From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked]
Date: Wed, 24 Oct 2001 06:50:13 -0700 (PDT)

Find below the Litigation and Other Contingencies footnote from the the June 30, 2001 Form 10-Q.  Please update the section of the disclosure for which you are responsible for inclusion in the third quarter 2001 Form 10Q .  Also, please let me know if there are any new items that should be considered.

Please respond no later than Monday October 29.

Thanks,

Gary
3-6841

3.  Litigation and Other Contingencies

Litigation
	Enron is a party to various claims and litigation, the significant items of which are discussed below.  Although no assurances can be given, Enron believes, based on its experience to date and after considering appropriate reserves that have been established, that the ultimate resolution of such items, individually or in the aggregate, will not have a material adverse impact on Enron's financial position or results of operations.

	In 1995, several parties (the Plaintiffs) filed suit in Harris County District Court in Houston, Texas, against Intratex Gas Company (Intratex), Houston Pipe Line Company and Panhandle Gas Company (collectively, the Enron Defendants), each of which is a wholly-owned subsidiary of Enron.  The Plaintiffs were either sellers or royalty owners under numerous gas purchase 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 otherwise resolved) separately.  In the first matter, the Plaintiffs alleged that the Enron Defendants committed fraud and negligent misrepresentation in connection with the "Panhandle program," a special marketing program established 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 allege that the Enron Defendants violated state regulatory requirements and certain gas purchase contracts by failing to take the Plaintiffs' gas ratably with other producers' gas at certain times between 1978 and 1988.  The trial court certified a class action with respect to ratability claims.  On March 9, 2000, the Texas Supreme Court ruled that the trial court's class certification was improper and remanded the case to the trial court.  The Enron Defendants deny the Plaintiffs' claims and have asserted various affirmative defenses, including the statute of limitations.  The Enron Defendants believe that they have strong legal and factual defenses, and intend to vigorously contest the claims.  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.

	On November 21, 1996, an explosion occurred in the Humberto Vidal Building 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 distribution system in the vicinity, but did not provide service to the building. Enron, San Juan Gas, four affiliates and their insurance carriers were named as defendants, along with several third parties, including The Puerto Rico Aqueduct and Sewer Authority, Puerto Rico Telephone Company, Heath Consultants Incorporated, Humberto Vidal, Inc. and their insurance carriers, in numerous lawsuits filed in U.S. District Court for the District of Puerto 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 determining the cause of the explosion, all parties agreed not to litigate further that issue, but to move these suits toward settlements or trials to determine 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 been settled and ten cases involving 19 plaintiffs are scheduled for trial in the United States District Court beginning on December 10, 2001.  No cases have yet been scheduled for trial in the Superior Court.  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.

	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 general rate order, recovery of, and a return on, 87 percent of its remaining investment in Trojan. 

	The OPUC's general rate order related to Trojan has been subject to litigation in various state courts, including rulings by the Oregon Court of Appeals and petitions to the Oregon Supreme Court filed by parties opposed to the OPUC's order, including the Utility Reform Project(URP) and the Citizens Utility Board (CUB).

	In August 2000, PGE entered into agreements with the CUB and the staff of the OPUC to settle the litigation related to PGE's recovery of its investment in the Trojan plant.  Under the agreements, the CUB agreed to withdraw from 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, PGE's investment in Trojan is no longer included in rates charged to customers, either through a return on or a return of that investment.  Collection of 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 settlement and the original OPUC order allowing PGE recovery of and a return on its investment in Trojan. 

	Enron cannot predict the outcome of these actions.  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.

Other Contingencies
	Environmental Matters.  Enron is subject to extensive federal, state and local environmental laws and regulations.  These laws and regulations require expenditures in connection with the construction of new facilities, the operation 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 results of operations.

	Enron's natural gas pipeline companies conduct soil and groundwater remediation on a number of their facilities.  Enron does not expect to incur material expenditures in connection with soil and groundwater remediation.

	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 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 constructing an additional 1,444 megawatt power plant together with an LNG regasification facility (collectively Phase II) in India.  Enron accounts for its investment in Dabhol under the equity method and 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 (a) 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 and (b) MSEB's statements that MSEB has "rescinded" the PPA and MSEB is therefore no longer bound by the PPA.  As a result of such disputes, the Phase II lenders have stopped funding the continued construction of Phase II and the construction contractors have terminated the construction contracts for non-payment.  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.  As a result of these disputes, the 740 megawatt power plant is not being dispatched by MSEB.  Further, Dabhol has suspended construction activity on Phase II.  Enron does not believe that any contract dispute related to Dabhol will have a material adverse impact on Enron's financial condition or results of operations.