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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27882; 70-10200)

Enron Corp., et al.

Supplemental Order Authorizing a New Debtor in Possession Agreement; and Addition of Applicants

August 6, 2004

Enron Corp. ("Enron"), Houston, Texas, a registered holding company, on its behalf and on behalf of its subsidiaries (collectively, "Applicants"), including Portland General Electric Company ("Portland General"), a public utility company, Portland, Oregon, has filed with the Securities and Exchange Commission ("Commission") a post-effective amendment to an application-declaration ("Application") filed under sections 6(a), 7, 10, 12 and 13 of the Public Utility Holding Company Act of 1935, as amended ("Act") and rules 16, 42-46, 52-54, 80-87 and 90-91 under the Act.1 The Commission issued a notice of the Application on May 3, 2004 (Holding Co. Act Release No. 27843). The Commission did not receive any requests for a hearing.

On February 6, 2004, as amended on March 9, 2004, Applicants filed with the Commission an application-declaration on Form U-1 under File No. 70-10200 (the "Omnibus Application"). On March 9, 2004, the Commission issued an order granting the relief requested by Applicants in the Omnibus Application.2 In this Application, Applicants seek a supplemental order to: (a) add certain subsidiaries as Applicants, (b) modify Enron's authority to issue letters of credit in connection with the expiration of the Second Amended DIP Credit Agreement (as defined in the Omnibus Order), and (c) modify the reporting requirements pursuant to rule 24. Applicants also resubmit exhibits which had been incorporated by reference to an application for exemption filed by Enron and other parties in SEC File No. 70-10190 that was subsequently withdrawn.

I. Applicant List

Enron states that some of its subsidiaries were inadvertently omitted from the list of Applicants in Exhibit H of the Omnibus Application ("Omitted Subsidiaries"). Enron requests that the Commission issue a supplemental order providing that these nonutility subsidiaries of Enron also are entitled to the relief granted to other Enron nonutility subsidiaries in connection with the Omnibus Application. Enron has submitted an amended Exhibit H, which includes the Omitted Subsidiaries Dais-Analytic, Inc., Encorp, Inc., FSMx.com, Inc., Serveron, Corp., Venoco, Inc., 217 State Street, Inc., Ellwood Pipeline Inc., Whittier Pipeline Corporation, Inc., BMC, Ltd., Advanced Mobile Power Systems, LLC, Unkwang Gas Industry Co., Ltd, and PEI Venezuela Services LLC, as Applicants. Amended Exhibit H also reflects the deletion of companies which have been dissolved or sold and the reorganization of certain subsidiaries in connection with various reorganizations.

Applicants state that extending the authorizations in the Omnibus Order to Omitted Subsidiaries would not unduly harm the interests protected under the Act. Applicants assert that these companies require the same authorizations that have already been granted to other associate companies so that they also may perform transactions that would routinely be approved under the Act and that are necessary to permit Enron to continue to maximize the value of its estate for its creditors. Applicants also emphasize that all of the Omitted Subsidiaries are nonutility subsidiaries of Enron and the authorizations requested would not negatively impact Portland General or its consumers.

II. Bankruptcy Financing

In the Omnibus Order, the Commission authorized Applicants to continue to obtain letters of credit, or to extend the maturity of previously issued letters of credit, up to an aggregate amount of $150 million under the Second Amended DIP Credit Agreement3 as now in effect or as it may subsequently be amended or extended by order of the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court") through the Authorization Period. Under the Second Amended DIP Credit Agreement, Enron's obligations are guaranteed by its debtor subsidiaries that are parties to the credit agreement. Each new debtor becomes an additional guarantor under the agreement when an applicability order is entered by the Bankruptcy Court shortly after such entity files a petition under Chapter 11 of the United States Bankruptcy Code. In addition, virtually all the property of Enron and its debtor subsidiaries, including the common stock of Portland General, is pledged as collateral to secure the obligations of the borrowers under the credit facility.

The Second Amended DIP Credit Agreement, which would have expired on June 3, 2004, in accordance with its terms, was extended until September 3, 2004. Enron may decide against renewing or further extending the Second Amended DIP Credit Agreement; however, Enron would have to extend or replace the letters of credit that are currently outstanding under the Second Amended DIP Credit Agreement and that expire on August 23, 2004. Applicants state that it is undesirable to permit the currently outstanding letters of credit to be drawn on prior to expiry because, in some circumstances, this may result in a default under the underlying transactions for which the letter of credit was issued. Some of the holders of such letters of credit are entitled to draw on such letters of credit prior to expiration if the letters of credit are not replaced.

Enron and its other subsidiaries that have filed voluntary petitions with the Bankruptcy Court ("Debtors") have negotiated with Wachovia Bank National Association to issue cash-collaterized letters of credit in order to replace the existing letters of credit outstanding under the Second Amended DIP Credit Agreement. The replacement letters of credit or any other new debtor in possession credit agreement entered into in accordance with this authorization, except as noted in this order (i.e., a nonutility subsidiary cash collaterizing its own letter of credit obligations), would not be guaranteed by any subsidiaries of Enron, including Portland General. Specifically, similar to the Second Amended DIP Credit Agreement, to the extent that a letter of credit is issued on behalf of an Enron subsidiary, such subsidiary would post the cash collateral. However, unlike the Second Amended DIP Credit Agreement, the reimbursement obligations in connection with the letters of credit would not be guaranteed by a pledge of Portland General stock. In addition, no letters of credit would be issued on behalf of Portland General. Finally, the decision to obtain replacement letters of credit would be made only upon a determination, by Enron, that such arrangement is more beneficial to the estate than renewing the Second Amended DIP Credit Agreement.

Accordingly, Enron requests authority (i) to obtain up to $25,000,000, in the aggregate, in new, cash collateralized letters of credit ("New Letters of Credit") to replace the letters of credit currently outstanding under the Second Amended DIP Credit Agreement, and (ii) to obtain a new debtor in possession credit agreement ("New Credit Agreement") that would allow Enron to issue letters of credit in an amount not to exceed $25,000,000 in the event that Enron elects not to renew or extend the Second Amended DIP Credit Agreement. Any New Letters of Credit would be obligations of Enron and/or obligations of Enron's nonutility subsidiaries (if a letter of credit is issued on behalf of such a subsidiary) and would not be guaranteed by Portland General or any other Enron subsidiary (other than a nonutility subsidiary on behalf of which a letter of credit is issued). If authorization is granted and Enron enters into New Letters of Credit to replace each of the existing letters of credit, or if Enron enters into a New Credit Agreement, Enron would either terminate the Second Amended DIP Credit Agreement or permit the Second Amended DIP Credit Agreement to expire on September 3, 2004.

III. Discussion

The proposed financing transactions are subject to sections 6(a) and 7 of the Act. Section 6(a) requires the filing of a declaration under section 7 of the Act with the Commission in connection with, among other things, an issuance and sale of any security by a registered holding company or subsidiary company.

Section 7(c)(2)(A) states that the Commission may authorize the issuance or sale of a security if the security is to be issued or sold "solely . . . for the purpose of refunding, extending, exchanging, or discharging an outstanding security of the declarant . . . or for the purpose effecting a merger, consolidation, or other reorganization." The New Credit Agreement and New Letters of Credit will replace the Second Amended DIP Credit Agreement and thus comply with section 7(c)(2)(A).

Section 7(d) of the Act states that if the requirements of section 7(c) and 7(g)4 are met, the Commission "shall" permit a declaration to become effective, unless it makes certain findings described in section 7(d) of the Act. No adverse findings are required under section 7(d) of the Act. Among other things, Section 7(d) authorizes the Commission to authorize the issuance of a security unless it finds that: (1) "the security is not reasonably adapted to the security structure of the declarant and other companies in the same holding company system; (2) the security is not reasonably adapted to the earning power of the declarant; (3) financing by the issue and sale of the particular security is not necessary or appropriate to the economical and efficient operation of a business in which the applicant lawfully is engaged or has an interest; (4) the fees commissions, or other remuneration … paid in connection the issue, sale, or distribution of the security are not reasonable; … or (6) the terms and conditions of the issue or sale of the security are detrimental to the public interest or the interest of investors or consumers."

The circumstances of this matter warrant authorizing the proposed financing transactions under section 7(d). In particular, the proposed transactions are not being proposed in connection with Applicants' taking on any additional debt, but solely in connection with a refinancing of existing debt. The New Letters of Credit would no longer be guaranteed by Portland General or any other subsidiary (except as noted above, with respect to a non-utility subsidiary on behalf of which a letter of credit is issued). In addition, the New Letters of Credit are expected to reduce the effective cost of letters of credit to the Enron system.

Enron states, for purposes of rule 54, that it is not in compliance with the requirements of rule 53 because it is bankrupt. However, Enron states that the New Letters of Credit will not be used to fund additional investments in exempt wholesale generators or foreign utility companies ("FUCOs"), as defined in sections 32 and 33 of the Act. Further, Enron states that the proposed transactions are consistent with the authority granted in the Omnibus Order, including limited investments in FUCOs to support existing FUCO projects as necessary to maximize their value for the Debtors' estates.

The Commission has examined the Applicants' requests and has concluded, based on the record before it, that, except with respect to those matters over which jurisdiction has been reserved, the applicable standards of the Act and rules under the Act are satisfied and that no adverse findings are necessary.

Applicants state that the fees, commissions and expenses to be incurred in connection with the proposed transactions are expected to be approximately $30,000. Applicants state that no state or federal commission, other than this Commission, has jurisdiction over the proposed transactions. As noted above, the Bankruptcy Court must approve The New Credit Agreement and New Letters of Credit.

Due notice of the filing of the Application has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that, except as to those matters over which jurisdiction has been reserved, the applicable standards of the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED that the Application be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act; provided, however, that within 60 days after the end of each calendar quarter5 Applicants will provide the following information, which supersedes reporting requirements previously stated in the Omnibus Order:

  1. With respect to securities and letters of credit issued during the respective quarter under (i) the Second Amended DIP Credit Agreement, as it may be amended or replaced, and (ii) any short-term debt securities issued by Portland General under its short-term revolving credit facility or otherwise, Applicants will disclose the name of the issuer, the principal or face amount of the security or letter of credit issued, the interest rate and the maturity date.
     
  2. With respect to (i) the cash management arrangements between Enron and its subsidiaries (excluding Portland General), and (ii) the cash management arrangements between Portland General and its subsidiaries, the Applicants will disclose the principal, interest rate, the maturity date and the name of the lending company for transactions during the respective quarter.
     
  3. Applicants will disclose the names of the associate companies transferred to each of Prisma and CrossCountry. Each such list will show the full roster of companies transferred to Prisma and CrossCountry as of the close of the respective quarterly reporting period.
     
  4. Applicants will disclose sales of all or substantially all of the assets of a subsidiary, companies and other entities in the Enron group, in each case, where the consideration received was $25,000 or more that have been completed within the respective quarterly reporting period. Such disclosure to include the name of the entity or a description of the assets sold and the aggregate consideration received for such sale.
     
  5. Applicants will disclose the aggregate amount of Northern Border Partners' distributions out of partnership capital and the aggregate amount invested in Energy Assets during the respective quarter. Such disclosure would include a concise description of the Energy Assets acquired.
     
  6. Applicants will summarize the corporate restructuring, simplification, dissolution and liquidation transactions that have been conducted during the respective quarter.
     
  7. Applicants will disclose the types of services and goods sold by Enron to Portland General and by Portland General to Enron during the respective quarter. Such disclosure would include a description of services or goods transactions by category with amounts expended for each category.
     
  8. For the quarterly period that includes any filing of a consolidated tax return involving both Enron and Portland General, Applicants will disclose Portland General's separate return tax for the period concerned in the consolidated tax return and the amount of its tax payment to Enron for the same period. In addition, Applicants will disclose the aggregate amount of losses, credits or other tax attributes contributed by Enron to the consolidated tax return and the value received by Enron for such tax attributes as a result of the allocation method specified in the consolidated tax filing agreement.
     

IT IS FURTHER ORDERED that jurisdiction is continued to be reserved over (i) the issuance by Portland General of any short-term securities that are rated below investment grade, from at least one nationally recognized statistical rating organization, and (ii) the Transition Services Agreement, pending completion of the record.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.


Margaret H. McFarland
Deputy Secretary


Endnotes


http://www.sec.gov/divisions/investment/opur/filing/35-27882.htm

Modified: 08/12/2004