United States of America
In the Matter of Applications of Enron Corp.
File No. 3-10909
The Motion of Enron Corp. For Leave to Adduce Additional Evidence ("Motion") should be denied for the following reasons:
The Chief ALJ excluded testimony proffered by Enron Corp. ("Enron") concerning its bankruptcy reorganization plans as both irrelevant and speculative.1 The Chief ALJ also excluded Enron's proffered evidence concerning the purported cost of complying with the law as irrelevant and improper opinion testimony from fact witnesses.2 Despite the Chief ALJ's clear rulings, Enron insists that it should be permitted to "supplement" the record by introducing similar and perhaps identical evidence.3
The Chief ALJ excluded this evidence from consideration in reaching her Initial Decision, but it is already a part of the official administrative record.4 As a matter of procedure, then, this evidence is in the record already. See Rule 460(c). Enron is free to argue that the Commission should consider that evidence in reviewing her decision. See Commission Rule of Practice 460(c). Therefore, there is no need to "supplement" the record.
Rule 452 is intended to allow a party the opportunity to supplement the record with important material evidence not in the record, and not, as Enron seeks here, to add duplicative and cumulative evidence to the record. Rule 452 allows a party to move for leave to submit additional evidence after showing "with particularity that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence previously."
Enron fails to meaningfully identify its "additional" evidence i.e., it fails to distinguish this "additional" evidence from the evidence that the Chief ALJ excluded (properly, as discussed below) and then it fails to satisfy either prong of the rule's standard.
Enron's Plans for Reorganization. As the saying goes, if one cannot win on the facts, argue the law. Recognizing that the facts do not support its exemptive applications, Enron continues to attempt to divert attention from the facts to the amorphous ether of its intentions and possible corporate structures it may have when it finally emerges from bankruptcy. However, the post-Enron structure of Enron is not at issue in this matter. The question is whether Enron as it is today an Enron that currently owns Portland General Electric outright is entitled to an exemption under the Act.
Enron has owned Portland General for six years at this point, and has been trying to sell the utility for much of that time, both before and after institution of the bankruptcy proceeding. Although Enron baldly asserts that the passage of time has made Enron's plans to emerge from bankruptcy "no longer speculative" (Motion at 6-7), Enron's Plan of Reorganization is still more inchoate than actual. The Plan has not even been sent out to Enron's creditors for a vote, an event that will not happen at least until September 8, 2003. Nor has the Bankruptcy Court approved the Disclosure Statement that must accompany the Plan when it is distributed. The Commission can take notice that Plans of Reorganization are constantly revised, and sometimes rejected entirely, throughout the entire bankruptcy process. Having submitted its proposed bankruptcy plan -- i.e., its intentions for the future -- does not make its future any more certain, and therefore this evidence is just as speculative now as it was when the Chief ALJ excluded it at the hearing. And much more importantly the key event from the perspective of the Act is not Enron's emergence from bankruptcy, but rather the transfer of Portland General to new owners. After all, it is at that point, not when the company emerges from bankruptcy, that Enron's status under the Act will no longer be in question. At this point, no purchaser for Portland General or a date for its sale has been identified with any certainty. Hence, it remains hard to see as it was at the time of the hearing before Chief Administrative Law Judge Murray how Enron's plans for emerging from bankruptcy are anything more than speculative and irrelevant to the question of its entitlement to an exemption from the Act.
The Cost of Compliance With The Law. Congress did not state anywhere in the Act that the costs of complying with the Act are relevant to determining whether exemptions from registration should be granted by the Commission. Evidence concerning the cost of registration on Enron is simply not relevant to the issue set by the Commission for determination at the hearing, to wit, whether Enron has carried its burden of showing its entitlement to any of the statutory exemptions from registration for which it applied.
Enron never applied for an exemption under section 3(a)(4) of the Act. Enron's arguments that evidence about its plans to emerge from bankruptcy should be introduced to support a future application for exemption under section 3(a)(4) are almost ludicrous. Neither Enron nor any entity associated with Enron or its bankruptcy proceeding has ever formally sought an exemption from the Commission under section 3(a)(4) of the Act. Rather, at various times, Enron applied for exemptions under sections 3(a)(1), 3(a)(3) and 3(a)(5) of the Act. It is those applications and the legal and factual issues associated with those specific exemptions that the Commission set down for hearing. Not surprisingly, given that no application under section 3(a)(4) is before the Commission, the applicability of section 3(a)(4) to Enron was not an issue for determination at the hearing, was not briefed, and no testimony or other evidence was introduced on this issue. It is hard to understand why it would make sense at this stage of the proceeding for the Commission to adduce evidence that would purportedly be relevant to some application that Enron might file in the future. Consequently, Enron's lengthy discussion of section 3(a)(4) in its Motion and the evidence it seeks to introduce in support of that discussion is completely irrelevant to this appeal.5
In sum, granting Enron's motion will do little more than further delay this proceeding without adding any material or relevant evidence to the record. Enron's Motion for Leave to Adduce Additional Evidence is meritless; not only is the evidence it seeks to "add" to the record irrelevant, as the Chief ALJ determined, but much of it is also already in the record in substantially the same form. In addition, much of the proposed evidence seems to support claims to exemption under other sections of the statute that are not at issue in this proceeding. Enron's proffered evidence should therefore be excluded.
Finally, there is simply no need for the evidence. To the extent that the Commission disagrees with the Chief ALJ's decision to exclude that evidence from her consideration of the issue whether Enron had met its burden of showing its entitlement to the requested applications, it can do so. The record, as it stands, is sufficient to determine whether Enron is entitled to the exemptions that it currently claims. The Commission should deny the Motion.
Dated: July 22, 2003
Paul F. Roye
David B. Smith, Jr.
Catherine A. Fisher
Martha Cathey Baker
David G. LaRoche
Deborah D. Skeens
Alberto H. Zapata
Christopher W. Chow
Arthur S. Lowry
Counsel for the Division
of Investment Management
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
1 See Order on Motion to Exclude Direct Testimony (December 5, 2002) at 2 (excluding as irrelevant Enron's proffered testimony concerning "(i) the bankruptcy procedures; (ii) the ramifications for Enron's creditors of a denial of the exemptions, and (iii) the potential diminution of the value of Portland General that Enron would suffer if the Commission were to find that Portland General is not predominantly intrastate"); Transcript of Hearing (Dec. 5, 2002) at 29-30.
2 See, e.g., Transcript of Hearing (Dec. 5, 2002) at 23:21 24:21:
"I take it as a given that Enron wants these exemptions, and that it considers denial and the imposition of regulation a burden that it doesn't want to bear. I mean that's a given. I don't have to listen to all these witnesses tell me how awful this is going to be if they don't get want [sic] they want to get. . . . Its an irrelevant opinion I think. So I grant the motion [to exclude] ...."
3 As discussed below, Enron failed to distinguish the evidence it now offers to "supplement" the record from the evidence previously excluded by the Chief ALJ.
4 As the Chief ALJ explained to Enron at the hearing:
All of this material is part of the record. I will only use, for the purposes of deciding the case, the part that I admitted into evidence. However, the people who review my decision will have everything before them. And if you, as I'm sure you will, say that I was wrong, they can easily have the material there. They can overrule me, and they can put it in.
Transcript of Hearing (Dec. 5, 2002) at 16:4-10.
5 Moreover, given that Enron has been a holding company since 1997, it is doubtful that Enron could justifiably apply for exemption pursuant to section 3(a)(4). To qualify for exemption under section 3(a)(4), Enron must show that it "is temporarily a holding company solely by reason of the acquisition of securities for purposes of liquidation or distribution in connection with a bona fide debt previously contracted or in connection with a bona fide arrangement for the underwriting or distribution of securities...." Enron, however, did not acquire securities of Portland General "for purposes of liquidation or distribution," but rather acquired them prior to its bankruptcy at a time that it believed owning an operating utility was important to its business operations. It is hard to understand how a holding company that acquired a utility in this fashion and for this reason could qualify for an exemption intended to aid entities that acquired equity securities in a utility as part of the settlement of debts owed to them.
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