Message-ID: <29150668.1075858687430.JavaMail.evans@thyme> Date: Wed, 24 Oct 2001 09:12:49 -0700 (PDT) From: b..sanders@enron.com To: gary.peng@enron.com Subject: RE: Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: Sanders, Richard B. </O=ENRON/OU=NA/CN=RECIPIENTS/CN=RSANDER> X-To: Peng, Gary </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Gpeng> X-cc: X-bcc: X-Folder: \Sanders, Richard B (Non-Privileged)\Sanders, Richard B.\Sent Items X-Origin: Sanders-R X-FileName: Sanders, Richard B (Non-Privileged).pst 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.