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We now have a refund order from FERC which I have not yet read. The issue =
of ENA's liability is, as you would guess, complicated. Are we still on tra= ck for a short meeting to discuss? -----Original Message----- From: =09Peng, Gary =20 Sent:=09Thursday, July 26, 2001 10:00 AM To:=09Rogers, Rex; Sanders, Richard B.; Eickenroht, Robert Subject:=09RE: Second Quarter 10-Q Litigation Disclosure =09Richard, see below: 9. RECENT DEVELOPMENTS Developments in the California Power Market. During 2000, prices for wholesale electricity in California significantly increased as a result of a combination of factors, including higher natural gas prices, reduction in available hydroelectric generation resources, increased demand, over-reliance on the spot market for electricity and limitations on supply. California's regulatory regime instituted in 1996 permitted wholesale price increases but froze retail prices below market levels. The resulting disparity between costs of supply and customer revenues caused two of California's public utilities, Pacific Gas & Electric Company (PG&E) and Southern California Edison Company (SCE), to accrue substantial unrecovered wholesale power costs and certain obligations related to the difference between third party power purchase costs and frozen rates charged to retail customers. PG&E and SCE have defaulted on or are challenging payments owed for certain outstanding obligations, including wholesale power purchased through the California Power Exchange (the Power Exchange), from the California Independent System Operator (the Independent System Operator), and from qualifying facilities. In addition, PG&E and the Power Exchange each have filed a voluntary petition for bankruptcy. Various legislative, regulatory and legal remedies to the energy situation in California have been implemented or are being pursued, and may result in restructuring of markets in California and elsewhere. Additional initiatives are likely at the Federal, state and local level, but it is not possible to predict their outcome at this time. Enron has entered into a variety of transactions with California utilities, the Power Exchange, the Independent System Operator, end users of energy in California, and other third parties, and is owed amounts by certain of these entities. Enron has established reserves related to such activities and believes that the combination of such reserves in accounts receivables and price risk management assets and other credit offsets with such parties are adequate to cover its exposure to developments in the California power market. Due to the uncertainties involved, the ultimate outcome of the California power situation cannot be predicted, but Enron believes these matters will not have a material adverse impact on Enron's financial condition or results of operations. India. Enron indirectly owns 50% of the net voting interest in Dabhol Power Company (Dabhol), which owns a 740 megawatt power plant and is developing an additional 1,444 megawatt power plant together with an LNG regasification facility in India. Enron accounts for its investment in Dabhol under the equity methodand the debt of Dabhol is non- recourse to Enron. Dabhol has been in dispute with the Maharashtra State Electricity Board (MSEB), the purchaser of power from Dabhol, and the Government of Maharashtra (GOM) and the federal government of India (GOI), the guarantors of payments by the MSEB pursuant to the terms and conditions of the power purchase agreements (PPA) and the other project documents. The contract disputes relate principally to the failure by the MSEB to pay certain capacity and energy payments under the PPA, and the failure of the GOM and GOI to satisfy certain guarantee obligations under the project documents. There is no assurance that Dabhol will be able to resolve such disputes to its favor and to successfully collect on and to enforce any judgment or settlement. However, Dabhol believes that the MSEB's actions are in clear violation of the terms of the PPA, and Dabhol intends to pursue all available legal remedies under the project documents. Accordingly, Enron does not believe that any contract dispute related to Dabhol would have a material adverse impact on Enron's financial condition or results of operations. Termination of Portland General Sales Agreement. On April 26, 2001, Enron announced that the previously disclosed agreement to sell Portland General to Sierra Pacific Resources had been terminated by the mutual consent of both parties because the effect of developments in California and Nevada on the purchaser had made completion of the transaction impractical. -----Original Message----- From: =09Rogers, Rex =20 Sent:=09Thursday, July 26, 2001 8:50 AM To:=09Peng, Gary; Sanders, Richard B.; Eickenroht, Robert Subject:=09RE: Second Quarter 10-Q Litigation Disclosure Gary: I'm back in town, but will be out tomorrow (Friday) and Monday next = week. Will be in all next week after Monday. Thanks -----Original Message----- From: =09Peng, Gary =20 Sent:=09Wednesday, July 25, 2001 5:49 PM To:=09Sanders, Richard B.; Rogers, Rex; Eickenroht, Robert Subject:=09RE: Second Quarter 10-Q Litigation Disclosure Richard, We will need to revisit the California issue with Rex before filing the 10Q= . I will schedule a meeting after Rex and Bob Butts get back into town. Gary -----Original Message----- From: =09Sanders, Richard B. =20 Sent:=09Wednesday, July 25, 2001 5:46 PM To:=09Rogers, Rex; Eickenroht, Robert; Peng, Gary Subject:=09FW: Second Quarter 10-Q Litigation Disclosure Are we doing anything on California and do you need my input? -----Original Message----- From: =09Cheek, Charles =20 Sent:=09Monday, July 23, 2001 12:03 PM To:=09Peng, Gary; Eickenroht, Robert; Sanders, Richard B. Cc:=09Rogers, Rex Subject:=09RE: Second Quarter 10-Q Litigation Disclosure The Rio Piedras Explosion Litigation note needs to be updated. My suggested= note follows with deletions being noted by "***" and additions noted in bo= ld. Please let me know if you have any questions are comments. ____________=20 On November 21, 1996, an explosion occurred in *** the Humberto Vidal Build= ing in San Juan, Puerto Rico. The explosion resulted in fatalities, bodily = injuries and damage to the building and surrounding property. San Juan Gas = Company, Inc. (San Juan Gas), an Enron affiliate, operated a propane/air di= stribution system in the vicinity, but did not provide service to the build= ing. Enron, San Juan Gas, four affiliates and their insurance carriers were= named as defendants, along with several third parties, including The Puert= o Rico Aqueduct and Sewer Authority, Puerto Rico Telephone Company, Heath C= onsultants Incorporated, Humberto Vidal, Inc. and their insurance carriers,= in numerous lawsuits filed in U.S. District Court for the District of Puer= to Rico and the Superior Court of Puerto Rico. These suits seek damages for= wrongful death, personal injury, business interruption and property damage= allegedly caused by the explosion. After nearly four years without determi= ning the cause of the explosion, all parties *** agreed not to litigate fur= ther that issue, but to move these suits toward settlements or trials to de= termine whether each plaintiff was injured as a result of the explosion and= , if so, the lawful damages attributable to such injury. The defendants ***= agreed on a fund for settlements or final awards. Numerous claims have bee= n settled and ten cases involving 19 plaintiffs are scheduled for trail in = the United States District Court beginning on December 10, 2001. No cases h= ave yet been scheduled for trail in the Superior Court. Although no assuran= ces can be given, Enron believes that the ultimate resolution of these matt= ers will not have a material adverse effect on its financial position or re= sults of operations.=20 ____________ -----Original Message----- From: =09Peng, Gary =20 Sent:=09Thursday, July 19, 2001 3:37 PM To:=09Cheek, Charles; Eickenroht, Robert; Sanders, Richard B. Cc:=09Rogers, Rex Subject:=09Second Quarter 10-Q Litigation Disclosure Find below the Litigation and Other Contingencies footnote from the the Mar= ch 31, 2001 Form 10-Q. Please update the section of the disclosure for whi= ch you are responsible for inclusion in the second quarter 2001 Form 10Q . = Also, please let me know if there are any new items that should be conside= red. Please respond no later than Monday July 30. Thanks, Gary 3-6841 =09 3. LITIGATION AND OTHER CONTINGENCIES=20 Enron is a party to various claims and litigation, the significant items of= which are discussed below. Although no assurances can be given, Enron beli= eves, based on its experience to date and after considering appropriate res= erves that have been established, that the ultimate resolution of such item= s, individually or in the aggregate, will not have a material adverse impac= t on Enron's financial position or results of operations.=20 Litigation. In 1995, several parties (the Plaintiffs) filed suit in Harris = County District Court in Houston, Texas, against Intratex Gas Company (Intr= atex), Houston Pipe Line Company and Panhandle Gas Company (collectively, t= he Enron Defendants), each of which is a wholly-owned subsidiary of Enron. = The Plaintiffs were either sellers or royalty owners under numerous gas pur= chase contracts with Intratex, many of which have terminated. Early in 1996= , the case was severed by the Court into two matters to be tried (or otherw= ise resolved) separately. In the first matter, the Plaintiffs alleged that = the Enron Defendants committed fraud and negligent misrepresentation in con= nection with the "Panhandle program," a special marketing program establish= ed in the early 1980s. This case was tried in October 1996 and resulted in = a verdict for the Enron Defendants. In the second matter, the Plaintiffs al= lege that the Enron Defendants violated state regulatory requirements and c= ertain gas purchase contracts by failing to take the Plaintiffs' gas ratabl= y with other producers' gas at certain times between 1978 and 1988. The tri= al court certified a class action with respect to ratability claims. On Mar= ch 9, 2000, the Texas Supreme Court ruled that the trial court's class cert= ification was improper and remanded the case to the trial court. The Enron = Defendants deny the Plaintiffs' claims and have asserted various affirmativ= e defenses, including the statute of limitations. The Enron Defendants beli= eve that they have strong legal and factual defenses, and intend to vigorou= sly contest the claims. Although no assurances can be given, Enron believes= that the ultimate resolution of these matters will not have a material adv= erse effect on its financial position or results of operations.=20 On November 21, 1996, an explosion occurred in or around the Humberto Vidal= Building in San Juan, Puerto Rico. The explosion resulted in fatalities, b= odily injuries and damage to the building and surrounding property. San Jua= n Gas Company, Inc. (San Juan Gas), an Enron affiliate, operated a propane/= air distribution system in the vicinity, but did not provide service to the= building. Enron, San Juan Gas, four affiliates and their insurance carrier= s were named as defendants, along with several third parties, including The= Puerto Rico Aqueduct and Sewer Authority, Puerto Rico Telephone Company, H= eath Consultants Incorporated, Humberto Vidal, Inc. and their insurance car= riers, in numerous lawsuits filed in U.S. District Court for the District o= f Puerto Rico and the Superior Court of Puerto Rico. These suits seek damag= es for wrongful death, personal injury, business interruption and property = damage allegedly caused by the explosion. After nearly four years without d= etermining the cause of the explosion, all parties have agreed not to litig= ate further that issue, but to move these suits toward settlements or trial= s to determine whether each plaintiff was injured as a result of the explos= ion and, if so, the lawful damages attributable to such injury. The defenda= nts have agreed on a fund for settlements or final awards. Numerous claims = have been settled. Although no assurances can be given, Enron believes that= the ultimate resolution of these matters will not have a material adverse = effect on its financial position or results of operations.=20 Trojan Investment Recovery. In early 1993, Portland General Electric (PGE) = ceased commercial operation of the Trojan nuclear power generating facility= . The Oregon Public Utility Commission (OPUC) granted PGE, through a genera= l rate order, recovery of, and a return on, 87 percent of its remaining inv= estment in Trojan.=20 The OPUC's general rate order related to Trojan has been subject to litigat= ion in various state courts, including rulings by the Oregon Court of Appea= ls and petitions to the Oregon Supreme Court filed by parties opposed to th= e OPUC's order, including the Utility Reform Project(URP) and the Citizens = Utility Board (CUB).=20 In August 2000, PGE entered into agreements with the CUB and the staff of t= he OPUC to settle the litigation related to PGE's recovery of its investmen= t in the Trojan plant. Under the agreements, the CUB agreed to withdraw fro= m the litigation and to support the settlement as the means to resolve the = Trojan litigation. The OPUC approved the accounting and ratemaking elements= of the settlement on September 29, 2000. As a result of these approvals, P= GE's investment in Trojan is no longer included in rates charged to custome= rs, either through a return on or a return of that investment. Collection o= f ongoing decommissioning costs at Trojan is not affected by the settlement= agreements or the September 29, 2000 OPUC order. With the CUB's withdrawal= , the URP is the one remaining significant adverse party in the litigation.= The URP has indicated that it plans to continue to challenge the OPUC orde= r allowing PGE recovery of and a return on its investment in Trojan.=20 Enron cannot predict the outcome of these actions. Although no assurances c= an be given, Enron believes that the ultimate resolution of these matters w= ill not have a material adverse effect on its financial position or results= of operations.=20 Environmental Matters. Enron is subject to extensive federal, state and loc= al environmental laws and regulations. These laws and regulations require e= xpenditures in connection with the construction of new facilities, the oper= ation of existing facilities and for remediation at various operating sites= . The implementation of the Clean Air Act Amendments is expected to result = in increased operating expenses. These increased operating expenses are not= expected to have a material impact on Enron's financial position or result= s of operations. Enron's natural gas pipeline companies conduct soil and gr= oundwater remediation on a number of their facilities. Enron does not expec= t to incur material expenditures in connection with soil and groundwater re= mediation.
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