo gy such as Enro n O nlin e t o deliver products and services easily at the lo w est possible cost. These capabilities enable us to provide highvalue products and services other w holesale service providers cannot. We can take the physical components and repackage them to suit the specic needs o f customers. We treat term, price and delivery as varia bles t h a t are ble n d e d in t o a sin gle, co m preh e nsive solu tio n. O ur t ech n olo gy a n d f ulfillm e n t syst e ms e nsure execu tio n. In curre n t m ark e t e nviro n m e n ts, t h ese a bilities m a k e Enro n t h e rig h t co m p a ny w it h t h e rig h t m o d el a t t h e rig h t tim e.
at predictable prices. M any markets are experiencin g tig h t er su p ply, hig h er prices a n d incre ase d volatility, and there is increasing interdependence within regions and across commodities. Similarly, the broadband industry faces issues of overcapacity and capital constraint even as demand increases for
The Astonishing Success of EnronOnline In late 1999 w e extended our successf ul business model to a w eb-based system, Enron O nline. Enro n O nlin e h as bro a d e n e d o ur m ark e t re ach, accelera t e d o ur b usin ess activity a n d e n a ble d us to scale our business beyond our o w n expectations. By t h e e n d o f 2000, Enro n O nlin e h a d execu t e d 548,000 transactions with a notional value o f $336 billion, and it is no w the w orlds largest w eb-based eCommerce system. W ith Enron O nline, w e are reaching a greater number o f customers more quickly and at a lo w er cost than ever. Its a great ne w business generator, attracting users w ho are dra w n by the sites ease of use, transparent, rm prices and the f act that they are tra nsactin g directly w it h Enro n. In 2000 o ur total physical volumes increased signi cantly as a direct result o f Enron O nline.
left page: Jeffrey K. Skilling President and CEO right page: Kenneth L. Lay Chairman
w holesale services income before interest, minority interests and taxes (IBIT) increased 72 percent to $2.3 billion. Over the past ve years, as physical volumes have increased, w holesale IBIT has gro w n at a compounded average annual rate of 48 percent, and w e have had 20 consecutive quarters of year-over-year gro w th. We have established core w holesale businesses in both natural gas and po w er in North A merica and Europe, w here w e are market leaders. In North A merica, w e deliver almost double the amount o f natural gas and electricity than the seco n d tier o f co m p e tit ors. O ur n e t w ork o f 2,500 delivery points provides price advantages, exibility and speed-to-market in both natural gas and po w er. Natural gas, our most developed business, has seen substantial volume gro w th throughout the United States and Canada. In 2000 our physical natural gas volumes w ere up 77 percent to 24.7 billion cubic feet per day (Bcf/d). Physical po w er volumes w ere up 52 percent to 579 million mega w att-hours (M W h). W e are b uildin g a similar, larg e n e t w ork in Europe. In 2000 w e marketed 3.6 Bcf/d of natural gas and 53 million M W h in this market, a vast increase over 1999. As markets open, w e tenaciously pursue t h e dif ficult, e arly d e als t h a t bre a k gro u n d f or subsequent business. We are the only pan-European
Enro n O nlin e h as e n a ble d us t o scale q uickly, so u n dly a n d eco n o mically. Since its in tro d uctio n, Enro n O nlin e h as exp a n d e d t o inclu d e m ore t h a n 1,200 o f o ur pro d ucts. It also h as stre a mlin e d o ur back-o f ce processes, making our entire operation more ef cient. It has reduced our overall transaction costs by 75 p erce n t a n d incre ase d t h e pro d uctivity o f o ur co m m ercial t e a m by ve-f old o n avera g e. W e are n o t sit tin g still w it h t his im p ort a n t n e w b usin ess t o ol in Se p t e m b er 2000 w e rele ase d Enron O nline 2.0, w hich added even more customer f u nctio n ality a n d cust o miz a tio n f e a t ures a n d attracted more customers. Enron Wholesale Services Th e w h olesale services b usin ess d elivere d record p hysical volu m es o f 51.7 trillio n British thermal units equivalent per day (TBtue/d) in 2000, co m p are d t o 32.4 TBt u e/d in 1999. As a result,
player, and w e are optimizing our advantage to conduct cross-border transactions. We are extending Enrons proven business a p pro ach t o o t h er m ark e ts, a n d in t e gra tin g Enron O nline into all our businesses as an accelerat or. O ur gro w t h ra t es are risin g in are as such as metals, forest products, w eather derivatives and coal. We expect these businesses to contribute to earnings even more signi cantly in 2001. Enron Energy Services O ur retail unit is a tremendous business that experienced a break-out year in 2000. We signed tomers f uture energy expenditures, almost double the $8.5 billion signed in 1999. We recorded increasing positive earnings in all four quarters in 2000, and the business generated $103 million of recurring IBIT. En ergy a n d f acilities m a n a g e m e n t o u tso urcin g is
contracts with a total value o f $16.1 billion o f cus-
n o w a prove n co nce p t, a n d w eve est a blish e d a pro table deal o w, w hich includes extensions o f contracts by many existing customers. Price volatility in energy markets has dra w n fresh attention to our capabilities, increasing demand f or our services. No other provider has the skill, experience, depth and versa tility t o o ff er b o t h e n ergy co m m o dity a n d price risk management services, as w ell as energy asse t m a n a g e m e n t a n d ca pit al solu tio ns. In 2001 w e exp ect t o close a p proxim a t ely $30 billio n in n e w t o t al co n tract valu e, inclu din g b usin ess fro m o ur n e w est m ark e t, Euro p e. Enron Broadband Services We have created a ne w market f or band width intermediation with Enron Broadband Services. In 2000 w e completed 321 transactions with 45 coun-
b usin esses a n d o ff er vie w ers a t h o m e a n a d ditio n al co nve nie n t w ay t o ch o ose a n d receive e n t ert ainment. Enron provides the w holesale logistical services that bridge the gap bet w een content providers and last-mile distributors. Full-length movies-on-demand service has been successfully tested in four U.S. metropolitan markets. Enron Transportation Services The ne w name for our gas pipeline group accurately re ects a cultural shift to add more innovative customer services to our ef cient pipeline operation. To serve o ur cust o m ers m ore e ff ectively, w e are incre asin gly incorp ora tin g t h e w e b in t o t h ose relationships. Customers can go online to schedule nominations and handle inquiries, and they can transact for available capacity on Enron O nline. The pipelines
51.7
16.1
32.4 27.3 8.5
Other Electricity Natural Gas 98 99 00
3.8
98
99
00
WHOLESALE SERVICES PHYSICAL VOLUMES (trillion British thermal units equivalent per day)
ENRON ENERGY SERVICES VALUE OF CONTRACTS ORIGINATED ($ in billions)
terparties. We are expanding our broadband interm e dia tio n ca p a bilities t o inclu d e a bro a d ra n g e o f net w ork services, such as dark ber, circuits, Internet Protocol service and data storage. O ur opportunities are increasing commensurately. Part o f the value w e bring to the broadband field is n e t w ork co n n ectivity providin g t h e sw itch es, t h e n e t w ork in t ellig e nce a n d t h e in t erm e dia tio n skills t o e n a ble t h e e fficie n t exch a n g e o f ca p acity b e t w e e n in d e p e n d e n t n e t w orks. W e operate 25 pooling points to connect independent t hird-p arties 18 in t h e U nit e d St a t es, six in
continued to provide strong earnings and cash o w in 2000. Demand for natural gas is at a high in the U nit e d St a t es, a n d w ere a d din g ca p acity t o t a k e advantage of expansion opportunities in all markets. Ne w capacity is supported by long-term contracts. Strong Returns Enro n is incre asin g e arnin gs p er sh are a n d co n tin uin g o ur stro n g re t urns t o sh are h old ers. Recurrin g e arnin gs p er sh are h ave incre ase d st e a dily since 1997 a n d w ere u p 25 p erce n t in 2000. Th e co m p a nys t o t al re t urn t o sh are h old ers w as 89 percent in 2000, compared with a negative 9 p erce n t re t urn e d by t h e S&P 500. Th e 10-ye ar re t urn t o Enro n sh are h old ers w as 1,415 p erce n t co m p are d w it h 383 p erce n t f or t h e S&P 500. Enron hardly resembles the company w e w ere in the early days. During our 15-year history, w e have stre tch e d o urselves b eyo n d o ur o w n exp ect a tio ns.
Euro p e a n d o n e in Ja p a n. A t le ast 10 m ore are sch e d ule d t o b e co m ple t e d in 2001. Enro n also h as d evelo p e d a co m p ellin g co m m erical m o d el t o d eliver pre miu m co n t e n t-o nd e m a n d services via t h e Enro n In t ellig e n t N e t w ork. Co n t e n t provid ers w a n t t o ext e n d t h eir est a blish e d
W e h ave m e t a m orp h ose d fro m a n asse t-b ase d pipeline and po w er generating company to a mark e tin g a n d lo gistics co m p a ny w h ose big g est asse ts are its w ell-est a blish e d b usin ess a p pro ach a n d its in n ova tive p e o ple. O ur perf ormance and capabilities cannot be compared to a traditional energy peer group. O ur results put us in the top tier o f the w orlds corporations. We have a proven business concept that is eminently scalable in our existing businesses and adaptable enough to extend to ne w markets. As energy markets continue their transformation, and non-energy markets develop, w e are poised to capture a good share o f the enormous opportunities they represent. We believe w holesale gas and po w er in North A merica, Europe and Japan
Enron O nline will accelerate their gro w th. We plan to leverage all o f these competitive advantages to create signi cant value f or our shareholders.
Kenneth L. Lay Chairman
Je ffrey K. Skilling President and Chie f Executive O f cer
380 351
391
236
59 23 3 98 99 00 1Q 2Q 3Q 4Q
ENRON TRANSPORTATION SERVICES REPORTED INCOME BEFORE INTEREST AND TAXES ($ in millions)
ENRON BROADBAND SERVICES 2000 BANDWIDTH TRANSACTIONS
w ill gro w fro m a $660 billio n m ark e t t o d ay t o a $1.7 trillio n m ark e t over t h e n ext several ye ars. Re t ail e n ergy services in t h e U nit e d St a t es a n d Europe have the potential to gro w from $180 billion today to $765 billion in the not-so-distant f uture. Broadbands prospective global gro w th is huge it should increase from just $17 billion today to $1.4 trillion within ve years. Taken together, these markets present a $3.9 trillio n o p p ort u nity f or Enro n, a n d w e h ave just scra tch e d t h e surf ace. A d d t o t h a t t h e o t h er big markets w e are pursuing forest products, metals, opportunity rises by $830 billion to reach nearly $4.7 trillion. O ur talented people, global presence, nancial strength and massive market kno wledge have cre a t e d o ur sust ain a ble a n d u niq u e b usin esses.
steel, coal and air-emissions credits and the
In Volatile Markets,
EVERYTHING CHANGES BUT US
When customers do business with Enron, they get our commitment to reliably deliver their product at a predictable price, regardless of the market condition. This commitment is possible because of Enrons unrivaled access to markets and liquidity. We manage flexible networks with thousands of delivery points, giving us multiple options and a distinct service advantage. Our extensive daily market activity keeps us on top of price movements, so we can manage our customers price risk. We offer a multitude of predictable pricing options. Market access and information allow Enron to deliver comprehensive logistical solutions that work in volatile markets or markets undergoing fundamental changes, such as energy and broadband. This core logistical capability led to our best year ever in 2000 because physical volumes drive our wholesale profits. We see ample opportunities for further volume growth in existing and new markets. Enrons ability to deliver is the one constant in an increasingly complex and competitive world.
Enron blends these four elements together to deliver premium logistical solutions.
>>
Extensive Market Networks Enron manages large, exible networks of assets, contracts and services that provide unrivaled liquidity. Liquidity allows Enron to move products in and out of markets so it can maximize opportunity and margins. Because it has broad physical access, Enron reliably executes contracts.
Knowledgeable Pricing Enrons market activity captures massive amounts of pricing information. Pricing information helps Enron effectively manage its customers price risk and its own. Enron allows customers to choose the optimal way to set a predictable price.
Technology Advantages Information systems quickly distribute real-time information. EnronOnline extends Enrons reach to increase volumes and market share. Enrons sophisticated systems track prices, register exposures and monitor customer credit.
Scalable Fulllment EnronOnline integrates seamlessly into delivery fulllment systems, reducing transaction costs. Existing systems scale readily as volumes increase. Standardized legal and tax compliance speed business. Systematic risk assessment and control protect Enron.
ENRO N A N N U AL REPORT 2000 M A KES M ARKETS
ENRON WHOLESALE SERVICES

W holesale services is Enrons largest and fastest gro w in g b usin ess, w it h sust ain a ble gro w t h o p p ortunities in each of its markets. In 2000 income before in t erest, min ority in t erests a n d t axes (IBIT) rose 72 p erce n t t o $2.3 billion, with record physical energy volumes of 51.7 trillio n British t h erm al u nits e q uivale n t p er d ay (TBtue/d) a 59 percent increase over 1999. For the past ve years, w holesale services earnings have gro w n at an average compounded gro w th rate o f 48 percent annually, and our competitive position is gro wing stronger. Customers transact with Enron because w e offer products and services f e w others can match. W ith our exible net w orks and unique capabilities in risk management and nance, w e deliver the widest range o f reliable logistical solutions at predictable prices. Enron delivers more than t w o times the natural gas and po w er volumes as does its nearest energy marketing competitor. O ur f ormidable lead comes from our willingness to enter markets early and serve as a market-maker to build liquidity and price transparency. Breakthrough technology applications, such as Enron O nline, accelerate our market penetratio n. Th ese co m p e titive a dva n t a g es h ave m a d e us t h e m ost successf ul e n ergy m ark e t er in t h e t w o largest deregulating energy markets, North A merica a n d Euro p e. W e exp ect t o achieve a similar le a d ership p ositio n as w e ext e n d o ur b usin ess a p pro ach t o n e w re gio ns, pro d ucts a n d in d ustries. O ur business has ourished with Enron O nline. Launched in November 1999, Enron O nline handled 548,000 transactions in 2000 with a gross notional value of $336 billion. Enron O nline is unquestionably the largest w eb-based eCommerce site in the w orld a n d d w arfs all o t h er e n ergy m ark e tin g w e b sit es combined. By the fourth quarter of 2000, it accounte d f or alm ost h alf o f Enro ns tra nsactio ns over all business units. Enron O nline has pushed productivity through the roof: Transactions per commercial person rose to 3,084 in 2000 from 672 in 1999. Enron O nline Version 2.0, launched in September 2000, has attracted more users with its additional functionality (see Enron O nline next page). Enron North America In North A merica, Enrons physical natural gas volumes increased 77 percent to 24.7 billion cubic f eet per day (Bcf/d) in 2000 from 13.9 Bcf/d in 1999. Po w er deliveries increased 52 percent to 579 million mega w att-hours (M W h) from 381 million M W h the year be f ore. Enro n O nlin e h as b e e n a ru n a w ay success in N ort h A m erica. It acco u n t e d f or 74 p erce n t o f N ort h A m erica n volu m e tra nsact e d in 2000, a n d
created liquidity on a scale never seen before. It is a dynamic business accelerator: It took nearly a decade f or Enrons daily gas transactions to reach 13.9 Bcf in 1999. Just 12 months later, Enron O nline had helped to practically double daily transactions to 24.7 Bcf. Enron O nline magni es the success o f our existing business, w hich springs from the scale and scope o f our established net w orks. We touch more p arts o f N ort h A m ericas e n ergy syst e m t h a n a ny o t h er m erch a n t, w it h access t o u p w ards o f 2,500 distinct d elivery p oin ts e ach d ay. Th e w id espre a d d elivery o p tio ns a n d p ossibilities o f o ur n e t w ork give us a price and service advantage. O ur net w orks a n d prese nce in n a tio n w id e e n ergy m ark e ts also enable us to capture and distribute massive amounts o f in f ormation about real-time market supply and demand, grid constraints and bottlenecks. W hen the market moves, w e are able to conduct business w hile competitors are still f act- nding. O ur people also make a diff erence. We are able to attract the best and the brightest and place them in an entrepreneurial atmosphere in w hich they can thrive. W ith our intellectual capital, w e develop premium high-margin structured products that dra w on our liquidity and market kno wledge. A good example is the gas-marketing-services hub in Chica g o w e la u nch e d w it h Pe o ples En ergy in M arch 2000. Kno w n as Enovate, this venture optimizes Peoples 30 Bcf a year of Chicago-area storage capacity and related transportation. It played a role in incre asin g o ur g as volu m es in t h e ce n tral U nit e d St a t es by 156 p erce n t, t h e larg est incre ase in o ur 2000 N ort h A m erica n p hysical volu m es. We continually assess the necessity o f adding or o w ning assets in a region. Sometimes it is less expensive to o w n an asset than to replicate the asset in the market through contracting and market-making. We are developing generation plants to sell merchant po w er to high-demand markets, including proposed f acilities in Calif ornia, Florida, Texas, Lo uisia n a a n d G e orgia. Bu t as liq uidity increases, asset o w nership may no longer be necessary. We plan to sell Houston Pipe Line Company, and Louisiana Resources Company is no w held by Bridgeline Holdings, L.P., a joint venture in w hich Enron retains an interest. A dditionally, in the second quarter o f 2001 w e expect to close the sale o f ve o f the six electricity peaking generation units in operation. The result is the same earnings po w er M exicos move to w ard liberalizing its energy markets should gain intensity and speed with its ne w government. Increased cross-border electricity transactions bet w een M exico and the United States seem inevitable. O ur activities in M exico seek to
with less invested capital.
optimize both the M exican electricity market and cross-border activity bet w een the t w o countries. Enron also is active in South A merica, w here w e o w n a n d d evelo p asse ts t o h elp cre a t e a n e n ergy n e t w ork. Enron Europe W e are ra pidly ext e n din g Enro ns m ark e tm a kin g a p pro ach in t o t h e d ere g ula tin g Euro p e a n m ark e ts, f ocusin g o n t h e U.K., t h e Co n tin e n t a n d the Nordic region. The Continent is still in the early st a g es o f lib eraliz a tio n. A lt h o u g h t h e Euro p e a n Union has mandated liberalization of the po w er and natural gas markets, each country is responding at its o w n pace. The velocity of transactions is rising on the Continent, ho w ever, and Enron expects to raise the level o f liquidity to make the markets w ork. O ur b usin ess t hro u g h o u t Euro p e is gro w in g ra pidly. N a t ural g as a n d p o w er volu m es m ore t h a n d o u ble d t o 10.3 trillio n British t h erm al u nits e q uivale n t p er d ay (TBt u e/d) in 2000 fro m 4.1 TBt u e/d in 1999. We enjoy several competitive advantages in Europe: W e are t h e o nly p a n-Euro p e a n player; w e h ave a prove n b usin ess stra t e gy; w e e n t ere d t h e m ark e t e arly t o b uild a prese nce; a n d w e h ave a t tract e d a t ale n t e d a n d skille d local w ork f orce. O ur cross-border capabilities are becoming increasingly important as markets interconnect. U.K. gas can no w be transported to Belgium, and subsequently to the rest of the Continent, giving us the opportunity to develop innovative transactions on both sides o f the border. The resulting increase in price volatility has nearly doubled U.K. gas prices, w hich, along with more volatile electricity prices ahead, has signi cantly improved demand f or the U.K. risk management products w e offer, both no w and over the long term. Just as in N ort h A m erica, Enro n O nlin e is incre asin g Enro ns re ach a n d volu m es in Euro p e a n d is a prim e driver o f liq uidity. Its sim ple co ntracts, multi-currency capabilities, transparent and co m p e titive prices a n d e asy accessibility h ave w o n Enro n O nlin e ra pid acce p t a nce. In the U.K., po w er and gas volumes more than doubled, with po w er rising to 113 million M W h in 2000, and gas volumes climbing 119 percent to reach 3.2 Bcf/d. Several market factors are likely to create m ore b usin ess f or us. Th e U.K.s N e w Electricity Tra din g A gre e m e n ts, w hich re place t h e existin g U.K. po w er pool, are scheduled to be implemented
m e diaries such as Enro n t o h e d g e t h eir f u el a n d p o w er prices. O n t h e Co n tin e n t, o ur p o w er volu m es increased to 50 million M W h in 2000 from 7 million M W h in 1999. W e are tra nsactin g a t all m ajor co u n try in t erco n n ectio ns, b e n e fitin g fro m crossb ord er o p p ort u nities. W e close d o ur first-ever tra nsactio n in Fra nce a n d are a n active player in G erm a ny a n d Sw it z erla n d. W e are b e gin nin g t o p art n er w it h u tilities t o o ff er co m pre h e nsive p ortfolio management services, such as our agreement to purchase and distribute po w er jointly with Swiss Cityp o w er A G, w hich co n trols 19 p erce n t o f t h e Sw iss electricity m ark e t.
EnronOnline
EnronOnline successfully leverages Enrons core market-making capabilities, benefiting both our customers and Enron. The web-based system makes it easier to do business with Enron. It also accelerates the growth of Enrons existing businesses and facilitates quick and efficient entry into new markets.
In Spain, electricity demand is gro wing f aster than anyw here else in Europe, and there are limited import and export capabilities. Enron is responding to this opportunity by developing a 1,200mega w att plant in Arcos, south o f Seville, that should close nancing in 2001. Co n tin e n t al g as liq uidity is just st artin g t o incre ase. O ur volu m es gre w t o 472 millio n cu bic f e e t p er d ay (M Mcf/d) in 2000 fro m 53 M Mcf/d in 1999. W hile t h e m ark e t is in its e arly st a g es, Enro n h as m a n a g e d t o incre ase w e e kly tra nsactio ns fro m a b o u t 5 t o 100 over t h e co urse o f a ye ar. In Oct o b er w e initia t e d t h e first g as su p ply d e al in G erm a ny t o t h e local u tilities o f H eid elb erg, Tu e bin g e n a n d Be nsh eim. W e also are d eliverin g n a t ural g as t o so m e larg e users in t h e N e t h erla n ds a n d Fra nce.
by the second quarter o f 2001. The agreements will result in increased price volatility, and Enron is w ell-positioned to help customers manage this risk. A dditionally, lo w er po w er prices are shrinking pro fit m argins f or U.K. m erch a n t p o w er pla n ts, w hich incre asin gly n e e d t o t urn t o m ark e t in t er-
10
W e co n tin u e t o se t records in t h e N ordic region, w here w e are the largest po w er marketer. Electricity volu m es incre ase d n e arly 150 p erce n t t o re ach 77 millio n M W h in 2000 fro m 31 millio n M W h in 1999. Enro ns Oslo o ffice also is n o w t h e b ase o f o ur Euro p e a n w e a t h er risk m a n a g em e n t b usin ess. As more Nordic companies outsource energy supply and management, Enrons products and services including advanced technology applications are eagerly sought. In December Enron entered into a t w o-year port f olio management agreement w it h UPM-Kym m e n e Corp., o n e o f t h e w orlds largest f orest products companies. Enron will assist
opportunities to support our market-making activities, including inside-the-f ence po w er generation. Under consideration are a number o f sites, w hich may be f ueled by gas, lique ed natural gas or coal. Enron Australia Enrons market-making ability has been successf ully extended to A ustralia, w here Enron is a leading provider o f logistical solutions in the countrys po w er market. During 2000 w e introduced w eather risk management products in the region, o ff ering temperature-based products f or Sydney, M elbourne, Hong Kong, Tokyo and Osaka. The Sydney o f ce also provides a strategic plat f orm f or the extension o f Enrons coal, metals and broad-
MAKING MARKETS Enrons networks of assets and contractual relationships allow us to make markets and offer realtime pricing for more than 1,200 products on EnronOnline. This tremendous market liquidity attracts customers and further increases Enrons volumes and market share.
CUSTOMER RELATIONSHIPS EnronOnline provides customers with a more convenient way to discover prices and do business with Enron, which increases transaction volumes and attracts new customers. The system automatically taps into Enrons sophisticated customer-credit proles to protect Enron from credit risk.
INFORMATION SYSTEMS EnronOnline is fully integrated with Enrons proprietary information systems, which provide critical market information, process thousands of deals and help assess and manage market and other risks. As a result, Enron manages risks instantaneously even in the most volatile markets.
SCALABILITY Enrons well-tuned back-ofce system, integrated with EnronOnline, has proven its ability to scale as Enrons total transactions have grown from an average of 650 a day at EnronOnlines November 1999 launch to an average of 7,900 a day by year-end 2000. As EnronOnline expands products and volumes, Enrons scalable back-ofce will continue to be a competitive advantage.
UPM-Kymmene in optimizing its Nordic po w er portf olio o f approximately 14 tera w att hours. Enron Japan Enron Japan f ormally opened its Tokyo o f ce in October 2000. Japan represents an enormous opportunity: Its electricity rates are the highest in the w orld, and electricity consumption is second only to the United States. We have attracted top talent to develop w holesale and joint venture possibilities, and have introduced our rst product f or large electricity users three- to ve-year contracts that will reduce electricity bills immediately by up to 10 percent the rst year, with the possibility o f f urther reductions in subsequent years. O ur rst contracts w ere signed in early 2001. Through joint ventures with several Japanese co m p a nies, Enro n is explorin g m erch a n t pla n t
band businesses, as w ell as providing support f or Enrons operations in the Asia-Paci c region. Extending to New Markets Enrons durable business approach, w hich has driven our success in the natural gas and electricity markets, is eminently applicable to other markets and geographical regions. W hile w e are remaining f ocused on increasing earnings and opportunities in g as a n d p o w er, w e also are ext e n din g Enro ns m e t h o d t o larg e, fra g m e n t e d in d ustries a n d pro ducts, w h ere in t erm e dia tio n ca n m a k e m ark e ts W e exp ect t h ese n e w b usin esses t o co n trib u t e t o e arnin gs in 2001. Enron Metals w as launched in July 2000 w hen Enron acquired the w orlds leading merchant of nonferrous metals, M G plc. Together, M G and Enron are
m ore e fficie n t a n d resp o nsive t o cust o m er n e e ds.
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a po w erful team. Enrons nancial resources and eCommerce abilities add a ne w dimension to M Gs widespread physical merchant skills and excellent customer relationships. The early results are right on target, with physical volumes up 31 percent in 2000. Enron M etals opens an additional door to large energy customers. Cominco Ltd., a zinc producer and an Enron M etals customer in Vancouver, British Columbia, w orked with Enron to halt zinc production f or six w eeks and sell its po w er into the North w estern po w er market, w here it w as needed. Enron North A merica protected Cominco by struct urin g a fixe d-price sw a p t o g u ara n t e e t h e sale price o f the po w er, and Enron M etals arranged to
Coal intermediation moved to a ne w level in 2000. The industry has been radically affected by the w orld wide deregulation of the electricity industry. Like natural-gas-fueled generation, coal-burning generators require exible terms and risk-management protection. Enron is able to provide unrivaled logistical support. O ur coal business has led us to participate in sea and land logistics as w ell. Weather has never been better f or us. O ur w eather risk management business is up about ve-f old to 1,629 transactions in 2000 from 321 transactions the year be f ore. As in all o f our markets, w e bring cross-commodity capabilities to our w eather pro d ucts. For inst a nce, w e close d a t hre e-
One Coal Contract Covers All Logistics

The process of sourcing and delivering coal to an electricity generator is a complicated process. Enron provides a single, comprehensive solution to manage all logistics and risk, whether the coal is sourced domestically or abroad. In some cases, we have reduced the customers cost of coal by as much as 10 percent.
COAL PRICE AND SUPPLY RISKS Enron allows generators to purchase coal at exible terms, such as long-term xed rates or a maximum price. Supply and price are assured because Enron has access to multiple sources all over the globe. Enron is on its way to becoming the worlds largest wholesale coal merchant. TRANSPORTATION RISKS Imported coal travels by sea and land, and the consumer usually makes each arrangement separately and bears the risk if prices or capacity change. Enron delivers a complete logistical solution for its customers, managing both the process and risk as part of just a single contract for the coal. Enron also provides complete domestic logistics. CURRENCY RISKS Like oil, imported coal is denominated in U.S. dollars. A British generator, however, collects electricity payments in pounds sterling. When appropriate, Enron includes currency hedges in its contracts to protect customers if the value of the pound drops against the dollar.
su p ply a p ortio n o f t h e zinc re q uire d t o f ulfill Co mincos o blig a tio ns. Co mincos pro fit fro m t h e d e al exce e d e d t h e a n n u al pro fit it m a k es fro m pro d ucin g zinc. Enron Credit is a ne w business with strong market potential. Enron has leveraged its internal risk management processes and systems to create a realtime, market-based online credit evaluation system. The idea is simple: Existing credit ratings and scoring m ech a nisms are n o t m ark e t-b ase d a n d ca n n o t resp o n d in re al tim e t o cre dit eve n ts. This m e a ns
ye ar precipit a tio n tra nsactio n t h a t provid es fin a ncial co m p e nsa tio n lin k e d t o n a t ural g as prices if precipit a tio n f alls b elo w a pre-d e t ermin e d minim u m. Th e w e a t h er u nit w ork e d w it h several o t h er Enro n gro u ps t o tra nsf er Enro ns risk, ultim a t ely tra nsactin g w it h 10 ext ern al co m p a nies in t hre e m ark e ts (n a t ural g as, w e a t h er pro d ucts a n d insura nce). Th e b u n dle d e n d-pro d uct result e d in a n e ff ective h e d g e f or t h e cust o m er. Crude oil. We no w average crude deliveries o f 7.5 TBt u e/d t o 240 cust o m ers in 46 co u n tries. W e h ave in tro d uce d t h e first-ever 24x7 co m m o dity market of a West Texas Intermediate crude product on Enron O nline, allo wing our customers to respond to market-changing events at any time, day or night. We also concluded our biggest physical jet f uel contract, providing 100,000 barrels f or one
cre dit ors m ust g ure o u t t h eir cre dit risk exp osure o n t h eir o w n. Enro n Cre dit p osts t h e cost o f cre dit as a simple interest rate for more than 10,000 companies on its w eb site, w w w.enroncredit.com. Enron Credit also gives corporations the ability to hedge their credit risk via a bankruptcy product.
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year at the exible and market-based prices that the customer needed. LNG. Enron is establishing a lique ed natural gas (LNG) net w ork to create merchant LNG opportunities and to bring more gas to areas of the w orld that need it. O ur LNG-related assets in operation and development in the Caribbean and the Middle East form part of this net w ork. We source surplus LNG from the Middle East and Asia and currently market it in the United States. Forest Products. Enron has o ff ered pulp, paper and lumber nancial products f or several years, and no w w e are marketing physical volumes. In 2000 w e acquired Garden State Paper Co., w hich gives us access to 210,000 tons o f ne wsprint a year and f our recycling centers in key markets. In January 2001 w e agreed to purchase a ne wsprint mill and related assets in Canada. W ith this acquisition, Enron will become the seventh-largest producer o f ne wsprint in North A merica, giving us the physical liquidity necessary to quickly gro w this business. Enrons Clickpaper.com is po w ered by the Enron O nline plat f orm but is totally customized f or the f orest products industry. It o ff ers more than 100 nancial and physical products and f eatures ne ws and in f ormation tailored speci cally to f orest products industry customers. Steel. In some markets, such as steel, w e believe w e can run our net w ork with minimal assets. The in d ustry curre n tly su ff ers fro m overca p acity, b u t lacks a market mechanism to ef ciently market the surplus. W e w ill o ff er a core co m m o dity b aselin e pro d uct t h a t ca n b e in d exe d a g ainst alm ost all o t h er pro d ucts in t his $330 billio n in d ustry. Th e o u tlo o k is pro misin g w e h ave tra nsact e d o ur first st e el sw a p. This ye ar w e w ill b uild liq uidity, im prove pricin g e fficie ncy a n d g ain co n tract u al access t o t h e p hysical pro d uct t o provid e co m preh e nsive lo gistical su p p ort. Enron Global Assets Enron Global Assets manages and optimizes Enrons assets outside North A merica and Europe. Enron has a solid port f olio o f asset-based businesses. Ho w ever, with the higher returns available in the companys other businesses, w e expect to divest some interests in a number o f these assets. The remaining asset businesses will continue to f ocus on perf ormance and complementing our market-making and services businesses. Th e eco n o mics o f w in d p o w er are m ore pro misin g t h a n ever, cre a tin g sig ni ca n t gro w t h f or Enro n W in d. Tech n olo gical a dva nce m e n ts a n d lo w er costs associa t e d w it h t o d ays larg er, m ore e f cie n t w in d t urbin es h ave m a d e w in d p o w er
costs co m p e titive w it h f ossil f u el-g e n era tio n f or t h e rst tim e. This cost co m p e titive n ess, t o g e t h er w it h g overn m e n t p olicies su p p ortin g re n e w a ble e n ergy in m ost k ey m ark e ts a n d gro w in g co nsu m er d e m a n d f or gre e n e n ergy, h ave f u ele d 30 p erce n t a n n u al gro w t h over t h e p ast ve ye ars. W ith f ocused e ff orts in the w orlds three key wind po w er markets Germany, Spain and the United States Enron W ind completed 2000 with revenues o f approximately $460 million. Strong gro w th in both the United States and Europe will account f or a projected sales increase o f approximately 100 percent in 2001.
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Enron Wind Corp.
ENRON ENERGY SERVICES

Enron Energy Services is the retail arm of Enron, serving business users o f energy in commercial and industrial sectors. O ur comprehensive energy outso urcin g pro d uct h as prove n a n exce p tio n ally e ff ective w ay f or co m p a nies t o re d uce t h eir costs, m a n a g e risks o f e n ergy price vola tility, im prove t h eir e n ergy in frastruct ure a n d f ocus reso urces o n t h eir core b usin esses. Enro n En ergy Services record e d its rst pro fitable quarter as expected at the end of 1999, and continued to gro w rapidly through 2000, with increasing pro ts in all f our quarters o f 2000 and aggregate recurring income be f ore interest and taxes (IBIT) of $103 million for the year. The value of our contracts in 2000 totaled more than $16 billion, increasing Enron Energy Services cumulative contract value to more than $30 billion since late 1997. This success re ects gro w in g acce p t a nce o f Enro ns e n ergy o u tso urcin g pro d uct acce p t a nce t h a t h as m e a n t a n incre asin g ra t e o f n e w co n tractin g. O ur re t ail e n ergy success in 2000 also re ects o ur stro n g e m p h asis o n co n tract execu tio n a n d im ple m e n t a tio n a n d o n excelle nce in cust o m er service. A dditionally, 2000 w as marked by incre ase d activity in Euro p e a n u n t a p p e d m ark e t f or e n ergy o u tso urcin g. We are positioned to dramatically increase our pro tability in 2001. Retail energy earnings will be fueled by the rapid gro w th of our U.S. and European b usin esses a n d t h e stro n g execu tio n a n d ext e nsio n o f existin g co n tracts. Market Volatility The U.S. energy sector experienced unpreced e n t e d ch alle n g e a n d o p p ort u nity in 2000. In national terms, steady movement to w ard a functioning deregulated energy marketplace continues. M ore than half the countrys population is scheduled to b e a ble t o ch o ose t h eir electricity su p plier by 2004. Th e o n g oin g e n ergy crisis in Calif ornia h as f ocuse d everyo n es a t t e n tio n o n t h e co m plexities o f inco m ple t e d ere g ula tio n, t h e risks o f u nrelia ble supply and the costs of unmanaged energy demand. Enro n provid es co m m ercial a n d in d ustrial e n ergy cust o m ers w it h t h e solu tio ns t h ey n e e d, brin gin g relia bility a n d price-risk m a n a g e m e n t t o a m ark e t o t h er w ise fra u g h t w it h u ncert ain ty. The volatility o f energy prices across the counENRO N A N N U AL REPORT 2000
versa tility t o provid e a co m pre h e nsive solu tio n t o a d dress u ncert ain, ra pidly ch a n gin g m ark e ts. Customer Relationships The core of Enrons retail business is developing lo n g-t erm, m ulti-ye ar rela tio nships w it h o ur cust o m ers. Th e valu e a t co n tract sig nin g is o nly a p art o f t h e p o t e n tial valu e t h a t ca n b e re aliz e d w h e n sa tis e d cust o m ers se e k t o a d d a d ditio n al Enro n services t o t h eir co n tracts. O f t h e $16.1 billio n in t o t al co n tract valu e signed in 2000, approximately $3 billion came from expansions o f existing contract relationships. For example, in 1998, w e signed a ve-year, $250 million contract with World Color Press, w hich later merged with Q uebecor Printing. In 2000, based on Q uebecor
Measuring Performance
Companies cant improve what they cant measure. Thats why Enron has developed a state-of-the-art Performance Measurement Center (PMC) that monitors, predicts and changes customer energy consumption. Powered by a exible Internet-based link that connects customers building controls to the PMC, and operated by a team of energy management professionals, the PMC is a unique resource, enabling genuinely proactive energy management.
Worlds satisf action, the relationship w as extended and expanded to a 10-year, $1 billion agreement including not only commodity supply, but also overall energy management, including the design and implementation o f improvements in energy asset in frastructure in more than 60 f acilities operated by Q uebecor World. W e valu e o ur lo n g-t erm cust o m er rela tio nships, a n d t h e h e alt h o f t h ese rela tio nships ca nt b e le f t t o luck, instinct or va g u e im pressio ns. O ur Cust o m er Sa tisf actio n Pro gra m co n tin u ally ca pt ures o ur p erf orm a nce a g ainst exp ect a tio ns a n d b e nch m arks t h ose results. Furt h er, it is d esig n e d t o e nsure id e n ti ca tio n a n d resolu tio n inclu din g pro m p t escala tio n t o t h e execu tive level if n e e d e d o f a ny issu e t h a t mig h t arise.
try has heightened the value of energy management and increased the demand for retail services. With our series of capabilities energy commodity and price risk m a n a g e m e n t ca p a bilities, e n ergy asse t m a n a g e m e n t a n d ca pit al solu tio ns w e re m ain t h e o nly rm w it h t h e skill, exp erie nce, d e p t h a n d
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Medium-size Business Market In the rst three years of U.S. operation, Enron Energy Services has been squarely focused on Fortune 1000 cust o m ers. Bu t U.K.-b ase d Enro n Direct h as successf ully p e n e tra t e d t h e im m e nse m e diu m-siz e business market, proving that w e can sell energy to sm aller e n t erprises in a truly o p e n re t ail m ark e t. Since gaining regulatory approval in February 1999 t hro u g h t h e e n d o f 2000, Enro n Direct h as acq uire d m ore t h a n 130,000 g as a n d p o w er customers, and continues to gro w at a substantial rate. The pro tability o f these smaller accounts comes from Enrons long-term price risk management capability and Enron Directs lo w-cost sales channels. O ur hig h exp ect a tio ns f or m e diu m-siz e b usin esses are
SENSIBLE INVESTMENTS PMC data identify opportunities to improve efficiency through equipment upgrades or through changes in processes, without adversely affecting a clients operations. The PMCs sophisticated modeling systems calculate a cost-benefit analysis for every potential investment in energy assets. This analysis includes a real-time correlation with the price of commodities to help companies not only make decisions but also to show them that there are decisions to be made.
REDUCING PEAK DEMAND The cost of energy varies widely over the course of the day. The PMC uses real-time pricing information, and the stream of data coming from the customer site, to automatically and remotely reduce customers low-priority energy use when the price of energy is highest ensuring that the customer gets maximum benet for every dollar spent on energy.
DIAGNOSTIC MEASUREMENTS Most energy users dont realize something is wrong until the energy bill comes, and then it is much too late. But with the Enron PMC, real-time monitoring means that unusual changes in energy demand are tracked instantaneously, enabling Enron and the customer to identify and address problems before energy costs get out of hand.
MINIMIZING DOWNTIME When repairs are needed, PMC personnel can help control the costs of vendor calls and on-site repairs through diagnostic data, and through best-practice management of a network of thousands of service providers. We work with service providers to categorize and analyze the actual cost of repairs. With Enrons expertise and scale, we can improve response times, reduce downtime and cut the cost of repairs and maintenance.
re ect e d by t h e ra pid exp a nsio n o f t h e Euro p e a n operation. Enron Directo already is active in M adrid, Sp ain, a n d similar b usin esses w ill b e la u nch e d in o t h er co u n tries as w ell. It is our strong belie f that Enron is uniquely positioned to bene t both in the United States and Europe from the w orlds steady shif t to w ard deregulated energy markets. We will continue to provide sensible market solutions f or the e ff ective management o f energy costs, and will continue to build a pro ts and sustain our reputation f or innovation.
dyn a mic glo b al re t ail b usin ess t o drive co m p a ny
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ENRON BROADBAND SERVICES

Enro n Bro a d b a n d Services m a d e excelle n t pro gress execu tin g its b usin ess pla n in 2000. Th e b uild-o u t o f Enro ns 18,000-mile glo b al fib er n e t w ork is n e ar co m ple tio n, b a n d w id t h in t erm edia tio n tra nsactio n volu m e is gro w in g exp o n e ntially, a n d w e are t estin g t h e first co m m ercially so u n d pre miu m co n t e n t-o n-d e m a n d service. Cle arly, t h e Enro n b usin ess m o d el is w orkin g in t h e bro a d b a n d m ark e t. Enron Broadband Services goals are to: Deploy the most open, e f cient global broadband net w ork, the Enron Intelligent Net w ork. Be the w orlds largest marketer o f band width and net w ork services. Be the w orlds largest provider o f premium content delivery services. The Enron Intelligent Network W e exp ect t o b e t h e first t o provid e bro a db a n d co n n ectivity o n a glo b al b asis t hro u g h t h e Enro n In t ellig e n t N e t w ork (EIN). Th e EIN o p era t es as a n e t w ork o f n e t w orks, providin g sw itchin g ca p acity b e t w e e n in d e p e n d e n t n e t w orks f or lo wcost scala bility. W e w ill co n tin u e t o a d d p o olin g p oin ts, w hich p hysically in t erco n n ect t hird p arties n e t w orks a n d serve as re f ere nce p oin ts f or b a n dwidth contracts. We currently operate 25 pooling p oin ts: 18 in t h e U nit e d St a t es, a n d o n e e ach in To kyo, Lo n d o n, Brussels, A mst erd a m, Paris, D usseld orf a n d Fra n k f urt. W e exp ect t o a d d a t le ast 10 m ore in 2001. EINs embedded intelligence, provided by Enrons proprietary Broadband O perating System (B OS), gives Enro n u niq u e, p o w erf ul m ulti-layer net w ork control. The Enron BOS enables the EIN to: Dynamically provision band width in real time. Control quality and access to the net w ork f or Internet Service Providers. Control and monitor applications as they stream over the net w ork to ensure quality and avoid congested routes. Th e B OS a u t o m a t es t h e tra nsactio n process all t h e w ay fro m t h e initial re q u est f or ca p acity t o provisio nin g, electro nic billin g a n d f u n ds tra nsf er. W it h t h e B OS, Enro n h as cre a t e d t h e first scala ble, f ully in t e gra t e d tra nsactio n processin g pla t f orm f or d eliverin g b a n d w id t h ca p acity. Bandwidth Intermediation
band width: dark ber, circuits, Internet Protocol (IP) services (transporting data packets according to IP standards) and storage capacity. To date w e have transacted with 45 counterparties, including U.S. and international telecommunications carriers, marketers and resellers and net w ork service providers. In 2001 w e expect to deliver 570,000 terabytes as w e gro w both the breadth and the depth of our net w ork and products. We offer 32 band width-related products on Enron O nline. Enro ns a bility t o provid e b a n d w id t h-o ndemand at speci ed service levels and guaranteed delivery enables customers to access capacity without necessarily building, buying or expanding their
The Value of Bandwidth Intermediation

Enrons bandwidth intermediation business gives the broadband industry new tools standard contracts, liquidity, price transparency, connectivity, quick provisioning and exibility to help industry participants optimize assets and opportunities.
o w n net w orks. O ur bundled intermediation package includes IP transport over land, under the sea, and via satellite, at both xed and peak-usage terms. For example, w e are w orking with i2 Technologies, a global provider o f intelligent eBusiness solutions, t o co n n ect w it h cust o m ers in six cities, inclu din g f o ur overse as. i2 h as provisio n e d local-lo o p a n d lo n g-h a ul ca p acity t hro u g h Enro n, a n d h as lo wcost access t o o ur n e t w orks e q uip m e n t as if it w ere its o w n, b u t it n o w h as t h e flexibility t o q uickly a d d or discard ca p acity as d ay-t o-d ay n e e ds ch a n g e. Data storage is a $30 billion-per-year business, and w e kno w customers w ould like to purchase it o n a n as-n e e d e d b asis. In Ja n u ary 2001 w e co mple t e d o ur rst d a t a st ora g e tra nsactio ns w it h a
We exceeded our expectations by delivering m ore t h a n 72,000 t era byt es o f n e t w ork services in 2000, d e m o nstra tin g ra pidly gro w in g in d ustry acceptance of our exible services. We are creating t h e risk m a n a g e m e n t b uildin g blocks t o m a n a g e almost every element of the net w ork in addition to
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le a din g provid er o f m a n a g e d st ora g e services, St ora g e N e t w orks, a n d a larg e re t ailer, Best Buy. Best Buy is buying off-site storage capacity to save money and gain exibility to accommodate changin g st ora g e n e e ds. Content Services In A pril 2000 Enron signed an agreement with a U.S. vid e o re n t al re t ailer t o d eliver m ovies over t h e Enro n In t ellig e n t N e t w ork. Th e trial service is up and running in Seattle; Portland, Ore.; Salt Lake City a n d N e w York City. A d ditio n ally, w e h ave established relationships with other high-visibility content providers. Over the next t w o or three years, w e pla n t o d eliver o n-d e m a n d n o t o nly m ovies but sports, educational content, games, music and
CONNECTIVITY Enron is facilitating network connectivity by establishing pooling points in major metropolitan areas to switch bandwidth from one independent network to another. The pooling points help optimize network capacity by creating common physical delivery points and access to multiple locations.
DYNAMIC PROVISIONING Enrons pooling point infrastructure allows companies to provision bandwidth quickly, eliminating the long lead times associated with circuit provisioning in the past. Enhanced connectivity and dynamic provisioning allow bandwidth users to take advantage of bandwidth market opportunities on short notice.
NETWORK CONTROL Within Enrons Broadband Operating System (BOS) lie several unique capabilities that monitor switching activity between networks and control the provisioning of circuits. The Enron BOS can measure performance in real time at every layer of the network and ensure quality of service and delivery.
SCALABILITY The Enron Intelligent Network (EIN) has extensive reach throughout the continental United States and connects to Europe and Asia. With its broad connectivity, the EIN is designed to scale without the cost of building additional infrastructure. Leveraging the EnronOnline platform provides additional reach and gives customers a new, easy option for their bandwidth needs.
applications not yet imagined. Market Innovator Enrons innovative approach is as valuable in broadband as it is in energy. O ur proven intermediation skills are creating ne w value f or the industry and giving it a exibility it has never enjoyed. We have combined our business model with readily available technologies to deliver premium content over the Enron Intelligent Net w ork in a very compelling commercial model. We are not tied to any t h e b est tim e f or o ur cust o m ers, d eliverin g t h e m ost relia ble pro d uct a t t h e lo w est availa ble cost in t h e m ark e t place.
particular technology. We use the best solution at
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ENRON TRANSPORTATION SERVICES

The Gas Pipeline Group f ormally changed its name in September 2000 to Enron Transportation Services to emphasize its ability to deliver innovative solutions to its customers. These emerging services augment our core competency: operating interstate pipelines safely and ef ciently. In 2000 w e continued our record of strong returns with consistent earnings a n d cash flo w. Inco m e b e f ore in t erest a n d t axes reached $391 million, up from $380 million in 1999. Cash flo w fro m o p era tio ns rose t o $415 millio n in 2000 fro m $370 millio n in 1999. Thro u g h p u t re m ain e d rela tively u nch a n g e d in 2000 a t 9.13
needs. Northern Natural Gas, for example, has used interruptible storage products that extend its capability to meet the gro wing demand f or services to manage physical positions. Transw estern Pipeline Company is o ffering shippers increased service exibility by accessing third-party storage. Across all pipelines, w eb-based applications have been introduced to allo w customers to better manage transactions and allo w the pipelines to maximize t h eir ca p acity o ff erin gs. N ort h ern N a t ural G as, Transw estern Pipeline and Florida Gas Transmission b e g a n t o sell availa ble ca p acity o n Enro n O nlin e in 2000 t o give cust o m ers t h e co nve nie nce o f eCommerce transacting (see Purchasing Capacity Through Enron O nline on this page).
Purchasing Capacity Through EnronOnline

Enron Transportation Services has introduced several innovative customer services, including the use of EnronOnline. Northern Natural Gas, Transwestern Pipeline and Florida Gas Transmission are selling available rm and interruptible capacity on EnronOnline in addition to selling capacity through traditional methods. Customers already using EnronOnline to transact gas can now arrange transportation at the same time.
PRICE DISCOVERY Knowledge helps customers make better decisions. Prices are fully transparent and instantly accessible, which allows buyers to know what their transportation costs will be when they are buying their gas.
OPTIMIZING THE ASSETS When a pipeline is not totally subscribed, EnronOnline lets the market know it is available. Pipelines also can auction off highly desirable capacity by accepting sealed bids. EnronOnline gives Enron Transportation Services the ability to put more product in front of more of its customers than ever before.
billio n cu bic f e e t p er d ay (Bcf/d), co m p are d t o 9.18 Bcf/d t h e previo us ye ar. Together, our interstate pipelines span approxim a t ely 25,000 miles w it h a p e a k ca p acity o f 9.8 Bcf/d. W e tra nsp ort 15 p erce n t o f U.S. n a t ural g as d e m a n d. W e co n n ect t o t h e m ajor su p ply b asins in t h e U nit e d St a t es a n d Ca n a d a, a n d w e co n tin u e t o incre ase ca p acity fro m t h ose b asins t o o ur m ajor m ark e ts. W e h ave a d d e d 840 millio n cu bic f e e t p er d ay (M Mcf/d) over t h e p ast t w o ye ars, a n d n e arly 1
Northern Natural Gas Northern Natural Gas, Enrons largest pipeline, has approximately 16,500 miles o f pipeline extending from the Permian Basin in Texas to the Great Lakes, providing extensive access to major utilities and industrials in the upper M id w est. The pipeline has market area peak capacity o f 4.3 Bcf/d. It interco n n ects w it h m ajor pip elin es, inclu din g Gre a t Lakes, Transw estern, El Paso, Northern Border and Trailbla z er, t o o ff er excelle n t n ort h ern, so u t h ern a n d w est ern o w ca p a bilities. Nin e ty- ve p erce n t of market area capacity is contracted through 2003. M ark e t are a d e m a n d is exp ect e d t o incre ase considerably with the development of approximately 2,000 m e g a w a t ts o f g as- re d g e n era tio n over t h e next three years. The pipeline has developed innova-
Bcf/d is sch e d ule d t o e n t er service in t h e n ext t hre e ye ars. A t t h e sa m e tim e, o ur exp e nse p er M Mcf/d h as d eclin e d by 26 p erce n t fro m 1992 t o t o d ay. Enro n Tra nsp ort a tio n Services pip elin es h ave bro u g h t t o m ark e t a varie ty o f n e w pro d ucts a n d services sp ecifically t ailore d t o a d dress cust o m er
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tive and exible services to meet the transportation, storage and balancing needs of po w er producers. It completed construction in October 2000 of a link to 445 mega w atts of peaking po w er operated by Great River Energy in Minnesota. The link will transport up to 120 M Mcf/d of gas. Transwestern Pipeline Transw estern operates approximately 2,500 miles o f pipe with 1.7 Bcf/d o f peak capacity. W ith pipeline originating in the San Juan, Permian and A nadarko Basins, Transw estern can move gas east to Texas or w est to the California border. To respond to increased gas demand in California, Transw estern Pipeline added compressor facilities near Gallup, Ne w M exico, in M ay 2000 to increase mainline capacity by 140 M Mcf/d to the Calif ornia border. The ne w capacity is completely subscribed under long-term contracts. In 2000 the pipeline also added several m ajor in t erco n n ects t o t a p in t o gro w in g markets east o f Calif ornia. The Transw estern system is fully subscribed for w est ern d eliveries t hro u g h D ece m b er 2005 a n d f or e ast ern d eliveries t hro u g h D ece m b er 2002. Th e system has the potential to quickly increase throughput capacity. A n expansion project is expected to be led this year and completed in 2002. Florida Gas Transmission Florid a G as Tra nsmissio n serves t h e ra pidly gro w in g Florid a p e ninsula a n d co n n ects w it h 10 m ajor pip elin es. It h as m ain t ain e d a co m p e titive p ositio n by st a gin g exp a nsio ns t o k e e p p ace w it h demand as it gro ws. W ith current peak capacity o f 1.5 Bcf/d, Florida Gas Transmission will add 600 M Mcf/d o f capacity w hen its Phase IV and Phase V expansions are completed. The Fort Myers extension, part of a 200 M Mcf/d Phase IV expansion, w ent into service o n Oct o b er 1, 2000, a n d t h e re m ain d er is sch e d ule d t o g o in t o service in M ay 2001. Th e 400M Mcf/d Phase V expansion has received preliminary a p proval fro m t h e Fe d eral En ergy Re g ula t ory Co m missio n a n d is exp ect e d t o b e co m ple t e d in A pril 2002. The 4,795-mile pipeline currently is evaluating supply connections to t w o proposed lique ed natural gas facilities. Northern Border Partners, L.P. N ort h ern Bord er Part n ers, L.P. is a p u blicly tra d e d p art n ership (N YSE: NBP), o f w hich Enro n is t h e larg est g e n eral p art n er. N ort h ern Bord er in Northern Border Pipeline, w hich extends 1,214 miles fro m t h e Ca n a dia n b ord er in M o n t a n a t o Illin ois. Th e pip elin e, a lo w-cost lin k b e t w e e n Canadian reserves and the Mid w est market, has a p e a k ca p acity o f 2.4 Bcf/d a n d is f ully co n tract e d
u n d er lo n g-t erm a gre e m e n ts w it h a n avera g e t erm of six years. Its Project 2000 extension 34 miles of pipe from M anhattan, Illinois, to a point near North H ayd e n, In dia n a w ill provid e 544 M Mcf/d t o in d ustrial m ark e ts in In dia n a w it h a t arg e t e d inservice d a t e o f la t e 2001. Late in 2000, Northern Border Pipeline settled its ra t e case, allo w in g it t o sw itch fro m a cost-o fservice tariff to a stated-rate tariff, w hich will provide rate certainty to customers, increase competitiveness and allo w exibility in services provided. N ort h ern Bord er Part n ers also o w ns in t erests in g a t h erin g syst e ms in t h e Po w d er River a n d W in d River Basins in Wyoming, and recently signed a letter o f in t e n t t o p urch ase Be ar Pa w LLC, w hich h as extensive gathering and processing operations in t h e Po w d er River Basin a n d t h e W illist o n Basin. The partnership also o w ns Black M esa Pipeline, a 273-mile co al-w a t er slurry pip elin e ru n nin g fro m K aye n t a, A riz o n a, t o M o h ave Po w er St a tio n in La u g hlin, N eva d a. Portland General Electric Th e sale o f Portla n d G e n eral Electric (PGE) t o Sierra Paci c Reso urces h as b e e n d elaye d by t h e effect of recent events in California and Nevada on the buyer. In 2000 the Portland, Oregon-based electricity u tility p erf orm e d w ell in t h e f ace o f re gio n al w holesale price volatility. IBIT rose approximately 12 percent to $341 million. Total electricity sales reached 38.4 millio n m e g a w a t t-h o urs (M W h) co m p are d t o 31.9 million M W h in 1999. We will continue to drive perf ormance w hile w e pursue the utilitys sale.
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Partners o w ns a 70 percent general partner interest
FINANCIAL REVIEW
CO NTENTS
21 M A N A G E M E N T S D ISC U SSI O N A N D A N A LY SIS O F FI N A N CI A L C O N D ITI O N A N D RESU LTS O F O PER ATI O N S 27 FI N A N CI A L RISK M A N A G E M E N T 29 I N F O R M ATI O N RE G A R D I N G F O R W A R D L O O K I N G STATE M E N TS 29 M A N A G E M E N T S RESP O N SIBILIT Y F O R FI N A N CI A L REP O RTI N G 30 REP O RTS O F I N D EPE N D E N T P U BLIC A CC O U N TA N TS 31 E N R O N C O RP. A N D SU BSI D I A RIES C O N S O LI D ATE D I N C O M E STATE M E N T 31 E N R O N C O RP. A N D SU BSI D I A RIES C O N S O LI D ATE D STATE M E N T O F C O M PRE H E N SI V E I N C O M E 32 E N R O N C O RP. A N D SU BSI D I A RIES C O N S O LI D ATE D B A L A N CE SH EET 34 E N R O N C O RP. A N D SU BSI D I A RIES C O N S O LI D ATE D STATE M E N T O F C A SH FL O W S 35 E N R O N C O RP. A N D SU BSI D I A RIES C O N S O LI D ATE D STATE M E N T O F C H A N G ES I N SH A RE H O L D ERS E Q U IT Y 36 E N R O N C O RP. A N D SU BSI D I A RIES N O TES T O T H E C O N S O LI D ATE D FI N A N CI A L STATE M E N TS 52 SELECTE D FI N A N CI A L A N D CRE D IT I N F O R M ATI O N (U N A U D ITE D )
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Managements Discussion and Analysis of Financial Condition and R esults of Operations

Th e f ollo w in g revie w o f t h e results o f o p era tio ns a n d n a ncial co n ditio n o f Enro n Corp. a n d its su bsidiaries a n d a ffilia t es (Enro n) sh o uld b e re a d in co nju nctio n w it h t h e Co nsolid a t e d Fin a ncial St a t e m e n ts.
Net income includes the f ollo wing:

(In millions) A f ter-tax results be f ore items impacting comparability 2000 $1,266 1999 $ 957 1998 $ 698
RESULTS OF OPERATIONS Consolidated Net Income

Enrons net income for 2000 w as $979 million compared to $893 million in 1999 and $703 million in 1998. Items impacting comparability are discussed in the respective segment results. Net income before items impacting comparability w as $1,266 million, $957 million and $698 million, respectively, in 2000, 1999 and 1998. Enro ns b usin ess is divid e d in t o five se g m e n ts a n d Exploration and Production (Enron Oil & Gas Company) through A ugust 16, 1999 (see Note 2 to the Consolidated Financial Statements). Enrons operating segments include:
Items impacting comparability: (a) Charge to re ect impairment by A zurix (326) Gain on TNPC, Inc. (The Ne w Po w er Company), net 39 Gains on sales o f subsidiary stock MTBE-related charges Cumulative e ff ect o f accounting changes Net income $ 979
345 (278) (131) $ 893
45 (40) $ 703
(a) Tax affected at 35%, except where a specic tax rate applied.
Diluted earnings per share of common stock w ere as follo ws:

2000 1999 1998
Diluted earnings per share (a): A f ter-tax results be f ore items impacting comparability
$ 1.47
$ 1.18
$ 1.00
Tra nsp ort a tio n a n d Distrib u tio n. Tra nsp ort a tio n a n d Distrib u tio n co nsists o f Enro n Tra nsp ort a tio n Services a n d Portla n d G e n eral. Tra nsp ort a tio n Services inclu d es Enro ns in t erst a t e n a t ural g as pip elin es, primarily N ort h ern Na t ural G as Co m p a ny (N ort h ern), Tra nsw est ern Pip elin e Co m p a ny (Transw estern), Enrons 50 % interest in Florida Gas Transmission Company (Florida Gas) and Enrons interests in Northern Border Partners, L.P. and EOTT Energy Partners, L.P. (EOTT). W holesale Services. W h olesale Services inclu des Enro ns w holesale businesses around the w orld. W holesale Services operates in developed markets such as North A merica and Europe, as w ell as developing or ne wly deregulating markets including South A merica, India and Japan. Retail Energy Services. Enron, through its subsidiary Enron Energy Services, LLC (Energy Services), is extending its energy expertise and capabilities to end-use retail customers in the industrial and commercial business sectors to manage their energy requirements and reduce their total energy costs. Broadband Services. Enrons broadband services business (Broadband Services) provides customers with a single source f or broadband services, including band width intermediation and the delivery o f premium content. Corporate and O ther. Corporate and O ther includes Enrons investment in A zurix Corp. (A zurix), w hich provides w ater and w aste w ater services, results o f Enron Rene w able Energy Corp. (EREC), w hich develops and constructs wind-generated po w er projects, and the operations o f Enrons methanol and MTBE plants as w ell as overall corporate activities o f Enron.
Items impacting comparability: Charge to reect impairment by Azurix (0.40) Gain on The New Power Company, net 0.05 Gains on sales o f subsidiary stock MTBE-related charges Cumulative e ff ect o f accounting changes Diluted earnings per share $ 1.12
0.45 (0.36) (0.17) $ 1.10
0.07 (0.06) $ 1.01
(a) Restated to reect the two-for-one stock split effective August 13, 1999.
Income Before Interest, Minority Interests and Income Taxes

The f ollo wing table presents income be f ore interest, minority interests and income taxes (IBIT) f or each o f Enrons operating segments (see Note 20 to the Consolidated Financial Statements):
(In millions) Transportation and Distribution: Transportation Services Portland General W holesale Services Retail Energy Services Broadband Services Exploration and Production Corporate and O ther Income be f ore interest, minority interests and taxes 2000 $ 391 341 2,260 165 (60) (615) $2,482 1999 $ 380 305 1,317 (68) 65 (4) $1,995 1998 $ 351 286 968 (119) 128 (32) $1,582
Transportation and Distribution

Transportation Services. The f ollo wing table summarizes total volumes transported by each o f Enrons interstate natural gas pipelines.
Total volumes transported (BBtu/d) (a) Northern Natural Gas Transw estern Pipeline Florida Gas Transmission Northern Border Pipeline 2000 3,529 1,657 1,501 2,443 1999 3,820 1,462 1,495 2,405 1998 4,098 1,608 1,324 1,770
(a) Billion British thermal units per day. Amounts reect 100% of each entitys throughput volumes. Florida Gas and Northern Border Pipeline are unconsolidated equity afliates.
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Signi cant components o f IBIT are as f ollo ws:

(In millions) Net revenues O perating expenses Depreciation and amortization Equity earnings O ther, net Income be f ore interest and taxes 2000 $650 280 67 63 25 $391 1999 $626 264 66 38 46 $380 1998 $640 276 70 32 25 $351
Net Revenues
Revenues, net o f cost o f sales, o f Transportation Services increased $24 million (4 %) during 2000 and declined $14 million (2 %) during 1999 as compared to 1998. In 2000, Transportation Services interstate pipelines produced strong nancial results. The volumes transported by Transw estern increased 13 percent in 2000 as compared to 1999. Northerns 2000 gross margin w as comparable to 1999 despite an 8 percent decline in volumes transported. Net revenues in 2000 w ere f avorably impacted by transportation revenues from Transw esterns Gallup, Ne w M exico expansion and by sales from Northerns gas storage inventory. The decrease in net revenue in 1999 compared to 1998 w as primarily due to the expiration, in October 1998, o f certain transition cost recovery surcharges, partially o ffset by a Northern sale o f gas storage inventory in 1999.
an increase in w holesale sales, partially offset by higher purchased po w er and fuel costs. O perating expenses increased primarily due to increased plant maintenance costs related to periodic overhauls. Depreciation and amortization increased in 2000 primarily as a result of increased regulatory amortization. O ther, net in 2000 included the impact of an Oregon Public Utility Commission (OPUC) order allo wing certain deregulation costs to be deferred and recovered through rate cases, the settlement of litigation related to the Trojan nuclear po w er generating facility and gains on the sale of certain generation-related assets. Revenues, net o f purchased po w er and f uel costs, decreased $5 million in 1999 as compared to 1998. Revenues increased primarily as a result o f an increase in the number o f customers served by Portland General. Higher purchased po w er and f uel costs, w hich increased 42 percent in 1999, o ffset the increase in revenues. O ther income, net increased $31 million in 1999 as compared to 1998 primarily as a result o f a gain recognized on the sale o f certain assets. In 1999, Enron entered into an agreement to sell Portland General Electric Company to Sierra Paci c Resources. See Note 2 to the Consolidated Financial Statements. Statistics for Portland General are as follo ws:
2000 7,433 7,527 4,912 19,872 18,548 38,420 1999 7,404 7,392 4,463 19,259 12,612 31,871 1998 7,101 6,781 3,562 17,444 10,869 28,313
Operating Expenses
O perating expenses, including depreciation and amortization, o f Transportation Services increased $17 million (5 %) during 2000 primarily as a result o f higher overhead costs related to in f orm a tio n t ech n olo gy a n d e m ploye e b e n e fits. O p era tin g expenses decreased $16 million (5 %) during 1999 primarily as a result o f the expiration o f certain transition cost recovery surcharges w hich had been recovered through revenues.
Electricity sales (thousand M W h) (a) Residential Commercial Industrial Total retail W holesale Total electricity sales Resource mix Coal Combustion turbine Hydro Total generation Firm purchases Secondary purchases Total resources
Equity Earnings
Eq uity in e arnin gs o f u nco nsolid a t e d e q uity a f lia t es increased $25 million and $6 million in 2000 and 1999, respectively. The increase in equity earnings in 2000 as compared to 1999 primarily relates to Enrons investment in Florida Gas. The increase in earnings in 1999 as compared to 1998 w as primarily a result of higher earnings from Northern Border Pipeline and EOTT.
11% 12 6 29 63 8 100%
15 % 8 9 32 57 11 100 %
16 % 12 9 37 56 7 100 %
Other, Net
O ther, net decreased $21 million in 2000 as compared to 1999 a f ter increasing $21 million in 1999 as compared to 1998. Included in 2000 w ere gains related to an energy commodity contract and the sale o f compressor-related equipment, w hile the 1999 amount included interest income earned in connection with the nancing o f an acquisition by EOTT. The 1998 amount included gains from the sale o f an interest in an equity investment, substantially o ffset by charges related to litigation.
Average variable po w er cost (Mills/K W h) (b) Generation 14.5 Firm purchases 34.9 Secondary purchases 123.6 Total average variable po w er cost 37.2 Retail customers (end of period, thousands) 725
(a) Thousand megawatt-hours. (b) Mills (1/10 cent) per kilowatt-hour.
11.3 23.2 19.7 20.0 719
8.6 17.3 23.6 15.6 704
Outlook
Enron Transportation Services is expected to provide stable earnings and cash o ws during 2001. The four major natural gas pipelines have strong competitive positions in their respective markets as a result of ef cient operating practices, competitive rates and favorable market conditions. Enron Transportation Services expects to continue to pursue demand-driven expansion opportunities. Florida Gas expects to complete an expansion that will increase throughput by 198 million cubic feet per day (M Mcf/d) by mid-2001. Florida Gas has received preliminary approval from the Federal Energy Regulatory Commission for an expansion of 428 M Mcf/d, expected to be completed by early 2003, and is also pursuing an expansion of 150 M Mcf/d that is expected to be completed in mid-2003. Transw estern completed an expansion of 140 M Mcf/d in M ay 2000 and is pursuing an expansion of 50 M Mcf/d that is expected to be completed in 2001
Portland General. Portland General realized IBIT as f ollo ws:

(In millions) Revenues Purchased po w er and f uel O perating expenses Depreciation and amortization O ther, net Income be f ore interest and taxes 2000 $2,256 1,461 321 211 78 $ 341 1999 $1,379 639 304 181 50 $ 305 1998 $1,196 451 295 183 19 $ 286
Revenues, net of purchased po w er and fuel costs, increased $55 million in 2000 as compared to 1999. The increase is primarily the result of a signicant increase in the price of po w er sold and
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and an additional expansion of up to 150 M Mcf/d that is expected to be completed in 2002. Northern Border Partners is evaluating the development of a 325 mile pipeline with a range of capacity from 375 M Mcf/d to 500 M Mcf/d to connect natural gas production in Wyoming to the Northern Border Pipeline in M ontana. In 2001, Portla n d G e n eral a n ticip a t es p urch ase d p o w er a n d f u el costs t o re m ain a t hist orically hig h levels. Portla n d G e n eral h as su b mit t e d a re q u est w it h t h e OPUC t o recover t h e a n ticip a t e d cost incre ase t hro u g h a ra t e a djust m e n t.
W holesale Services markets, transports and provides energy commodities as re ected in the f ollo wing table (including intercompany amounts):
2000 1999 1998
Physical volumes (BBtue/d) (a)(b) Gas: United States Canada Europe and O ther Transportation volumes Total gas volumes Crude oil and Liquids Electricity (c) Total physical volumes (BBtue/d) Electricity volumes (thousand M W h) United States Europe and O ther Total Financial settlements (notional, BBtue/d)
Wholesale Services
Enron builds its w holesale businesses through the creation o f net w orks involving selective asset o w nership, contractual access to third-party assets and market-making activities. Each market in w hich W h olesale Services o perates u tilizes t hese components in a slightly diff erent manner and is at a diff erent st a g e o f d evelo p m e n t. This n e t w ork stra t e gy h as e n a ble d W holesale Services to establish a leading position in its markets. W holesale Services activities are categorized into t w o business lines: (a) Commodity Sales and Services and (b) Assets and Investments. Activities may be integrated into a bundled product o ff ering f or Enrons customers. W holesale Services manages its port f olio o f contracts and assets in order to maximize value, minimize the associated risks and provide overall liquidity. In doing so, W holesale Services uses port f olio and risk management disciplines, including o ffsetting or hedging transactions, to manage exposures to market price movements (commodities, interest rates, f oreign currencies and equities). A dditionally, W holesale Services manages its liquidity and exposure to third-party credit risk through monetization o f its co n tract p ort f olio or t hird-p arty insura nce co n tracts. W holesale Services also sells interests in certain investments and other assets to improve liquidity and overall return, the timing o f w hich is dependent on market conditions and managements expectations o f the investments value. The f ollo wing table re ects IBIT f or each business line:
(In millions) Commodity sales and services Assets and investments Unallocated expenses Income be f ore interest, minority interests and taxes 2000 $1,630 889 (259) $2,260 1999 $ 628 850 (161) $1,317 1998 $411 709 (152) $968
17,674 6,359 3,637 27,670 649 28,319 6,088 17,308 51,715 578,787 54,670 633,457 196,148
8,982 4,398 1,572 14,952 575 15,527 6,160 10,742 32,429 380,518 11,576 392,094 99,337
7,418 3,486 1,251 12,155 559 12,714 3,570 11,024 27,308 401,843 529 402,372 75,266
(a) Billion British thermal units equivalent per day. (b) Includes third-party transactions by Enron Energy Services. (c) Represents electricity volumes, converted to BBtue/d.
The f ollo wing discussion analyzes the contributions to IBIT f or each business line.
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Commodity Sales and Services. W h olesale Services provides relia ble co m m o dity d elivery a n d pre dict a ble pricin g t o its cust omers t hro u g h f orw ards an d o t her co n tracts. This marketmakin g activity inclu des t he p urchase, sale, marketin g an d delivery o f nat ural gas, electricity, liq uids an d o t her commo dities, as w ell as t he managemen t o f W h olesale Services o w n p ort f olio o f co n tracts. Co n tracts associated w it h t his activity are acco u n ted f or usin g t he mark-t o-market met h o d o f acco u n tin g. See No te 1 t o t he Co nsolidated Financial Statemen ts. W h olesale Services market-makin g activity is f acilitated t hro u g h a net w ork o f capabilities inclu din g selective asset o w nership. Accordin gly, certain assets involved in t he delivery o f t hese services are inclu ded in t his b usiness (such as in trastate nat ural gas pipelines, gas st orage f acilities an d certain electric generatio n assets).
Earnin gs from commo dity sales a n d services increase d $1.0 billio n (160 %) in 2000 as comp are d t o 1999. Increase d pro ts from Nort h A merica n g as a n d p o w er marke tin g o p era tio ns, Euro p ea n p o w er marke tin g o p era tio ns as w ell as t h e valu e o f n e w b usin esses, such as p ulp a n d p a p er, co n trib u t e d t o t h e earnin gs gro w t h o f Enro ns commo dity sales a n d services b usin ess. Co n tin u e d marke t lea d ership in t erms o f volumes tra nsact e d, sig ni ca n t increases in n a t ural g as prices a n d price vola tility in b o t h t h e g as a n d p o w er marke ts w ere t h e key co n trib u t ors t o increase d pro ts in t h e g as a n d p o w er in t ermedia tio n b usin esses. In la t e 1999, W h olesale Services la u nch e d a n In t ern e t-b ase d eCommerce syst em, Enro n O nlin e, w hich allo ws w h olesale cust omers t o vie w Enro ns real time pricin g a n d t o comple t e commo dity tra nsactio ns w it h Enro n as princip al, w it h n o direct in t eractio n. In its first f ull ye ar o f o p era tio n, Enro n O nlin e p ositively imp act e d w h olesale volumes, w hich increase d 59 p erce n t over 1999 levels. Earnin gs from commo dity sales a n d services increase d $217 millio n (53 %) in 1999 as comp are d t o 1998, re ectin g stro n g results fro m t h e in t erm e dia tio n b usin esses in b o t h N ort h A merica a n d Euro p e, w hich inclu d e d elivery o f e n ergy commo dities a n d associa t e d risk ma n a g eme n t pro d ucts. W h olesale Services also successf ully ma n a g e d its overall p ort f olio o f co ntracts, p articularly in minimizin g cre dit exp osures u tilizin g t hird-p arty co n tracts. Ne w pro d uct o ff erin gs in co al a n d p ulp a n d p a p er marke ts also a d d e d f avora bly t o t h e results.
Assets and Investments. Enrons W holesale businesses make investments in various energy and certain related assets as a part o f its net w ork strategy. W holesale Services either purchases the asset from a third party or develops and constructs the asset. In most cases, W holesale Services operates and manages such assets. Earnings from these investments principally result from operations o f the assets or sales o f o w nership interests. A d ditio n ally, W h olesale Services invests in d e b t a n d e q uity securities o f e n ergy a n d t ech n olo gy-rela t e d b usin esses, w hich m ay also u tiliz e W h olesale Services pro d ucts a n d services. W it h t h ese m erch a n t invest m e n ts, Enro ns in flu e nce is m uch m ore limit e d rela tive t o asse ts Enro n d evelo ps or co nstructs. Earnin gs fro m t h ese activities, w hich are acco u n t e d f or o n a f air valu e b asis a n d are inclu d e d in reve n u es, result fro m ch a n g es in t h e m ark e t valu e o f t h e securities. W h olesale Services uses risk
m a n a g e m e n t disciplin es, inclu din g h e d gin g tra nsactio ns, t o m a n a g e t h e im p act o f m ark e t price m ove m e n ts o n its m erch a n t i n v est m e n ts. Se e N o t e 4 t o t h e C o nso li d a t e d Fi n a nci a l St a t e m e n ts f or a su m m ary o f t h ese invest m e n ts. Earnings from assets and investments increased $39 million (5 %) in 2000 as compared to 1999 as a result o f an increase in the value o f W holesale Services merchant investments, partially o ffset by lo w er gains from sales o f energy assets. Earnings from asset operations w ere comparable to 1999 levels. Earnings from merchant investments w ere positively impacted by po w er-related and energy investments, partially o ffset by the decline in value o f t ech n olo gy-rela t e d a n d cert ain e n ergy-in t e nsive in d ustry investments. Gains on sales o f energy assets in 2000 included the monetization o f certain European energy operations. Earnings from assets and investments increased $141 million (20 %) in 1999 as compared to 1998. During 1999, earnings from W holesale Services energy-related assets increased, re ecting the operation o f the Dabhol Po w er Plant in India, o w nership in Elektro Eletricidade e Servios S.A. (Elektro), a Brazilian electric utility, and assets in various other developing markets. W holesale Services merchant investments increased in value during the year due to the expansion into certain technology-related investments, partially o ffset by a decline in the value o f certain energy invest me n ts. In a d ditio n, W h olesale Services 1999 earnin gs increased due to development and construction activities, w hile gains on sales o f energy assets declined.
a diverse product port f olio, providing a solid base o f earnings. Enrons strengths, including its ability to identify and respond to customer needs, access to extensive physical assets and its integrated product o ff erings, are important drivers o f the expected continued earnings gro w th. In addition, signicant earnings are expected from W holesale Services commodity port f olio and investments, w hich are subject to market uctuations. External f actors, such as the amount o f volatility in market prices, impact the earnings opportunity associated with W holesale Services business. Risk related to these activities is managed using naturally o ffsetting transactions and hedge transactions. The e ff ectiveness o f Enrons risk management activities can have a material impact on f uture earnings. See Financial Risk M anagement f or a discussion o f market risk related to W holesale Services.
Retail Energy Services

Energy Services sells or manages the delivery o f natural gas, electricity, liq uids a n d o t h er co mm o dities t o in d ustrial a n d commercial customers located in North A merica and Europe. Energy Services also provides outsourcing solutions to customers f or f ull energy management. This integrated product includes the management o f commodity delivery, energy in f ormation and energy assets, and price risk management activities. The commodity portion o f the contracts associated with this business are accounted f or under the mark-to-market method o f accounting. See Note 1 to the Consolidated Financial Statements.
(In millions) Revenues Cost o f sales O perating expenses Depreciation and amortization Equity losses O ther, net IBIT be f ore items impacting comparability Items impacting comparability: Gain on The Ne w Po w er Company stock issuance Retail Energy Services charges Income (loss) be f ore interest, minority interests and taxes 2000 $4,615 4,028 449 38 (60) 63 103 1999 $1,807 1,551 308 29 13 (68) 1998 $1,072 955 210 31 (2) 7 (119)
Unallocated Expenses. Net unallocated expenses such as systems expenses and perf ormance-related costs increased in 2000 due to gro w th o f W holesale Services existing businesses and continued expansion into ne w markets.
Outlook
In 2000, W holesale Services rein f orced its leading positions in the natural gas and po w er markets in both North A merica and Europe. In the coming year, W holesale Services plans to continue to expand and re ne its existing energy net w orks and to extend its proven business model to ne w markets and industries. In 2001, W holesale Services plans to continue to ne-tune its already successf ul existing energy net w orks. In North A merica, Enron expects to complete the sale o f ve o f its peaking po w er plants located in the M id w est and its intrastate natural gas pipeline. In each case, market conditions, such as increased liquidity, have diminished the need to o w n physical assets. For energy net w orks in other geographical areas w here liquidity may be an issue, Enron will evaluate w hether its existing net w ork will bene t from additional physical assets. The existing net w orks in North A merica and Europe should continue to provide opportunities f or sustained volume gro w th and increased pro ts. The combination of kno wledge gained in building net w orks in key energy markets and the application of ne w technology, such as Enron O nline, is expected to provide the basis to extend W holesale Services business model to ne w markets and industries. In key international markets, w here deregulation is underw ay, Enron plans to build energy net w orks by using the optimum combination of acquiring or constructing physical assets and securing contractual access to third-party assets. Enron also plans to replicate its business model to ne w industrial markets such as metals, pulp, paper and lumber, coal and steel. Enron expects to use its eCommerce platform, Enron O nline, to accelerate the penetration into these industries. Earnings from W holesale Services are dependent on the origination and completion o f transactions, some o f w hich are individually signi cant and w hich are impacted by market conditions, the regulatory environment and customer relationships. W holesale Services transactions have historically been based on
121 (59) $ 165 $
(68)
$ (119)
Operating Results
Revenues and gross margin increased $2,808 million and $331 million, respectively, in 2000 compared to 1999, primarily resulting from execution o f commitments on its existing customer base, long-term energy contracts originated in 2000 and the increase in the value o f Energy Services contract port f olio. O perating expenses increased as a result o f costs incurred in building the capabilities to deliver services on existing customer contracts and in building Energy Services outsourcing business in Europe. O ther, net in 2000 consisted primarily o f gains associated with the securitization o f non-merchant equity instruments. Equity losses re ect Energy Services portion o f losses o f The Ne w Po w er Company. Items impacting comparability in 2000 included a pre-tax gain of $121 million related to the issuance of common stock by The Ne w Po w er Company and a charge of $59 million related to the write-off of certain information technology and other costs. The Ne w Po w er Company, w hich is approximately 45 percent o w ned by Enron, w as formed to provide electricity and natural gas to residential and small commercial customers in deregulated energy markets in the United States.
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Outlook
During 2001, Energy Services anticipates continued gro w th in the demand for retail energy outsourcing solutions. Energy Services will deliver these services to its existing customers, w hile continuing to expand its commercial and industrial customer base for total energy outsourcing. Energy Services also plans to continue integrating its service delivery capabilities, extend its business model to related markets and offer ne w products.
to manage their band width needs. The availability of Enrons band width intermediation products and prices on Enron O nline are expected to favorably impact the volume of transactions. In 2001, Broadband Services expects to continue to expand the commercial roll-o u t o f its co n t e n t service o ff erin gs inclu din g vid e o-o ndemand. Enron expects the volume of content delivered over its net w ork to increase as more content delivery contracts are signed and as more distribution partner locations are connected.
Broadband Services
In im ple m e n tin g Enro ns n e t w ork stra t e gy, Bro a d b a n d Services is constructing the Enron Intelligent Net w ork, a nationwide ber-optic net w ork that consists o f both ber deployed by Enron and acquired capacity on non-Enron net w orks and is managed by Enrons Broadband O perating System so f t w are. Enron is extending its market-making and risk management skills from its energy business to develop the band width intermediation business to help customers manage unexpected uctuation in the price, supply and demand o f band width. Enrons band width-ondemand plat f orm allo ws delivery o f high-band width media-rich content such as video streaming, high capacity data transport and video con f erencing. Broadband Services also makes investments in companies with related technologies and with the potential f or capital appreciation. Earnings from these merchant investments, w hich are accounted f or on a f air value basis and are included in revenues, result from changes in the market value o f the securities. Broadband Services uses risk management disciplines, including hedging transactions, to manage the impact o f m ark e t price m ove m e n ts o n its m erch a n t invest m e n ts. Broadband Services also sells interests in certain investments and other assets to improve liquidity and overall return, the timing o f w hich is dependent on market conditions and managements expectations o f the investments value. The components o f Broadband Services businesses include the development and construction o f the Enron Intelligent Net w ork, sales o f excess ber and so f t w are, band width intermediation and the delivery o f content. Signi cant components o f Broadband Services results are as f ollo ws:
(In millions) Gross margin O perating expenses Depreciation and amortization O ther, net Loss before interest, minority interests and taxes 2000 $318 305 77 4 $ (60)
Corporate and Other

Signi cant components o f Corporate and O thers IBIT are as f ollo ws:
(In millions) IBIT be f ore items impacting comparability 2000 $(289) 1999 $ (17) 1998 $ 7
Items impacting comparability: Charge to re ect impairment by A zurix (326) Gains on exchange and sales o f Enron Oil & Gas Company (EO G) stock Charge to re ect impairment o f MTBE assets and losses on contracted MTBE production Loss be f ore interest, minority interests and taxes $(615)
454
22
(441) $ (4)
(61) $(32)
Broadband Services recognized a loss before interest, minority interests and taxes of $60 million in 2000. Gross margin included earnings from sales of excess ber capacity, a signicant increase in the market value of Broadband Services merchant investments and the monetization of a portion of Enrons broadband content delivery platform. Expenses incurred during the period include expenses related to building the business and depreciation and amortization.
Results f or Corporate and O ther in 2000 re ect operating losses from Enrons investment in A zurix (excluding the impairments discussed belo w) and increased in f ormation technology, employee compensation and corporate-wide expenses. Results f or Corp ora t e a n d O t h er in 1999 w ere im p act e d by hig h er corp ora t e exp e nses, p artially o ffse t by incre ase d e arnin gs fro m EREC resultin g fro m incre ase d sales volu m es fro m its G erm a n m a n u f act urin g su bsidiary a n d fro m t h e co m ple tio n a n d sale o f cert ain d o m estic w in d projects. Enro n also reco g niz e d hig h er e arnin gs rela t e d t o A z urix. Results in 1998 w ere f avora bly im p act e d by incre ases in t h e m ark e t valu e o f cert ain corp ora t e-m a n a g e d n a ncial instru m e n ts, p artially o ffse t by hig h er corp ora t e exp e nses. Items impacting comparability in 2000 included a $326 million charge re ecting Enrons portion o f impairments recorded by A zurix related to assets in Argentina. Items impacting comparability in 1999 included a pre-tax gain o f $454 million on the exchange and sale o f Enrons interest in EO G (see Note 2 to the Consolidated Financial Statements) and a $441 million pre-tax charge f or the impairment o f its MTBE assets (see Note 17 to the Consolidated Financial Statements). During 1998, Enron recognized a pre-tax gain o f $22 million on the delivery o f 10.5 million shares o f EO G stock held by Enron as repayment o f mandatorily exchangeable debt. Enron also recorded a $61 million charge to re ect losses on contracted MTBE production.
Outlook
Broadband Services is extending Enrons proven business model to the communications industry. In 2001, Enron expects to further develop the Enron Intelligent Net w ork, a global broadband net w ork with broad connectivity potential to both buyers and sellers of band width through Enrons pooling points. In addition, Enron expects to further deploy its proprietary Broadband O perating System across the Enron Intelligent Net w ork, enabling Enron to manage band width capacity independent of o w ning the underlying ber. Broadband Services expects its intermediation transaction level to increase signicantly in 2001 as more market participants connect to the pooling points and transact with Enron
Interest and Related Charges, Net

Interest and related charges, net o f interest capitalized w hich totaled $38 million, $54 million and $66 million f or 2000, 1999 and 1998, respectively, increased to $838 million in 2000 from $656 million in 1999 and $550 million in 1998. The increase in 2000 as compared to 1999 w as primarily a result o f increased long-term debt levels, increased average short-term borro wings, short-term debt assumed as a result o f the acquisition o f M G plc and higher interest rates in the U.S. The increase w as partially o ffset by the replacement o f debt related to a Brazilian subsidiary with lo w er interest rate debt.
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The increase in 1999 as compared to 1998 w as primarily due to debt issuances and debt related to a Brazilian subsidiary, partially o ffset by a decrease in debt related to EO G f ollo wing the sale and exchange o f Enrons interests in A ugust 1999. See Note 2 to the Consolidated Financial Statements.
Minority Interests
M inority interests include the f ollo wing:
(In millions) Elektro (a) M ajority-o w ned limited liability company and limited partnerships Enron O il & Gas Company O ther Total 2000 $ 33 105 16 $154 1999 $ 39 71 2 23 $135 1998 $ 24 53 $77
The total impact o f Enrons adoption o f SFAS No. 133 on earnings and on O ther Comprehensive Income is dependent upon certain pending interpretations, w hich are currently under consideration, including those related to normal purchases and normal sales and in ation escalators included in certain contract payment provisions. The interpretations o f these issues, and others, are currently under consideration by the FASB. W hile the ultimate conclusions reached on interpretations being considered by the FASB could impact the e ff ects o f Enrons adoption o f SFAS No. 133, Enron does not believe that such conclusions w ould have a material e ff ect on its current estimate o f the impact o f adoption.
FINANCIAL C ONDITION Cash Flows

(In millions) Cash provided by (used in): O perating activities Investing activities Financing activities 2000 $ 4,779 (4,264) 571 1999 $ 1,228 (3,507) 2,456 1998 $ 1,640 (3,965) 2,266
(a) Relates to the respective parents of Elektro, which had minority shareholders in 2000 and 1999. See Note 8 to the Consolidated Financial Statements.
Minority interests include Elektro beginning January 1, 1999, a majority-o w ned limited liability company and majority-o w ned limited partnerships since their formation during 1998 through 2000 and EO G until the exchange and sale of Enrons interests in A ugust 1999 (see Note 2 to the Consolidated Financial Statements).
Income Tax Expense

Income tax expense increased in 2000 as compared to 1999 primarily as a result o f increased earnings, decreased equity earnings and decreased tax bene ts related to the f oreign tax rate diff erential, partially o ffset by an increase in the diff erences bet w een the book and tax basis o f certain assets and stock sales. Income tax expense decreased in 1999 compared to 1998 primarily as a result o f increased equity earnings, tax bene ts related to the f oreign tax rate diff erential and the audit settlement related to M onthly Income Pre f erred Shares, partially o ffset by increased earnings.
Cumulative Effect of Accounting Changes

In 1999, Enron recorded an a f ter-tax charge o f $131 million to re ect the initial adoption (as o f January 1, 1999) o f t w o ne w accounting pronouncements, the AICPA Statement o f Position 98-5 (SOP 98-5), Reporting on the Costs o f Start-Up Activities, and the Emerging Issues Task Force Issue No. 98-10, Accounting f or Contracts Involved in Energy Trading and Risk M anagement Activities. The 1999 charge w as primarily related to the adoption o f SOP 98-5.
NEW A C C OUNTING PRONOUNCEMENTS

In 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Acco u n tin g f or D eriva tive Instru m e n ts a n d H e d gin g Activities, w hich w as subsequently amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 must be applied to all derivative instruments and certain derivative instruments embedded in hybrid instruments and requires that such instruments be recorded in the balance sheet either as an asset or liability measured at its fair value through earnings, with special accounting allo w ed for certain qualifying hedges. Enron will adopt SFAS No. 133 as of January 1, 2001. Due to the adoption of SFAS No. 133, Enron will recognize an after-tax non-cash loss of approximately $5 million in earnings and an after-tax non-cash gain in O ther Comprehensive Income, a component of shareholders equity, of approximately $22 million from the cumulative effect of a change in accounting principle. Enron will also reclassify $532 million from Long-Term Debt to O ther Liabilities due to the adoption.
N e t cash provid e d by o p era tin g activities incre ase d $3,551 millio n in 2000, prim arily re ectin g d ecre ases in w orkin g ca pit al, p ositive o p era tin g results a n d a receip t o f cash associa t e d w it h t h e assu m p tio n o f a co n tract u al o blig a tio n. N e t cash provid e d by o p era tin g activities d ecre ase d $412 millio n in 1999, prim arily re ectin g incre ases in w orkin g ca pit al a n d n e t asse ts fro m price risk m a n a g e m e n t activities, p artially o ffse t by incre ase d e arnin gs a n d hig h er proce e ds fro m sales o f m erch a n t asse ts a n d invest m e n ts. Th e 1998 a m o u n t re ects p ositive o p era tin g cash o w fro m Enro ns m ajor b usin ess se g m e n ts, proce e ds fro m sales o f in t erests in e n ergy-rela t e d m erch a n t asse ts a n d cash fro m timin g a n d o t h er ch a n g es rela t e d t o Enro ns co m m o dity p ort f olio, p artially o ffse t by n e w invest m e n ts in m erch a n t asse ts a n d invest m e n ts. Net cash used in investing activities primarily re ects capital expenditures and equity investments, w hich total $3,314 million in 2000, $3,085 million in 1999 and $3,564 million in 1998, and cash used for business acquisitions. See Capital Expenditures and Equity Investments belo w and see Note 2 to the Consolidated Financial Statements for cash used for business acquisitions. Partially offsetting these uses of cash w ere proceeds from sales of non-merchant assets, including certain equity instruments by Energy Services and an international po w er project, w hich totaled $494 million in 2000. Proceeds from non-merchant asset sales w ere $294 million in 1999 and $239 million in 1998. Cash provided by nancing activities in 2000 included proceeds from the issuance o f subsidiary equity and the issuance o f common stock related to employee bene t plans, partially o ffset by payments o f dividends. Cash provided by nancing activities in 1999 included proceeds from the net issuance o f short- and long-term debt, the issuance o f common stock and the issuance o f subsidiary equity, partially o ffset by payments o f dividends. Cash provided by nancing activities in 1998 included proceeds from the net issuance o f short- and long-term debt, the issuance o f common stock and the sale o f a minority interest in a subsidiary, partially o ffset by payments o f dividends.
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Capital Expenditures and Equity Investments

Capital expenditures by operating segment are as f ollo ws:
2001 (In millions) Estimate 2000 Transportation and Distribution $ 140 $ 270 W holesale Services 570 1,280 Retail Energy Services 50 70 Broadband Services 700 436 Exploration and Production Corporate and O ther 40 325 Total $1,500 $2,381
C APITALIZATION
To t al ca pit aliz a tio n a t D ece m b er 31, 2000 w as $25.0 billio n. D e b t as a p erce n t a g e o f t o t al ca pit aliz a tio n incre ase d t o 40.9 p erce n t a t D ece m b er 31, 2000 as co m p are d t o 38.5 p erce n t a t D ece m b er 31, 1999. Th e incre ase in t h e ra tio prim arily re ects incre ase d d e b t levels a n d t h e im p act o n t o t al e q uity o f t h e d eclin e in t h e valu e o f t h e British p o u n d st erlin g. This w as p artially o ffse t by t h e issu a nces, in 2000, o f Enro n co m m o n st ock a n d t h e co n trib u tio n o f co m m o n sh ares (se e N o t e 16 t o t h e Co nsolid a t e d Fin a ncial St a t e m e n ts). Th e issu a nces o f Enro n co mm o n st ock prim arily rela t e d t o t h e acq uisitio n o f a min ority sh are h old ers in t erest in Enro n En ergy Services, LLC a n d t h e exercise o f e m ploye e st ock o p tio ns. Enron is a party to certain nancial contracts w hich contain provisions f or early settlement in the event o f a signi cant market price decline in w hich Enrons common stock f alls belo w certain levels (prices ranging from $28.20 to $55.00 per share) or if the credit ratings f or Enrons unsecured, senior long-term debt obligations f all belo w investment grade. The impact o f this early settlement could include the issuance o f additional shares o f Enron common stock. Enrons senior unsecured long-term debt is currently rated BBB+ by Standard & Poors Corporation and Fitch IBCA and Baa1 by M oodys Investor Service. Enrons continued investment grade status is critical to the success o f its w holesale businesses as w ell as its ability to maintain adequate liquidity. Enrons management believes it will be able to maintain its credit rating.
1999 $ 316 1,216 64 226 541 $2,363
1998 $ 310 706 75 690 124 $1,905
Capital expenditures increased $18 million in 2000 and $458 million in 1999 as compared to the previous year. Capital expenditures in 2000 primarily relate to construction o f po w er plants to extend W holesale Services net w ork and ber optic net w ork in frastructure f or Broadband Services. During 1999, W holesale Services expenditures increased due primarily to construction o f domestic and international po w er plants. The 1999 increase in Corporate and O ther re ects the purchase o f certain previously leased MTBE-related assets. Cash used f or investments in equity a f liates by the operating segments is as f ollo ws:
(In millions) Transportation and Distribution W holesale Services Corporate and O ther Total 2000 $ 1 911 21 $933 1999 $ 712 10 $722 1998 27 703 929 $1,659
Equity investments in 2000 relate primarily to capital invested for the ongoing construction, by a joint venture, of a po w er plant in India as w ell as other international investments. Equity investments in 1999 relate primarily to an investment in a joint venture that holds gas distribution and related businesses in South Korea and the po w er plant project in India. The level o f spending f or capital expenditures and equity investments will vary depending upon conditions in the energy and broadband markets, related economic conditions and identifie d o p p ort u nities. M a n a g e m e n t exp ects t h a t t h e ca pit al spending program will be f unded by a combination o f internally generated f unds, proceeds from dispositions o f selected assets and short- and long-term borro wings.
Financial Risk Management

W holesale Services o ff ers price risk management services primarily related to commodities associated with the energy sector (natural gas, electricity, crude oil and natural gas liquids). Energy Services and Broadband Services also o ff er price risk management services to their customers. These services are provided through a variety o f nancial instruments including f orw ard contracts, w hich may involve physical delivery, sw ap agreements, w hich may require payments to (or receipt o f payments from) counterparties based on the diff erential bet w een a xed and variable price f or the commodity, options and other contractual arrangements. Interest rate risks and f oreign currency risks associated with the f air value o f W holesale Services commodities port f olio are managed using a variety o f nancial instruments, including nancial f utures, sw aps and options. O n a much more limited basis, Enrons other businesses also enter into nancial instruments such as f orw ards, sw aps and other contracts primarily f or the purpose o f hedging the impact o f market uctuations on assets, liabilities, production or other contractual commitments. Changes in the market value o f these hedge transactions are de f erred until the gain or loss is recognized on the hedged item. Enro n m a n a g es m ark e t risk o n a p ort f olio b asis, su bject t o p ara m e t ers est a blish e d by its Bo ard o f Direct ors. M ark e t risks are m o nit ore d by a n in d e p e n d e n t risk co n trol gro u p o p era tin g se p ara t ely fro m t h e u nits t h a t cre a t e or actively m a n a g e t h ese risk exp osures t o e nsure co m plia nce w it h Enro ns st a t e d risk m a n a g e m e n t p olicies.
Working Capital
A t December 31, 2000, Enron had w orking capital o f $2.0 billion. If a w orking capital de cit should occur, Enron has credit f acilities in place t o f u n d w orkin g ca pit al re q uire m e n ts. A t December 31, 2000, those credit lines provided f or up to $4.2 billion o f committed and uncommitted credit, o f w hich $290 million w as outstanding. Certain o f the credit agreements contain pre f unding covenants. Ho w ever, such covenants are not expected to restrict Enrons access to f unds under these agreements. In addition, Enron sells commercial paper and has agreements to sell trade accounts receivable, thus providing nancing to meet seasonal w orking capital needs. M anagement believes that the sources o f f unding described above are su f cient to meet short- and long-term liquidity needs not met by cash o ws from operations.
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Market Risk
The use of nancial instruments by Enrons businesses may expose Enron to market and credit risks resulting from adverse changes in commodity and equity prices, interest rates and foreign exchange rates. For Enrons businesses, the major market risks are discussed belo w: Commodity Price Risk. Commodity price risk is a consequence of providing price risk management services to customers. As discussed above, Enron actively manages this risk on a portfolio basis to ensure compliance with Enrons stated risk management policies. Interest Rate Risk. Interest rate risk is also a consequence of providing price risk management services to customers and having variable rate debt obligations, as changing interest rates impact the discounted value of future cash o ws. Enron utilizes forw ards, futures, sw aps and options to manage its interest rate risk. Foreign Currency Exchange Rate Risk. Foreign currency exchange rate risk is the result of Enrons international operations and price risk management services provided to its w orld wide customer base. The primary purpose of Enrons foreign currency hedging activities is to protect against the volatility associated with foreign currency purchase and sale transactions. Enron primarily utilizes forw ard exchange contracts, futures and purchased options to manage Enrons risk pro le. Equity Risk. Equity risk arises from Enrons participation in investments. Enron generally manages this risk by hedging speci c investments using f utures, f orw ards, sw aps and options. Enro n evalu a t es, m e asures a n d m a n a g es t h e m ark e t risk in its invest m e n ts o n a d aily b asis u tilizin g valu e a t risk a n d o t h er m e t h o d olo gies. Th e q u a n ti ca tio n o f m ark e t risk usin g valu e a t risk provid es a co nsist e n t m e asure o f risk across diverse m ark e ts a n d pro d ucts. Th e use o f t h ese m e t h o d olo gies re q uires a n u mb er o f k ey assu m p tio ns inclu din g t h e selectio n o f a co n d e nce level f or exp ect e d losses, t h e h oldin g p erio d f or liq uid a tio n a n d t h e tre a t m e n t o f risks o u tsid e t h e valu e a t risk m e t h o d olo gies, inclu din g liq uidity risk a n d eve n t risk. Valu e a t risk re prese n ts a n estim a t e o f re aso n a bly p ossible n e t losses in e arnin gs t h a t w o uld b e reco g niz e d o n its invest m e n ts assu min g hyp o t h e tical m ove m e n ts in f u t ure m ark e t ra t es a n d n o ch a n g e in p ositio ns. Valu e a t risk is n o t n ecessarily in dica tive o f act u al results w hich m ay occur.
Enron perf orms regular stress and scenario analyses to estimate the economic impact o f sudden market moves on the value o f its port f olios. The results o f the stress testing, along with the prof essional judgment o f experienced business and risk managers, are used to supplement the value at risk methodology and capture additional market-related risks, including volatility, liquidity and event, concentration and correlation risks. Th e f ollo w in g t a ble illustra t es t h e valu e a t risk f or e ach co m p o n e n t o f m ark e t risk:
December 31, (In millions) 2000 1999 Year ended December 31, 2000 High Lo w Average (a) Valuation (a) Valuation (a)
Trading M arket Risk: Commodity price (b) Interest rate Foreign currency exchange rate Equity (c)
$66 59
$21 26
$50 45
$81 59
$23 36
Non-Trading M arket Risk (d): Commodity price Interest rate Foreign currency exchange rate Equity
2 8 7
1 2 4 3
2 1 8 6
5 2 10 7
2 4 5
(a) The average value presents a twelve month average of the month-end values. The high and low valuations for each market risk component represent the highest and lowest month-end value during 2000. (b) In 2000, increased natural gas prices combined with increased price volatility in power and gas markets caused Enrons value at risk to increase signicantly. (c) Enrons equity trading market risk primarily relates to merchant investments (see Note 4 to the Consolidated Financial Statements). In 2000, the value at risk model utilized for equity trading market risk was rened to more closely correlate with the valuation methodologies used for merchant activities. (d) Includes only the risk related to the nancial instruments that serve as hedges and does not include the related underlying hedged item.
Accounting Policies
Accounting policies for price risk management and hedging activities are described in Note 1 to the Consolidated Financial Statements.
Value at Risk
Enron has perf ormed an entity-wide value at risk analysis o f virtually all o f Enrons nancial instruments, including price risk management activities and merchant investments. Value at risk incorporates numerous variables that could impact the f air value o f Enrons investments, including commodity prices, interest ra t es, f oreig n exch a n g e ra t es, e q uity prices a n d associa t e d vola tilities, as w ell as correla tio n w it hin a n d across t h ese variables. Enron estimates value at risk f or commodity, interest rate and f oreign exchange exposures using a model based on M onte Carlo simulation o f delta/gamma positions w hich captures a signi cant portion o f the exposure related to option positions. The value at risk f or equity exposure discussed above is based on J.P. M organs Risk M etrics approach. Both value at risk methods utilize a one-day holding period and a 95 % con dence level. Cross-commodity correlations are used as appropriate. The use o f value at risk models allo ws management to aggregate risks across the company, compare risk on a consistent basis and identify the drivers o f risk. Because o f the inherent limitations to value at risk, including the use o f delta/gamma approximations to value options, subjectivity in the choice o f liquidation period and reliance on historical data to calibrate the models, Enron relies on value at risk as only one component in its risk control process. In addition to using value at risk measures,
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Information Regarding Forward-Looking Statements

This Report includes f orw ard-looking statements within the meaning o f Section 27A o f the Securities Act o f 1933 and Section 21E o f the Securities Exchange Act o f 1934. A ll statements other than statements o f historical f acts contained in this document are f orw ard-looking statements. Forw ard-looking statements include, but are not limited to, statements relating to expansion o p p ort u nities f or t h e Tra nsp ort a tio n Services, ext e nsio n o f Enrons business model to ne w markets and industries, demand in the market f or broadband services and high band width applications, transaction volumes in the U.S. po w er market, commencement o f commercial operations o f ne w po w er plants and pipeline projects, completion o f the sale o f certain assets and gro w th in the demand f or retail energy outsourcing solutions. W hen used in this document, the w ords anticipate, believe, estim a t e, exp ects, in t e n d, m ay, project, pla n, should and similar expressions are intended to be among the statements that identify f orw ard-looking statements. A lthough Enron believes that its expectations re ected in these f orw ardlooking statements are based on reasonable assumptions, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these f orw ardlooking statements. Important f actors that could cause actual results to diff er materially from those in the f orw ard-looking statements herein include success in marketing natural gas and po w er to w holesale customers; the ability o f Enron to penetrate ne w retail natural gas and electricity markets (including energy outsourcing markets) in the United States and f oreign jurisdictions; development o f Enrons broadband net w ork and customer demand f or intermediation and content services; the timing, extent and market e ff ects o f deregulation o f energy markets in the United States, including the current energy market conditions in Calif ornia, and in f oreign jurisdictions; other regulatory developments in the United States and in f oreign countries, including tax legislation and regulations; political developments in f oreign countries; the extent o f e ff orts by governments to privatize natural gas and electric utilities and other industries; the timing and extent o f changes in commodity prices f or crude oil, natural gas, electricity, f oreign currency and interest rates; the extent o f success in acquiring oil and gas properties and in discovering, developing, producing and marketing reserves; the timing and success o f Enrons e ff orts to develop international po w er, pipeline and other in frastructure projects; the e ff ectiveness o f Enrons risk management activities; the ability o f counterparties to nancial risk management instruments and other contracts with Enron to meet their nancial commitments to Enron; and Enrons ability to access the capital markets and equity markets during the periods covered by the f orw ard-looking statements, w hich will depend on general market conditions and Enrons ability to maintain the credit ratings f or its unsecured senior long-term debt obligations.
Managements Responsibility for Financial Reporting

The follo wing nancial statements of Enron Corp. and subsidiaries (collectively, Enron) w ere prepared by management, w hich is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and necessarily include some amounts that are based on the best estimates and judgments of management. The system o f internal controls o f Enron is designed to provide reasonable assurance as to the reliability o f nancial statements and the protection o f assets from unauthorized acquisition, use or disposition. This system is augmented by written policies and guidelines and the care f ul selection and training of quali ed personnel. It should be recognized, ho w ever, that there are inherent limitations in the e ff ectiveness o f any system o f internal control. Accordingly, even an e ff ective internal control system can provide only reasonable assurance with respect to the preparation o f reliable nancial statements and sa f eguarding o f assets. Further, because o f changes in conditions, internal control system e ff ectiveness may vary over time. Enron assessed its internal control system as of December 31, 2000, 1999 and 1998, relative to current standards of control criteria. Based upon this assessment, management believes that its system of internal controls w as adequate during the periods to provide reasonable assurance as to the reliability of nancial statements and the protection of assets against unauthorized acquisition, use or disposition. Arthur A ndersen LLP w as engaged to audit the nancial statements o f Enron and issue reports thereon. Their audits inclu d e d d evelo pin g a n overall u n d erst a n din g o f Enro ns accounting systems, procedures and internal controls and conducting tests and other auditing procedures su f cient to support their opinion on the nancial statements. Arthur A ndersen LLP w as also engaged to examine and report on managements assertion about the e ff ectiveness o f Enrons system o f internal controls. The Reports o f Independent Public Accountants appear in this A nnual Report. The adequacy o f Enrons nancial controls and the accounting principles employed in nancial reporting are under the general oversight o f the A udit Committee o f Enron Corp.s Board o f Directors. No member o f this committee is an o f cer or employee o f Enron. The independent public accountants have direct access to the A udit Committee, and they meet with the committee from time to time, with and without nancial management present, to discuss accounting, auditing and nancial reporting matters.
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Reports Of Independent Public Accountants

To the Shareholders and Board o f Directors o f Enron Corp.: We have examined managemen ts assertion that the system o f internal control o f Enron Corp. (an O regon corporation) and su bsidiaries as o f December 31, 2000, 1999 an d 1998 w as adequate to provide reasonable assurance as to the reliability o f nancial statements and the protection o f assets from unauthorized acquisition, use or disposition, included in the accompanyin g re p ort o n M a n a g e m e n ts Resp o nsibility f or Fin a ncial Reporting. M anagement is responsible f or maintaining e ff ective internal control over the reliability o f nancial statements and the protection o f assets against unauthorized acquisition, use or disp ositio n. O ur resp o nsibility is t o express a n o pinio n o n managements assertion based on our examination. O ur examinations w ere made in accordance with attestation standards established by the A merican Institute o f Certi ed Pu blic Acco u n t a n ts a n d, accordin gly, inclu d e d o b t ainin g a n understanding o f the system o f internal control, testing and evaluating the design and operating e ff ectiveness o f the system o f internal control and such other procedures as w e considered necessary in the circumstances. We believe that our examinations provide a reasonable basis f or our opinion. Because o f inherent limitations in any system o f internal control, errors or irregularities may occur and not be detected. A lso, projections o f any evaluation o f the system o f internal control to f uture periods are subject to the risk that the system o f internal control may become inadequate because o f changes in conditions, or that the degree o f compliance with the policies or procedures may deteriorate. In our opinion, managements assertion that the system o f in t ern al co n trol o f Enro n Corp. a n d its su bsidiaries as o f December 31, 2000, 1999 and 1998 w as adequate to provide reasonable assurance as to the reliability o f nancial statements and the protection o f assets from unauthorized acquisition, use or disposition is f airly stated, in all material respects, based upon current standards o f control criteria. To the Shareholders and Board o f Directors o f Enron Corp.: We have audited the accompanying consolidated balance sheet o f Enron Corp. (an O regon corporation) and subsidiaries as o f December 31, 2000 and 1999, and the related consolidated statements o f income, comprehensive income, cash o ws and changes in shareholders equity f or each o f the three years in the period ended December 31, 2000. These nancial statements are the responsibility o f Enron Corp.s management. O ur responsibility is to express an opinion on these nancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that w e plan and perf orm the audit to obtain reasonable assurance about w hether the nancial statements are free o f material misstatement. A n audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fin a ncial st a t e m e n ts. A n a u dit also inclu d es assessin g t h e acco u n tin g principles use d a n d sig nifica n t estim a t es m a d e by management, as w ell as evaluating the overall nancial statement presentation. We believe that our audits provide a reasonable basis f or our opinion. In our opinion, the nancial statements re f erred to above present f airly, in all material respects, the nancial position o f Enron Corp. and subsidiaries as o f December 31, 2000 and 1999, and the results o f their operations, cash o ws and changes in shareholders equity f or each o f the three years in the period ended December 31, 2000, in con f ormity with accounting principles generally accepted in the United States. As discussed in Note 18 to the consolidated nancial statements, Enron Corp. and subsidiaries changed its method o f accounting f or costs o f start-up activities and its method o f accounting f or certain contracts involved in energy trading and risk management activities in the rst quarter o f 1999.
Arthur A ndersen LLP Arthur A ndersen LLP Houston, Texas February 23, 2001 Houston, Texas February 23, 2001
30
Enron Corp. and Subsidiaries Consolidated Income Statement

(In millions, except per share amounts) Revenues Natural gas and other products Electricity M etals O ther Total revenues Costs and Expenses Cost o f gas, electricity, metals and other products O perating expenses Depreciation, depletion and amortization Taxes, other than income taxes Impairment o f long-lived assets Total costs and expenses Operating Income Other Income and Deductions Equity in earnings o f unconsolidated equity a f liates Gains on sales o f non-merchant assets Gains on the issuance o f stock by TNPC, Inc. Interest income O ther income, net Income Before Interest, Minority Interests and Income Taxes Interest and related charges, net Dividends on company-obligated pre f erred securities o f subsidiaries M inority interests Income tax expense Net income be f ore cumulative e ff ect o f accounting changes Cumulative e ff ect o f accounting changes, net o f tax Net Income Pre f erred stock dividends Earnings on Common Stock Earnings Per Share of Common Stock Basic Be f ore cumulative e ff ect o f accounting changes Cumulative e ff ect o f accounting changes Basic earnings per share Diluted Be f ore cumulative e ff ect o f accounting changes Cumulative e ff ect o f accounting changes Diluted earnings per share Average Number of Common Shares Used in Computation Basic Diluted 2000 $ 50,500 33,823 9,234 7,232 100,789 Year ended December 31, 1999 $19,536 15,238 5,338 40,112 1998 $13,276 13,939 4,045 31,260
94,517 3,184 855 280 98,836 1,953
34,761 3,045 870 193 441 39,310 802
26,381 2,473 827 201 29,882 1,378
87 146 121 212 (37) 2,482 838 77 154 434 979 979 83 896
309 541 162 181 1,995 656 76 135 104 1,024 (131) 893 66 827
97 56 88 (37) 1,582 550 77 77 175 703 703 17 686
$ $ $ $
1.22 1.22 1.12 1.12 736 814
1.36 (0.19) $ 1.17 $ 1.27 (0.17) $ 1.10 705 769
$ $ $ $
1.07 1.07 1.01 1.01 642 695
Enron Corp. and Subsidiaries Consolidated Statement of Comprehensive Income

(In millions) Net Income O ther comprehensive income: Foreign currency translation adjustment and other Total Comprehensive Income $ 2000 979 (307) 672 Year ended December 31, 1999 $ 893 (579) $ 314 1998 $ 703 (14) $ 689
The accompanying notes are an integral part of these consolidated nancial statements.
31
Enron Corp. and Subsidiaries Consolidated Balance Sheet

December 31, (In millions, except shares) ASSETS Current Assets Cash and cash equivalents Trade receivables (net o f allo w ance f or doubt f ul accounts o f $133 and $40, respectively) O ther receivables Assets from price risk management activities Inventories Deposits O ther Total current assets Investments and Other Assets Investments in and advances to unconsolidated equity a f liates Assets from price risk management activities Good will O ther Total investments and other assets Property, Plant and Equipment, at cost Natural gas transmission Electric generation and distribution Fiber-optic net w ork and equipment Construction in progress O ther Less accumulated depreciation, depletion and amortization Property, plant and equipment, net Total Assets
2000
1999
$ 1,374 10,396 1,874 12,018 953 2,433 1,333 30,381
288 3,030 518 2,205 598 81 535 7,255
5,294 8,988 3,638 5,459 23,379
5,036 2,929 2,799 4,681 15,445
6,916 4,766 839 682 2,256 15,459 3,716 11,743 $65,503
6,948 3,552 379 1,120 1,913 13,912 3,231 10,681 $33,381
32
December 31, 2000 LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities Accounts payable Liabilities from price risk management activities Short-term debt Customers deposits O ther Total current liabilities Long-Term Debt Deferred Credits and Other Liabilities De f erred income taxes Liabilities from price risk management activities O ther Total de f erred credits and other liabilities Commitments and Contingencies (Notes 13, 14 and 15) Minority Interests Company-Obligated Preferred Securities of Subsidiaries Shareholders Equity Second pre f erred stock, cumulative, no par value, 1,370,000 shares authorized, 1,240,933 shares and 1,296,184 shares issued, respectively M andatorily Convertible Junior Pre f erred Stock, Series B, no par value, 250,000 shares issued Common stock, no par value, 1,200,000,000 shares authorized, 752,205,112 shares and 716,865,081 shares issued, respectively Retained earnings Accumulated other comprehensive income Common stock held in treasury, 577,066 shares and 1,337,714 shares, respectively Restricted stock and other Total shareholders equity Total Liabilities and Shareholders Equity 2,414 904 2,430 1,000 1999
$ 9,777 10,495 1,679 4,277 2,178 28,406 8,550
$ 2,154 1,836 1,001 44 1,724 6,759 7,151
1,644 9,423 2,692 13,759
1,894 2,990 1,587 6,471
124 1,000 8,348 3,226 (1,048) (32) (148) 11,470 $65,503
130 1,000 6,637 2,698 (741) (49) (105) 9,570 $33,381
33
Enron Corp. and Subsidiaries Consolidated Statement of Cash Flows

(In millions) Cash Flows From Operating Activities Reconciliation of net income to net cash provided by operating activities Net income Cumulative e ff ect o f accounting changes Depreciation, depletion and amortization Impairment o f long-lived assets (including equity investments) De f erred income taxes Gains on sales o f non-merchant assets Changes in components o f w orking capital Net assets from price risk management activities M erchant assets and investments: Realized gains on sales Proceeds from sales A dditions and unrealized gains O ther operating activities Net Cash Provided by Operating Activities Cash Flows From Investing Activities Capital expenditures Equity investments Proceeds from sales o f non-merchant assets Acquisition o f subsidiary stock Business acquisitions, net o f cash acquired (see Note 2) O ther investing activities Net Cash Used in Investing Activities Cash Flows From Financing Activities Issuance o f long-term debt Repayment o f long-term debt Net increase (decrease) in short-term borro wings Net issuance (redemption) o f company-obligated pre f erred securities o f subsidiaries Issuance o f common stock Issuance o f subsidiary equity Dividends paid Net disposition o f treasury stock O ther nancing activities Net Cash Provided by Financing Activities Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year Changes in Components of Working Capital Receivables Inventories Payables O ther Total
2000
Year ended December 31, 1999
1998
979 855 326 207 (146) 1,769 (763) (104) 1,838 (1,295) 1,113 4,779
893 131 870 441 21 (541) (1,000) (395) (756) 2,217 (827) 174 1,228
703 827 87 (82) (233) 350 (628) 1,434 (721) (97) 1,640
(2,381) (933) 494 (485) (777) (182) (4,264)
(2,363) (722) 294 (311) (405) (3,507)
(1,905) (1,659) 239 (180) (104) (356) (3,965)
3,994 (2,337) (1,595) (96) 307 500 (523) 327 (6) 571 1,086 288 $ 1,374 $(8,203) 1,336 7,167 1,469 $ 1,769
1,776 (1,837) 1,565 852 568 (467) 139 (140) 2,456 177 111 288
1,903 (870) (158) 8 867 828 (414) 13 89 2,266 (59) 170 111
$ (662) (133) (246) 41 $(1,000)
$(1,055) (372) 433 761 $ (233)
34
Enron Corp. and Subsidiaries Consolidated Statement of Changes in Shareholders Equity

(In millions, except per share amounts; shares in thousands) Cumulative Second Preferred Convertible Stock Balance, beginning o f year Exchange o f convertible pre f erred stock f or common stock Balance, end o f year Mandatorily Convertible Junior Preferred Stock, Series B Balance, beginning o f year Issuances Balance, end o f year Common Stock Balance, beginning o f year Exchange o f convertible pre f erred stock f or common stock Issuances related to bene t and dividend reinvestment plans Sales o f common stock Issuances o f common stock in business acquisitions (see Note 2) O ther Balance, end o f year Retained Earnings Balance, beginning o f year Net income Cash dividends Common stock ($0.5000, $0.5000 and $0.4812 per share in 2000, 1999 and 1998, respectively) Cumulative Second Pre f erred Convertible Stock ($13.652, $13.652 and $13.1402 per share in 2000, 1999 and 1998, respectively) Series A and B Pre f erred Stock Balance, end o f year Accumulated Other Comprehensive Income Balance, beginning o f year Translation adjustments and other Balance, end o f year Treasury Stock Balance, beginning o f year Shares acquired Exchange o f convertible pre f erred stock f or common stock Issuances related to bene t and dividend reinvestment plans Issuances o f treasury stock in business acquisitions Balance, end o f year Restricted Stock and Other Balance, beginning o f year Issuances related to bene t and dividend reinvestment plans Balance, end o f year Total Shareholders Equity 2000 Shares Amount 1,296 (55) 1,241 250 250 716,865 1,509 28,100 5,731 752,205 $ $ 130 (6) 124 1999 Shares A mount 1,320 (24) 1,296 250 250 671,094 465 10,054 27,600 7,652 716,865 $ 132 (2) $ 130 1,000 $1,000 $5,117 (1) 258 839 250 174 $6,637 $2,226 893 $ 1998 Shares A mount 1,338 (18) 1,320 636,594 34,500 671,094 $ 134 (2) $ 132 $ $ -
$ 1,000 $ 1,000 $ 6,637 6 966 409 330 $ 8,348 $ 2,698 979
$4,224 (7) 45 836 19 $5,117 $1,852 703
(368)
(355)
(312)
(17) (66) $ 3,226 (741) (307) $ (1,048) (1,338) (3,114) 3,875 (577) $ (49) (234) 251 (32) (9,334) (1,845) 181 9,660 (1,338) $
(17) (49) $2,698 $ (162) (579) $ (741) $ (195) (71) 4 213 $ (49) (70) (35) $ (105) $9,570 $ (14,102) (2,236) 486 6,426 92 (9,334)
(17) $2,226 $ (148) (14) $ (162) $ (269) (61) 9 124 2 $ (195) $ (175) 105 $ (70) $7,048
$ $
(105) (43) $ (148) $11,470
35
Enron Corp. and Subsidiaries Notes to the Consolidated Financial Statements

1 SUM M ARY OF SIGNIFIC ANT A C C OUNTING POLICIES
Accounting for Price Risk Management

Enron engages in price risk management activities f or both trading and non-trading purposes. Instruments utilized in connection with trading activities are accounted f or using the markt o-m ark e t m e t h o d. U n d er t h e m ark-t o-m ark e t m e t h o d o f accounting, f orw ards, sw aps, options, energy transportation contracts utilized f or trading activities and other instruments with third parties are re ected at f air value and are sho w n as Assets and Liabilities from Price Risk M anagement Activities in the Consolidated Balance Sheet. These activities also include the commodity risk management component embedded in energy outsourcing contracts. Unrealized gains and losses from ne wly originated contracts, contract restructurings and the impact o f price movements are recognized as O ther Revenues. Changes in the assets and liabilities from price risk management activities result primarily from changes in the valuation o f the port f olio o f contracts, ne wly originated transactions and the timing o f settlement relative to the receipt o f cash f or certain contracts. The market prices used to value these transactions re ect managements best estimate considering various f actors including closing exch a n g e a n d over-t h e-co u n t er q u o t a tio ns, tim e valu e a n d volatility f actors underlying the commitments. Fin a ncial instru m e n ts are also u tiliz e d f or n o n-tra din g purposes to hedge the impact o f market uctuations on assets, lia bilities, pro d uctio n a n d o t h er co n tract u al co m mit m e n ts. Hedge accounting is utilized in non-trading activities w hen there is a high degree o f correlation bet w een price movements in the derivative and the item designated as being hedged. In instances w here the anticipated correlation o f price movements does not occur, hedge accounting is terminated and f uture changes in the value o f the nancial instruments are recognized as gains or losses. If the hedged item is sold, the value o f the nancial instrument is recognized in income. Gains and losses on nancial instruments used f or hedging purposes are recognized in the Consolidated Income Statement in the same manner as the hedged item. The cash o w impact o f nancial instruments is re ected as cash flo ws fro m o p era tin g activities in t h e Co nsolid a t e d Statement o f Cash Flo ws. See Note 3 f or f urther discussion o f Enrons price risk management activities.
Consolidation Policy and Use of Estimates

The accounting and nancial reporting policies o f Enron Corp. and its subsidiaries con f orm to generally accepted accounting principles and prevailing industry practices. The consolidated nancial statements include the accounts o f all subsidiaries controlled by Enron Corp. a f ter the elimination o f signicant intercompany accounts and transactions. The preparation of nancial statements in conformity with generally accepted accounting principles requires management to m a k e estim a t es a n d assu m p tio ns t h a t a ff ect t h e re p ort e d amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the nancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Enron is used from time to time herein as a collective re f erence to Enron Corp. and its subsidiaries and a f liates. The businesses o f Enron are conducted by its subsidiaries and a f liates w hose operations are managed by their respective o f cers.
Cash Equivalents
Enron records as cash equivalents all highly liquid short-term investments with original maturities of three months or less.
Inventories
Inventories consist primarily of commodities, priced at market as such inventories are used in trading activities.
Depreciation, Depletion and Amortization

Th e provisio n f or d e precia tio n a n d a m ortiz a tio n w it h respect to operations other than oil and gas producing activities is computed using the straight-line or regulatorily mandated method, based on estimated economic lives. Composite depreciation rates are applied to f unctional groups o f property having similar economic characteristics. The cost o f utility property units retired, other than land, is charged to accumulated depreciation. Provisions f or depreciation, depletion and amortization o f proved oil and gas properties are calculated using the units-o fproduction method.
Accounting for Development Activity

Development costs related to projects, including costs o f f easibility studies, bid preparation, permitting, licensing and contract negotiation, are expensed as incurred until the project is estimated to be probable. A t that time, such costs are capitalized or expensed as incurred, based on the nature o f the costs incurre d. Ca pit aliz e d d evelo p m e n t costs m ay b e recovere d through reimbursements from joint venture partners or other third parties, or classi ed as part o f the investment and recovered through the cash o ws from that project. Accumulated capitalized project development costs are otherwise expensed in the period that management determines it is probable that the costs will not be recovered.
Income Taxes
Enron accounts f or income taxes using an asset and liability approach under w hich de f erred assets and liabilities are recognized based on anticipated f uture tax consequences attributable to diff erences bet w een nancial statement carrying amounts o f assets and liabilities and their respective tax bases (see Note 5).
Earnings Per Share

Basic earnings per share is computed based upon the w eig h t e d-avera g e n u m b er o f co m m o n sh ares o u tst a n din g during the periods. Diluted earnings per share is computed based upon the w eighted-average number o f common shares outstanding plus the assumed issuance o f common shares f or all potentially dilutive securities. A ll share and per share amounts have been adjusted to re ect the A ugust 13, 1999 t w o-f or-one stock split. See Note 11 f or a reconciliation o f the basic and diluted earnings per share computations.
Environmental Expenditures
Expenditures that relate to an existing condition caused by past operations, and do not contribute to current or future revenue generation, are expensed. Environmental expenditures relating to current or future revenues are expensed or capitalized as appropriate based on the nature of the costs incurred. Liabilities are recorded w hen environmental assessments and/or clean-ups are probable and the costs can be reasonably estimated.
36
Computer Software
Direct costs of materials and services consumed in developing or obtaining soft w are, including payroll and payroll-related costs for employees w ho are directly associated with and w ho devote time to the soft w are project are capitalized. Costs may begin to be capitalized once the application development stage has begun. All other costs are expensed as incurred. Enron amortizes the costs on a straig h t-lin e b asis over t h e use f ul lif e o f t h e so f t w are. Impairment is evaluated based on changes in the expected usefulness of the soft w are. A t December 31, 2000 and 1999, Enron has capitalized, net of amortization, $381 million and $240 million, respectively, of soft w are costs covering numerous systems, including trading and settlement, accounting, billing, and upgrades.
Investments in Unconsolidated Afliates

Investments in unconsolidated a f liates are accounted f or by the equity method, except f or certain investments resulting from Enrons merchant investment activities w hich are included at market value in O ther Investments in the Consolidated Balance Sheet. See Notes 4 and 9. W here acquired assets are accounted f or under the equity method based on temporary control, earnings or losses are recognized only f or the portion o f the investment to be retained.
Sale of Subsidiary Stock

Enron accounts f or the issuance o f stock by its subsidiaries in accordance with the Securities and Exchange Commissions Sta ff Accounting Bulletin (SAB) 51. SAB 51 allo ws f or Enron to recognize a gain in the amount that the o ff ering price per share o f a subsidiarys stock exceeds Enrons carrying amount per share.
Foreign Currency Translation

For international subsidiaries, asset and liability accounts are translated at year-end rates o f exchange and revenue and expenses are translated at average exchange rates prevailing during the year. For subsidiaries w hose f unctional currency is deemed to be other than the U.S. dollar, translation adjustments are included as a separate component o f other comprehensive income and shareholders equity. Currency transaction gains and losses are recorded in income. During 1999, the exchange rate f or the Brazilian real to the U.S. dollar declined, resulting in a non-cash f oreign currency translation adjustment reducing the value o f Enrons assets and shareholders equity by approximately $600 million.
O n A ugust 16, 1999, Enron exchanged approximately 62.3 million shares (approximately 75 %) o f the Enron O il & Gas Company (EO G) common stock it held f or all o f the stock o f EO GI-India, Inc., a subsidiary o f EO G. A lso in A ugust 1999, Enron received net proceeds o f approximately $190 million f or the sale o f 8.5 million shares o f EO G common stock in a public o ff ering and issued approximately $255 million o f public debt that is exchangeable in July 2002 into approximately 11.5 million shares o f EO G common stock. As a result o f the share exchange and share sale, Enron recorded a pre-tax gain o f $454 million ($345 million a f ter tax, or $0.45 per diluted share) in 1999. As o f A ugust 16, 1999, EO G is no longer included in Enrons consolidated nancial statements. EO GI-India, Inc. is included in the consolid a t e d fin a ncial st a t e m e n ts w it hin t h e W h olesale Services segment f ollo wing the exchange and sale. Enron accounts f or its oil and gas exploration and production activities under the successf ul e ff orts method o f accounting. In A ugust 1998, Enron, through a w holly-o w ned subsidiary, completed the acquisition o f a controlling interest in Elektro Eletricidade e Servios S.A. (Elektro) f or approximately $1.3 billion. Elektro w as initially accounted f or using the equity method based on temporary control. In 1999, a f ter the acquisition o f additional interests, Elektro w as consolidated by Enron. A dditionally, during 1999 and 1998, Enron acquired generation, natural gas distribution, rene w able energy, telecommunications and energy management businesses f or cash, Enron and subsidiary stock and notes. Enron has accounted f or these acquisitions using the purchase method o f accounting as o f the e ff ective date o f each transaction. Accordingly, the purchase price o f each transaction has been allocated based upon the estimated f air value o f the assets and liabilities acquired as o f the acquisition date, with the excess re ected as good will in the Consolidated Balance Sheet. This and all other good will is being amortized on a straight-line basis over 5 to 40 years. Assets acquired, liabilities assumed and consideration paid as a result o f businesses acquired w ere as f ollo ws:
Reclassications
Certain reclassications have been made to the consolidated nancial statements for prior years to conform with the current presentation.
(In millions) Fair value o f assets acquired, other than cash Good will Fair value o f liabilities assumed Common stock o f Enron issued and equity o f an unconsolidated equity a f liate contributed Net cash paid
2000 $ 2,641 963 (2,418)
1999 $ 376 (71) 6
1998(a) $ 269 94 (259)
(409) 777
$ 311
$ 104
(a) Excludes amounts related to the 1998 acquisition of Elektro.
BUSINESS A C QUISITIONS AND DISPOSITIONS
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In 2000, En r o n , t h r o u g h a w h o lly-o w n e d su bsi d ia ry, acq uire d all o f t h e o u tst a n din g co m m o n sh ares o f M G plc, a le a d i n g i n d e p e n d e n t i n t e r n a t i o n a l m e t a ls m a r k e t-m a k i n g b usin ess t h a t provid es n a ncial a n d m ark e tin g services t o t h e glo b al m e t als in d ustry, f or $413 millio n in cash a n d assu m e d d e b t o f a p proxim a t ely $1.6 billio n. In a d ditio n, Enro n m a d e o t h er acq uisitio ns inclu din g a t ech n olo gy-rela t e d co m p a ny, a f acility m ain t e n a nce co m p a ny a n d all min ority sh are h old ers in t erests in Enro n En ergy Services, LLC a n d Enro n Re n e w a ble En ergy Corp. Enro n issu e d 5.7 millio n sh ares o f Enro n co m m o n st ock, co n trib u t e d co m m o n st ock a n d w arra n ts o f a n u nco nsolid a t e d e q uity a f lia t e a n d p aid cash in t h ese tra nsactio ns.
O n November 8, 1999, Enron announced that it had entered into an agreement to sell Enrons w holly-o w ned electric utility subsidiary, Portland General Electric Company (PGE), to Sierra Paci c Resources f or $2.1 billion. Sierra Paci c Resources will also assume approximately $1 billion in PGE debt and pre f erred stock. The transaction has been delayed by the e ff ect o f recent events in Calif ornia and Nevada on the buyer. Enrons carrying amount o f PGE as o f December 31, 2000 w as approximately $1.6 billion. Income be f ore interest, minority interest and income taxes f or PGE w as $338 million, $298 million and $284 million f or 2000, 1999 and 1998, respectively.
PRICE RISK M ANA GEMENT A CTIVITIES AND FINANCIAL INSTRUMENTS
Fair Value. The f air value as o f December 31, 2000 and the average f air value o f instruments related to price risk management activities held during the year are set f orth belo w:
Average Fair Value for the Year Ended 12/31/00 (a) Assets Liabilities $ 5,525 $ 5,114 1,402 2,745 3,453 1,613 988 757 492 280 $11,860 $10,509
Trading Activities
Enron o ff ers price risk management services to w holesale, commercial and industrial customers through a variety o f nancial and other instruments including f orw ard contracts involving physical delivery, sw ap agreements, w hich require payments to (or receipt o f payments from) counterparties based on the diff erential bet w een a xed and variable price f or the commodity, options and other contractual arrangements. Interest rate risks and f oreign currency risks associated with the f air value o f the commodity port f olio are managed using a variety o f nancial instruments, including nancial f utures.
Fair Value as of 12/31/00 Assets Liabilities $10,270 $ 9,342 1,549 3,574 7,335 5,396 1,509 1,311 795 295 $21,458 $19,918
(In millions) Natural gas Crude oil and liquids Electricity O ther commodities Equity investments Total
(a) Computed using the ending balance at each month-end.
Notional A mounts and Terms. The notional amounts and terms o f these instruments at December 31, 2000 are sho w n belo w (dollars in millions):
Fixed Price Payor 7,331 3,513 2,424 368 167 $4,732 $ 79 $2,998 Fixed Price Maximum Receiver Terms in Years 6,910 1,990 2,388 413 325 $3,977 $ 465 $3,768 23 6 24 9 11 29 22 13
The income be f ore interest, taxes and certain unallocated expenses arising from price risk management activities f or 2000 w as $1,899 million.
Commodities (a) Natural gas Crude oil and liquids Electricity M etals, coal and pulp and paper Band width Financial products Interest rate (b) Foreign currency Equity investments (c)
(a) Natural gas, crude oil and liquids and electricity volumes are in TBtue; metals, coal and pulp and paper volumes are in millions of metric tonnes; and bandwidth volumes are in thousands of terabytes. (b) The interest rate xed price receiver includes the net notional dollar value of the interest rate sensitive component of the combined commodity portfolio. The remaining interest rate xed price receiver and the entire interest rate xed price payor represent the notional contract amount of a portfolio of various nancial instruments used to hedge the net present value of the commodity portfolio. For a given unit of price protection, different nancial instruments require different notional amounts. (c) Excludes derivatives on Enron common stock. See Notes 10 and 11.
Securitizations. From time to time, Enron sells interests in certain o f its nancial assets. Some o f these sales are completed in securitizations, in w hich Enron concurrently enters into sw aps associated with the underlying assets w hich limits the risks assumed by the purchaser. Such sw aps are adjusted to f air value using quoted market prices, if available, or estimated f air value based on managements best estimate o f the present value o f f u t ure cash flo w. Th ese sw a ps are inclu d e d in Price Risk M anagement activities above as equity investments. During 2000, gains from sales representing securitizations w ere $381 million and proceeds w ere $2,379 million ($545 million o f the proce e ds rela t e d t o sales t o W hit e w in g Associa t es, L.P. (W hite wing)). See Notes 4 and 9. Purchases o f securitized merch a n t fin a ncial asse ts t o t ale d $1,184 millio n d urin g 2000. A mounts primarily related to equity interests. Credit Risk. In conjunction with the valuation o f its nancial instruments, Enron provides reserves f or credit risks associated with such activity. Credit risk relates to the risk o f loss that Enron w ould incur as a result o f nonperf ormance by counterparties pursuant to the terms o f their contractual obligations. Enron maintains credit policies with regard to its counterparties that management believes signi cantly minimize overall credit risk. These policies include an evaluation o f potential counterparties nancial condition (including credit rating), collateral requirements under certain circumstances and the use o f standardized agreements w hich allo w f or the netting o f positive and negative exposures associated with a single counterparty. Enron also minimizes this credit exposure using monetization o f its contract port f olio or third-party insurance contracts.
Enron also has sales and purchase commitments associated with commodity contracts based on market prices totaling 8,169 TBtue, with terms extending up to 16 years, and 7.2 million metric tonnes, with terms extending up to 5 years. Notional amounts re ect the volume o f transactions but do not represent the amounts exchanged by the parties to the nancial instruments. Accordingly, notional amounts do not accurately measure Enrons exposure to market or credit risks. The maximum terms in years detailed above are not indicative o f likely f uture cash o ws as these positions may be o ffset in the markets at any time in response to the companys price risk management needs to the extent available in the market. The volumetric w eighted average maturity of Enrons xed price portfolio as of December 31, 2000 w as approximately 1.5 years.
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The counterparties associated with assets from price risk management activities as o f December 31, 2000 and 1999 are summarized as f ollo ws:
2000 Investment Grade (a) Total $ 5,050 $ 5,327 4,677 6,124 4,145 4,917 1999 Investment Grade (a) Total $1,461 $1,510 544 768 1,016 1,273 471 379 336 59 $4,266 641 688 524 67 5,471 (337) $5,134
n a t e $0.4 billio n in 2001 a n d $0.6 billio n in t h e p erio d 2002 t hro u g h 2010.
(In millions) Gas and electric utilities Energy marketers Financial institutions Independent po w er producers 672 791 O il and gas producers 1,308 2,804 Industrials 607 1,138 O ther 256 357 Total $16,715 21,458 Credit and other reserves (452) Assets from price risk management activities (b) $21,006 (c)
Foreign Currency Contracts. A t December 31, 2000, f oreign currency contracts with a notional principal amount o f $1.4 billion w ere outstanding. These contracts will expire $1.0 billion in 2001 and $0.4 billion in the period 2002 through 2006. Equity Contracts. A t December 31, 2000, Enron had entered into Enron common stock sw aps, with an aggregate notional a m o u n t o f $121 millio n, t o h e d g e cert ain ince n tive-b ase d compensation plans. Such contracts will expire in 2001. Credit Risk. W hile notional amounts are used to express the volume o f various nancial instruments, the amounts potentially subject to credit risk, in the event o f nonperf ormance by the third parties, are substantially smaller. Forw ards, f utures and other contracts are entered into with counterparties w ho are equivalent to investment grade. Accordingly, Enron does not anticipate any material impact to its nancial position or results o f operations as a result o f nonperf ormance by the third parties on nancial instruments related to non-trading activities.
(a) Investment Grade is primarily determined using publicly available credit ratings along with consideration of cash, standby letters of credit, parent company guarantees and property interests, including oil and gas reserves. Included in Investment Grade are counterparties with a minimum Standard & Poors or Moodys rating of BBB- or Baa3, respectively. (b) One and two customers exposures, respectively, at December 31, 2000 and 1999 comprise greater than 5% of Assets From Price Risk Management Activities and are included above as Investment Grade. (c) At December 31, 2000, Enron held collateral of approximately $5.5 billion, which consists substantially of cash deposits shown as Customers Deposits on the balance sheet.
Financial Instruments
The carrying amounts and estimated fair values of Enrons nancial instruments, excluding trading activities, at December 31, 2000 and 1999 w ere as follo ws:
2000 1999 Carrying Estimated Carrying Estimated Amount Fair Value A mount Fair Value $10,217 $8,152 $8,108
This concentration o f counterparties may impact Enrons overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly a ff ected by changes in economic, regulatory or other conditions. Based on Enrons policies, its exposures and its credit reserves, Enron does not anticipate a materially adverse e ff ect on nancial position or results o f operations as a result o f counterparty nonperf ormance. During 2000, the Calif ornia po w er market w as signi cantly impacted by the increase in w holesale po w er prices. Calif ornia customer rates are currently frozen, requiring the utilities to nance the majority o f their po w er purchases. If w holesale prices remain at the current levels and no regulatory relie f or legislative assistance is obtained, certain Calif ornia utilities may need to seek bankruptcy protection. During 2000, Enron entered into w holesale po w er transactions with Calif ornia utilities, including their nonregulated po w er marketing a f liates. Enron has provided credit reserves related to such activities based on Enrons net position with each Calif ornia utility. Due to the uncertainties surrounding the Calif ornia po w er situation, management cannot predict the ultimate outcome but believes these matters will not have a material adverse impact on Enrons nancial condition.
(In millions) Short- and long-term debt (Note 7) $10,229 Company-obligated pre f erred securities o f subsidiaries (Note 10) 904 Energy commodity price sw aps Interest rate sw aps Foreign currency contracts Equity contracts 15
920 68 1 94 15
1,000 4
937 (3) (55) 4
Non-Trading Activities
Enron also enters into nancial instruments such as sw aps and other contracts primarily f or the purpose o f hedging the impact o f market uctuations on assets, liabilities, production or other contractual commitments.
In t erest Ra t e Sw a ps. A t D ece m b er 31, 2000, Enro n h a d e n t ere d in t o in t erest ra t e sw a p a gre e m e n ts w it h a n a g gre g a t e n o tio n al princip al a m o u n t o f $1.0 billio n t o m a n a g e in t erest ra t e exp osure. Th ese sw a p a gre e m e n ts are sch e d ule d t o t ermi-
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Energy Commodity Price Sw aps. A t December 31, 2000, Enron w as a party to energy commodity price sw aps covering 18.6 TBtu, 29.9 TBtu and 0.5 TBtu of natural gas for the years 2001, 2002 and 2003, respectively, and 0.3 million barrels of crude oil for the year 2001.
Enron uses the f ollo wing methods and assumptions in estimating f air values: (a) short- and long-term debt - the carrying amount o f variable-rate debt approximates f air value, the f air value o f marketable debt is based on quoted market prices and the f air value o f other debt is based on the discounted present value o f cash o ws using Enrons current borro wing rates; (b) company-obligated pre f erred securities o f subsidiaries - the f air value is based on quoted market prices, w here available, or based on the discounted present value o f cash o ws using Enrons current borro wing rates if not publicly traded; and (c) energy commodity price sw aps, interest rate sw aps, f oreign currency contracts and equity contracts - estimated f air values have been determined using available market data and valuation methodologies. Judgment is necessarily required in interpreting marke t d a t a a n d t h e use o f diff ere n t marke t assump tio ns or estimation methodologies may a ff ect the estimated f air value amounts. The f air market value o f cash and cash equivalents, trade a n d o t h er receiva bles, acco u n ts p aya ble a n d invest m e n ts accounted f or at f air value are not materially diff erent from their carrying amounts. Guarantees o f liabilities o f unconsolidated entities and residual value guarantees have no carrying value and f air values w hich are not readily determinable (see Note 15).
MERCHANT A CTIVITIES
An analysis of the composition of Enrons merchant investments and energy assets at December 31, 2000 and 1999 is as follows:
December 31, 2000 1999 $137 63 99 302 601 53 36 89 $690 $ 516 218 11 341 1,086 152 35 187 $1,273
The differences bet w een taxes computed at the U.S. federal statutory tax rate and Enrons effective income tax rate are as follo ws:
2000 Statutory f ederal income tax provision Net state income taxes Foreign tax rate diff erential Equity earnings Basis and stock sale diff erences Good will amortization A udit settlement related to M onthly Income Pre f erred Shares O ther 35.0% 2.5 (2.4) 5.3 (11.9) 1.6 0.6 30.7% 1999 35.0 % 1.8 (7.0) (10.1) (10.8) 1.6 (1.8) 0.5 9.2 % 1998 35.0 % 1.7 0.8 (4.3) (14.2) 2.0 (1.0) 20.0 %
(In millions) M erchant investments (a) Energy Energy-intensive industries Technology-related O ther M erchant assets (b) Independent po w er plants Natural gas transportation
Total
The principal components o f Enrons net de f erred income tax liability are as f ollo ws:
December 31, 2000 1999 $ 254 369 189 812 1,813 (182) 963 2,594 $1,782 $ 220 1,302 188 1,710 1,807 1,133 782 3,722 $2,012
(a) Investments are recorded at fair value in Other Assets with changes in fair value reected in Other Revenues. (b) Amounts represent Enrons investment in unconsolidated equity afliates with operating earnings reected in Equity in Earnings of Unconsolidated Equity Afliates.
Enron provides capital primarily to energy and technologyrelated businesses seeking debt or equity nancing. The merchant investments made by Enron and certain of its unconsolidated af liates (see Note 9) are carried at fair value and include public and private equity, government securities with maturities of more than 90 days, debt and interests in limited partnerships. The valuation methodologies utilize market values of publicly-traded securities, independent appraisals and cash o w analyses. A lso included in Enrons w holesale business are investments in m erch a n t asse ts such as p o w er pla n ts a n d n a t ural g as pipelines, primarily held through equity method investments. Some o f these assets w ere developed, constructed and operated by Enron. The merchant assets are not expected to be long-term, integrated components o f Enrons energy net w orks. For the years ended December 31, 2000, 1999 and 1998, respectively, pre-tax gains from sales o f merchant assets and investments totaling $104 million, $756 million and $628 million are included in O ther Revenues, and proceeds w ere $1,838 million, $2,217 million and $1,434 million.
(In millions) De f erred income tax assets A lternative minimum tax credit carryf orw ard Net operating loss carryf orw ard O ther De f erred income tax liabilities Depreciation, depletion and amortization Price risk management activities O ther Net de f erred income tax liabilities (a)
(a) Includes $138 million and $118 million in other current liabilities for 2000 and 1999, respectively.
INC O ME TAXES
The components of income before income taxes are as follo ws:
(In millions) United States Foreign
2000 $ 640 773 $1,413
1999 $ 357 771 $1,128
1998 $197 681 $878
Total income tax expense is summarized as f ollo ws:

(In millions) Payable currently Federal State Foreign
2000 $112 22 93 227 13 14 180 207 $434
1999 $ 29 6 48 83 (159) 23 157 21 $104
1998 $ 30 8 50 88 (14) 11 90 87 $175
Enron has an alternative minimum tax (A MT) credit carryf orw ard o f approximately $254 million w hich can be used to o ffset regular income taxes payable in f uture years. The A MT credit has an inde nite carryf orw ard period. Enron has a net operating loss carryf orw ard applicable to U.S. subsidiaries o f approximately $65 million, w hich will begin to expire in 2011. Enron has a net operating loss carryf orw ard applicable to non-U.S. subsidiaries o f approximately $1.2 billion, o f w hich $1.0 billion can be carried f orw ard inde nitely. The remaining $200 million expires bet w een the years 2001 and 2010. De f erred tax assets have been recognized on the $65 million domestic loss and $1.0 billion o f the f oreign losses. U.S. and f oreign income taxes have been provided f or earnings o f f oreign subsidiary companies that are expected to be remitted to the U.S. Foreign subsidiaries cumulative undistributed earnings o f approximately $1.8 billion are considered to be permanently reinvested outside the U.S. and, accordingly, no U.S. income taxes have been provided thereon. In the event o f a distribution o f those earnings in the f orm o f dividends, Enron may be subject to both f oreign withholding taxes and U.S. income taxes net o f allo w able f oreign tax credits.
Payment de f erred Federal State Foreign Total income tax expense (a)
(a) See Note 11 for tax benets related to stock options exercised by employees reected in shareholders equity.
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SUPPLEMENTAL C ASH FLO W INFORM ATION
Detailed information on long-term debt is as follo ws:

December 31, 2000 1999
Cash paid f or income taxes and interest expense, including f ees incurred on sales o f accounts receivable, is as f ollo ws:
(In millions) Income taxes (net o f re f unds) Interest (net o f amounts capitalized) 2000 $ 62 834 1999 $ 51 678 1998 $ 73 585
(In millions) Enron Corp. Senior debentures 6.75 % to 8.25 % due 2005 to 2012 Notes payable (a) 7.00 % exchangeable notes due 2002 6.40 % to 9.88 % due 2001 to 2028 Floating rate notes due 2000 to 2005 O ther Northern Natural Gas Company Notes payable 6.75 % to 7.00 % due 2005 to 2011 Transw estern Pipeline Company Notes payable 9.20 % due 2004 Portland General First mortgage bonds 6.47 % to 9.46 % due 2000 to 2023 Pollution control bonds Various rates due 2010 to 2033 O ther O ther A mount reclassi ed from short-term debt Unamortized debt discount and premium Total long-term debt
$ 262 532 4,416 92 242
$ 318 239 4,114 79 34
Non-Cash Activity
In 2000, Enron acquired all minority shareholders interests in Enron Energy Services, LLC and other businesses with Enron common stock. See Note 2. In 2000 and 1999, Enron entered into various transactions with related parties, w hich resulted in an exchange of assets and an increase in common stock of $171 million in 2000. See Note 16. In 2000, a partnership in w hich Enron w as a limited partner made a liquidating distribution to Enron resulting in a non-cash increase in current assets o f $220 million, a decrease o f $20 million in non-current assets and an increase in current liabilities o f $160 million. D urin g 2000 a n d 1999, Enro n receive d t h e rig h ts t o sp eci c t hird-p arty b er-o p tic ca ble in exch a n g e f or t h e rig h ts o n sp eci c b er-o p tic ca ble h eld f or sale by Enro n. Th ese exch a n g es result e d in n o n-cash incre ases in asse ts o f $69 millio n a n d $111 millio n, resp ectively. During 1999, Enron issued approximately 7.6 million shares o f common stock in connection with the acquisition, by an unconsolidated equity a f liate, o f interests in three po w er plants in Ne w Jersey. In December 1998, Enron extinguished its 6.25 % Exchangeable Notes with 10.5 million shares o f EO G common stock.
500
500
11
15
328 200 282 414 1,318 (47) $8,550
373 200 129 204 1,000 (54) $7,151
(a) Includes debt denominated in foreign currencies of approximately $955 million and $525 million, respectively, at December 31, 2000 and 1999. Enron has entered into derivative transactions to hedge interest rate and foreign currency exchange uctuations associated with such debt. See Note 3.
CREDIT FA CILITIES AND DEBT
Enron has credit facilities with domestic and foreign banks w hich provide for an aggregate of $1.4 billion in long-term committed credit, of w hich $150 million relates to Portland General, and $2.4 billion in short-term committed credit. Expiration dates of the committed facilities range from February 2001 to M ay 2005. Interest rates on borro wings are based upon the London Interbank O ffered Rate, certicate of deposit rates or other shortterm interest rates. Certain credit facilities contain covenants w hich must be met to borro w funds. Such debt covenants are not anticipated to materially restrict Enrons ability to borro w funds under such facilities. Compensating balances are not required, but Enron is required to pay a commitment or facility fee. A t December 31, 2000, $290 million w as outstanding under these facilities. Enron has also entered into agreements w hich provide for uncommitted lines of credit totaling $420 million at December 31, 2000. The uncommitted lines have no stated expiration dates. Neither compensating balances nor commitment fees are required, as borro wings under the uncommitted credit lines are available subject to agreement by the participating banks. A t December 31, 2000, no amounts w ere outstanding under the uncommitted lines. In addition to borro wing from banks on a short-term basis, Enron and certain of its subsidiaries sell commercial paper to provide nancing for various corporate purposes. As of December 31, 2000 and 1999, short-term borro wings of $15 million and $330 million, respectively, and long-term debt due within one year of $1,303 million and $670 million, respectively, have been reclassi ed as long-term debt based upon the availability of committed credit facilities with expiration dates exceeding one year and managements intent to maintain such amounts in excess of one year. Weighted average interest rates on short-term debt outstanding at December 31, 2000 and 1999 w ere 6.9% and 6.4%, respectively.
The indenture securing Portland Generals First M ortgage Bonds constitutes a direct rst mortgage lien on substantially all electric utility property and franchises, other than expressly excepted property. The aggregate annual maturities o f long-term debt outstanding at December 31, 2000 w ere $2,112 million, $750 million, $852 million, $646 million and $1,592 million f or 2001 through 2005, respectively. In February 2001, Enron issued $1.25 billion zero coupon convertible senior notes that mature in 2021. The notes carry a 2.125 percent yield to maturity with an aggregate face value of $1.9 billion and may be converted, upon certain contingencies being met, into Enron common stock at an initial conversion premium of 45 percent.
MINORITY INTERESTS
Enrons minority interests at December 31, 2000 and 1999 include the f ollo wing:
(In millions) M ajority-o w ned limited liability company and limited partnerships Elektro (a) O ther 2000 $1,759 462 193 $2,414 1999 $1,773 475 182 $2,430
(a) Relates to the respective parents of Elektro, which had minority shareholders in 2000 and 1999.
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Enron has formed separate limited partnerships and a limited liability company with third-party investors for various purposes. These entities are included in Enrons consolidated nancial statements, with the third-party investors interests re ected in M inority Interests in the Consolidated Balance Sheet. In October 2000, Enron contributed approximately $1.0 billion o f net assets to a w holly-o w ned limited liability company. A third party contributed $500 million f or a pre f erred membership
interest in the limited liability company. The contribution by the third party w as invested in highly liquid investment grade securities (including Enron notes) and short-term receivables. A t December 31, 2000, the majority-o w ned limited liability company held net assets o f $1.0 billion. During 1999, third-party investors contributed cash and merchant investments totaling $1.0 billion to Enron-sponsored entities to invest in highly liquid investment grade securities (including Enron notes) and short-term receivables. The merchant investments, totaling $500 million, w ere sold prior to December 31, 1999. During 2000, Enron acquired a portion o f the minority shareholders interest f or $485 million. In 1998, Enron formed a w holly-o w ned limited partnership for the purpose of holding $1.6 billion of assets contributed by Enron. That partnership contributed $850 million of assets and a third party contributed $750 million to a second ne wly-formed limited partnership. The assets held by the w holly-o w ned limited partnership represent collateral for a $750 million note receivable held by the second limited partnership. In 2000 and 1999, the w holly-o w ned and second limited partnerships sold assets valued at approximately $152 million and $460 million, respectively, and invested the proceeds in Enron notes. A bsent certain de f aults or other speci ed events, Enron has the option to acquire the minority holders interests in these partnerships. Enron has the option to acquire the minority holders interest in the limited liability company a f ter November 2002. If Enron does not acquire the minority holders interests be f ore December 2004 through M ay 2009, or earlier upon certain speci ed events, the minority interest holders may cause the entities to liquidate their assets and dissolve. In 2000, as p art o f a restruct urin g, Jacar Electrical Distribution Trust (Jacar) sold a 47 percent interest in Enron Brazil Po w er Holdings V Ltd, a subsidiary that holds its investment in Elektro, to W hite wing f or approximately $460 million. See Note 9. The proceeds w ere used to acquire the original minority shareholders interest in Jacar. In 2000, Enron acquired all minority shareholders interests in Enron Energy Services, LLC and Enron Rene w able Energy Corp. See Note 2.
Enrons equity in earnings (losses) o f unconsolidated equity a f liates is as f ollo ws:

(In millions) A zurix Corp.(a) Citrus Corp. Dabhol Po w er Company Joint Energy Development Investments L.P. Joint Energy Development Investments II, L.P. TNPC, Inc. (The Ne w Po w er Company) Transportadora de Gas del Sur S.A. W hite wing Associates, L.P. O ther 2000 $(428) 50 51 197 58 (60) 38 58 123 $ 87 1999 $ 23 25 30 11 92 32 9 87 $309 1998 $ 6 23 (45) (4) 36 81 $ 97
(a) During the fourth quarter of 2000, Azurix Corp. ( Azurix) impaired the carrying value of its Argentine assets, resulting in a charge of approximately $470 million. Enrons portion of the charge was $326 million.
Summarized combined nancial in f ormatio n o f Enro ns unconsolidated a f liates is presented belo w:

December 31, 2000 1999 $ 5,884 14,786 13,485 4,739 9,717 6,148 13,551 $ 3,168 14,356 9,459 4,401 8,486 2,402 11,694
(In millions) Balance sheet Current assets (a) Property, plant and equipment, net O ther noncurrent assets Current liabilities (a) Long-term debt (a) O ther noncurrent liabilities O w ners equity
(a) Includes $410 million and $327 million receivable from Enron and $302 million and $84 million payable to Enron at December 31, 2000 and 1999, respectively.
(In millions) Income statement (a) O perating revenues O perating expenses Net income Distributions paid to Enron
2000 $15,903 14,710 586 137
1999 $11,568 9,449 1,857 482
1998 $8,508 7,244 142 87
UNC ONSOLIDATED EQUITY AFFILIATES
(a) Enron recognized revenues from transactions with unconsolidated equity afliates of $510 million in 2000, $674 million in 1999 and $563 million in 1998.
Enrons investment in and advances to unconsolidated a f liates w hich are accounted f or by the equity method is as f ollo ws:
Net Voting Interest (a) 34 % 40 % 50 % 50 % 50 % 50 % 50 % 35 % 50 %
(In millions) A zurix Corp. Bridgeline Holdings Citrus Corp. Dabhol Po w er Company Joint Energy Development Investments L.P. (JEDI) (b) Joint Energy Development Investments II L.P. (JEDI II) (b) SK Enron Co. Ltd. Transportadora de Gas del Sur S.A. W hite wing Associates, L.P. (b) O ther
December 31, 2000 1999 $ 325 $ 762 229 530 480 693 466 399 211
220 162 258 269 479 452 558 662 1,603 1,572 $5,294(c) $5,036 (c)
(a) Certain investments have income sharing ratios which differ from Enrons voting interests. (b) JEDI and JEDI II account for their investments at fair value. Whitewing accounts for certain of its investments at fair value. These afliates held fair value investments totaling $1,823 million and $1,128 million, respectively, at December 31, 2000 and 1999. (c) At December 31, 2000 and 1999, the unamortized excess of Enrons investment in unconsolidated afliates was $182 million and $179 million, respectively, which is being amortized over the expected lives of the investments.
In 2000 and 1999, Enron sold approximately $632 million and $192 million, respectively, o f merchant investments and other assets to W hite wing. Enron recognized no gains or losses in connection with these transactions. A dditionally, in 2000, ECT M erchant Investments Corp., a w holly-o w ned Enron subsidiary, contributed t w o pools o f merchant investments to a limited partnership that is a subsidiary o f Enron. Subsequent to the co n trib u tio ns, t h e p art n ership issu e d p art n ership in t erests representing 100 % o f the bene cial, economic interests in the t w o asset pools, and such interests w ere sold f or a total o f $545 million to a limited liability company that is a subsidiary o f W hite wing. See Note 3. These entities are separate legal entities from Enron and have separate assets and liabilities. In 2000 and 1999, the Related Party, as described in Note 16, contributed $33 million and $15 million, respectively, o f equity to W hite wing. In 2000, W hite w in g co n trib u ted $7.1 millio n t o a part nership f ormed by Enron, W hite wing and a third party. Subsequently, Enron sold a portion o f its interest in the partnership through a securitization. See Note 3. In 2000, The Ne w Po w er Company sold w arrants convertible into common stock o f The Ne w Po w er Company f or $50 million to the Related Party (described in Note 16). From time to time, Enron has entered into various administrative service, management, construction, supply and operating
42
agreements with its unconsolidated equity a f liates. Enrons management believes that its existing agreements and transactions are reasonable compared to those w hich could have been obtained from third parties.
Company-Obligated Preferred Securities of Subsidiaries

Summarized information for Enrons company-obligated preferred securities of subsidiaries is as follo ws:
Liquidation Value Per Share
10
PREFERRED STO CK
Preferred Stock
Enron has authorized 16,500,000 shares of preferred stock, no par value. A t December 31, 2000, Enron had outstanding 1,240,933 shares of Cumulative Second Preferred Convertible Stock (the Convertible Preferred Stock), no par value. The Convertible Preferred Stock pays dividends at an amount equal to the higher of $10.50 per share or the equivalent dividend that w ould be paid if shares of the Convertible Preferred Stock w ere converted to common stock. Each share of the Convertible Preferred Stock is convertible at any time at the option of the holder thereof into 27.304 shares of Enrons common stock, subject to certain adjustments. The Convertible Preferred Stock is currently subject to redemption at Enrons option at a price of $100 per share plus accrued dividends. During 2000, 1999 and 1998, 55,251 shares, 23,664 shares and 17,797 shares, respectively, of the Convertible Preferred Stock w ere converted into common stock. In 1999, all outstanding shares of Series A Preferred Stock held by W hite wing w ere exchanged for 250,000 shares of Enron M andatorily Convertible Junior Preferred Stock, Series B (Series B Preferred Stock). Also in 1999, Enron entered into a Share Settlement A greement under w hich Enron could be obligated, under certain circumstances, to deliver additional shares of common stock or Series B Preferred Stock to W hite wing for the amount that the market price of the converted Enron common shares is less than $28 per share. In 2000, Enron increased the strike price in the Share Settlement A greement to $48.55 per share in exchange for an additional capital contribution in W hite wing by third-party investors. The number of shares of Series B Preferred Stock authorized equals the number of shares necessary to satisfy Enrons obligation under the Share Settlement A greement. A bsent certain defaults or other speci ed events, Enron has the option to acquire the third-party investors interests. If Enron does not acquire the third-party investors interests before January 2003, or earlier upon certain speci ed events, W hite wing may liquidate its assets and dissolve. A t December 31, 2000, Enron had outstanding 250,000 shares of Series B Preferred Stock with a liquidation value of $1.0 billion. The Series B Preferred Stock pays semi-annual cash dividends at an annual rate of 6.50%. Each share of Series B Preferred Stock is mandatorily convertible into 200 shares of Enron common stock on January 15, 2003 or earlier upon the occurrence of certain events. In connection with the 1998 nancial restructuring (yielding proceeds o f approximately $1.2 billion) o f Enrons investment in A zurix, Enron committed to cause the sale o f Enron convertible pre f erred stock, if certain debt obligations o f the related entity w hich acquired an interest in A zurix, are de f aulted upon, or in certain events, including, among other things, Enrons credit ratings f all belo w speci ed levels. If the sale o f the convertible pre f erred stock is not su f cient to retire such obligations, Enron w ould be liable f or the short f all. Such obligations will mature in December 2001. The number o f common shares issuable upon conversion is based on f uture common stock prices.
(In millions, except per share amounts and shares) Enron Capital LLC 8 % Cumulative Guaranteed M onthly Income Pre f erred Shares (8,550,000 shares) (a) Enron Capital Trust I 8.3 % Trust O riginated Pre f erred Securities (8,000,000 pre f erred securities) (a) Enron Capital Trust II 8 1/8 % Trust O riginated Pre f erred Securities (6,000,000 pre f erred securities) (a) Enron Capital Trust III A djustable-Rate Capital Trust Securities (200,000 pre f erred securities) LNG Po w er II L.L.C. 6.74% Preference Units (105,000 shares) (b) Enron Equity Corp. 8.57% Preferred Stock (880 shares) (a) 7.39% Preferred Stock (150 shares) (a)(c) Enron Capital Resources, L.P. 9 % Cumulative Pre f erred Securities, Series A (3,000,000 pre f erred securities) (a) O ther
December 31, 2000 1999
$214
$ 214
$ 25
200
200
25
150
150
25
200
1,000
105
1,000
88 15
88 15
100,000 100,000
75 57 $904
75 58 $1,000
25
(a) Redeemable under certain circumstances after specied dates. (b) Initial rate is 6.74% increasing to 7.79%. (c) Mandatorily redeemable in 2006.
43
11
C O M M ON STO CK
Derivative Instruments
A t D ece m b er 31, 2000, Enro n h a d d eriva tive instru m e n ts (exclu din g a m o u n ts disclose d in N o t e 10) o n 54.8 millio n sh ares o f Enro n co m m o n st ock, o f w hich a p proxim a t ely 12 millio n sh ares are w it h JEDI a n d 22.5 millio n are w it h rela t e d p arties (se e N o t e 16), a t a n avera g e price o f $67.92 p er sh are o n w hich Enro n w as a xe d price p ayor. Sh ares p o t e n tially d elivera ble t o co u n t erp arties u n d er t h e co n tracts are assu m e d t o b e o u tst a n din g in calcula tin g dilu t e d e arnin gs p er sh are u nless t h ey are a n tidilu tive. A t D ece m b er 31, 2000, t h ere w ere o u tst a n din g n o n-e m ploye e o p tio ns t o p urch ase 6.4 millio n sh ares o f Enro n co m m o n st ock a t a n exercise price o f $19.59 p er sh are.
Earnings Per Share

The computation o f basic and diluted earnings per share is as f ollo ws:
Year Ended December 31, 2000 1999 1998
(In millions, except per share amounts) Numerator: Basic Income be f ore cumulative e ff ect o f accounting changes Pre f erred stock dividends: Second Pre f erred Stock Series A Pre f erred Stock Series B Pre f erred Stock Income available to common shareholders before cumulative effect o f accounting changes Cumulative e ff ect o f accounting changes Income available to common shareholders Diluted Income available to common shareholders before cumulative effect of accounting changes Eff ect o f assumed conversion o f dilutive securities (a): Second Pre f erred Stock Income be f ore cumulative e ff ect o f accounting changes Cumulative e ff ect o f accounting changes Income available to common shareholders after assumed conversions Denominator: Denominator f or basic earnings per share - w eighted-average shares Eff ect o f dilutive securities: Pre f erred stock Stock options Dilutive potential common shares Denominator for diluted earnings per share - adjusted w eighted-average shares and assumed conversions Basic earnings per share: Be f ore cumulative e ff ect o f accounting changes Cumulative e ff ect o f accounting changes Basic earnings per share Diluted earnings per share: Be f ore cumulative e ff ect o f accounting changes Cumulative e ff ect o f accounting changes Diluted earnings per share
$ 979 (17) (66)
$1,024 (17) (30) (19)
$ 703 (17) -
Stock Option Plans

Enron applies Accounting Principles Board (APB) O pinion 25 and related interpretations in accounting f or its stock option plans. In accordance with APB O pinion 25, no compensation expense has been recognized f or the xed stock option plans. Compensation expense charged against income f or the restricted stock plan f or 2000, 1999 and 1998 w as $220 million, $131 million and $58 million, respectively. Had compensation cost f or Enrons stock option compensation plans been determined based on the f air value at the grant dates f or a w ards under those plans, Enrons net income and earnings per share w ould have been $886 million ($1.09 per share basic, $1.01 per share diluted) in 2000, $827 million ($1.08 per share basic, $1.01 per share diluted) in 1999 and $674 million ($1.02 per share basic, $0.97 per share diluted) in 1998. The f air value o f each option grant is estimated on the date o f grant using the Black-Scholes option-pricing model with w eighted-average assumptions f or grants in 2000, 1999 and 1998, respectively: (i) dividend yield o f 2.4 % , 2.4 % and 2.5 %; (ii) expected volatility o f 22.3 % , 20.0 % and 18.3 %; (iii) risk-free interest rates o f 5.8 % , 5.6 % and 5.0 %; and (iv) expected lives o f 3.2 years, 3.7 years and 3.8 years. Enron has f our xed option plans (the Plans) under w hich options f or shares o f Enrons common stock have been or may be granted to o f cers, employees and non-employee members o f the Board o f Directors. O ptions granted may be either incentive stock options or nonquali ed stock options and are granted at not less than the f air market value o f the stock at the time o f grant. Under the Plans, Enron may grant options with a maximum term o f 10 years. O ptions vest under varying schedules.
896 $ 896
958 (131) $ 827
686 $ 686
$ 896
$ 958
$ 686
17 913 $ 913
17 975 (131) $ 844
17 703 $ 703
736 35 43 78
705 36 28 64
642 36 17 53
814
769
695
$1.22 $1.22
$ 1.36 (0.19) $ 1.17
$1.07 $1.07
$1.12 $1.12
$ 1.27 (0.17) $ 1.10
$1.01 $1.01
(a) The Series A Preferred Stock and the Series B Preferred Stock were not included in the calculation of diluted earnings per share because conversion of these shares would be antidilutive.
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Summarized in f ormation f or Enrons Plans is as f ollo ws:

2000 Weighted Average Exercise Price $26.74 70.02 24.43 35.68 23.75 $44.24 $29.85 $13.35 1999 Weighted Average Exercise Price $19.60 37.49 18.08 24.51 18.79 $26.74 $22.56 $ 7.24 1998 Weighted Average Exercise Price $17.89 24.99 15.70 19.77 19.76 $19.60 $18.16 $ 4.20
(Shares in thousands) O utstanding, beginning o f year Granted Exercised (a) Forf eited Expired O utstanding, end o f year Exercisable, end o f year Available f or grant, end o f year (b) Weighted average f air value o f options granted
Shares 93,531 39,167 (32,235) (4,358) (42) 96,063 46,755 22,066
Shares 79,604 35,118 (19,705) (1,465) (21) 93,531 52,803 24,864
Shares 78,858 15,702 (13,072) (1,498) (386) 79,604 45,942 10,498
(a) In 2000, Enron recorded tax benets related to stock options exercised by employees of approximately $390 million reected in shareholders equity. (b) Includes up to 20,707,969 shares, 22,140,962 shares and 10,497,670 shares as of December 31, 2000, 1999 and 1998, respectively, which may be issued either as restricted stock or pursuant to stock options.
The f ollo wing table summarizes in f ormation about stock options outstanding at December 31, 2000 (shares in thousands):
Options Outstanding Weighted Average Remaining Contractual Life 4.7 6.8 6.8 6.5 5.6 6.2 Options Exercisable Weighted Average Exercise Price $16.72 24.79 40.52 60.18 79.69 $44.24 Weighted Average Exercise Price $16.54 24.13 40.27 61.81 72.36 $29.85
Range o f Exercise Prices $ 6.88 to $ 20.00 20.06 to 34.81 35.03 to 47.31 50.48 to 69.00 71.06 to 86.63
Number Outstanding at 12/31/00 15,368 24,091 21,520 13,965 21,119 96,063
Number Exercisable at 12/31/00 14,001 18,304 8,731 4,072 1,647 46,755
Restricted Stock Plan

Under Enrons Restricted Stock Plan, participants may be granted stock without cost to the participant. The shares granted under this plan vest to the participants at various times ranging from immediate vesting to vesting at the end of a ve-year period. Upon vesting, the shares are released to the participants. The f ollo wing summarizes shares o f restricted stock under this plan:
(Shares in thousands) O utstanding, beginning o f year Granted Released to participants Forf eited O utstanding, end o f year Available f or grant, end o f year Weighted average f air value o f restricted stock granted 2000 6,781 2,243 (2,201) (1,444) 5,379 20,708 $57.69 1999 6,034 2,672 (1,702) (223) 6,781 22,141 $37.38 1998 5,074 2,122 (1,064) (98) 6,034 10,498 $23.70
12
PENSION AND OTHER BENEFITS
45
Enron maintains a retirement plan (the Enron Plan) w hich is a noncontributory de ned bene t plan covering substantially all employees in the United States and certain employees in f oreign countries. The bene t accrual is in the f orm o f a cash balance o f 5 % o f annual base pay. Portla n d G e n eral h as a n o nco n trib u t ory d e fin e d b e n e fit p e nsio n pla n (t h e Portla n d G e n eral Pla n) coverin g su bst a n tially all o f its e m ploye es. Be n e fits u n d er t h e Portla n d G e n eral Pla n are b ase d o n ye ars o f service, fin al avera g e p ay a n d covere d co m p e nsa tio n. Enron Facility Services has a noncontributory de ned bene t pension plan (the EFS Plan) covering substantially all o f its
employees. Bene ts under the EFS Plan are based on years o f service, nal average pay and covered compensation. Enron also maintains a noncontributory employee stock o w nership plan (ESOP) w hich covers all eligible employees. A llocations to individual employees retirement accounts within the ESOP o ffset a portion o f bene ts earned under the Enron Plan. A ll shares included in the ESOP have been allocated to the employee accounts. A t December 31, 2000 and 1999, 12,600,271 shares and 17,241,731 shares, respectively, o f Enron common stock w ere held by the ESOP, a portion o f w hich may be used to o ffset bene ts under the Enron Plan. Assets o f the Enron Plan, the Portland General Plan and the EFS Plan are comprised primarily o f equity securities, xed income securities and temporary cash investments. It is Enrons policy to f und all pension costs accrued to the extent required by f ederal tax regulations. Enron provides certain postretirement medical, lif e insurance and dental bene ts to eligible employees and their eligible dependents. Bene ts are provided under the provisions o f contributory de ned dollar bene t plans. Enron is currently f unding that portion o f its obligations under these postretirement bene t plans w hich are expected to be recoverable through rates by its regulated pipelines and electric utility operations. Enron accrues these postretirement bene t costs over the service lives of the employees expected to be eligible to receive such bene ts. Enron is amortizing the transition obligation w hich existed at January 1, 1993 over a period of approximately 19 years. Th e f ollo w in g t a ble se ts f ort h in f orm a tio n rela t e d t o changes in the bene t obligations, changes in plan assets, a reconciliation o f the f unded status o f the plans and components o f the expense recognized related to Enrons pension and other postretirement plans:
(In millions) Change in bene t obligation Bene t obligation, beginning o f year Service cost Interest cost Plan participants contributions Plan amendments Actuarial loss (gain) Acquisitions and divestitures Eff ect o f curtailment and settlements (a) Bene ts paid Bene t obligation, end o f year Change in plan assets Fair value o f plan assets, beginning o f year (b) Actual return on plan assets Acquisitions and divestitures Employer contribution Plan participants contributions Bene ts paid Fair value o f plan assets, end o f year (b) Reconciliation o f f unded status, end o f year Funded status, end o f year Unrecognized transition obligation (asset) Unrecognized prior service cost Unrecognized net actuarial loss (gain) Prepaid (accrued) bene t cost Weighted-average assumptions at December 31 Discount rate Expected return on plan assets (pre-tax) Rate o f compensation increase
Pension Bene ts O ther Bene ts 2000 1999 2000 1999
$708 33 53 9 -
$687 32 49 6 (51) 36
$120 2 10 4 10 -
$134 2 9 3 (12) -
(2) (8) (55) (43) $746 $708
(22) (16) $124 $120
$853 $774 41 80 37 19 5 (55) (43) $858 $853
$ 68 $ 60 (4) 7 7 6 4 3 (11) (8) $ 64 $ 68
The measurement date of the Enron Plan and the ESOP is September 30, and the measurement date of the Portland General Plan, the EFS Plan and the postretirement bene t plans is December 31. The funded status as of the valuation date of the Enron Plan, the Portland General Plan, the ESOP and the postretirement bene t plans reconciles with the amount detailed above w hich is included in O ther Assets on the Consolidated Balance Sheet. For measurement purposes, 6% and 10% annual rates of increase in the per capita cost of covered health care bene ts w ere assumed for the period 2000 to 2001 for the Enron and Portland General postretirement plans, respectively. The rates w ere assumed to decrease to 5% by 2002 and 2010 for the Enron and Portland General postretirement plans, respectively. Assumed health care cost trend rates have a signicant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates w ould have the follo wing effects:
1-Percentage Point Increase $0.4 $4.4 1-Percentage Point Decrease $(0.3) $(3.8)
(In millions) Eff ect on total o f service and interest cost components Eff ect on postretirement bene t obligation
$112 (6) 25 55 $186
$145 (13) 32 11 $175
$ (60) $ (52) 44 12 48 14
A dditionally, certain Enron subsidiaries maintain various incentive based compensation plans f or w hich participants may receive a combination o f cash or stock options, based upon the achievement o f certain perf ormance goals.
13
RATES AND REGULATORY ISSUES
(17) (29) $ (21) $ (19)
7.75% 7.75 % (c) (e) (c) (e)
7.75% 7.75 % (d) (e) (d) (e)
Components of net periodic bene t cost Service cost $ 33 $ 32 Interest cost 53 49 Expected return on plan assets (75) (70) A mortization o f transition obligation (asset) (6) (6) A mortization o f prior service cost 5 5 Recognized net actuarial loss (gain) 3 Eff ect o f curtailment and settlements (a) (6) Net periodic bene t cost $ 10 $ 7
2 $ 2 10 9 (4) (4) 4 1 (1) 4 1 6 $ 18
$ 12
(a) Represents one-time nonrecurring events including the exchange and sale of EO G (see Note 2) and certain employees ceasing participation in the Portland General Plan as a result of union negotiations. (b) Includes plan assets of the ES OP of $116 million and $121 million at December 31, 2000 and 1999, respectively. (c) Long-term rate of return on assets is assumed to be 10.5% for the Enron Plan, 9.0% for the Portland General Plan and 9.5% for the EFS Plan. (d) Long-term rate of return on assets is assumed to be 7.5% for the Enron assets and 9.5% for the Portland General assets. (e) Rate of compensation increase is assumed to be 4.0% for the Enron Plan, 4.0% to 9.5% for the Portland General Plan and 5.0% for the EFS Plan.
Ra t es a n d re g ula t ory issu es rela t e d t o cert ain o f Enro ns n a t ural g as pip elin es a n d its electric u tility o p era tio ns are su bject t o fin al d e t ermin a tio n by vario us re g ula t ory a g e ncies. Th e d o m estic in t erst a t e pip elin e o p era tio ns are re g ula t e d by t h e Fe d eral En ergy Re g ula t ory Co m missio n (FERC) a n d t h e electric u tility o p era tio ns are re g ula t e d by t h e FERC a n d t h e O re g o n Pu blic U tility Co m missio n (OPUC). As a result, t h ese o p era tio ns are su b ject t o t h e p r ovisi o ns o f St a t e m e n t o f Fi n a ncia l Acco u n tin g St a n d ards (SFAS) N o. 71, Acco u n tin g f or t h e Eff ects o f Cert ain Typ es o f Re g ula tio n, w hich reco g niz es t h e eco n o mic e ff ects o f re g ula tio n a n d, accordin gly, Enro n h as record e d re g ula t ory asse ts a n d lia bilities rela t e d t o such o p era tio ns. The regulated pipelines operations net regulatory assets w ere $290 million and $250 million at December 31, 2000 and 1999, respectively, and are expected to be recovered over varying time periods. The electric utility operations net regulatory assets w ere $450 million and $494 million at December 31, 2000 and 1999, respectively. Based on rates in place at December 31, 2000, Enron estimates that it will collect substantially all o f its regulatory assets within the next 11 years.
Pipeline Operations
O n A p ril 16, 1999, N o r t h e r n N a t u r a l G as C o m p a n y (N ort h ern) file d a n u nco n t est e d Stip ula tio n a n d A gre e m e n t o f Se t tle m e n t (Se t tle m e n t) w it h t h e FERC a n d a n ord er a p provin g t h e Se t tle m e n t w as issu e d by t h e FERC o n Ju n e 18, 1999. Th e ra t es e ff ect u a t e d by N ort h ern o n N ove m b er 1, 1999 re m ain in e ff ect. O n M ay 1, 2000, N ort h ern file d t o im ple m e n t a n o p tio nal volu m e tric firm t hro u g h p u t service. A n ord er a p provin g such se rvice w as issu e d N o v e m b e r 8, 2000 w i t h e f f ect iv e n ess N o v e m b e r 1, 2000; a r e h e a ri n g r e q u est is p e n d i n g . O n N ove m b er 1, 2000, N ort h ern file d t o incre ase its ra t es f or t h e recovery o f re t urn a n d t axes o n its Syst e m Leveliz e d Acco u n t.
Included in the above amounts are the unfunded obligations f or t h e su p ple m e n t al execu tive re tire m e n t pla ns. A t b o t h December 31, 2000 and 1999, the projected bene t obligation for these unfunded plans w as $56 million and the fair value of assets w as $1 million.
46
O n N ove m b er 22, 2000, t h e FERC issu e d a n ord er a p provin g t h e ra t es, su bject t o re f u n d. O n November 1, 2000, Transw estern Pipeline Company implemented a rate escalation of settled transportation rates in accordance with its M ay 1995 global settlement, as amended in M ay 1996. O n A ugust 23, 1999, Transw estern led for a ne w service, Enhanced Firm Backhaul. A n order by the FERC w as issued February 23, 2000, approving the service.
Electric Utility Operations

O n October 2, 2000 PGE led a restructuring plan with the OPUC that implements the provisions o f the State Senate Bill SB1149, signed into la w in July 1999. The ne w la w provides industrial and commercial customers o f investor-o w ned utilities in the state direct access to competing energy suppliers by October 1, 2001. As led, PGEs plan also proposes an increase in base rates, with ne w tariffs e ff ective on October 1, 2001. PGE is a 67.5 % o w ner o f the Trojan Nuclear Plant (Trojan). In September 2000, PGE entered into an agreement with the OPUC related to Trojan. See Note 14. A t December 31, 2000, PGEs regulatory asset related to recovery o f Trojan decommissioning costs from customers w as $190 million. Enron believes, based upon its experience to date and a f ter considering appropriate reserves that have been established, that the ultimate resolution o f pending regulatory matters will not have a material impact on Enrons nancial position or results o f operations.
resolution of these matters will not have a material adverse effect on its nancial position or results of operations. O n November 21, 1996, an explosion occurred in or around the Humberto Vidal Building in San Juan, Puerto Rico. The explosion resulted in f atalities, bodily injuries and damage to the building and surrounding property. San Juan Gas Company, Inc. (San Juan Gas), an Enro n a f liate, o perated a pro pane/air distribution system in the vicinity, but did not provide service to the building. Enron, San Juan Gas, f our a f liates and their insurance carriers w ere named as de f endants, along with several third p arties, inclu din g Th e Pu ert o Rico A q u e d uct a n d Se w er A uthority, Puerto Rico Telephone Company, Heath Consultants Incorporated, Humberto Vidal, Inc. and their insurance carriers, in numerous la wsuits led in U.S. District Court f or the District o f Puerto Rico and the Superior Court o f Puerto Rico. These suits seek damages f or wrong f ul death, personal injury, business interruption and property damage allegedly caused by the explosion. A f ter nearly f our years without determining the cause o f the explosion, all parties have agreed not to litigate f urther that issue, but to move these suits to w ard settlements or trials to determine w hether each plaintiff w as injured as a result o f the explosion and, if so, the la w f ul damages attributable to such injury. The de f endants have agreed on a f und f or settlements or nal a w ards. Numerous claims have been settled. A lthough no assurances can be given, Enron believes that the ultimate resolution o f these matters will not have a material adverse e ff ect on its nancial position or results o f operations.
14
LITIG ATION AND OTHER C ONTINGENCIES
Trojan Investment Recovery

In early 1993, PGE ceased commercial operation o f the Trojan nuclear po w er generating f acility. The OPUC granted PGE, through a general rate order, recovery o f, and a return on, 87 percent o f its remaining investment in Trojan. The OPUCs general rate order related to Trojan has been subject to litigation in various state courts, including rulings by the Oregon Court of A ppeals and petitions to the Oregon Supreme Court led by parties opposed to the OPUCs order, including the Utility Reform Project (URP) and the Citizens Utility Board (CUB). In A ugust 2000, PGE entered into agreements with CUB and the staff of the OPUC to settle the litigation related to PGEs recovery of its investment in the Trojan plant. Under the agreements, CUB agreed to withdra w from the litigation and to support the settlement as the means to resolve the Trojan litigation. The OPUC approved the accounting and ratemaking elements of the settlement on September 29, 2000. As a result of these approvals, PGEs investment in Trojan is no longer included in rates charged to customers, either through a return on or a return of that investment. Collection of ongoing decommissioning costs at Trojan is not affected by the settlement agreements or the September 29, 2000 OPUC order. With CUBs withdra w al, URP is the one remaining signicant adverse party in the litigation. URP has indicated that it plans to continue to challenge the OPUC order allo wing PGE recovery of its investment in Trojan. Enro n ca n n o t pre dict t h e o u tco m e o f t h ese actio ns. A lthough no assurances can be given, Enron believes that the ultimate resolution o f these matters will not have a material adverse e ff ect on its nancial position or results o f operations.
Enron is a party to various claims and litigation, the signicant items o f w hich are discussed belo w. A lthough no assurances can be given, Enron believes, based on its experience to date and a f ter considering appropriate reserves that have been established, that the ultimate resolution o f such items, individually or in the aggregate, will not have a material adverse impact on Enrons nancial position or results o f operations.
Litigation
In 1995, several parties (the Plaintiffs) led suit in Harris County District Court in Houston, Texas, against Intratex Gas Company (Intratex), Houston Pipe Line Company and Panhandle Gas Company (collectively, the Enron Defendants), each of w hich is a w holly-o w ned subsidiary of Enron. The Plaintiffs w ere either sellers or royalty o w ners under numerous gas purchase contracts with Intratex, many of w hich have terminated. Early in 1996, the case w as severed by the Court into t w o matters to be tried (or otherwise resolved) separately. In the rst matter, the Plaintiffs alleged that the Enron Defendants committed fraud and negligent misrepresentation in connection with the Panhandle program, a special marketing program established in the early 1980s. This case w as tried in October 1996 and resulted in a verdict for the Enron Defendants. In the second matter, the Plaintiffs allege that the Enron Defendants violated state regulatory requirements and certain gas purchase contracts by failing to take the Plaintiffs gas ratably with other producers gas at certain times bet w een 1978 and 1988. The trial court certi ed a class action with respect to ratability claims. O n M arch 9, 2000, the Texas Supreme Court ruled that the trial courts class certication w as improper and remanded the case to the trial court. The Enron Defendants deny the Plaintiffs claims and have asserted various af rmative defenses, including the statute of limitations. The Enron Defendants believe that they have strong legal and factual defenses, and intend to vigorously contest the claims. Although no assurances can be given, Enron believes that the ultimate
Environmental Matters
Enron is subject to extensive f ederal, state and local environmental la ws and regulations. These la ws and regulations require expenditures in connection with the construction o f ne w f acilities, the operation o f existing f acilities and f or remediation at various operating sites. The implementation o f the Clean A ir Act A mendments is expected to result in increased operating
47
expenses. These increased operating expenses are not expected to have a material impact on Enrons nancial position or results o f operations. Enrons natural gas pipeline companies conduct soil and ground w ater remediation on a number o f their f acilities. Enron does not expect to incur material expenditures in connection with soil and ground w ater remediation.
15
C O M MITMENTS
es associated with the above guarantees. In addition, certain commitments have been made related to capital expenditures and equity investments planned in 2001. O n December 15, 2000, Enron announced that it had entered into an agreement with A zurix under w hich the holders o f A zurixs approximately 39 million publicly traded shares w ould receive cash o f $8.375 in exchange f or each share. The agreement, w hich is subject to the approval o f A zurix shareholders, is expected to close in early 2001.
Firm Transportation Obligations

Enron has rm transportation agreements with various joint venture and other pipelines. Under these agreements, Enron m ust m a k e sp ecifie d minim u m p aym e n ts e ach m o n t h. A t December 31, 2000, the estimated aggregate amounts o f such required f uture payments w ere $91 million, $88 million, $89 million, $85 million and $77 million f or 2001 through 2005, respectively, and $447 million f or later years. The costs recognized under rm transportation agreements, inclu din g co m m o dity ch arg es o n act u al q u a n tities ship p e d, totaled $68 million, $55 million and $30 million in 2000, 1999 and 1998, respectively.
16
RELATED PARTY TRANSA CTIONS
Other Commitments
Enron leases property, operating facilities and equipment under various operating leases, certain of w hich contain rene w al and purchase options and residual value guarantees. Future commitments related to these items at December 31, 2000 w ere $123 million, $98 million, $69 million, $66 million and $49 million for 2001 through 2005, respectively, and $359 million for later years. Guarantees under the leases total $556 million at December 31, 2000. Total rent expense incurred during 2000, 1999 and 1998 w as $143 million, $143 million and $147 million, respectively. Enro n h as e n t ere d in t o t w o d evelo p m e n t a gre e m e n ts w h ere by Enro n is re q uire d t o m a n a g e co nstructio n o f a cert ain n u m b er o f p o w er projects o n b e h alf o f t hird-p arty o w n ers. U n d er o n e d evelo p m e n t a gre e m e n t, w h ere co nstructio n is exp ect e d t o b e co m ple t e d o n or b e f ore M arch 31, 2004, Enro n h as a gre e d t o e n t er in t o p o w er o ff t a k e a gre e m e n ts f or varyin g p ortio ns o f t h e o ff t a k e fro m e ach f acility. U n d er b o t h d evelo pm e n t a gre e m e n ts, Enro n m ain t ains p urch ase o p tio ns, w hich m ay b e assig n e d t o a t hird p arty. In a d ditio n t o t h e p urch ase o p tio n u n d er t h e o t h er d evelo p m e n t a gre e m e n t, Enro n m aint ains le ase o p tio ns o n t h e p o w er projects. If u p o n co m ple tio n, w hich is exp ect e d t o occur o n or b e f ore A u g ust 31, 2002, Enro n h as f aile d t o exercise o n e o f its o p tio ns, Enro n m ay p articip a t e in t h e re m ark e tin g o f t h e p o w er projects w hich Enro n h as g u ara n t e e d t h e recovery o f 89.9 p erce n t o f cert ain project costs, o f w hich a p proxim a t ely $140 millio n h as b e e n incurre d t hro u g h D ece m b er 31, 2000. Enron guarantees the perf ormance o f certain o f its unconsolidated equity a f liates in connection with letters o f credit issued on behalf o f those entities. A t December 31, 2000, a total o f $264 million o f such guarantees w ere outstanding, including $103 million on behalf o f EOTT Energy Partners, L.P. (EOTT). In addition, Enron is a guarantor on certain liabilities o f unconsolidated equity a f liates and other companies totaling approximately $1,863 million at December 31, 2000, including $538 million related to EOTT trade obligations. The EOTT letters o f credit and guarantees o f trade obligations are secured by the assets o f EOTT. Enron has also guaranteed $386 million in lease obligations f or w hich it has been indemni ed by an Investment Grade company. M anagement does not consider it likely that Enron w ould be required to perf orm or otherwise incur any loss-
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In 2000 and 1999, Enron entered into transactions with limited partnerships (the Related Party) w hose general partners managing member is a senior o f cer o f Enron. The limited partners o f the Related Party are unrelated to Enron. M anagement believes that the terms o f the transactions with the Related Party w ere reasonable compared to those w hich could have been negotiated with unrelated third parties. In 2000, Enron entered into transactions with the Related Party to hedge certain merchant investments and other assets. As part o f the transactions, Enron (i) contributed to ne wly-f ormed entities (the Entities) assets valued at approximately $1.2 billion, inclu din g $150 millio n in Enro n n o tes payable, 3.7 millio n restricted shares o f outstanding Enron common stock and the right to receive up to 18.0 million shares o f outstanding Enron common stock in M arch 2003 (subject to certain conditions) and (ii) transf erred to the Entities assets valued at approximately $309 million, including a $50 million note payable and an investment in an entity that indirectly holds w arrants convertible into common stock o f an Enron equity method investee. In return, Enron received economic interests in the Entities, $309 million in notes receivable, o f w hich $259 million is recorded at Enrons carryover basis o f zero, and a special distribution from the Entities in the f orm o f $1.2 billion in notes receivable, subject to changes in the principal f or amounts payable by Enron in connection with the execution o f additional derivative instruments. Cash in these Entities o f $172.6 million is invested in Enron demand notes. In addition, Enron paid $123 million to purchase share-settled options from the Entities on 21.7 million shares o f Enron common stock. The Entities paid Enron $10.7 million to terminate the share-settled options on 14.6 million shares o f Enron common stock outstanding. In late 2000, Enron entered into share-settled collar arrangements with the Entities on 15.4 million shares o f Enron common stock. Such arrangements will be accounted f or as equity transactions w hen settled. In 2000, Enron entered into derivative transactions with the Entities with a combined notional amount o f approximately $2.1 billion to hedge certain merchant investments and other assets. Enrons notes receivable balance w as reduced by $36 million as a result o f premiums o w ed on derivative transactions. Enron recognized revenues o f approximately $500 million related to the subsequent change in the market value o f these derivatives, w hich o ffset market value changes o f certain merchant investments and price risk management activities. In addition, Enron recognized $44.5 million and $14.1 million o f interest income and interest expense, respectively, on the notes receivable from and payable to the Entities. In 1999, Enron entered into a series of transactions involving a third party and the Related Party. The effect of the transactions w as (i) Enron and the third party amended certain forw ard contracts to purchase shares of Enron common stock, resulting in Enron having forw ard contracts to purchase Enron common shares at the market price on that day, (ii) the Related Party received 6.8 million shares of Enron common stock subject to certain restrictions and (iii) Enron received a note receivable, w hich
w as repaid in December 1999, and certain nancial instruments hedging an investment held by Enron. Enron recorded the assets received and equity issued at estimated fair value. In connection with the transactions, the Related Party agreed that the senior of cer of Enron w ould have no pecuniary interest in such Enron common shares and w ould be restricted from voting on matters related to such shares. In 2000, Enron and the Related Party entered into an agreement to terminate certain nancial instruments that had been entered into during 1999. In connection with this agreement, Enron received approximately 3.1 million shares of Enron common stock held by the Related Party. A put option, w hich w as originally entered into in the rst quarter of 2000 and gave the Related Party the right to sell shares of Enron common stock to Enron at a strike price of $71.31 per share, w as terminated under this agreement. In return, Enron paid approximately $26.8 million to the Related Party. In 2000, Enron sold a portion o f its dark ber inventory to the Related Party in exchange f or $30 million cash and a $70 million note receivable that w as subsequently repaid. Enron recognized gross margin o f $67 million on the sale. In 2000, the Related Party acquired, through securitizations, approximately $35 million o f merchant investments from Enron. In addition, Enron and the Related Party f ormed partnerships in w hich Enron contributed cash and assets and the Related Party contributed $17.5 million in cash. Subsequently, Enron sold a portion o f its interest in the partnership through securitizations. See Note 3. A lso, Enron contributed a put option to a trust in w hich the Related Party and W hite wing hold equity and debt interests. A t December 31, 2000, the f air value o f the put option w as a $36 million loss to Enron. In 1999, the Related Party acquired approximately $371 million o f merchant assets and investments and other assets from Enron. Enron recognized pre-tax gains o f approximately $16 million related to these transactions. The Related Party also entered into an agreement to acquire Enrons interests in an unconsolidated equity a f liate f or approximately $34 million.
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A C C OUNTING PRONOUNCEMENTS
Cumulative Effect of Accounting Changes

In 1999, Enron recorded an a f ter-tax charge o f $131 million to re ect the initial adoption (as o f January 1, 1999) o f t w o ne w accounting pronouncements, the AICPA Statement o f Position 98-5 (SOP 98-5), Reporting on the Costs o f Start-Up Activities and the Emerging Issues Task Force Issue No. 98-10, Accounting f or Contracts Involved in Energy Trading and Risk M anagement Activities. The 1999 charge w as primarily related to the adoption o f SOP 98-5.
Recently Issued Accounting Pronouncements

In 1998, t h e Fin a ncial Acco u n tin g St a n d ards Bo ard (FASB) issu e d SFAS No. 133, Acco u n tin g f or D eriva tive Instrume n ts a n d He d gin g Activities, w hich w as su bse q u e n tly ame n d e d by SFAS No. 137 a n d SFAS No. 138. SFAS No. 133 must b e a p plie d t o all d eriva tive instrume n ts a n d cert ain d eriva tive instrume n ts emb e d d e d in hybrid instrume n ts a n d re q uires t h a t such instrume n ts b e record e d in t h e b ala nce sh ee t eit h er as a n asse t or lia bility measure d a t its f air valu e t hro u g h earnin gs, w it h sp ecial acco u n tin g allo w e d f or cert ain q u alifyin g h e d g es. Enro n w ill a d o p t SFAS No. 133 as o f Ja n u ary 1, 2001. D u e t o t h e a d o p tio n o f SFAS No. 133, Enro n w ill reco g niz e a n a f t er-t ax n o n-cash loss o f a p proxima t ely $5 millio n in earnin gs a n d a n a f t er-t ax n o ncash g ain in O t h er Compre h e nsive Income, a comp o n e n t o f sh are h old ers e q uity, o f a p proxima t ely $22 millio n from t h e cumula tive e ff ect o f a ch a n g e in acco u n tin g principle. Enro n w ill also reclassify $532 millio n from Lo n g-Term D e b t t o O t h er Lia bilities d u e t o t h e a d o p tio n. Th e t o t al imp act o f Enro ns a d o p tio n o f SFAS No. 133 o n earnin gs a n d o n O t h er Compre h e nsive Income is d e p e n d e n t u p o n cert ain p e n din g in t erpre t a tio ns, w hich are curre n tly u n d er co nsid era tio n, inclu din g t h ose rela t e d t o n ormal p urch ases a n d n ormal sales a n d in a tio n escala t ors inclu d e d in cert ain co n tract p ayme n t provisio ns. Th e in t erpre t a tio ns o f t h ese issu es, a n d o t h ers, are curre n tly u n d er co nsid era tio n by t h e FASB. W hile t h e ultima t e co nclusio ns reach e d o n in t erpret a tio ns b ein g co nsid ere d by t h e FASB co uld imp act t h e e ff ects o f Enro ns a d o p tio n o f SFAS No. 133, Enro n d o es n o t b elieve t h a t such co nclusio ns w o uld h ave a ma t erial e ff ect o n its curre n t estima t e o f t h e imp act o f a d o p tio n.
17
ASSET IMPAIRMENT
In 1999, continued signi cant changes in state and f ederal rules regarding the use o f MTBE as a gasoline additive have signi cantly impacted Enrons vie w o f the f uture prospects f or this business. As a result, Enron completed a reevaluation o f its position and strategy with respect to its operated MTBE assets w hich resulted in (i) the purchase o f certain previously-leased MTBE related assets, under provisions within the lease, in order to f acilitate f uture actions, including the potential disposal o f such assets and (ii) a revie w o f all MTBE-related assets f or impairment considering the recent adverse changes and their impact on recoverability. Based on this revie w and disposal discussions with market participants, in 1999, Enron recorded a $441 million pre-tax charge f or the impairment o f its MTBE-related assets.
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19
QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly nancial data is as f ollo ws:
(In millions, except per share amounts) 2000 Revenues Income be f ore interest, minority interests and income taxes Net income Earnings per share: Basic Diluted 1999 Revenues Income be f ore interest, minority interests and income taxes Net income Earnings per share: Basic Diluted
First Q uarter $13,145 624 338 $ 0.44 0.40
Second Q uarter $16,886 609 289 $ 0.37 0.34
Third Q uarter $30,007 666 292 $ 0.37 0.34
Fourth Q uarter $40,751 583 60 $ 0.05 0.05 $
Total Year (a) $100,789 2,482 979 1.22 1.12
$ 7,632 533 122 $ 0.17 0.16
$ 9,672 469 222 $ 0.29 0.27
$11,835 520 290 $ 0.38 0.35
$10,973 473 259 $ 0.33 0.31
$ 40,112 1,995 893 $ 1.17 1.10
( a ) The sum of earnings per share for the four quarters may not equal earnings per share for the total year due to changes in the average number of common shares outstanding.
20
GEO GRAPHIC AND BUSINESS SEG MENT INFORM ATION
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Enrons business is divided into operating segments, de ned as components o f an enterprise about w hich nancial in f ormation is available and evaluated regularly by the chie f operating decision maker, or decision-making group, in deciding ho w to allocate resources to an individual segment and in assessing perf ormance o f the segment. Enrons chie f operating decisionmaking group is the O f ce o f the Chairman. Enrons chie f operating decision-making group evaluates perf ormance and allocates resources based on income be f ore interest, minority interests and income taxes (IBIT) as w ell as on net income. Certain costs related to company-wide f unctions are allocated to each segment. Ho w ever, interest on corporate debt is primarily maintained at Corporate and is not allocated to the segments. There f ore, management believes that IBIT is the dominant measurement o f segment pro ts consistent with Enrons consolidated nancial statements. The accounting policies o f the segments are substantially the same as those described in the summary o f signi cant accounting policies in Note 1. Begin nin g in 2000, Enro ns commu nicatio ns b usiness is b ein g m a n a g e d as a se p ara t e o p era tin g se g m e n t n a m e d Broadband Services and there f ore, based on criteria set by SFAS No. 131, Disclosures about Segments o f an Enterprise and Related In f ormation, is reported separately. Enro n h as divid e d its o p era tio ns in t o t h e f ollo w in g reportable segments, based on similarities in economic characteristics, products and services, types o f customers, methods o f distributions and regulatory environment. Transp ortatio n an d Distrib u tio n Re g ula t e d in d ustries. Interstate transmission o f natural gas. M anagement and operation o f pipelines. Electric utility operations. W holesale Services Energy commodity sales and services, risk management products and nancial services to w holesale customers. Development, acquisition and operation o f po w er plants, natural gas pipelines and other energy-related assets. Re t ail En ergy Services Sales o f n a t ural g as a n d electricity directly t o e n d-use cust o m ers, p articularly in t h e co m m ercial a n d in d ustrial sect ors, inclu din g t h e o u tso urcin g o f e n ergyrela t e d activities.
Broadband Services Construction and management o f a nation wide ber optic net w ork, the marketing and management o f band width and the delivery o f high-band width content. Exploration and Production Natural gas and crude oil explora tio n a n d pro d uctio n primarily in t h e U nit e d St a t es, Canada, Trinidad and India until A ugust 16, 1999. See Note 2. Corporate and O ther Includes operation o f w ater and rene w able energy businesses as w ell as clean f uels plants. Fin a ncial in f orm a tio n by g e o gra p hic a n d b usin ess se g m e n t f ollo ws f or e ach o f t h e t hre e ye ars in t h e p erio d e n d e d D ece m b er 31, 2000.
Geographic Segments
Year Ended December 31, 2000 1999 1998
(In millions) O perating revenues from una f liated customers United States Foreign Income be f ore interest, minority interests and income taxes United States Foreign Long-lived assets United States Foreign
$ 77,891 22,898 $100,789
$30,176 9,936 $40,112
$25,247 6,013 $31,260
$ $
2,131 351 2,482
$ 1,273 722 $ 1,995 $ 8,286 2,395 $10,681
$ 1,008 574 $ 1,582 $ 9,382 1,275 $10,657
$ 10,899 844 $ 11,743
Business Segments
Transportation and Distribution $2,742 213 2,955 278 565 65 25 6 71 732 270 7,509 774 $8,283 W holesale Services $93,278 1,628 94,906 343 1,668 486 9 171 (74) 2,260 1,280 43,920 4,014 $47,934 Retail Energy Services $3,824 791 4,615 38 58 (60) 74 121 5 (33) 165 70 4,266 104 $4,370 Broadband Services $ 408 408 77 (64) 1 3 (60) 436 1,313 24 $1,337 Corporate and O ther (d) $ 537 (2,632) (2,095) 119 (274) (405) 38 27 (1) (615) 325 3,201 378 $ 3,579
(In millions) 2000 Una f liated revenues (a) Intersegment revenues (b) Total revenues Depreciation, depletion and amortization O perating income (loss) Equity in earnings of unconsolidated equity afliates Gains on sales o f assets and investments Gain on the issuance o f stock by TNPC, Inc. Interest income O ther income, net Income (loss) be f ore interest, minority interests and income taxes Capital expenditures Identi able assets Investments in and advances to unconsolidated equity a f liates Total assets
Total $100,789 100,789 855 1,953 87 146 121 212 (37) 2,482 2,381 60,209 5,294 $ 65,503
(In millions) 1999 Una f liated revenues (a) Intersegment revenues (b) Total revenues Depreciation, depletion and amortization O perating income (loss) Equity in earnings of unconsolidated equity afliates Gains on sales o f assets and investments Interest income O ther income, net Income (loss) be f ore interest, minority interests and income taxes Capital expenditures Identi able assets Investments in and advances to unconsolidated equity a f liates Total assets 1998 Una f liated revenues (a) Intersegment revenues (b) Total revenues Depreciation, depletion and amortization O perating income (loss) Equity in earnings of unconsolidated equity afliates Gains on sales o f assets and investments Interest income O ther income, net Income (loss) be f ore interest, minority interests and income taxes Capital expenditures Identi able assets Investments in and advances to unconsolidated equity a f liates Total assets
(a) (b) (c) (d)
Transportation and Distribution $2,013 19 2,032 247 551 50 19 20 45 685 316 7,148 811 $7,959 $1,833 16 1,849 253 562 33 31 9 2 637 310 6,955 661 $7,616
W holesale Services $35,501 786 36,287 294 889 237 11 126 54 1,317 1,216 18,501 2,684 $21,185 $27,220 505 27,725 195 880 42 4 67 (25) 968 706 12,205 2,632 $14,837
Retail Energy Services $1,518 289 1,807 29 (81) 5 8 (68) 64 956 $ 956 $1,072 1,072 31 (124) (2) 7 (119) 75 747 $ 747
Exploration and Production (c) $ 429 97 526 213 66 (1) 65 226 -
Corporate and O ther (d) $ 651 (1,191) (540) 87 (623) 22 511 11 75 (4) 541 1,740 1,541 $ 3,281 $ 385 (655) (270) 33 (73) 24 21 11 (15) (32) 124 2,009 1,140 $ 3,149
Total $ 40,112 40,112 870 802 309 541 162 181 1,995 2,363 28,345 5,036 $ 33,381 $ 31,260 31,260 827 1,378 97 56 88 (37) 1,582 1,905 24,917 4,433 $ 29,350
$ 750 134 884 315 133 1 (6) 128 690 3,001 $3,001
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Unafliated revenues include sales to unconsolidated equity afliates. Intersegment sales are made at prices comparable to those received from unafliated customers and in some instances are affected by regulatory considerations. Reects results through August 16, 1999. See Note 2. Includes consolidating eliminations.
Selected Financial and Credit Information (Unaudited)

The f ollo wing revie w o f the credit characteristics o f Enron Corp. and its subsidiaries and a f liates should be read in conjunction with the Consolidated Financial Statements. The credit in f ormation that f ollo ws represents managements calculation o f certain key credit ratios o f Enron.
(In millions) Total Obligations Balance sheet debt (short- and long-term) Items added to liability pro le: Guarantees (a) Residual value guarantees o f synthetic leases Net liability from price risk management activities (b) Debt exchangeable f or EO G Resources, Inc. shares (c) Debt o f unconsolidated equity a f liates (d) Firm transportation obligations (e) Total Obligations Shareholders Equity and Certain Other Items Shareholders Equity Items added to shareholders equity: M inority interests Company-obligated pre f erred securities o f subsidiaries Total Shareholders Equity and Certain Other Items Funds Flow from Operations Net cash provided by operating activities Changes in w orking capital Funds Flow from Operations Interest and Estimated Lease Interest Expense Interest incurred Capitalized interest Interest and Related Charges, net Estimated Lease Interest Expense (f) Adjusted Earnings for Credit Analysis Income be f ore interest, minority interests and income taxes A djustments to IBIT: Gain on sales o f non-merchant assets Impairment of long-lived assets (including equity investments) Distributions in excess o f (less than) earnings o f unconsolidated equity a f liates Estimated lease interest expense (f) Total Adjusted Earnings for Credit Analysis Key Credit Ratios Funds o w interest coverage (g) Pretax interest coverage (h) Funds o w from operations/Total obligations Total obligations/Total obligations plus Total shareholders equity and certain other items Debt/Total Capital ( i)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
2000 $10,229
1999 $ 8,152
Source Balance Sheet
213 556 (532) $10,466
180 715 (239) $ 8,808
Note 15 Note 15 Balance Sheet Note 7 Note 9 Note 15
$11,470
$ 9,570
Balance Sheet
2,414 904 $14,788
2,430 1,000 $13,000
Balance Sheet, Note 8 Balance Sheet, Note 10
$ 4,779 1,769 $ 3,010
$ 1,228 (1,000) $ 2,228
Cash Flo w Statement Cash Flo w Statement
$ $ $
876 (38) 838 106
$ $ $
710 (54) 656 124
M anagements Discussion and A nalysis Income Statement
$ 2,482
$ 1,995
Income Statement
(146) 326 (276) 106 $ 2,492
(541) 441 173 124 $ 2,192
Cash Flo w Statement Cash Flo w Statement Note 9
4.07 2.54 28.8% 41.4% 40.9%
3.67 2.63 25.3 % 40.4 % 38.5 %
52
Management estimates Enrons risk adjusted exposure on uncollateralized guarantees is approximately 10% of the total nominal value of the guarantees issued. Excess of price risk management liabilities over price risk management assets. Enron expects to extinguish this obligation by delivering shares of EO G Resources, Inc. stock. Debt of unconsolidated equity afliates is non-recourse and therefore is excluded from Enrons obligations. Firm transportation obligations are excluded, as contracted capacity has market value. Management estimates Enrons lease interest expense for the year based on the average minimum lease payment or commitment (excluding principal repayments and other items). Calculated as funds ow from operations plus interest incurred and estimated lease interest expense, divided by interest incurred and estimated lease interest expense. Calculated as total adjusted earnings divided by interest incurred and estimated lease interest expense. Total capital includes debt, minority interests, company-obligated preferred securities of subsidiaries and shareholders equity.
OUR VALUES
Communication We have an obligation to communicate. Here, we take the time to talk with one another and to listen. We believe that information is meant to move and that information moves people. Respect We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Integrity We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we wont do it. Excellence We are satised with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.
53
Board of Directors
ROBERT A. BELFER (1, 3) Ne w York, Ne w York Chairman, Belco O il & Gas Corp. N ORM A N P. BLA KE, JR. (3, 4) Colorado Springs, Colorado Chairman, President and CEO , Comdisco, Inc., and Former CEO and Secretary General, United States O lympic Committee RO NNIE C. CH A N (2, 3) Hong Kong Chairman, Hang Lung Group JO HN H. DUNCA N (1*, 4) Houston, Texas Former Chairman o f the Executive Committee of Gulf & Western Industries, Inc.
WENDY L. GRA M M (2, 5) W ashington, D.C. Direct or o f t h e Re g ula t ory St u dies Pro gra m o f t h e M erca t us Ce n t er a t G e org e M aso n U niversity Former Chairman, U.S. Commodity Futures Trading Commission KEN L. H ARRISO N Portland, O regon Former Chairman and CEO , Portland General Electric Company ROBERT K. JAEDICKE (2*, 4) Stan f ord, Calif ornia Pro f essor o f Accounting (Emeritus) and Former Dean, Graduate School o f Business, Stan f ord University KENNETH L. LAY (1) Houston, Texas Chairman, Enron Corp. CH ARLES A. LEM AISTRE (1, 4*) San A ntonio, Texas President Emeritus, University o f Texas M .D. A nderson Cancer Center
JO HN MENDELSO HN (2, 5) Houston, Texas President, University o f Texas M .D. A nderson Cancer Center JERO ME J. MEYER (3, 5) W ilsonville, O regon Chairman, Tektronix, Inc. PA ULO V. FERRAZ PEREIRA (2, 3) Rio de Janeiro, Brazil Executive Vice President o f Group Bozano Former President and CO O , M eridional Financial Group, and Former President and CEO , State Bank o f Rio de Janeiro, Brazil FRA NK SAVA GE (3, 4) Stamf ord, Connecticut Chairman, A lliance Capital M anagement International (a division o f A lliance Capital M anagement L.P.) JEFFREY K. SKILLING (1) Houston, Texas President and CEO , Enron Corp.
54
JO HN A. URQ UH ART (3) Fair eld, Connecticut Senior A dvisor to the Chairman, Enron Corp., President, John A. Urquhart Associates, and Former Senior Vice President o f Industrial and Po w er Systems, General Electric Company JO HN W A KEH A M (2, 5*) London, England Former U.K. Secretary o f State f or Energy and Leader o f the Houses o f Lords and Commons HERBERT S. WIN O KUR, JR. (1, 3*) Green wich, Connecticut President, W inokur Holdings, Inc., and Former Senior Executive Vice President, Penn Central Corporation
FRO M LEFT TO RIGHT: Top ro w: John M endelsohn, Jeffrey K. Skilling and Frank Savage M iddle ro w: Charles A. Le M aistre, Ronnie C. Chan, Herbert S. W inokur, Jr., Kenneth L. Lay, W endy L. Gramm, Robert K. Jaedicke, John W akeham and Robert A. Belfer Bottom ro w: John H. Duncan, Paulo V. Ferraz Pereira, John A. Urquhart, Norman P. Blake, Jr., Ken L. Harrison and Jerome J.M eyer
Executive Committee A udit Committee (3) Finance Committee (4) Compensation Committee (5) Nominating Committee * Denotes Chairman
(1) (2)
55
Enron Corporate Policy Committee

KEN LAY
Chairman, Enron
CLIFF BAXTER
Vice Chairman & Chie f Strategic O f cer, Enron
STAN HORTON
Chairman & CEO , Enron Transportation Services
JEFF SKILLING
President and Chie f Executive O f cer, Enron
RICK C AUSEY
Executive Vice President & Chie f Accounting O f cer, Enron
STEVE KEAN
Executive Vice President & Chie f o f Sta ff, Enron
DAVE DELAINEY
Chairman & CEO , Enron Energy Services
LOU PAI
Chairman & CEO , Enron Xcelerator
JIM DERRICK
Executive Vice President & General Counsel, Enron
KEN RICE
Chairman & CEO , Enron Broadband Services
ANDY FASTO W
Executive Vice President & Chie f Financial O f cer, Enron
JOHN SHERRIFF
President & CEO , Enron Europe
M ARK FREVERT
Chairman & CEO , Enron W holesale Services
GREG WHALLEY
President & CO O , Enron W holesale Services
KEVIN HANNON
Chie f O perating O f cer, Enron Broadband Services
Shareholder Information
TRANSFER A GENT, REGISTRAR, DIVIDEND PAYING AND REINVESTMENT PLAN A GENT (DIRECTSERVICE PRO GRA M)
First Chicago Trust Company c/o EquiServe P. O . Box 2500 Jersey City, NJ 07303-2500 (800) 519-3111 (201) 324-1225 TDD: (201) 222-4955 For direct deposit o f dividends only, call: (800) 870-2340 Internet address: http://w w w.equiserve.com Financial analysts and investors w ho need additional information should contact: Enron Corp. Investor Relations Dept. P. O . Box 1188, Suite 4926B Houston, TX 77251-1188 (713) 853-3956 Enrons Internet address: http://w w w.enron.com in t h e DirectSERVICE Pro gra m f or Shareholders o f Enron Corp. This program gives almost everyone the opportunity to purchase additional shares o f Common Stock without paying a brokerage commission. A nyone wishing to participate in the program may, upon timely application, reinvest some, all, or none o f the cash dividends paid on their Common Stock, or make optional cash payments o f as little as $25, a f ter an initial investment o f $250 f or ne w shareholders, with a limit o f $120,000 per calendar year. Direct requests f or f urther in f ormation to: DirectSERVICE Pro gra m f or Sh are h old ers o f Enro n Corp. c/o First Chica g o Trust Co m p a ny c/o Eq uiServe P. O . Box 2598 Jersey City, NJ 07303-2598 Sh are h old ers m ay call: (800) 519-3111 N o n-sh are h old ers re q u ests f or pro gra m m a t erials: (800) 662-7662 In t ern e t a d dress: h t t p://w w w.e q uiserve.co m TD D: (201) 222-4955
ANNUAL MEETING OF SHAREHOLDERS

The A nnual M eeting of Shareholders will be held in Houston, Texas, in the LaSalle Ballroom of the Doubletree Hotel at Allen Center, 400 Dallas Street, on Tuesday, M ay 1, 2001, at 10 a.m. Information with respect to this meeting is co n t ain e d in t h e Proxy St a t e m e n t se n t with this A nnual Report to holders o f record o f Enro n Corp.s Co m m o n St ock a n d t h e Cu m ula tive Seco n d Pre f erre d Co nvertible St ock o n M arch 2, 2001. Th e 2000 A n n u al Re p ort is n o t t o b e co nsid ere d a p art o f t h e proxy solicitin g m a t erial.
2000 ANNUAL REPORT

This A n n u al Re p ort a n d t h e st a t e m e n ts co n t ain e d h erein are su b mit t e d f or t h e general information of the shareholders of Enron Corp. and are not intended for use in connection with or to induce the sale or purchase o f securities.
ADDITIONAL INFORM ATION

Enron Corp.s A nnual Report to shareholders and Form 10-K report to the Securities and Exch a n g e Co m missio n are availa ble u p o n re q u est o n Enro ns In t ern e t a d dress http://w w w.enron.com For in f ormation regarding speci c shareholder questions, write or call the Transf er A gent.
DIVIDEND REINVESTMENT
Th e Tra nsf er A g e n t o ff ers h old ers o f Enro n Corp. Co m m o n St ock t h e o p p ort u nity t o reinvest p art or all o f t h eir divid e n ds in t h e p urch ase o f a d ditio n al shares of Common Stock by participating
56
1400 Smith Street Houston, Texas 77002-7361 www.enron.com
2001 Enron Corp. Enron and the Enron logo are registered trademarks, and Endless possibilities, Enron O nline, DealBench, energydesk.com, Commoditylogic and Clickpaper.com are trademarks o f Enron Corp. or one o f its subsidiaries. O ther company, product and services names may be trademarks o f others.

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Enron Annual Report 2000

Enron Annual Report 2000

1,266 (287) 979

957 (64) 893

515 (410) 105

1.47 (0.35) 1.12 0.50

1.18 (0.08) 1.10 0.50 33,381

1.00 0.01 1.01 0.48 29,350

0.87 (0.71) 0.16 0.46 22,552

0.91 0.17 1.08 0.43 16,137

40.1 31.3 20.3

Earnings Per Diluted Share (in dollars)

OPERATING RESULTS 1,415%

CUMULATIVE TOTAL RETURN (through December 31, 2000)

ENRO N A N N U AL REPORT 2000

outdistance the competition

Enrons performance in 2000 was a success by any measure, as we continued to

contracts with a total value o f $16.1 billion o f cus-

32.4 27.3 8.5

Other Electricity Natural Gas 98 99 00

ENRON ENERGY SERVICES VALUE OF CONTRACTS ORIGINATED ($ in billions)

Kenneth L. Lay Chairman

Je ffrey K. Skilling President and Chie f Executive O f cer

ENRON BROADBAND SERVICES 2000 BANDWIDTH TRANSACTIONS

steel, coal and air-emissions credits and the

ENRO N A N N U AL REPORT 2000

ENRO N A N N U AL REPORT 2000 M A KES M ARKETS

ENRON WHOLESALE SERVICES

with less invested capital.

m ore e fficie n t a n d resp o nsive t o cust o m er n e e ds.

One Coal Contract Covers All Logistics

ENRO N A N N U AL REPORT 2000

Enron Wind Corp.

ENRON ENERGY SERVICES

dyn a mic glo b al re t ail b usin ess t o drive co m p a ny

ENRON BROADBAND SERVICES

The Value of Bandwidth Intermediation

particular technology. We use the best solution at

ENRON TRANSPORTATION SERVICES

Purchasing Capacity Through EnronOnline

ENRO N A N N U AL REPORT 2000

Partners o w ns a 70 percent general partner interest

ENRO N A N N U AL REPORT 2000

Managements Discussion and Analysis of Financial Condition and R esults of Operations

Net income includes the f ollo wing:

RESULTS OF OPERATIONS Consolidated Net Income

345 (278) (131) $ 893

Diluted earnings per share of common stock w ere as follo ws:

0.45 (0.36) (0.17) $ 1.10

0.07 (0.06) $ 1.01

Income Before Interest, Minority Interests and Income Taxes

Transportation and Distribution

Signi cant components o f IBIT are as f ollo ws:

11.3 23.2 19.7 20.0 719

8.6 17.3 23.6 15.6 704

Portland General. Portland General realized IBIT as f ollo ws:

ENRO N A N N U AL REPORT 2000

ENRO N A N N U AL REPORT 2000

Retail Energy Services

121 (59) $ 165 $

ENRO N A N N U AL REPORT 2000

Corporate and Other