Subject: Heartland Industrial Partners
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked]
Date: Fri, 9 Feb 2001 10:01:00 -0800 (PST)

Richard, it is my understanding that this investment is currently in Ray 
Bowen's business.  In my ENA shoes, I would say we would have no interest in 
taking on that responsibility.  In my EES shoes, I would like to take a 
closer look at the possible connections.  Please send me some info on the 
investment fund and their current investments portfolio.

I have also heard that Tom White has been talking to you about EES taking on 
the Catalytica investment.  With my EES shoes on, no way!!!!

Regards
Delainey
---------------------- Forwarded by David W Delainey/HOU/ECT on 02/09/2001 
05:56 PM ---------------------------

Richard Lydecker@ENRON
02/07/2001 09:01 AM
To: David W Delainey/HOU/ECT@ECT
cc: Brian Redmond/HOU/ECT@ECT, Wes Colwell/HOU/ECT@ECT 
Subject: Heartland Industrial Partners

Dave, in May 2000 Enron North America committed to invest up to $30 million 
in Heartland Industrial Partners L.P., a private equity fund.  The terms of 
the fund investment are fairly typical (and not particularly exciting for a 
limited partner such as we).  The deal was "sold" on the basis of ENA getting 
exclusive rights to provide energy management services to companies owned by 
the fund if these were cost effective.  The claimed benefits for the energy 
management tie were calculated at $20 - 50 million.  The deal was originated 
by Brad Dunn who now is in EIM.   Ownership of this commitment had been 
assigned to Jim Ajello.

The kinds of energy management services associated with this deal are now 
provided by EES.  While they are happy to exploit any opportunity, their 
business plan does not contemplate investment substantial capital in this 
kind of deal.  In short, they have no interest in picking up the commitment 
(and capital employed) via an intercompany transfer.

Private equity funds such as this are highly illiquid by design and the 
normal investment cycle is at least 5 - 7 years.  The Heartland partnership 
has a 10-year life,  Enron did negotiate the right to sell its LP interest 
after 3 years.  As a practical matter, that right guarantees neither a fair 
price or even a market.

There is no logical home for this investment that I know of in ENA except in 
my portfolio.  Question: is this an ENA responsibility or would it move to 
EIM's balance sheet?  If we (ENA) have no choice but to retain the 
investment, my group will take responsibility for it and do our best to 
monetize funds invested to-date (about $6 million) and sell the remaining 
commitment.  Since the fund itself is still marketing limited partnership 
interests, however, it will be extremely difficult to get out of our 
investment/commitment in the foreseeable future.  Under any circumstances 
finding a buyer will be time-consuming and expensive.  (This is a poster 
child for "patient" investment capital).

I want to ensure that you are aware of the situation in case your view is 
that the obligation should be transferred to EIM which I believe has assumed 
the charter of the ENA group that formerly managed this investment.  Dick.