Message-ID: <25772740.1075844284258.JavaMail.evans@thyme>
Date: Wed, 22 Nov 2000 03:12:00 -0800 (PST)
From: tod.lindholm@enron.com
To: rod.hayslett@enron.com
Subject: Re: Capital Charge and Calculating Return on Invested Capital
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Since ETS has third party debt on it's books, the debt and cost of carry will 
be excluded from the calculation so as not to double count.  

Rick wants it to actualy be booked.  I lean towards just calculating it and 
not actually make entries (I know that entries will cause all sorts of 
additional issues).   Nothing has been formalized yet.





Rod Hayslett

11/22/2000 11:01 AM
To: Tod A Lindholm/NA/Enron@Enron
cc:  

Subject: Re: Capital Charge and Calculating Return on Invested Capital  

What do we do with debt on the books of the entities?  Ignore it?   And my 
understanding is that this will not be used for actual booking of anything  
in the books,




Tod A Lindholm
11/22/2000 10:31 AM
To: Wes Colwell/HOU/ECT@ECT, Fernley Dyson/LON/ECT@ECT, Kevin 
Hughes/HOU/EES@EES, Rod Hayslett/FGT/Enron@ENRON, John Echols/Enron 
Communications@Enron Communications, Mark E Lindsey/GPGFIN/Enron@ENRON, Sally 
Beck/HOU/ECT@ECT, Brent A Price/HOU/ECT@ECT, Kent Castleman/NA/Enron@Enron, 
Jeffrey E Sommers/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Carol 
Howes/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Howard Selzer/Corp/Enron@ENRON, 
Keith Marlow/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Dave 
Gunther/NA/Enron@Enron, Kenny Bickett/HOU/AZURIX@AZURIX, MARY 
TURINA/ENRON@enronxgate, Barry Schnapper/Corp/Enron@Enron, Paul 
Chivers/LON/ECT@ECT, Rob G Gay/NA/Enron@Enron, Jeremy Thirsk/SIN/ECT@ECT, 
Ananda Mukerji/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Stephen H 
Friedlander/EWC/Enron@Enron, Joseph Deffner/HOU/ECT@ECT, Larry 
Derrett/HOU/EES@EES, Kevin Howard/Enron Communications@Enron Communications, 
Michael Anderson/HOU/AZURIX@AZURIX, Bill W Brown/HOU/ECT@ECT
cc: Richard Causey/Corp/Enron@ENRON, Ben F Glisan/HOU/ECT@ECT, Mary 
Perkins/HOU/ECT@ECT, Tim DeSpain/HOU/ECT@ECT, Jordan Mintz/HOU/ECT@ECT, Bob 
Butts/GPGFIN/Enron@ENRON, Wanda Curry/HOU/EES@EES, Mary Lynne 
Ruffer/HOU/ECT@ECT, Maroun J Abboudy/LON/ECT@ECT, Mike Deville/HOU/ECT@ECT 

Subject: Capital Charge and Calculating Return on Invested Capital

Over the last few months, we have been working on a new methodology to 
measure and report business unit's retrurns on invested capital.   Several 
different variations were considered, and I am glad to report that Skilling, 
Causey and Fastow have approved the process outlined here.

Simply stated (with an example shown below):  Return on equity will be 
calculated based on a pre-determined debt/equity structure.  Business unit 
capital will include both on-balance sheet and off-balance sheet uses of 
capital and business unit's will be charged for the cost of their debt at 
Enron's cost of funds.  Business unit's should focus on improving their 
return on equity over time.

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This metric will not replace other targets (i.e., IBIT and Funds Flow).  

We are currently working to overlay this approach to the submitted 2001 
Plans.  If you have questions, please contact myself or Mike Deville.