Enron has entered into a variety of transactions with California
utilities, the Power Exchange, the Independent System Operator, end
users of energy in California, and other third parties, and is owed
amounts by certain of these entities.  Enron has established reserves
related to such activities and believes that the combination of such
reserves in accounts receivables and other credit offsets with such
parties are adequate to cover its exposure to developments in the
California power market.  Due to the uncertainties involved, the
ultimate outcome of the California power situation cannot be predicted,
but Enron believes these matters will not have a material adverse
impact on Enron's financial condition or results of operations.

4. EARNINGS PER SHARE

   The computation of basic and diluted earnings per share is as
follows (in millions, except per share amounts):
                                                        Six Months Ended
                                        Second Quarter      June 30,
                                         2001    2000     2001    2000
Numerator:
  Basic
     Income before cumulative effect
      of accounting changes             $ 404   $ 289    $ 810  $ 627
     Preferred stock dividends:
       Second preferred stock              (4)     (4)      (8)    (8)
       Series B Preferred Stock           (17)    (17)     (33)   (33)
     Income available to common
      shareholders before cumulative
      effect of accounting changes        383     268      769    586
     Cumulative effect of accounting
      changes                               -       -       19      -
     Income available to common
      shareholders                      $ 383   $ 268    $ 788  $ 586
  Diluted
     Income available to common
      shareholders before cumulative
      effect of accounting changes      $ 383  $ 268    $ 769  $ 586
     Effect of assumed conversion
      of dilutive securities:
       Second preferred stock               4       4        8      8
       Series B Preferred Stock            17      17       33     33
     Income before cumulative effect
      of accounting changes               404     289      810    627
     Cumulative effect of accounting
      changes                               -       -       19      -
     Income available to common
      shareholders after assumed
      conversions                       $ 404   $ 289    $ 829  $ 627
Denominator:
  Denominator for basic earnings per
   share - weighted-average shares        757     733      755    728
  Effect of assumed conversion of
   dilutive securities:
     Preferred Stock:
       Second Preferred Stock              32      35       33     35
       Series B Preferred Stock            50      50       50     50
     Stock options and other equity
      instruments                          52      44       44     44
  Dilutive potential common shares        134     129      127    129
  Denominator for diluted earnings per
   share - adjusted weighted-average
   shares and assumed conversions         891     862      882    857
Basic earnings per share:
  Before cumulative effect of
   accounting changes                   $0.51   $0.37    $1.02   $0.80
  Cumulative effect of accounting
   changes                                  -       -     0.02      -
  Basic earnings per share              $0.51   $0.37    $1.04   $0.80
Diluted earnings per share:
  Before cumulative effect of
   accounting changes                   $0.45   $0.34    $0.92   $0.73
  Cumulative effect of accounting
   changes                                  -       -     0.02      -
  Diluted earnings per share            $0.45   $0.34    $0.94   $0.73


8.  RELATED PARTY TRANSACTIONS

   During the second quarter of 2001, Enron did not
recognize any material revenues or income from transactions
with the limited partnerships discussed below.  Additionally,
the senior officer, who previously was the general partner of
these partnerships, sold all of his financial interests as of
July 31, 2001, and no longer has any management responsibilities
for these entities.  Accordingly, such partnerships are no longer
related parties to Enron.

   All transactions with these partnerships (the Partnerships)
have been approved by Enron's senior risk officers as well as
reviewed annually by the Board of Directors.  Management believes
that the terms of the transactions were reasonable compared
to those which could have been negotiated with unrelated
third parties.

   In the first quarter of 2001, Enron entered into transactions
with the Partnerships, now unrelated, to hedge certain
merchant investments and other assets. As part of these
transactions, Enron has entered into agreements with
entities formed in 2000 (the Entities), which included the
obligation to deliver 12 million shares of Enron common
stock in March 2005 (the Commitment) and entered into
derivative instruments which eliminated the contingent
nature of existing restricted forward contracts executed in
2000. The Commitment and the shares to be delivered under
the derivative instruments are restricted through March
2005. In exchange, Enron received notes receivable from the
Entities totaling approximately $827.6 million. In addition,
Enron entered into share settled costless collar
arrangements with the Entities on the 12 million shares of
Enron common stock. Such transactions will be accounted for
as equity transactions when settled. Enron received a $6.5
million note receivable from the Entities to terminate share-
settled options on 7.1 million shares of Enron common stock.
The transactions resulted in non-cash increases to non-
current assets and equity.

   In the first half of 2001, Enron recognized net revenues
of approximately $241.1 million (of which $5.0 million
related to the second quarter), primarily related to the
change in the market value of derivatives instruments
entered into with the Entities in 2000 to hedge certain
merchant investments and other assets. Revenues recognized
on the derivative instruments offset market value changes of
certain merchant investments and price risk management
activities. In addition, Enron and the Entities terminated
certain derivative instruments (originally entered into in
2000) with a combined notional value of approximately $727.2
million. Enron received note receivables from the Entities
for approximately $133.3 million related to such
terminations. At June 30, 2001, cash in the Entities of $156
million was invested in Enron demand notes. Enron recognized
$63 million and $10 million of interest income and interest
expense, respectively, on notes receivable from and notes
payable to the Entities.  In the second quarter of 2001,
Enron acquired investments from the Partnerships for
approximately $36.6 million.

   In the first half of 2001, Enron received approximately
$241.8 million from Whitewing Associates, LP (Whitewing), an
unconsolidated equity affiliate, related to securitizations.
In the second quarter of 2001, Enron acquired investments
from Whitewing for approximately $28.8 million.  No gains
were recorded by Enron in connection with these
transactions.  Management believes that these transactions
are reasonable compared to those which could have been
negotiated with third parties.