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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION


 
In the Matter of
 
Applications of Enron Corp.
for Exemptions Under the
Public Utility Holding Company Act
of 1935, (Nos. 70-9661 and 70-10056).
 

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Administrative Proceeding
 
File No. 3-10909

OPPOSITION OF ENRON CORP. TO THE DIVISION OF INVESTMENT MANAGEMENT'S MOTION FOR EXPEDITED CONSIDERATION

I. INTRODUCTION

Enron Corp. ("Enron") respectfully requests that the Commission deny the motion of the Division of Investment Management ("Division") to compress the briefing schedule in the above-referenced proceeding and expedite the Commission's consideration of the initial decision by Chief Administrative Law Judge Brenda Murray.

The Division attempts to create a sense of urgency with respect to this proceeding that does not stand up under the scrutiny of careful review when all of the relevant facts are at hand. Not only has the Division omitted important facts in its motion, but it has failed to offer any persuasive evidence for its allegations that an expedited schedule is in any way appropriate. Indeed, in a proceeding of this complexity, failure to adhere to the schedule set out in the Commission's order of June 11, 20031 could result in prejudice to Enron in its ability to present its position to the Commission.

The Division omits any mention of a highly relevant fact in its motion. Although not discernible from the Division's motion, the simple fact is that the Commission already has the ability to raise, appear and be heard on any issue in Enron's chapter 11 case.2 Indeed, pursuant to a notice of appearance dated December 10, 2001, the Commission did appear in Enron's chapter 11 case and requested service of papers. Thereafter, the Commission has appeared on several occasions and has been heard, including with regard to the most sensitive matters in the case - the requests for appointment of a chapter 11 trustee and the consequent negotiations of the order to resolve such matters. Similarly, once Enron files its chapter 11 plan of reorganization (the "Plan"), consistent with the Bankruptcy Code, the Commission will be entitled to be heard by the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court") with respect to any aspect of the Plan and the corresponding disclosure statement, a role undertaken by the Commission in countless other cases. In addition to being available now, this approach has the added advantage of not requiring an entirely new, duplicative and time-consuming proceeding in order to air any issue that the Commission may have with respect to the Plan.

The Division also is disingenuous to suggest that Enron is unregulated and apt to commit an action that would harm the interests protected by the Public Utility Holding Company Act of 1935 (the "Act"). Enron's actions today are subject to the full oversight of the Bankruptcy Court, the Official Committee of Unsecured Creditors, the US Trustee,3 and all other parties in interest. Enron's actions outside the ordinary course of business are subject to Bankruptcy Court authorization. Portland General Electric Company ("PGE"), Enron's only public utility subsidiary company, also is regulated by the Oregon Public Utility Commission ("OPUC"). The OPUC effectively regulates PGE, and Enron's relationship with PGE, to ensure that PGE's consumers are protected. Indeed, the OPUC has intervened in this proceeding in support of Enron's application for an exemption as an intrastate holding company and has stated in its filings with the Commission that it possesses the necessary jurisdiction to effectively regulate PGE.4 There are no exigent circumstances that would require the expedited consideration that the Division seeks. Indeed, as set forth more fully below, even though the Plan may be filed shortly, it is anticipated that such Plan will be amended and that solicitation of acceptances with respect thereto will not commence prior to the conclusion of the briefing schedule set forth in the Briefing Order.

In addition, the abbreviated briefing, argument and decision schedule that the Division requests is simply not sensible. The Division would compress the preparation of briefs in support of review, briefs in opposition, reply briefs, oral argument, and the Commission's decision, all in the months of July and August, since June is largely behind us. Enron's management has been intensely involved in the preparation of the Plan, which Enron expects to file with the Bankruptcy Court in the immediate future. Moreover, both the Bankruptcy Court and the United States District Court for the Southern District of Texas having jurisdiction over Enron's securities litigation have appointed a joint mediator to help resolve significant pending litigation and claims for and against Enron in connection with the chapter 11 case. Such mediation will be extremely time consuming and will divert considerable attention from Enron's management. Priorities and timetables for these and other current projects were defined in accordance with the briefing schedule issued by the Commission on June 11, 2003 and it would be prejudicial to Enron to shorten the schedule in such a significant manner. Enron would simply not be able to devote the attention and resources that are necessary to fully brief the important issues in this case in such a short period of time, while, at the same time, addressing the court-mandated mediation process and the Plan, including the anticipated amendments thereto. In addition, given that these months are traditionally when families take vacation both in the government and in the private sector, such a schedule would be very difficult to meet, not just for Enron, but for other parties and participants in this proceeding such as the OPUC, FPL Group, Inc. and Southern California Edison ("Edison").

II. DISCUSSION

The Division's proposed, highly compressed schedule would set the stage for a rush to judgment, rather than careful consideration of the matters raised in the petitions for review. Contrary to the Division's assertion, there are important and complex issues for the Commission to consider that require thorough and careful briefing. It is a testimony to the complexity of the issues involved that petitions for review were filed not just by Enron, but also by the OPUC, FPL Group, Inc. and Edison. Other pleadings were also filed by the Edison Electric Institute and the National Association of Regulatory Utility Commissioners. None of these other entities is seeking to defend Enron, yet they identified significant issues in the ALJ's initial decision that prompted them to call for the Commission's reconsideration of this matter. The issues raised by Enron and the other participants deserve the opportunity to be adequately briefed and, consequently, the schedule set forth in the Commission's Briefing Order should stand.

The Division also is mistaken when it alleges that prior briefs in this matter fully addressed all possible arguments and facts and that further briefing would be repetitive. Enron has, over the months since this proceeding began, been engaged in a dramatic transformation under chapter 11. Possibly the most significant milestone in this process to date will be the filing of the Plan. The contents of the Plan are a central aspect of this case because the Plan will address the disposition of PGE and Enron's other assets. In particular, as it is expected to be proposed, the Plan would result in the effective dissolution of Enron through the distribution of its assets to creditors. In that process, PGE's shares would either be distributed outright to creditors in satisfaction of their claims or sold to a third party, with the proceeds thereof distributed to creditors. After the Plan is confirmed by the Bankruptcy Court and becomes effective, the ultimate dissolution of Enron for the benefit of Enron's creditors and the divestiture of PGE as part thereof will become effectively irrevocable. The result of the Plan, therefore, will be to bring into effect the ultimate remedies possible under the Act - the divestiture of a public utility subject to holding company control, the elimination of a holding company, and the simplification of a complex holding company system. Importantly, the result of the Plan also will be the end of any basis for jurisdiction by the Commission over Enron under the Act.

It is certainly relevant to the Commission's consideration of this matter that, within a relatively short period of time, Enron may cease to be a holding company because of the operation of the Plan. Two of the exemptions that Enron applied for involved the issue of whether Enron was incidentally a holding company or temporarily a holding company. The ALJ considered testimony about Enron's efforts to divest itself of PGE and the possible requirement that, under a to-be-proposed plan of reorganization, PGE would be divested. At that time, months ago, the structure of Enron's chapter 11 reorganization was still uncertain and the ALJ declined to consider PGE's possible divestiture on the grounds that it was too speculative.

The Plan that Enron will file is not speculative. The impact on Enron's status as a holding company when the Plan becomes effective and is implemented is an important fact that has not been briefed, will be ripe for examination when the Plan is filed, and deserves consideration. Enron respectfully requests the full opportunity granted by the Commission to brief relevant issues such as this so that the Commission is able to consider all relevant facts.5

The Division notes in its motion that the briefs in this matter were substantial. Their size is a testament to the complexity of this proceeding. This case involves three separate exemptions under the Act, information about utility operations and industry practice, and the applicability of GAAP utility accounting standards to the exemption determination. Enron presented the testimony of ten witnesses and several exhibits.

The ALJ also recognized the complexity of this matter and identified policy issues that the Commission may well feel it should address.6 A compressed briefing and decision schedule could present an obstacle to effectively addressing these issues and deny the Commission the opportunity to carefully consider the important policy implications of its decision. Simply put, well-considered briefs, and the time to examine them, are essential if the Commission is to reach a well-considered decision.

The Division's motion seeks to create a sense of urgency, but, when examined closely with all of the relevant facts close at hand, the Division's claims prove hollow. The Division argues that it is important for the Commission to act rapidly so that the Commission can exercise its powers under Section 11(f) of the Act to review and approve the Plan or, perhaps, propose one of its own design. Inexplicably, however, the Division has failed to mention anywhere in its motion the important fact that the Commission already has the ability to be heard on any issue that it wishes with respect to Enron's reorganization in bankruptcy.

As noted above, pursuant to section 1109(a) of the Bankruptcy Code, the Commission presently has standing to appear and be heard on any issue in a chapter 11 case. The Commission can comment on the Plan and object to the consummation of the Plan or to the adequacy of the information contained in the corresponding disclosure statement to the extent that the Commission considers additional information to be in the interest of investors and the public interest. This participation would take place in the context of the Bankruptcy Court forum where all the other stakeholders in this proceeding also can and do participate. As the overall Plan process is contemplated to take approximately six months, the Commission would have more than sufficient time to address its concerns in the Bankruptcy Court.

In contrast, the Division would have the Commission rush to open a second forum in this bankruptcy case - and not simply a parallel forum, but a second forum that must consider and rule on the Plan before the Plan could even be submitted to the Bankruptcy Court.7 Opening a second forum for the consideration of the Plan that is separate and apart from the Bankruptcy Court and which must reach its decision prior to consideration of the Plan in the Bankruptcy Court would unavoidably delay the implementation of the Plan and add millions to the current cost of administering the debtors' chapter 11 estates. In the most recent bankruptcy plan of a registered holding company considered by the Commission, there was about a four month period between the filing of the reorganization plan with the Commission and the issuance of a Commission report authorizing the plan and the solicitation of creditor consents.8 For obvious reasons, such an outcome would not be in the public interest or the interest of the debtors' creditors. Enron requests that the Commission reject the Division's motion and stand by the briefing schedule in its June 11, 2003 order so that these important issues can be adequately developed and presented to the Commission for review.

III. CONCLUSION

The Division has failed to demonstrate that exigent circumstances require a shortened briefing schedule. Quite the contrary, the schedule set out by the Commission in the Briefing Order seems entirely appropriate under the circumstances. There are many issues in this complex case that should be adequately and fully briefed to the Commission. Enron and in all likelihood the other participants in the proceeding that have also taken exception to the ALJ's initial decision need this opportunity. That the briefing schedule occurs over the summer months when many key persons will undoubtedly be unavailable at various times, and during a time when Enron's management is also focused on finalizing the Plan, also demonstrates that a shortened time period would pose a hardship.

Wherefore, for the foregoing reasons, Enron respectfully requests that the Commission deny the Division's motion and affirm its June 11, 2003 Briefing Order.

Respectfully submitted,

 

__________________________________
William S. Lamb
Charles A. Moore
Sonia Mendonca
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street,
New York, New York 10019-5389

Attorneys for Enron Corp.

Dated: June 25, 2003

 

 


1 Order Granting Petitions for Review, Denying Motion for Leave to Intervene Out of Time, and Scheduling Briefs, Holding Co. Act Rel. No. 27685 (June 11, 2003) (the "Briefing Order")
2 The Commission has filed a notice of appearance in the consolidated bankruptcy cases of Enron and its debtor subsidiaries under section 1109(a) of title 11 of the United States Code (the "Bankruptcy Code"). Section 1109(a) provides that "[t]he Securities and Exchange Commission may raise and may appear and be heard on any issue in a case under this chapter [11 USC §§ 1101 et seq.], but the Securities and Exchange Commission may not appeal from any judgment, order, or decree entered in the case." 11 USC § 1109 (2003).
3 The U.S. Trustee monitors the progress of a chapter 11 case, supervises the administration of the business by the debtor in possession, and reviews the debtor's monthly operating reports and applications for compensation by attorneys and other professionals involved in the case. In Debtors' cases, the U.S. Trustee, upon direction of the Bankruptcy Court, has appointed examiners to conduct investigations into Enron's pre-petition affairs. The U.S. Trustee program is administered by the Department of Justice.
4 Specifically, the OPUC has stated that:

The OPUC has adequate authority to regulate Portland General's utility activities. The OPUC regulates the rates that Portland General charges in connection with its primary business of providing retail electric services solely within the State of Oregon. ORS 756.040(1).

The OPUC believes that it has adequate authority to regulate Portland General's utility activities regardless of whether Portland General trades at the Oregon border or elsewhere, such as the Mid Columbia trading hub. The OPUC effectively regulates these Portland General activities through the regulatory scheme provided for in Oregon. Although Portland General enters into some wholesale transactions outside of Oregon, the OPUC has access to the books and records of these transactions. Whether or not wholesale power sales take place on the Oregon side of the border or outside of Oregon does not affect the ability of the OPUC to protect Portland General's retail customers.

OPUC Opening Brief, at p. 3
5 Enron is considering filing a motion for leave to adduce additional evidence about the Plan so that the Commission can fully weigh this development in the context of the present matter.
6 Enron's expert questions whether the Commission intends to examine other utilities that have followed government policies and disposed of owned generation and increased their activities in trading electricity in interstate markets. (Hawes at 17.) These concerns raise policy issues that deserve consideration in another forum, but they are not relevant to a determination of whether this application meets the terms of the statute." In the Matter of Applications of Enron Corp., Admin. Proc. File No. 3-10909, Initial Decision (February 6, 2003) at 22.
7 Enron notes here that there are important questions as to whether the Commission would have jurisdiction over the Plan under the Act if Enron were required to register as a holding company and, if such jurisdiction does exist, what would be the scope of that jurisdiction. At this point, a full discussion of these issues is not required, but Enron wishes to note that it does not concede any aspect of Commission jurisdiction over a Plan if Enron is required to register under the Act and reserves the right to present its position on these issues to the Bankruptcy Court and the Commission at a future date.
8 The Columbia Gas System, Inc., Holding Co. Act Release No. 26361 (August 25, 1995) (chapter 11 plan filed with the Commission on May 4, 1995). The Columbia bankruptcy case appears to have been significantly less complicated than is Enron's bankruptcy case.

 

http://www.sec.gov/rules/other/enron-opp0625.htm


Modified: 06/30/2003