RE: Initial Decision of ALJ in TW Negotiated Rates Proceeding

I think there is still the possibility that, just like has happened to El Paso, that Enforcement could still open the case since FERC is still out trying to find a way to get us. It is true that the ALJ did not help them out, but that decision is not binding upon the commission. Neither Stan, Drew or I are comfortable yet that we have the win. We are pleased with the ALJ decision, but know that the ALJ did not get to the answer the Commission intended.

-----Original Message-----
From: Saunders, James
Sent: Sunday, November 04, 2001 6:06 PM
To:
Cc: Hayslett, Rod; Chandler, Bob
Subject: RE: Initial Decision of ALJ in TW Negotiated Rates Proceeding

i think mgmt will rep that it is still operating under a show cause order, and the ultimate outcome has yet to be determined

-----Original Message-----
From: heather.l.mueck@us.andersen.com
[mailto:heather.l.mueck@us.andersen.com]
Sent: Sunday, November 04, 2001 5:53 PM
To: Chandler, Bob
Cc: Saunders, James; Fancler, Dan; Zahn, Gary; Porter, Gregory J.
Subject: RE: Initial Decision of ALJ in TW Negotiated Rates Proceeding

Unlike your regulatory liabilities in the past - "subject to refund" - in
which there is an order from the FERC stating you can increase rates but
you need to reserve for them because they are subject to refund until the
final order comes out, this is a GAAP contingency and must meet the
definition of "probable" liability. Does mangement really believe that it
is probable they will not be able to recover the $10 million? Especially
given the 10/24/01 initial decision, do you really believe it is not
recoverable given the fact you've publicly stated that you are entitled to
it, the paying parties have stated you are entitled to it and now the ALJ
has stated that you are entitled to it?

Will management represent to us that it is probable TW will not be able to
recover in the general rep?

To: Heather L. Mueck@ANDERSEN WO, James.Saunders@enron.com
cc: Dan.Fancler@enron.com, Gary.Zahn@enron.com, Greg.Porter@enron.com
Date: 11/04/2001 05:27 PM
From: Bob.Chandler@enron.com
Subject: RE: Initial Decision of ALJ in TW Negotiated Rates Proceeding

I'm not sure this qualifies as a subsequent event because it isn't
conclusive enough to trigger a reserve reversal. I think we should disclose
it in the interests of full disclosure, but certainly doesn't require a
change in financials.

-----Original Message-----
From: heather.l.mueck@us.andersen.com@ENRON
Sent: Sunday, November 04, 2001 5:14 PM
To: Saunders, James
Cc: Chandler, Bob; Fancler, Dan; Zahn, Gary; Porter, Gregory J.
Subject: RE: Initial Decision of ALJ in TW Negotiated Rates
Proceeding

I very much agree with the below and the reason for establishing the
reserve, however, given the positive order from the ALJ is this a type
I or
type II subsequent event (one requires adjustment to the financial
statements and one that does not). I realize the FERC still needs to
approve, however I think that the "heat" as described below has cooled
down
and a recommendation from the ALJ to the FERC would be viewed as a
positive
thing causing the need to reverse the reserve. (see below literature
from
SAS 12).

.02 Two types of subsequent events require consideration by management
and
evaluation by the independent auditor.

.03 The first type consists of those events that provide additional
evidence with respect to conditions that existed at the date of the
balance
sheet and affect the estimates inherent in the process of preparing
financial statements. All information that becomes available prior to
the
issuance of the financial statements should be used by management in
its
evaluation of the conditions on which the estimates were based. The
financial statements should be adjusted for any changes in estimates
resulting from the use of such evidence.

.04 Identifying events that require adjustment of the financial
statements
under the criteria stated above calls for the exercise of judgment and
knowledge of the facts and circumstances. For example, a loss on an
uncollectible trade account receivable as a result of a customer's
deteriorating financial condition leading to bankruptcy subsequent to
the
balance-sheet date would be indicative of conditions existing at the
balance-sheet date, thereby calling for adjustment of the financial
statements before their issuance. On the other hand, a similar loss
resulting from a customer's major casualty such as a fire or flood
subsequent to the balance-sheet date would not be indicative of
conditions
existing at the balance-sheet date and adjustment of the financial
statements would not be appropriate. The settlement of litigation for
an
amount different from the liability recorded in the accounts would
require
adjustment of the financial statements if the events, such as personal
injury or patent infringement, that gave rise to the litigation had
taken
place prior to the balance-sheet date.

.05 The second type consists of those events that provide evidence
with
respect to conditions that did not exist at the date of the balance
sheet
being reported on but arose subsequent to that date. These events
should
not result in adjustment of the financial statements.(superscript: 1)
Some
of these events, however, may be of such a nature that disclosure of
them
is required to keep the financial statements from being misleading.
Occasionally such an event may be so significant that disclosure can
best
be made by supplementing the historical financial statements with pro
forma
financial data giving effect to the event as if it had occurred on the
date
of the balance sheet. It may be desirable to present pro forma
statements,
usually a balance sheet only, in columnar form on the face of the
historical statements.

(superscript: 1.)This paragraph is not intended to preclude
giving
effect in the balance sheet, with appropriate disclosure, to
stock
dividends or stock splits or reverse splits consummated after the
balance-sheet date but before issuance of the financial
statements.

.06 Examples of events of the second type that require disclosure to
the
financial statements (but should not result in adjustment) are:

a. Sale of a bond or capital stock issue.

b. Purchase of a business.

c. Settlement of litigation when the event giving rise to the
claim
took place subsequent to the balance-sheet date.

d. Loss of plant or inventories as a result of fire or flood.

e. Losses on receivables resulting from conditions (such as a
customer's major casualty) arising subsequent to the
balance-sheet
date.

.07 Subsequent events affecting the realization of assets such as
receivables and inventories or the settlement of estimated liabilities
ordinarily will require adjustment of the financial statements (see
paragraph .03 (Document link: P/AU560.03/AUPROSTD)) because such
events
typically represent the culmination of conditions that existed over a
relatively long period of time. Subsequent events such as changes in
the
quoted market prices of securities ordinarily should not result in
adjustment of the financial statements (see paragraph .05 (Document
link:
P/AU560.05/AUPROSTD)) because such changes typically reflect a
concurrent
evaluation of new conditions.

Comments?

To: Heather L. Mueck@ANDERSEN WO, Bob.Chandler@enron.com
cc: Dan.Fancler@enron.com, Gary.Zahn@enron.com,
Greg.Porter@enron.com
Date: 11/04/2001 03:57 PM
From: James.Saunders@enron.com
Subject: RE: Initial Decision of ALJ in TW Negotiated Rates
Proceeding

At the time the reserve (early '01) was eatablished, the CA situation
was much much much more contentious, and likely recovery of amounts
negotiated was -at that time- in jeopardy. Over the course of the year
via much time and effort (legal, regulatory, commercial), and to a
certain degree -stablization of the CA market, customers, and the FERC
ALJ have seen their way clear to a reasonable position.

-----Original Message-----
From: heather.l.mueck@us.andersen.com
[mailto:heather.l.mueck@us.andersen.com]
Sent: Sunday, November 04, 2001 3:45 PM
To: Chandler, Bob
Cc: Fancler, Dan; Zahn, Gary; Saunders, James; Porter, Gregory J.
Subject: Re: Initial Decision of ALJ in TW Negotiated Rates Proceeding

I got Greg Porter's message too, however this doesn't tell me why the
reserve was initially established in the first quarter - i.e. a
probable
liability. In fact, this document seems more to weigh against your
need
to
establish a liability. Did I miss something?

To: Heather L. Mueck@ANDERSEN WO
cc: Dan.Fancler@enron.com, Gary.Zahn@enron.com,
James.Saunders@enron.com,
Greg.Porter@enron.com
Date: 11/04/2001 03:15 PM
From: Bob.Chandler@enron.com
Subject: Initial Decision of ALJ in TW Negotiated Rates Proceeding

Click on this hyperlink to open a copy of the document from the FERC
web
site:

http://cips.ferc.fed.us/Q/CIPS/GAS/RP/RP97-288.0AI.TXT

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