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Date: Wed, 24 Oct 2001 09:12:49 -0700 (PDT)
From: b..sanders@enron.com
To: gary.peng@enron.com
Subject: RE:
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No changes.
 -----Original Message-----
From: =09Peng, Gary =20
Sent:=09Wednesday, October 24, 2001 8:50 AM
To:=09Cheek, Charles; Eickenroht, Robert; Sanders, Richard B.; Sommers, Jef=
frey E.; Howes, Carol
Cc:=09Rogers, Rex
Subject:=09

Find below the Litigation and Other Contingencies footnote from the the Jun=
e 30, 2001 Form 10-Q.  Please update the section of the disclosure for whic=
h you are responsible for inclusion in the third quarter 2001 Form 10Q .  A=
lso, please let me know if there are any new items that should be considere=
d.

Please respond no later than Monday October 29.

Thanks,

Gary
3-6841




3.  Litigation and Other Contingencies

Litigation
=09Enron 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 i=
mpact on Enron's financial position or results of operations.

=09In 1995, several parties (the Plaintiffs) filed suit in Harris County Di=
strict Court in Houston, Texas, against Intratex Gas Company (Intratex), Ho=
uston Pipe Line Company and Panhandle Gas Company (collectively, the Enron =
Defendants), each of which is a wholly-owned subsidiary of Enron.  The Plai=
ntiffs were either sellers or royalty owners under numerous gas purchase co=
ntracts with Intratex, many of which have terminated.  Early in 1996, the c=
ase was severed by the Court into two matters to be tried (or otherwise res=
olved) separately.  In the first matter, the Plaintiffs alleged that the En=
ron Defendants committed fraud and negligent misrepresentation in connectio=
n with the "Panhandle program," a special marketing program established in =
the early 1980s.  This case was tried in October 1996 and resulted in a ver=
dict for the Enron Defendants.  In the second matter, the Plaintiffs allege=
 that the Enron Defendants violated state regulatory requirements and certa=
in gas purchase contracts by failing to take the Plaintiffs' gas ratably wi=
th 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 certif=
ication was improper and remanded the case to the trial court.  The Enron D=
efendants deny the Plaintiffs' claims and have asserted various affirmative=
 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 believe=
s that the ultimate resolution of these matters will not have a material ad=
verse effect on its financial position or results of operations.

=09On November 21, 1996, an explosion occurred in the Humberto Vidal Buildi=
ng 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 d=
istribution system in the vicinity, but did not provide service to the buil=
ding. Enron, San Juan Gas, four affiliates and their insurance carriers wer=
e named as defendants, along with several third parties, including The Puer=
to 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 Pue=
rto Rico and the Superior Court of Puerto Rico.  These suits seek damages f=
or wrongful death, personal injury, business interruption and property dama=
ge allegedly caused by the explosion.  After nearly four years without dete=
rmining the cause of the explosion, all parties agreed not to litigate furt=
her that issue, but to move these suits toward settlements or trials to det=
ermine whether each plaintiff was injured as a result of the explosion and,=
 if so, the lawful damages attributable to such injury. The defendants agre=
ed on a fund for settlements or final awards. Numerous claims have been set=
tled and ten cases involving 19 plaintiffs are scheduled for trial in the U=
nited 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 resul=
ts of operations.

=09Trojan Investment Recovery.  In early 1993, Portland General Electric (P=
GE) ceased commercial operation of the Trojan nuclear power generating faci=
lity.  The Oregon Public Utility Commission (OPUC) granted PGE, through a g=
eneral rate order, recovery of, and a return on, 87 percent of its remainin=
g investment in Trojan.=20

=09The OPUC's general rate order related to Trojan has been subject to liti=
gation in various state courts, including rulings by the Oregon Court of Ap=
peals and petitions to the Oregon Supreme Court filed by parties opposed to=
 the OPUC's order, including the Utility Reform Project(URP) and the Citize=
ns Utility Board (CUB).

=09In August 2000, PGE entered into agreements with the CUB and the staff o=
f the OPUC to settle the litigation related to PGE's recovery of its invest=
ment 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 ele=
ments of the settlement on September 29, 2000.  As a result of these approv=
als, PGE's investment in Trojan is no longer included in rates charged to c=
ustomers, either through a return on or a return of that investment.  Colle=
ction of ongoing decommissioning costs at Trojan is not affected by the set=
tlement agreements or the September 29, 2000 OPUC order.  With the CUB's wi=
thdrawal, the URP is the one remaining significant adverse party in the lit=
igation.  The URP has indicated that it plans to continue to challenge the =
settlement and the original OPUC order allowing PGE recovery of and a retur=
n on its investment in Trojan.=20

=09Enron cannot predict the outcome of these actions.  Although no assuranc=
es can be given, Enron believes that the ultimate resolution of these matte=
rs will not have a material adverse effect on its financial position or res=
ults of operations.

Other Contingencies
=09Environmental Matters.  Enron is subject to extensive federal, state and=
 local environmental laws and regulations.  These laws and regulations requ=
ire 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 r=
esult 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.

=09Enron's natural gas pipeline companies conduct soil and groundwater reme=
diation on a number of their facilities.  Enron does not expect to incur ma=
terial expenditures in connection with soil and groundwater remediation.

=09Developments in the California Power Market.  During 2000, prices for wh=
olesale electricity in California significantly increased as a result of a =
combination of factors, including higher natural gas prices, reduction in a=
vailable hydroelectric generation resources, increased demand, over-relianc=
e 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 betw=
een costs of supply and customer revenues caused two of California's public=
 utilities, Pacific Gas & Electric Company (PG&E) and Southern California E=
dison Company (SCE), to accrue substantial unrecovered wholesale power cost=
s and certain obligations related to the difference between third party pow=
er purchase costs and frozen rates charged to retail customers.  PG&E and S=
CE have defaulted on or are challenging payments owed for certain outstandi=
ng 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 pet=
ition for bankruptcy.

=09Various legislative, regulatory and legal remedies to the energy situati=
on in California have been implemented or are being pursued, and may result=
 in restructuring of markets in California and elsewhere.  Additional initi=
atives are likely at the Federal, state and local level, but it is not poss=
ible to predict their outcome at this time.

=09Enron has entered into a variety of transactions with California utiliti=
es, the Power Exchange, the Independent System Operator, end users of energ=
y 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 expos=
ure to developments in the California power market.  Due to the uncertainti=
es involved, the ultimate outcome of the California power situation cannot =
be predicted, but Enron believes these matters will not have a material adv=
erse impact on Enron's financial condition or results of operations.

=09India.  Enron indirectly owns 50% of the net voting interest in Dabhol P=
ower Company (Dabhol), which owns a 740 megawatt power plant and is constru=
cting an additional 1,444 megawatt power plant together with an LNG regasif=
ication 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 E=
lectricity Board (MSEB), the purchaser of power from Dabhol, and the Govern=
ment of Maharashtra (GOM) and the federal government of India (GOI), the gu=
arantors of payments by the MSEB pursuant to the terms and conditions of th=
e power purchase agreements (PPA) and the other project documents.  The con=
tract disputes relate principally to (a) the failure by the MSEB to pay cer=
tain capacity and energy payments under the PPA, and the failure of the GOM=
 and GOI to satisfy certain guarantee obligations under the project documen=
ts 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 Ph=
ase 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 resolv=
e such disputes to its favor and to successfully collect on and to enforce =
any judgment or settlement.  However, Dabhol believes that the MSEB's actio=
ns are in clear violation of the terms of the PPA, and Dabhol intends to pu=
rsue 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.  E=
nron does not believe that any contract dispute related to Dabhol will have=
 a material adverse impact on Enron's financial condition or results of ope=
rations.