Some thoughts on options

----- Forwarded by Richard B Sanders/HOU/ECT on 10/25/2000 10:08 AM -----

Richard B Sanders
10/24/2000 05:34 PM

To: Jeff Dasovich/NA/Enron@Enron, James D Steffes/NA/Enron@Enron, Mark
Palmer/Corp/Enron@ENRON, Mark E Haedicke/HOU/ECT@ECT, Kazeem
Khan/LON/ECT@ECT, Tim Belden/HOU/ECT@ECT, Mary Hain/HOU/ECT@ECT, Christian
Yoder/HOU/ECT@ECT
cc:
Subject: Some thoughts on options

----- Forwarded by Richard B Sanders/HOU/ECT on 10/24/2000 05:24 PM -----

"Fergus, Gary S." <GFergus@brobeck.com<
10/24/2000 04:45 PM

To: "Richard B. Sanders Esq. (E-mail)" <richard.b.sanders@enron.com<
cc: "Meringolo, Peter" <PMeringolo@brobeck.com<
Subject: Some thoughts on options

PRIVILEGED AND CONFIDENTIAL
ATTORNEY CLIENT PRIVILEGE

Richard,

After today's discussion here are our brainstorming ideas on
options:

1. WAIT FOR A BETTER PROTECTIVE ORDER
Ask Harvey Morris where they are on fixing the protective order that
is being litigated by others. If the protective order has not changed,
then unilaterally postpone production until it is. Pro: Better protection
and more time; Con: Even with a more stringent
protective order Enron still questions whether the PUC is entitled
to financial performance data. Thus, this option does not fully
disclose all of Enron's positions and the company may be accused later of
simply engaging in delaying tactics. Under this option we file our
formal objections as well.

2. TURN OVER THE TRANSACTION DATA AS IS
Continue on our present course of turning over transaction data for
electricity that was delivered. Pro: PUC will get the data anyway
either through FERC, unfair competition, antitrust or price gouging
litigation. By turning over the data that will show profits, PUC might
slow down investigation there as opposed to interrupting the business by
seeking to depose witnesses etc. Con: This would be waiving the
legitimate question that Enron has as to the PUC's ability to discovery this
information through a subpoena. There is also a question of how
confidential this data would be given the current political agenda. It
might also serve to whet the appetite of the PUC for more Enron
information and discovery. This option would also provide confidential
proprietary information to the PUC about how Enron gets its competitive
advantage.

3. TURN OVER DATA FOR OUTSIDE OF CALIFORNIA AND LET PUC GET REST OF
DATA FROM ISO AND PX.
We have told the PUC we do not want to duplicate the efforts of ISO
and PX so the way to relieve the burden on us is to give only missing
data. PRO: It would be easier and quicker to just give the outside of
California data and would sidestep for the
moment the ongoing jurisdictional question. Con: Without Enron
cost data for the California ISO and PX transactions, the PUC
would not be able to arrive at what they want -- a profit and loss
picture. We would have a hard time representing to the PUC that the
combination of the PUC data and the Enron data would be all that they need
to calculate the answers to Request Nos. 7-10.

4. TURN OVER EVERYTHING BUT PRICE
This option would simple omit the price data. Pro: It would not
reveal the profit and loss information. Con: It would not reveal the
profit and loss information. In other words, the PUC is clear that this is
what they are after. By giving them everything else, we
would in effect be telling them we will not turn over profit and
loss. Moreover, by piecing some of it together with the ISO and PX
data, the PUC might be able to put together a revenue picture which will be
quite large, but just not the cost or expense side.

5. DECLINE TO PRODUCE THE DATA
We would tell Harvey Morris that Enron has reconsidered its position
for the following reasons: (1) Our firm belief that the PUC is not
entitled to the profit and loss data they are seeking; (2) in his latest
email, Harvey has made it clear that the PUC wants more data (1999)
than we discussed earlier; (3) continued threat that if they do not like the
transaction data they will come back and ask for profit and loss
information that we do not believe they are entitled to; (4) Commissioner
Wood's statement that the purpose of this investigation is to get
money from market participants in the hands of consumers; (5) investigation
by the AG into activities of other market participants and the notice
that other governmental agencies are cooperating -- who are we producing
this information to and for what purpose; (6) Enron favors public
disclosure of trading data but only if all participants are required to
do so; (7) Enron is a small player in this market and many other market
participants are not involved in the process BPA etc. PRO: This
may be the only way to preserve Enron's challenge to the jurisdiction of the
PUC to get this data. Moreover, in the current political
environment there is no assurance where this information will be leaked. It
also makes sense to see what FERC will do with their published 11/1/00
report on investigation date. Under this option, we file our formal
objections and sit back and wait.

6. ME TOO
Upon reflection, we agree with the approach taken by the other
market participants. We will not produce until the protective order is
modified and then only data that is within the PUC jurisdiction. PRO: This
makes it look like all the market participants are acting in concert
and really is no different than option 1 above. Moreover, if you read
Reliant's responses, they appear ready to turn over financial data if
the protective order is modified. (Terry and Mike Day are both out of their
offices today.) Note that Williams is adopting a strategy that says
the PUC needs to go to Superior Court to enforce its subpoena. This may be
met with strong opposition by the PUC given their California
constitutional contempt authority.

7. MOVE TO QUASH BEFORE THE ALJ
Here we would raise all of the arguments that we have about why the
PUC does not have jurisdiction and fight it out on the merits before the
ALJ. PRO: The ALJ is a forum to raise the jurisdictional questions. It
has the least procedural risks of being dismissed. CON: Reading
the tea leaves, we believe it unlikely that the ALJ will determine that the
PUC has no jurisdiction.
Moreover, because the PUC has its own constitutionally granted
contempt power, the PUC will take the view (according to Mike Day) that
they need not go to the Superior Court for enforcement. They will also take
the view that the Superior Court has no jurisdiction to hear our
appeal. Appeals have to go to the PUC and those orders are appealable at
the Court of Appeal level. Thus, the only de novo review of our
objections might be at the ALJ level.

8. FILE DECLARATORY RELIEF ACTION IN FEDERAL COURT IN CALIFORNIA
We would claim federal question jurisdiction under the Federal Power
Act and in particular the provisions of 824(g) under which the PUC
issued its subpoena in part. The dispute to be decided is whether the PUC
has the jurisdiction to seek the profit and loss information from the
wholesale market. The authority for this would be Mississippi Power & Light
v. Mississippi 487 US 354 (bright line between wholesale market regulated
by FERC and the retail market regulated by states); Bristol Energy Corp v.
New Hampshire 13 F.3d 471 (1st Cir. 1994)(federal question whether state
agency can inquire into business and financial data in the wholesale
market but found no cognizable claim.) PRO: The federal forum may be more
even handed than the ALJ, but the question is whether we can state a
cognizable claim. There may be greater protections from disclosure of the
information as well. CON: The PUC may continue on a parallel track unless
we are able to obtain injunctive relief. The PUC might seek discovery of
the same information in the Federal court proceeding. We should assume that
this action will trigger the strongest response from the PUC and/or the AG
in form of further investigations or alternative forums for getting the same
information (e.g unfair business practice suit, price gouging,
anti-trust etc.). We should anticipate deposition requests for traders
etc. By taking this position, we will clearly be conceding that if
FERC asks for the data it is germane to their authority.

9. SEPARATE RESPONSES/STRATEGIES FOR DIFFERENT ENRON ENTITIES
It may make some sense to chart a different course for Portland
General, EES and EEMC and continue to produce some data from those
entities. PRO: The information provided for these entities is not likely
to generate profit and loss information that would be germane to the fight
we are about to engage in (e.g. EES's description of % off tariff rates for
example.) For Portland General, Dave Aamodt is out of the office and
not able to participate in any change of direction discussions.

Hope this is helpful.
Thanks
Gary

=======================================================
This email message is for the sole use of the intended recipient(s) and may
contain confidential and privileged information. Any unauthorized review,
use, disclosure or distribution is prohibited. If you are not the intended
recipient, please contact the sender by reply email and destroy all copies of
the original message.

To reply to our email administrator directly, send an email to
postmaster@brobeck.com
BROBECK PHLEGER & HARRISON LLP
http://www.brobeck.com