Document/Exhibit Description Pages Size
1: U-1 Application or Declaration -- formu1 48 232K
2: EX-99.1 Exhibit B-1 3 15K
3: EX-99.2 Exhibit G - Form of Notice 8 37K
4: EX-99.3 Exhibit H - List of Subsidiaries, Affiliates 65 497K
5: EX-99.4 Exhibit J-3 3 9K
6: EX-99.5 Exhibit J-4 17 29K
7: EX-99.6 Exhibit K 25 88K
File No. 70-______
United States Securities and Exchange Commission
Washington, D.C. 20549
----------------------------------------
Form U-1
Application/Declaration
Under the
Public Utility Holding Company Act of 1935
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Enron Corp. Portland General Electric
Indicated Enron Corp. subsidiaries Company
1400 Smith Street 121 Salmon Street
Houston, Texas 77002 Portland, Oregon 97204
(Names of companies filing this statement
and addresses of principal executive offices)
----------------------------------------
N/A
(Name of top registered holding company)
----------------------------------------
Enron Corp.
Attn.: Corporate Secretary
1400 Smith Street
Houston, TX 77002
(Names and addresses of agents for service)
The Commission is also requested to send copies
of any communication in connection with this matter to:
Robert H. Walls, Jr. William S. Lamb Sonia C. Mendonca
General Counsel LeBoeuf, Lamb, Greene & LeBoeuf, Lamb, Greene
David M. Koogler MacRae, L.L.P. & MacRae, L.L.P.
Assistant General Counsel 125 West 55th Street 1875 Connecticut Avenue NW
Enron Corp. New York, NY 10019-5389 Washington, DC 20009
1400 Smith Street Telephone: (212) 424-8170 Telephone: (202) 986-8195
Houston, TX 77002 Facsimile: (212) 424-8500 Facsimile: (202) 956-3321
Telephone: (713) 853-6161
Facsimile: (713) 646-3092
Facsimile (713) 646-6227
TABLE OF CONTENTS
Item 1.Description of the Proposed Transactions................................3
A.Introduction and General Request....................................3
B.Enron and its Subsidiaries..........................................4
1.The Bankruptcy Cases and the Chapter 11 Plan....................5
C.Portland General Electric Company...................................7
1.Introduction....................................................7
2.Portland General is Extensively Insulated from Enron............7
3.Sale of Portland General.......................................10
D.Prisma, CrossCountry and the Debtors' Other Assets.................10
1.Prisma.........................................................11
2.CrossCountry...................................................13
E.Other Transactions For Which Relief Is Requested...................15
1.Financing Transactions.........................................15
a.The Debtor-in-Possession ("DIP") Financing Arrangements...16
b.Pre-Petition Letters of Credit............................18
c.Enron Cash Management.....................................19
d.Portland General Cash Management Agreements...............21
e.Global Trading Contract and Asset Settlement and Sales
Agreements................................................21
f.Portland General Short-Term Financing.....................22
g Foreign Assets............................................25
2.The Sale of Non-Utility Companies..............................27
3.Dividends Out of Capital or Unearned Surplus...................28
4.New Acquisitions...............................................31
5.Simplifying Complex Corporate Structure and Dissolving
Existing Subsidiaries..........................................33
6.Rule 16 Exemptions.............................................34
7.Affiliate Transactions.........................................35
8.Tax Allocation Agreements......................................39
a.Tax Agreements with Portland General......................41
b.Tax Agreements with Non-Utility Subsidiaries..............41
9.Form U5B Registration Statement................................43
Item 2.Fees, Commissions and Expenses.........................................43
Item 3.Applicable statutory provisions and legal analysis.....................43
Item 4.Regulatory approvals...................................................43
Item 5.Procedure..............................................................43
Item 6.Exhibits and Financial Statements......................................43
Item 7.Information as to Environmental Effects................................45
2
FORM U-1
APPLICATION/DECLARATION
UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Item 1. Description of the Proposed Transactions
A. Introduction and General Request
Enron Corp., an Oregon corporation ("Enron"), a public utility holding
company,/1 on its behalf and on behalf of its subsidiaries listed in Exhibit H
(collectively "Applicants"), requests an order of the Securities and Exchange
Commission ("Commission") under the Public Utility Holding Company Act of 1935
("Act") authorizing certain financing, non-utility corporate reorganizations,
dividends, affiliate sales of goods and services and other transactions
described below to allow Enron and its subsidiaries to continue to operate their
businesses as both debtors in possession in bankruptcy and non-debtors.
Enron, the Commission's Division of Investment Management ("IM") and
the Commission's Division of Enforcement ("Enforcement") have held discussions
regarding the registration of Enron as a public utility holding company under
Section 5 of the Act, the chapter 11 plan for Enron and its affiliated debtor
entities, the solicitation of votes accepting or rejecting the plan, and various
transactions in furtherance of the chapter 11 cases that may require Commission
authorization under the Act were Enron a registrant under the Act./2 In
addition, a format for a comprehensive settlement of the exemption application
filed by Enron and other parties in SEC File No. 70-11373 has been discussed.
This application is the result of such discussions and is predicated on Enron's
registration under the Act in the near future, once the authorizations discussed
herein are in place.
As described infra in section C.3, Enron has entered into an agreement
to sell its only public utility subsidiary company, Portland General Electric
Company ("Portland General"). The chapter 11 plan also provides that Portland
General would be sold or, in the event such transaction cannot be consummated,
distributed to creditors and, in certain circumstances, equity interest
holders/3 as soon as requisite consents can be obtained and, as a possible
intermediate step, the common stock of Portland General may be contributed to a
trust ("PGE Trust"),/4 that
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1 Enron was formerly an exempt holding company under the Act by virtue of two
applications filed under Sections 3(a)(1), 3(a)(3) and 3(a)(5) of the Act. By
order, dated December 29, 2003, Holding Co. Act Release No. 27782, the
Commission denied the applications filed under Sections 3(a)(1), 3(a)(3) and
3(a)(5). Enron subsequently filed an application for exemption under Section
3(a)(4) of the Act on behalf of itself and two other entities. SEC File No.
70-10190. The Section 3(a)(4) application, as it related to Enron but not the
other two applicants, was set for hearing by Commission order, dated January 14,
2004, Holding Co. Act Release No. 27793.
2 A representative of the Creditors' Committee (defined below) attended some of
the discussions as an observer.
3 Applicants submit that, in accordance with existing projections, existing
Enron common stock and preferred stock are highly unlikely to receive any
distributions pursuant to the Plan. However, the Plan provides Enron
stockholders with a contingent right to receive a recovery in the event that the
total amount of Enron's assets, including recoveries in association with
litigation and the subordination, waiver or disallowance of Claims in connection
therewith, exceeds the total amount of Allowed Claims against Enron. No
distributions will be made in accordance with the Plan to holders of equity
interests unless and until all unsecured claims are fully satisfied.
4 There may be an adjustment in the number of Portland common shares prior to
contribution to the PGE Trust and in all events prior to distribution to
creditors. If the Portland General common stock is distributed to creditors
rather than sold as described herein, it is intended that the current Portland
General shares of common stock will be canceled and 80 million shares of new
Portland General common stock will be authorized and approximately 62.5 million
shares issued pursuant to the Plan, in each case, representing 100% of the
common equity of Portland General.
3
may be formed by December 31, 2004. Upon (i) the sale of Portland General, (ii)
the distribution of the shares of Portland General to creditors, or (iii) the
contribution of the Portland General common stock to the PGE Trust, it is
anticipated that Enron would deregister as a holding company under the Act.
Accordingly, this application seeks authorization for the transactions proposed
herein through the earlier of the deregistration of Enron and July 31, 2005.
The Applicants respectfully request this relief on an expedited basis.
As explained herein, the Applicants are in the midst of selling, reorganizing
and liquidating many subsidiaries and resolving contracts and claims. Without
adequate authorization under the Act, Applicants would be required to stop many
transactions that are currently being structured, negotiated or in progress,
many of which have already received authorization from the Bankruptcy Court
(defined below), and to postpone entering into other transactions until
appropriate orders from the Commission can be issued. Many of these transactions
represent significant value to the estates and creditors of Enron and certain of
its subsidiaries and affiliates and, in some cases, purchasers may withdraw from
a transaction, interest rates on negotiated financings may change, tax benefits
may be lost, or other consequences may flow from a delay. Enron also would be
prevented, in many respects, from operating in the ordinary course of business,
for example, borrowing from subsidiaries (other than Portland General), pursuant
to Bankruptcy Court order to pay its expenses. To prevent these adverse effects
to Applicants' creditors, Applicants respectfully request that the Commission
act on this application on an expedited basis.
B. Enron and its Subsidiaries
Enron is a public utility holding company within the meaning of the
Act by reason of its ownership of all of the outstanding voting securities of
Portland General, an Oregon electric public utility company.
From 1985 through mid-2001, Enron grew from a domestic natural gas
pipeline company into a large global natural gas and power company.
Headquartered in Houston, Texas, Enron and its subsidiaries historically
provided products and services related to natural gas, electricity, and
communications to wholesale and retail customers. As of December 2001, the Enron
companies employed approximately 32,000 individuals worldwide. The Enron
companies were principally engaged in (a) the marketing of natural gas,
electricity and other commodities, and related risk management and finance
services worldwide, (b) the delivery and management of energy commodities and
capabilities to end-use retail customers in the industrial and commercial
business sectors, (c) the generation, transmission, and distribution of
electricity to markets in the northwestern United States, (d) the transportation
of natural gas through pipelines to markets throughout the United States, and
(e) the development, construction, and operation of power plants, pipelines, and
other energy-related assets worldwide.
4
1. The Bankruptcy Cases and the Chapter 11 Plan
In the last quarter of 2001, the Enron companies lost access to the
capital markets, both debt and equity, and had insufficient liquidity and
financial resources to satisfy their current financial obligations. On December
2, 2001, Enron and certain of its subsidiaries each filed a voluntary petition
for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of New York ("Bankruptcy Court"). As of today, one hundred eighty (180)
Enron-related entities have filed voluntary petitions. Pursuant to sections 1107
and 1108 of the Bankruptcy Code, Enron and its subsidiaries that have filed
voluntary petitions (the "Debtors") continue to operate their businesses and
manage their properties as debtors in possession. Portland General, Enron's sole
public utility subsidiary company, has not filed a voluntary petition under the
Bankruptcy Code and is not in bankruptcy. Likewise, many other Enron companies
that are operating companies have not filed bankruptcy petitions and continue to
operate their businesses./5
The Debtors have been engaged, since the commencement of the chapter
11 cases, in the rehabilitation and disposition of their assets to satisfy the
claims of creditors. The Debtors have been consolidating, selling businesses and
assets, dissolving entities and simplifying their complex corporate structure.
The Debtors also have been involved in the settlement of numerous contracts
related to wholesale and retail trading of various commodities./6
The Debtors are holding cash from prior sales pending distribution
under a chapter 11 plan and are positioning other assets for sale or other
disposition./7 In this process, hundreds of
--------------------
5 On November 29, 2001, and on various dates thereafter, certain foreign
affiliates of Enron in England went into administration. Shortly thereafter,
various other foreign affiliates also commenced (either voluntarily or
involuntarily) insolvency proceedings in Australia, Singapore, and Japan.
Additional filings have continued world-wide and insolvency proceedings for
foreign affiliates are continuing for various companies registered in Argentina,
Bahamas, Bermuda, Canada, the Cayman Islands, France, Germany, Hong Kong, India,
Italy, Mauritius, the Netherlands, Peru, Spain, Sweden, and Switzerland. Once a
foreign affiliate is placed into a foreign insolvency proceeding, control of the
foreign affiliate along with the management and distribution of its assets will
generally be transferred to an insolvency practitioner, such as an
administrator, receiver, or liquidator. The foreign bankruptcies are not
administered jointly with the proceeding in the Bankruptcy Court. Thus,
commencement of most foreign proceedings results in a loss of ultimate control
by Enron and its subsidiaries over the assets of the foreign affiliate. Where
Enron no longer has control over such companies for the reasons described above,
the companies are no longer direct or indirect Enron subsidiaries and are not
subject to the Act. However, even if there are some companies over which Enron
retains control, the Commissions' jurisdiction under section 11(f) of the Act,
if any, extends only to those bankruptcy cases brought in United States courts.
None of the foreign proceedings referenced herein relate to Portland General.
6 After the commencement of the chapter 11 cases, both Debtor and non-Debtor
associates had a significant number of non-terminated and terminated positions
arising out of physical and financial contracts relating to numerous
commodities, including but not limited to power, natural gas, interest rates and
currencies, crude oil, liquid fuels, coal, pulp and paper, freight, steel,
metals, lumber and weather. These entities evaluated these contracts and have
undertaken efforts to perform, sell or settle these positions. The settlement of
these contracts is approved pursuant to pre-established protocols approved by
the Bankruptcy Court.
7 The Debtors, non-Debtor associates and other related companies have completed
a number of significant asset sales during the pendancy of the chapter 11 cases
resulting in gross consideration to the Debtors' bankruptcy estates, non-Debtor
associates, and certain other related companies aggregating approximately $3.6
billion. In many instances, proceeds from these sales are segregated, or in
escrow accounts, and the distribution of such proceeds will require either
consent of the Creditors' Committee or an order of the Bankruptcy Court.
5
corporations have been or will be liquidated./8 Eventually, substantially all of
the Debtors, including Enron, will be liquidated.
The Debtors have worked with the Official Committee of Unsecured
creditors appointed in the Debtors' chapter 11 cases (the "Creditors'
Committee"), the examiner appointed by the Bankruptcy Court with respect to the
chapter 11 case of Enron North America Corp. ("ENA") and individual creditor
groups to formulate a chapter 11 plan. On July 11, 2003, the Debtors filed a
joint chapter 11 plan and a related disclosure statement which documents were
subsequently amended several times. On January 12, 2004, the Debtors filed a
fifth amended plan (the "Plan") and a related amended disclosure statement with
the Bankruptcy Court./9 A hearing to consider the adequacy of the information
contained in the disclosure statement was held commencing on January 6, 2004. On
January 9, 2004, the Bankruptcy Court issued two orders approving the disclosure
statement for the Plan, establishing voting procedures, and ordering the
solicitation of votes approving or rejecting the Plan./10
The Plan provides for the appointment of a Reorganized Debtor Plan
Administrator ("Administrator") on the Effective Date for the purpose of
carrying out the provisions of the Plan. Pursuant to Section 1.226 of the Plan,
the Administrator would be Stephen Forbes Cooper, LLC, an entity headed by
Stephen Forbes Cooper, Enron's Acting President, Acting Chief Executive Officer,
and Chief Restructuring Officer. In accordance with Section 36.2 of the Plan,
the Administrator shall be responsible for implementing the distribution of the
assets in the Debtors' estates to the creditors, including, without limitation,
the divestiture of Portland General common stock or the sale of that stock
followed by the distribution of the proceeds to the creditors and, possibly,
equity interest holders. In addition, pursuant to the Plan, as of the Effective
Date, the Reorganized Debtors will assist the Administrator in performing the
following activities: (a) holding the Operating Entities, including Portland
General, for the benefit of creditors and providing certain transition services
to such entities, (b) liquidating the Remaining Assets, (c) making distributions
to creditors pursuant to the terms of the Plan, (d) prosecuting Claim objections
and litigation, (e) winding up the Debtors' business affairs, and (f) otherwise
implementing and effectuating the terms and provisions of the Plan.
--------------------
8 On the initial petition date, the Enron group totaled approximately 2,400
legal entities. Approximately 600 entities have been sold, merged or dissolved
and approximately 1,800 legal entities remain. By the end of 2004, it is
anticipated that all legal entities will be reduced to those necessary for
Enron's operating businesses (CrossCountry, Prisma and Portland General) and the
liquidation of assets.
9 The Plan and related disclosure statement are available at www.enron.com and
are included as Exhibits I-1 and I-2 to this Application. Unless defined in the
text of this Application, all capitalized terms used herein follow the
definitions specified in the Plan.
10 Order on motion of Enron Corp. approving the disclosure statement, setting
record date for voting purposes, approving solicitation packages and
distribution procedures, approving forms of ballots and vote tabulation
procedures, and scheduling a hearing and establishing notice and objection
procedures in respect of confirmation of the plan, Docket No. 15303, In re Enron
Corp., et al., Chapter 11 Case No. 01-16034 (AJG), Jan. 9, 2004 (U.S. Bankruptcy
Court, S.D.N.Y.). Order, pursuant to sections 105(a), 502, 1125 and 1126 of the
Bankruptcy Code and rules 3003, 3017 and 3018 of the Federal Rules of Bankruptcy
Procedure establishing voting procedures in connection with the plan process and
temporary allowance of claims procedures related thereto, Docket No. 15296, In
re Enron Corp., et al., Chapter 11 Case No. 01-16034 (AJG), Jan. 9, 2004 (U.S.
Bankruptcy Court, S.D.N.Y.). These orders are attached hereto as Exhibits J-1
and J-2.
6
C. Portland General Electric Company
1. Introduction
Portland General, incorporated in 1930, is a single, integrated
electric utility engaged in the generation, purchase, transmission,
distribution, and retail sale of electricity in the State of Oregon. Portland
General also sells wholesale electric energy to utilities, brokers, and power
marketers located throughout the western United States. Portland General's
service area is located entirely within Oregon and covers 3,150 square miles. It
includes 51 incorporated cities, of which Portland and Salem are the largest.
Portland General estimates that, at the end of 2002, its service area population
was approximately 1.5 million, comprising about 44% of the state's population.
As of December 31, 2002, Portland General served approximately 743,000 retail
customers. Portland General has approximately 26,085 miles of electric
transmission and distribution lines and owns 1,945 MW of generating capacity.
Portland General also has long-term power purchase contracts for 652 MW from
four hydroelectric projects on the mid-Columbia River and power purchase
contracts of one to twenty-six years for another 828 MW from BPA, other Pacific
Northwest utilities, and certain Native American tribes. As of December 31,
2002, Portland General's total firm resource capacity, including short-term
purchase agreements, was approximately 4,434 MW (net of short-term sales
agreements of 3,927 MW). The average annual demand is approximately 2,350 MW
with peak demand of approximately 3,800 MW.
On July 2, 1997, Portland General Corporation, the former parent of
Portland General, merged with Enron, with Enron continuing in existence as the
surviving corporation, and Portland General operating as a wholly owned
subsidiary of Enron. Portland General is not a Debtor in the chapter 11 cases.
As of December 31, 2002, Portland General had 2,757 employees. Portland General
is a reporting company under the Securities Exchange Act of 1934 and it files
annual, quarterly and periodic reports with the Commission. Portland General is
regulated by the Oregon Public Utility Commission ("OPUC") with regard to its
rates, terms of service, financings, affiliate transactions and other aspects of
its business. The company is also regulated by the Federal Energy Regulatory
Commission ("FERC") with respect to its activities in the interstate wholesale
power markets.
As of and for the nine months ended September 30, 2003, Portland
General and its subsidiaries on a consolidated basis had operating revenues of
$1,375 million, net income of $30 million, retained earnings of $517 million,
and assets of $3,185 million.
2. Portland General is Extensively Insulated from Enron
Portland General maintains a separate business from Enron by, inter
alia, in all material respects, maintaining books and records separate from
Enron; maintaining its bank accounts separate from Enron; not commingling its
assets with those of Enron; managing cash separately; holding all of its assets
in its own name; conducting its own business in its own name; preparing and
maintaining separate financial statements; showing its assets and liabilities
separate and apart from those of Enron; paying its own liabilities and expenses
only out of its own funds; observing all corporate and other organizational
formalities; maintaining an arm's length relationship with Enron and entering
into transactions with Enron only as permitted by state and
7
federal authorities; paying the salaries of its own employees from its own
funds; not guaranteeing or becoming obligated for the debts of Enron; not
holding out its credit as available to satisfy the obligations of Enron; using
separate stationery, invoices and checks bearing its own name; not pledging its
assets for the benefit of Enron; maintaining its own pension plan; holding
itself out solely as a separate entity; correcting any known misunderstanding
regarding its separate identity; not identifying itself as a division of Enron;
and maintaining adequate capital in light of its contemplated business
operations. Portland General, Enron and other affiliates have, however, filed
consolidated tax returns and utilized tax sharing arrangements that are commonly
utilized by affiliated corporations filing consolidated tax returns.
In an effort to preserve Portland General's credit rating,/11 a
bankruptcy remote structure was created that requires the affirmative vote of an
independent shareholder who holds a share of limited voting junior preferred
stock of Portland General before Portland General can be placed into bankruptcy
unilaterally by Enron, except in certain carefully prescribed circumstances in
which the reason for the bankruptcy is to implement a transaction pursuant to
which all of Portland General's debt will be paid or assumed without impairment.
In addition, a number of restrictions were put in place with the
approval of the OPUC at the time of Enron's merger with Portland General
Corporation. Among other things, Portland General may not make any equity
distribution to Enron that would cause Portland General's equity capital to fall
below forty-eight percent (48%) of Portland General's total capital without OPUC
approval. This obligation is set forth as condition 6 of the stipulation
attached as Appendix A and made part of OPUC Order No. 97-196 (the "Enron Merger
Order") issued in docket UM 814, the Matter of the Application of Enron Corp.
for an Order Authorizing the Exercise of Influence over Portland General
Electric Company. The Enron Merger Order is attached hereto as Exhibit K.
Portland General has not paid cash dividends to Enron since the second quarter
of 2001. To help the OPUC monitor Portland General's capital structure,
condition 9 to the Enron Merger Order requires Enron to disclose to the OPUC on
a timely basis (as defined in the condition) its intent to transfer more than
five percent of Portland General's retained earnings over a six-month period (60
days before beginning the transfer), its intent to declare a special cash
dividend from Portland General (30 days before the declaration), and its most
recent quarterly common stock cash dividend payment (30 days after the
declaration).
In addition, Portland General may issue stocks, bonds, notes, or other
evidences of indebtedness only with the prior approval of the OPUC and can use
the proceeds only for the purpose specified in the OPUC order authorizing the
issue. Issuance of short-term indebtedness (less than one year) does not require
OPUC approval, but does require the approval of the Federal Energy Regulatory
Commission. Under ORS 757.480, Portland General must obtain prior OPUC approval
to sell, lease, assign, or otherwise dispose of property worth over $100,000
that is "necessary or useful in the performance of its duties;" mortgage or
otherwise encumber any necessary or useful property; or "merge or consolidate
any of its lines, plants, system or other property." Prior OPUC approval is also
necessary to dispose of or encumber "any franchise, permit or right to maintain
and operate (...) or perform any service as" a public utility. ORS 757.480(1).
Absent that required approval, the transaction is void. ORS 757.480(3).
--------------------
11 Portland General's ratings are discussed in Item 1.E.1.f below.
8
Portland General's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2003, explains the balances on Portland General's
books that are attributable to related party transactions. The largest of the
related party items is an approximately $86 million (including accrued interest)
merger receivable from Enron for which a reserve has been established. Under
terms of the 1997 merger that resulted in Enron's acquisition of Portland
General, Enron agreed to provide $105 million of benefits to Portland General's
customers over an eight-year period through reductions in Portland General's
prices to its customers. In 2000, the remaining reductions due to Portland
General's customers was offset against amounts Portland General was to recover
from customers for its investment in the Trojan nuclear plant. Enron remained
obligated to Portland General for the approximate $80 million remaining balance
and continued to make monthly payments, as provided under the merger agreement.
Enron suspended its monthly payments to Portland General in September
2001, pursuant to its stock purchase agreement with NW Natural Gas Company,
under which NW Natural was to have assumed Enron's merger payment obligation
upon its purchase of Portland General. The stock purchase agreement was
terminated in May 2002. At September 30, 2003, Enron owed Portland General
approximately $86 million, including accrued interest./12 The realization of the
merger receivable from Enron is uncertain at this time due to Enron's
bankruptcy. Based on this uncertainty, Portland General has established a
reserve for the full amount of this receivable, of which $74 million was
recorded in December 2001.
On October 15, 2002, Portland General submitted proofs of claim to the
Bankruptcy Court for amounts owed Portland General by Enron and other Debtors,
including approximately $73 million (including accrued interest) for the merger
receivable balance as of December 2, 2001, the date of Enron's bankruptcy
filing. As noted above, although Portland General's eventual recovery on the
merger receivable is uncertain, Portland General's customers have already
received the benefit of the price reductions agreed to in 1997 through the
offset. In addition, Portland General has fully reserved for the merger
receivable on its books. Therefore, in the event that Portland General is not
able to collect any amounts in connection with its bankruptcy claim, there will
be no additional negative charge on its books. If, on the other hand, Portland
General does collect any amounts on this claim, such amounts will be reflected
as earnings on its books.
In addition to the above, Portland General may have potential exposure
to certain liabilities as a result of Enron's bankruptcy that arise from being
part of Enron's control group. These potential liabilities relate to pension
plans, retiree health benefits and income taxes and are described in detail in
Portland General's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2003, at note 7.
--------------------
12 In addition, at September 30, 2003, Portland General had outstanding accounts
receivable of $8.6 million from other Enron subsidiary companies that are part
of the bankruptcy case, including $5.4 million due from Portland General
Holdings, Inc. and $3.2 million due from Enron, Enron Broadband Services, Enron
North America, Enron Engineering & Construction and Enron Power Marketing Inc.
Based on Portland General's assessment of the realizability of these balances, a
reserve of $4 million has been established. In addition, certain subsidiaries of
Portland General have outstanding accounts receivable of $0.2 million from Enron
and Enron North America.
9
3. Sale of Portland General
Enron recently announced an agreement to sell the common stock of
Portland General to Oregon Electric Utility Company, LLC ("Oregon Electric"), a
newly-formed entity financially backed by investment funds managed by the Texas
Pacific Group, a private equity investment firm./13 The transaction is valued at
approximately $2.35 billion, including the assumption of debt. The sale is
subject to the receipt of Bankruptcy Court, OPUC and certain other regulatory
authorizations and closing is currently anticipated to occur in the second half
of 2004. The transaction is described in detail in Exhibits B-1 and B-2. On
December 5, 2003, the Bankruptcy Court issued a bidding procedures order
specifying January 28, 2004 as the last date on which competing prospective
buyers may submit bids to acquire Portland General./14 Under the purchase
agreement, Enron is permitted to accept a bid that represents a "higher or
better" offer for Portland General. No qualifying bid was received prior to the
January 28, 2004 deadline.
If Portland General has not been sold, is no longer the subject of the
purchase agreement described above and is not the subject of another purchase
agreement, then, Enron will cause Portland General to distribute Portland
General's shares to creditors pursuant to the Plan. In preparation for the
distribution of Portland General under the Plan, upon receipt of all appropriate
regulatory approvals, Enron may transfer its ownership interest in Portland
General to PGE Trust, a to-be-formed entity. If formed, PGE Trust would hold
Enron's interest in Portland General as a liquidating vehicle, for the purpose
of distributing, directly or indirectly, the shares of Portland General (or the
proceeds of a sale of Portland General) to the Debtor's creditors as required by
the Plan. It is possible that PGE Trust also would hold Enron's interest in
Portland General for the purposes of consummating the sale of Portland General
to Oregon Electric./15
D. Prisma, CrossCountry and the Debtors' Other Assets
In addition to the divestiture of Portland General, other key aspects
of the Plan include the formation of holding companies, Prisma Energy
International Inc. ("Prisma") and CrossCountry Energy Corp. ("CrossCountry")./16
Prisma is a Cayman Islands entity formed initially as a holding company pending
the transfer of certain international energy infrastructure businesses that are
indirectly owned by Enron and certain of its affiliates. CrossCountry is a
Delaware corporation that would hold Enron's pipeline businesses, which provide
natural gas transportation services through an extensive North American pipeline
infrastructure. As part of the Plan, creditors would receive shares of Prisma
and CrossCountry, interests in a trust or other entity formed to distribute
these assets, or cash proceeds of the sale of Prisma or CrossCountry. The Plan
also makes provision for the distribution of other assets of the Debtors'
estate, including in excess of $6 billion in cash, the proceeds of the
liquidation or divestiture of businesses that do not fit into Prisma and
CrossCountry, and the value of certain claims that Enron is pursuing
--------------------
13 Enron Corp. Press Release dated November 18, 2003.
14 Docket No. 14665, In re Enron Corp., et al., Chapter 11 Case No. 01-16034
(AJG), Dec. 5, 2003 (U.S. Bankruptcy Court, S.D.N.Y.).
15 See Article XXIV of the Plan.
16 Of the approximately 1,800 entities in the Enron group currently,
approximately 82 entities would become part of Prisma and 15 would be
contributed to CrossCountry. The remaining entities would be sold or liquidated
in accordance with the Plan.
10
against various professional service firms and financial institutions such as
commercial and investment banks. Additional detail with respect to Prisma and
CrossCountry is provided below:
1. Prisma
Prisma, a Cayman Islands limited liability company, was organized on
June 24, 2003 for the purpose of acquiring the Prisma Assets, which include
equity interests in the identified businesses, intercompany loans to the
businesses held by affiliates of Enron, and contractual rights held by
affiliates of Enron. Enron and its affiliates will contribute the Prisma Assets
to Prisma in exchange for shares of Prisma Common Stock commensurate with the
value of the Prisma Assets contributed.
The contribution of the Prisma Assets is expected to be effected
pursuant to a Prisma Contribution and Separation Agreement to be entered into
among Prisma and Enron and several of its affiliates. It is anticipated that the
Prisma Contribution and Separation Agreement, which is currently being
negotiated, will be submitted for Bankruptcy Court approval either as part of
the Plan Supplement or by a separate motion.
Prisma and Enron and its affiliates also expect to enter into certain
ancillary agreements, which may include a new Transition Services Agreement, a
tax allocation agreement ("Prisma Tax Allocation Agreement") and a Cross License
Agreement. The employees of Enron and its affiliates who have been supervising
and managing the Prisma Assets since December 2001, became employees of a
subsidiary of Prisma effective on or about July 31, 2003. In connection
therewith, as approved by the Bankruptcy Court,/17 Enron and its affiliates
entered into four separate Transition Services Agreements pursuant to which such
employees will continue to supervise and manage the Prisma Assets and other
international assets and interests owned or operated by Enron and its
affiliates. The ancillary agreements, together with the Prisma Contribution and
Separation Agreement, will govern the relationship between Prisma and Enron and
its affiliates subsequent to the contribution of the Prisma Assets, provide for
the performance of certain interim services, and define other rights and
obligations until the distribution of shares of capital stock of Prisma pursuant
to the Plan or the sale of the stock to a third party. In addition, the Prisma
Contribution and Separation Agreement or the ancillary agreements are expected
to set forth certain shareholder protection provisions with respect to Prisma
and may contain indemnification obligations of the Prisma Enron Parties.
No operating businesses or assets have been transferred to Prisma at
this time; however, subject to obtaining requisite consents, the Debtors intend
to transfer the businesses described above to Prisma either in connection with
the Plan or at such earlier date as may be determined by Enron and approved by
the Bankruptcy Court.
Prisma will be engaged in the generation and distribution of
electricity, the transportation and distribution of natural gas and liquefied
petroleum gas, and the processing of natural gas liquids. If all businesses are
transferred to Prisma as contemplated, Prisma will own interests in businesses
whose assets will:
--------------------
17 Docket No. 11915, In re Enron Corp., et al., Chapter 11 Case No. 01-16034
(AJG), July 24, 2003 (U.S. Bankruptcy Court, S.D.N.Y.); Docket No. 13710, In re
Enron Corp., et al., Chapter 11 Case No. 01-16034 (AJG), Oct. 24, 2003 (U.S.
Bankruptcy Court, S.D.N.Y.).
11
o Include over 9,600 miles of natural gas transmission and
distribution pipelines;
o Include over 56,000 miles of electric transmission and
distribution lines;
o Include over 2,100 MW of electric generating capacity;
o Serve 6.5 million LPG, gas, and electricity customers;
o Be located in 14 countries; and
o Employ over 7,900 people.
It is contemplated that the operating businesses contributed to Prisma
would be engaged in the businesses described above and businesses related or
incidental thereto. Applicants do not expect that any significant non-energy
related businesses would be made a part of Prisma.
Prisma will be an energy infrastructure company providing energy
generation, transportation, processing, and distribution services. By
concentrating on its core competencies of owning and operating energy
infrastructure assets in diverse international locations, Prisma intends to
focus on being a low-cost, efficient operator in the markets it serves. Prisma's
anticipated objective is to generate stable cash flow, earnings per share, and
dividends, and to grow each of these through growth projected within the
existing portfolio of businesses. The corporate affairs of Prisma will be
governed by its memorandum and articles of association, amended and restated
versions of which will accompany the Prisma Contribution and Separation
Agreement, and by the laws of the Cayman Islands.
In addition to Bankruptcy Court approval, the transfer of the
businesses described above to Prisma will require the consent of other parties,
including, but not limited to, governmental authorities in various
jurisdictions. If any such consents are not obtained, then at the discretion of
Enron, with the consent of the Creditors' Committee, as contemplated in the
Plan, one or more of these businesses may not be transferred to Prisma, but
instead will remain directly or indirectly with Enron.
Applicants intend that Prisma will certify as a foreign utility
company ("FUCO") under Section 33 under the Act prior to the transfer of the
businesses described above to Prisma. The transfer of such businesses to Prisma
in exchange for interests in Prisma would generally be exempt under Section
33(c)(1) of the Act. Nevertheless, certain indemnification agreements between
Enron group/18 companies in connection with the contribution of the Prisma
Assets would constitute the extension of credit among associate companies and
would require Commission authorization under Section 12(b) of the Act and Rule
45(a) thereunder. In addition, the Prisma Tax Allocation Agreement to be entered
into among Prisma, Enron and certain Enron affiliates, is expected to require
Prisma to be obligated to make dividend distributions to its shareholders in
certain minimum amounts (to the extent of available cash) for
--------------------
18 "Enron group" includes all of Enron's subsidiaries, whether or not they are
Debtors.
12
so long as Enron or any affiliate or the Disputed Claims reserve is required to
include amounts in income for federal income tax purposes in respect of the
ownership of Prisma shares. Applicants seek authorization to enter into
indemnification agreements and the Tax Allocation Agreement in connection with
the formation of Prisma as authorized by the Bankruptcy Court and as described
above. In addition, Prisma will seek to avail itself of any other authorizations
granted to Enron's subsidiaries in connection with this application such as
authorizations relating to dividends and reorganizations.
2. CrossCountry
CrossCountry was incorporated in the State of Delaware on May 22,
2003. On June 24, 2003, CrossCountry and the CrossCountry Enron Parties entered
into the original CrossCountry Contribution and Separation Agreement providing
for the contribution of Enron's direct and indirect interests in its interstate
pipelines and other related assets to CrossCountry. On September 25, 2003, the
Bankruptcy Court issued an order approving the transfer of the pipeline
interests and the related assets from the CrossCountry Enron Parties to
CrossCountry and other related transactions, pursuant to the original
CrossCountry Contribution and Separation Agreement. That order contemplates that
the parties may make certain modifications to the original Contribution and
Separation Agreement./19 The parties are negotiating an Amended and Restated
Contribution and Separation Agreement that incorporates certain changes to the
original Contribution and Separation Agreement including the substitution of
CrossCountry Energy LLC ("CrossCountry LLC") in place of CrossCountry as the
holding company owning the pipeline interests.
Pursuant to the Amended and Restated Contribution and Separation
Agreement, Enron and certain of its affiliates would contribute their ownership
interests in the certain gas transmission pipeline businesses and certain
non-utility service companies to CrossCountry LLC in exchange for equity
interests in CrossCountry LLC. The closing of the transactions contemplated by
the Amended and Restated Contribution and Separation Agreement is expected to
occur as soon as possible. It is anticipated that, following confirmation of the
Plan and prior to the CrossCountry Distribution Date, the equity interests in
CrossCountry LLC will be exchanged for equity interests in CrossCountry
Distributing Company in the CrossCountry Transaction. As a result of the
CrossCountry Transaction, CrossCountry Distributing Company will obtain direct
or indirect ownership in the Pipeline Businesses and certain services companies
described below. CrossCountry LLC's principal assets will, upon closing of the
formation transactions, consist of the following:
o A 100% indirect ownership interest in Transwestern Holdings
Company, Inc. ("Transwestern"), which, through its
subsidiary Transwestern Pipeline Company, owns an
approximately 2,600-mile interstate natural gas pipeline
system that transports natural gas from western Texas,
Oklahoma, eastern New Mexico, the San Juan basin in
northwestern New Mexico and southern
--------------------
19 Docket No. 13381, In re Enron Corp., et al., Chapter 11 Case No. 01-16034
(AJG), Oct. 8, 2003 (U.S. Bankruptcy Court, S.D.N.Y.); Docket No. 14560, In re
Enron Corp., et al., Chapter 11 Case No. 01-16034 (AJG), Dec. 1, 2003 (U.S.
Bankruptcy Court, S.D.N.Y.).
13
Colorado to California, Arizona, and Texas markets.
Transwestern's net income for the year ended December 31,
2002 was $20.7 million.
o A 50% ownership interest in Citrus Corp. ("Citrus"), a
holding company that owns, among other businesses, Florida
Gas Transmission Company ("FGT"), a company with an
approximately 5,000-mile natural gas pipeline system that
extends from South Texas to South Florida. An affiliate of
CrossCountry operates Citrus and certain of its
subsidiaries. Citrus's net income for the year ended
December 31, 2002 was $96.6 million, 50% of which, or $48.3
million, comprised Enron's equity earnings. CrossCountry LLC
is expected to hold its interest in Citrus through its
wholly owned subsidiary, CrossCountry Citrus Corp.
o A 100% interest in Northern Plains Natural Gas Company
("Northern Plains"), which directly or through its
subsidiaries holds 1.65% out of an aggregate 2%
general-partner interest and a 1.06% limited-partner
interest in Northern Border Partners, L.P. ("Northern
Border") a publicly traded limited partnership (NYSE: NBP),
that is a leading transporter of natural gas imported from
Canada to the Midwestern United States. Pursuant to
operating agreements, Northern Plains operates Northern
Border's interstate pipeline systems, including Northern
Border Pipeline, Midwestern, and Viking. Northern Border
also has (i) extensive gas gathering operations in the
Powder River Basin in Wyoming, (ii) natural gas gathering,
processing and fractionation operations in the Williston
Basin in Montana and North Dakota, and the western Canadian
sedimentary basin in Alberta, Canada, and (iii) ownership of
the only coal slurry pipeline in operation in the United
States. Northern Border's net income for the year ended
December 31, 2002 was $113.7 million, of which $9.1 million
comprised Enron's equity earnings.
These companies have a history of expanding their pipeline systems to
meet growth in market demand and to increase customers' access to additional
natural gas supplies. These expansions not only provide the individual
interstate pipeline businesses with additional net income and cash flow, but
also are important factors in maintaining and enhancing their market positions.
Historically, the interstate pipeline businesses have undertaken expansions when
they are backed by long-term firm contract commitments. In addition, the
pipelines have historically made acquisitions to meet market growth and gain
access to gas supplies.
It is expected that the contribution of the interests in the gas
pipeline businesses to CrossCountry LLC under the Amended and Restated
Contribution and Separation Agreement, in exchange for equity interests in
CrossCountry LLC, would be exempt capital contributions under Rule 45(b)(4)
under the Act. Agreements among companies in the Enron group to indemnify other
Enron group companies in connection with the contribution of these businesses
and the financing of the CrossCountry entities would, however, constitute
extensions of credit among associate companies under Section 12(b) of the Act
and Rule 45(a) thereunder. Intercompany indemnifications are necessary to
implement the goal of having all of the pipeline related assets and liabilities
at CrossCountry and all of the non-pipeline related assets and liabilities in
other entities. Without indemnifications it would not be feasible to carve the
assets that will become CrossCountry out of the Enron group because they would
bring with them a "tail" of potential
14
liabilities associated with prior dealings in the Enron group. Indemnifications
are used to focus the liabilities related to certain events or transactions on
the companies most responsible for such events or transactions and, accordingly,
they are in the interest of investors, consumers and the public in that they
further the rationalization of Enron's complex intercompany relationships and
promote the resolution of the chapter 11 process. In most cases,
indemnifications would be part and parcel of larger transactions that would be
approved by the Bankruptcy Court unless they are considered to be in the
ordinary course of business./20
In addition, the Amended and Restated Contribution and Separation
Agreement contemplates that a tax allocation agreement ("CrossCountry Tax
Allocation Agreement") would be entered into among CrossCountry and its
subsidiaries and Enron. The CrossCountry Tax Allocation Agreement would comply
with the requirements of Rule 45(c) under the Act in all material respects,
except that it would permit Enron to receive payment from the subsidiaries
filing jointly with Enron for the value of any net operating losses of other tax
attributes that resulted in a reduction in the consolidated tax, ratably with
any other Enron subsidiary also contributing such tax benefits to the
consolidated tax group. Applicants seek authorization to enter into the
CrossCountry transaction consistent with the authorization granted by the
Bankruptcy Court and with the terms and conditions of the Amended and Restated
Contribution and Separation Agreement, including, but not limited to, the
indemnification agreements, the Tax Allocation Agreement, and related financing
transactions in connection with the formation of CrossCountry as authorized by
the Bankruptcy Court and as described above.
E. Other Transactions For Which Relief Is Requested
1. Financing Transactions
Upon Enron's registration under the Act, unless the transaction has
been approved by the Commission or is exempt under the Act, Enron and its
subsidiaries will be precluded from (i) issuing or selling any security, or (ii)
exercising any privilege or right to alter the priorities, preferences, voting
power or other rights of any outstanding security./21 Because "security" is very
broadly defined,/22 virtually any issuance of any equity, debt or agreement to
pay or guarantee indebtedness or other obligations could be characterized as the
issuance and sale of a security for which Commission approval would be required
unless a specific exemption is available./23
--------------------
20 Portland General does not seek authorization to issue indemnifications on
behalf of any companies other than its direct or indirect subsidiaries.
21 See Section 6 (a).
22 See Section 2(a)(16).
23 For example, limited amounts of short-term debt are exempted by statute.
Section 6(b) provides that subsection (a) does not apply to the issue, renewal
or guaranty by a registered holding company or any of its subsidiaries of any
note or draft that (1) is not part of a public offering; (2) matures or is
renewed for not more than nine months after the date of such issue, renewal or
guaranty thereof; and (3) aggregates, together with any other notes outstanding
of nine months maturity or less, not more than 5 percent of the principal amount
and par value of the other securities of such company then outstanding. If the
common stock has no or penny par value, it will be counted at its "fair value"
as of the date of the issue for purposes of Section 6(b).
15
Applicants describe below a number of financing transactions that
would require Commission authorization under the Act. The Applicants hereby
request authorization for these types of transactions.
a. The Debtor-in-Possession ("DIP") Financing Arrangements
On December 2, 2001, Enron entered into a DIP Credit Agreement with
several banks to provide a debtor in possession credit facility of $1.5 billion
and a letter of credit subfacility up to the amount of the aggregate available
commitment. On December 4, 2001, the Bankruptcy Court entered the Interim DIP
Order approving the DIP Credit Agreement on an interim basis and authorizing
borrowings and issuances of letters of credit in an amount up to $250 million.24
The Debtors subsequently determined that, with the exception of the letters of
credit, they did not foresee the need to borrow funds in the form or manner as
contemplated by the DIP Credit Agreement. Accordingly, the Debtors sought to
amend the DIP Credit Agreement and on July 2, 2002, the Bankruptcy Court entered
an order authorizing the Debtors to obtain post petition financing through
letters of credit only pursuant to the Amended DIP Credit Agreement./25
The Amended DIP Credit Agreement essentially permitted the Debtors to
obtain up to $250 million in letter-of-credit financing, including a sub-limit
of $50 million for the issuance of letters of credit, for the benefit of
non-Debtor associates, and to use such letters of credit in the operation of
their respective businesses. Pursuant to the terms of the Amended DIP Credit
Agreement, Enron deposited $25 million in a letter of credit cushion account
maintained at the offices of JP Morgan Chase Bank ("JPMCB"), and each Debtor for
whose benefit a letter of credit is to be issued must place cash collateral in
an amount equal to 110% of the face amount of such letter of credit in a
separate account maintained at the offices of JPMCB. The Amended DIP Credit
Agreement does not require the Debtors to incur any new fees beyond those
originally required under the DIP Credit Agreement. The Amended DIP Credit
Agreement was scheduled to terminate on June 3, 2003.
On May 8, 2003, the Bankruptcy Court entered an order approving the
extension of the Debtors' post petition financing pursuant to the Second Amended
DIP Credit Agreement. The extension decreases the aggregate amount available for
letters of credit to $150 million, increases the sub-limit for letters of credit
issued for the benefit of non-Debtor associates to $65 million, decreases the
amount deposited by Enron in the letter of credit cushion account to $15
million, and decreases JPMCB's and Citicorp's annual fees as Collateral Agent
and Paying Agent, respectively, to $200,000 each. The Second Amended DIP Credit
Agreement is scheduled to terminate on June 3, 2004. Enron paid an extension fee
to the DIP Lenders in an amount equal to 0.20% of the aggregate amount available
under the Second Amended DIP Credit Agreement. In addition, the Second Amended
DIP Credit Agreement provides that Enron would pay a letter of credit fee of 150
basis points on the issued amount of any letter of credit, a commitment fee on
the undrawn balance of the letter of credit facility of 50 basis points, a
fronting fee on the issued amount of any letter of credit of 25 basis points and
an applicable margin on unreimbursed letters of credit of 50 basis points.
--------------------
24 Docket No. 0063, In re Enron Corp., et al., Chapter 11 Case No. 01-16034
(AJG), Dec. 4, 2001 (U.S. Bankruptcy Court, S.D.N.Y.).
25 Docket No. 4888, In re Enron Corp., et al., Chapter 11 Case No. 01-16034
(AJG), July 2, 2002 (U.S. Bankruptcy Court, S.D.N.Y.).
16
Under the Second Amended DIP Credit Agreement, Enron's obligations are
guaranteed by its debtor subsidiaries that are parties to the credit agreement.
Each new debtor becomes an additional guarantor under the agreement when an
applicability order is entered by the Bankruptcy Court shortly after such entity
files a petition under chapter 11. As a non-Debtor, Portland General is not a
guarantor under this credit agreement.
An upstream extension of credit generally would be considered a
prohibited transaction under Section 12(a) of the Act./26 In addition, virtually
all the property of Enron and its debtor subsidiaries, including the stock of
Portland General, is pledged as collateral to secure the obligations of the
borrowers under the credit facility./27 Had such a pledge been entered into
after registration, it would have required the authorization of the Commission
under Section 12(d) of the Act./28
As of today, Enron has four letters of credit outstanding under the
Second Amended DIP Credit Agreement in the approximate aggregate amount of $24.5
million. Applicants seek Commission authorization to continue to obtain letters
of credit, or to extend the maturity of previously issued letters of credit, up
to an aggregate amount of $150 million under the Second Amended DIP Credit
Agreement as now in effect or as it may subsequently be amended or extended by
order of the Bankruptcy Court through June 30, 2005. Applicants also request
authorization for additional debtors to become guarantors under the agreement
when the Bankruptcy Court enters an applicability order with respect to such
debtor making the provisions of the Second Amended DIP Credit Agreement
applicable to such entity. This request is appropriate under the circumstances
because: (a) the agreement was entered into prior to Enron's registration under
the Act, (b) it has been approved by the Bankruptcy Court, and (c)
post-registration it would be used for a limited purpose that is not likely to
adversely affect any Enron subsidiaries. The full cash collateralization of each
letter of credit means that, if one is drawn upon it would be covered by cash
held by JPMCB. Thus, the DIP Credit Facility will not
--------------------
26 Section 12(a) provides, in part, that it is unlawful for a registered holding
company to "borrow, or to receive any extension of credit or indemnity, from any
public utility company in the same holding company system or from any subsidiary
company of such holding company, but it shall not be unlawful under this
subsection to renew, or extend the time of, any loan, credit, or indemnity
outstanding on the date of the enactment of this title."
27 To induce certain financial institutions ("DIP Lenders") to make loans and
issue letters of credit to Enron and certain of its subsidiaries after Enron had
entered bankruptcy, Enron entered into a Pledge Agreement with JPMCB, as
Collateral Agent, dated December 3, 2001 ("Pledge Agreement"). Under the Pledge
Agreement certain collateral was assigned and pledged by Enron to the Collateral
Agent for the benefit of the DIP Lenders. The collateral included a security
interest in the common stock of Portland General and all income, profits,
distributions, proceeds or payments related thereto. Under the Pledge Agreement
voting rights and numerous other rights affecting the power to control Portland
General may not be exercised by the Collateral Agent or its principals unless an
event of default has occurred and all governmental and regulatory approvals have
been obtained. The Pledge Agreement also provides that the transfer of the
Portland General shares to the Collateral Agent shall not constitute a transfer
of title or ownership to the shares. Upon an event of default, as defined in the
Pledge Agreement, and the receipt of all required regulatory approvals, the
Collateral Agent may sell the collateral at a public or private sale at a price
it deems satisfactory. There are currently no defaults under the Pledge
Agreement. Finally, the Pledge Agreement provides that the DIP Lenders will
release their lien on the Portland General shares if Portland General is sold.
The Bankruptcy Court authorized Enron to enter into this financing arrangement
by order dated July 2, 2002. Docket No. 4888, In re Enron Corp., et al., Chapter
11 Case No. 01-16034 (AJG), July 2, 2002 (U.S. Bankruptcy Court, S.D.N.Y.).
28 The Pledge Agreement for the Portland General shares requires that the
creditors obtain all necessary regulatory authorizations, including the
authorization of the Commission under the Act, prior to acquiring the Portland
General shares or exercising any substantive voting or control rights with
respect to Portland General.
17
adversely affect Portland General or Enron's other subsidiaries by subjecting
the collateral to foreclosure under the agreement or through a claim under the
subsidiary guarantees of the facility.
It is necessary for Enron to maintain the facility because Enron
currently has limited alternative sources of financing and letters of credit are
currently required by certain parties, e.g. insurance companies, that will not
accept cash collateral or other arrangements to secure Enron's performance
obligations under various contracts. The facility also permits Enron to post a
letter of credit to secure obligations of the company under trading contracts
with counterparties where to post cash collateral would subject the estate to
risks associated with the credit of that counterparty. The Second Amended DIP
Credit Agreement thereby helps to preserve the assets of the estate for its
creditors.
Although Applicants recognize that the pledge of the Portland General
common stock and the subsidiary guarantees of the credit agreement may not have
been authorized by the Commission had Enron been a registered holding company at
the time the facility was initially agreed, the Commission should authorize the
facility as it is now structured and as it may be amended from time to time with
the consent of the Bankruptcy Court for purposes of granting waivers, extending
maturity dates and similar reasons. The Second Amended DIP Credit Agreement
contains terms that are typical of debtor in possession financing arrangements.
Lenders to debtors in possession seek extensive collateral and guarantees to
secure their loans as a matter of course and it would be disruptive to the
business of the estate to attempt to renegotiate this facility with the lenders
at this time. An authorization of the facility is similar to the grandfathering
of previously issued debt under the Act at the time a company first becomes
registered under the Act. Notably, the pledge of the Portland General shares is
subject to the receipt of all required regulatory authorizations, including the
approval of this Commission, should the lenders seek to foreclose on that stock.
The full collateralization of the letters of credit under the facility indicates
that there is an exceedingly low probability, if any, that the guarantees or the
collateral provisions of the facility would ever be invoked. Accordingly, it is
reasonable for the Commission to view the facility as one that does not violate
the prohibition in Section 12(a) of the Act regarding the extension of credit
from a subsidiary to a registered holding company.
b. Pre-Petition Letters of Credit
In a limited number of instances, the Debtors may be obligated on
reimbursement agreements in connection with certain letters that are still
outstanding and which the issuing bank may choose to extend, without the consent
or involvement of a Debtor. This renewal is beyond the control of the Debtors
and the Debtors do not take any affirmative action in connection with such
renewal. Absent such a renewal, the beneficiary of the letter of credit would
have a right to draw on the letter of credit, to the detriment of both the
lender that issued the letter of credit and the Debtors who have a pre-petition
reimbursement obligation to such lenders. To the extent necessary, Applicants
seek Commission authorization for such involuntary extension of the maturity of
any such letter of credit.
18
c. Enron Cash Management
Enron managed its cash on a centralized basis with funds loaned to or
from Enron and to subsidiaries. Enron is permitted to continue to borrow from or
lend to certain subsidiaries under terms specified by the Bankruptcy Court.
Orders of the Bankruptcy Court dated December 3, 2001 and February 25, 2002,
permit, among other things, the Debtors to use their centralized cash management
system, subject to certain modifications including a grant of adequate
protection for intercompany transfers in the form of superpriority Junior
Reimbursement Claims and Junior Liens./29
The Amended Cash Management Order/30 provides:
Notwithstanding any other Order of the Court, and as adequate
protection for each Debtor for the continued use of the
Centralized Cash Management System, to the extent that any Debtor
transfers (or transferred) property (including cash) following
the Petition Date (the "Adequately Protected Debtor") to or for
the benefit of any other Debtor (the "Beneficiary Debtor"), with
an aggregate fair value in excess of the aggregate fair value of
property (including cash) or benefit received by the Adequately
Protected Debtor from the Beneficiary Debtor following the
Petition Date, then... (a) the Adequately Protected Debtor shall
have (x) an allowed claim against the Beneficiary Debtor for the
fair value of property (including cash) or benefit transferred
(net of any reasonable expenses for overhead or other services
reasonably allocated or reasonably charged to the Adequately
Protected Debtor), under Sections 364(c)(1) and 507(b), having
priority over any and all administrative expenses of the kind
specified in Sections 503(b) and 507(b) of the Bankruptcy Code,
which claim shall bear interest at the Prevailing Rate...for the
period accruing from and after the date such claim arises until
repayment thereof (collectively, the "Junior Reimbursement
Claim") and (y) a lien on all property of the Beneficiary
Debtor's estate under Section 364(c)(3) of the Bankruptcy Code
securing such Junior Reimbursement Claim ("Junior Lien"). . . .
Amended Cash Management Order, P. 5(a).
Such Junior Reimbursement Claims and Junior Liens are junior and
subject and subordinate only to the superpriority claims and liens granted to
the DIP Lenders and their agent in respect of the Debtors' DIP obligations, and
thus provide extensive protections to the Debtors
--------------------
29 Docket No. 0034, In re Enron Corp., et al., Chapter 11 Case No. 01-16034
(AJG), Dec. 3, 2001 (U.S. Bankruptcy Court, S.D.N.Y.); Docket No. 1666, In re
Enron Corp., et al., Chapter 11 Case No. 01-16034 (AJG), Feb. 25, 2002 (U.S.
Bankruptcy Court, S.D.N.Y.). These orders are attached hereto as Exhibits J-3
and J-4.
30 Docket No. 1666, In re Enron Corp., et al., Chapter 11 Case No. 01-16034
(AJG), Feb. 25, 2002 (U.S. Bankruptcy Court, S.D.N.Y.). This order is attached
as Exhibit J-4.
19
and their creditors. The rate for notes entered into in connection with such
loans bear interest at the rate of one-month LIBOR plus 250 bases points,
measured on the first day of the month.
Although the Debtors are not substantively consolidated under chapter
11, for purposes of administering the estate and resolving the claims against
the Debtors, the Debtors' chapter 11 cases are jointly administered and a global
compromise and settlement has been reached among the Debtors, the ENA Examiner
and the Creditors' Committee to treat the Enron group as a whole for some
purposes./31 Loans under the Amended Cash Management Order, therefore, are
consistent with the interests protected under the Act and should be authorized
by the Commission when entered into consistent with the authorization of the
Bankruptcy Court.
Applicants seek Commission authorization to continue to borrow and
lend funds between associated companies in accordance with the Amended Cash
Management Order as such order may be amended by the Bankruptcy Court. Such
loans are necessary and appropriate in the public interest and the interest of
investors and consumers to further the efficient resolution of the Debtors'
chapter 11 cases. It would not be practical to cease using the financing
flexibility provided by the Amended Cash Management Order and, for example, rely
solely on the Amended DIP Credit Facility. That facility is now only for letters
of credit and to amend it into a borrowing facility would require extensive
negotiations with banks. More importantly, however, to replace the intrasystem
loans with an amended DIP loan facility would be detrimental to the estates. The
estates would incur fees, expenses and encumbrances in borrowing from banks that
they can avoid by borrowing internally. Given the joint administration of the
Debtors in these chapter 11 cases, it is appropriate that the Amended Cash
Management Order provide, as it does, a means for jointly financing these
entities. Furthermore, without such loans Enron's ability to operate its
business and its work of selling, restructuring and disposing of assets would be
significantly impaired. The superpriority Junior
--------------------
31 Substantive consolidation is a judicially created equitable remedy whereby
the assets and liabilities of two or more entities are pooled, and the pooled
assets are aggregated and used to satisfy the claims of creditors of all the
consolidated entities. Typically, substantive consolidation eliminates
intercompany claims and any issues concerning ownership of assets among the
consolidated entities, as well as guaranty claims against any consolidated
entity that guaranteed the obligations of another consolidated entity. Given the
extent and difficulty of the relevant factual and legal issues relating to
substantive consolidation, in an effort to resolve the numerous inter-estate
issues without protracted and expensive litigation, the Debtors, the ENA
Examiner and the Creditors' Committee forged a global compromise and settlement
predicated upon a negotiated formula, as a proxy for resolving all such issues,
distributing value to creditors based on hypothetical cases of substantive
consolidation and no substantive consolidation. Specifically, under the global
compromise of numerous inter-estate issues embodied in the Plan, except with
respect to the Portland Debtors, distributions of Plan Currency will be made on
account of Allowed General Unsecured Claims, Allowed Guaranty Claims, and
Allowed Intercompany Claims based on agreed percentages being applied to two
scenarios for making distributions: (i) substantive consolidation of all of the
Debtors or (ii) substantive consolidation of none of the Debtors. Accordingly,
for example, subject to certain adjustments, a holder of an Allowed General
Unsecured Claim (except a holder of an Allowed General Unsecured Claim against
the Portland Debtors) will receive the sum of (a) 30% of the distribution such
Creditor would receive if the Debtors' estates, other than the estates of the
Portland Debtors, were substantively consolidated, but notwithstanding such
substantive consolidation, one-half of Allowed Guaranty Claims were included in
such calculation and (b) 70% of the distribution such Creditor would receive if
the Debtors were not substantively consolidated. As noted, the 30/70 weighted
average is not a precise mathematical quantification of the likelihood of
substantive consolidation of each Debtor into each of the other Debtors, but,
instead, a negotiated approximation of the likely recoveries if numerous
inter-estate issues, including substantive consolidation, were litigated to
judgment as to all Debtors.
20
Reimbursement Claims and Junior Liens with respect to loans made under the
Amended Cash Management Order assure that the Adequately Protected Debtor's
claim to the funds loaned will be secure and, accordingly, such loans do not
raise the concerns of "milking" associate companies of necessary capital that
Section 12(a) of the Act was intended to prevent. There is every expectation
that these loans will be repaid in full. Portland General is not a lender to
Enron or any other Enron group company under the Amended Cash Management Order
or otherwise and will not make loans under the authorization requested herein.
d. Portland General Cash Management Agreements
Portland General has entered into agreements with its wholly-owned
subsidiaries for cash management. Under the agreements, Portland General
periodically transfers from the bank accounts of each subsidiary any cash held
in the subsidiary's bank account. If the subsidiary has cash needs in excess of
any amount remaining in the account, upon request, Portland General transfers
the required amount into the subsidiary's bank account. Portland General does
not pay interest on the amounts transferred from a subsidiary's account unless
the closing balance of the amount transferred at the end of any month exceeds
$500,000. Any interest paid is at an annual rate of three percent (3%) and is
retained by Portland General until returned to the subsidiary to meet its cash
needs. All administrative expenses are borne by Portland General. Portland
General seeks authorization to continue to perform under such cash management
agreements.
e. Global Trading Contract and Asset Settlement and Sales
Agreements
Certain settlement agreements and asset sales entered into by Enron
and its subsidiaries may involve extensions of credit among associate companies
subject to Section 12(b) of the Act and Rule 45(a). Enron's subsidiaries were
extensively engaged in the retail and/or wholesale trading in various
commodities including, but not limited to, energy, natural gas, paper pulp, oil
and currencies. Subsequent to the bankruptcy filings, these companies now are
engaged in settling these contracts with unaffiliated counterparties under a
settlement process approved by both the Creditors' Committee and the Bankruptcy
Court. The settlement agreements often take the form of global contract or asset
settlements whereby several Enron subsidiaries seek to settle numerous retail or
wholesale trading and related contracts or claims to assets with a group of
related counterparties. Settlements of energy trading contracts entered into by
Portland General are not addressed in this section. To the extent Portland
General is engaged in a dispute over such a contract, it would resolve that
matter independently. In addition, asset or stock sale agreements may be entered
into between Enron and/or its subsidiaries and unaffiliated counterparties. The
settlements and sales may involve extensions of credit among associate
companies, guaranties and indemnifications. Some of the claims resolved in these
settlements are in-the-money to the settling Enron companies (i.e., money is
owed to the settling Enron companies), and others (which will be resolved
through the claims process and result in distributions after the approval of the
Plan) are out-of-the money (i.e., money is owed by the settling Enron companies
to the settling counterparty companies). Under a settlement agreement, or asset
or stock sale agreement, the value associated with a group of contracts or
claims may be netted into a single aggregate payment to be paid to the
appropriate debtor(s) to resolve all claims between the settling Enron companies
and the settling counterparty companies. When the settling Enron companies are
receiving a single aggregated payment, the proceeds are typically held in
segregated accounts as required by Bankruptcy Court orders pending a
determination by
21
the Bankruptcy Court on the proper allocation of settlement proceeds among the
Enron group companies that participated in the settlements. If the Enron group
is making a net settlement payment (which will occur in accordance with the
claims procedures and after the approval of the Plan), similarly, the payment
may be made from one company's central account on behalf of all settling Enron
group companies. Although undefined at the time of the settlement, each settling
company presumably has some right to a portion of the settlement proceeds or a
liability for a portion of the settlement payment, so, arguably, collecting or
paying the funds centrally would create a form of an intercompany extension of
credit, but only as a result of allocation findings by the Bankruptcy Court and
not as a result of intended extensions of credit among associated companies.
Applicants seek to continue to execute settlement agreements and asset or stock
sale agreements in this fashion, as it is the most efficient manner of resolving
numerous complex claims and converting them to cash. It would be much less
efficient for the creditors to first litigate the allocation of claims among the
numerous Enron subsidiaries and then to negotiate individually with
counterparties to settle these claims individually. Any settlement or sale
proceeds or costs aggregated as a result of a settlement will be allocated among
the Enron companies as required by the Bankruptcy Court.
f. Portland General Short-Term Financing
Portland General is subject to the jurisdiction of the OPUC with
respect to the issuances and sales of securities with maturities of one year or
longer. Accordingly, the issuance of securities by Portland General to finance
the utility's business with a maturity of one year or longer would be conducted
pursuant to the authorization of the OPUC and in reliance on the exemption
provided by Rule 52(a) under the Act. However, upon Enron's registration under
the Act, Commission authorization would be required for Portland General to
issue debt with a maturity of less than one year. Such securities are not
required to be authorized by the OPUC and the exemption provided by Rule 52(a),
therefore, would not be applicable./32
Portland General requests authorization to issue short-term debt in
accordance with an existing short-term revolving credit facility with certain
banks under the terms and conditions described below. In addition, Portland
General requests authorization, through June 30, 2005, to issue short-term debt
in the form of institutional borrowings, bid notes and commercial paper as
necessary to supplement or replace the short-term revolving credit facility.
Portland General also requests authorization to issue letters of credit to
provide credit support for trading contracts and other uses. All issuances of
short-term debt would not exceed $350 million in aggregate principal amount
outstanding and pricing and other terms at the time of issuance will be
comparable to issuances by companies with comparable credit ratings and credit
profile with respect to debt having similar maturities./33 In addition, Portland
General will not issue any additional short-term debt if Portland General's
common stock equity as a percentage of total capitalization is less than 30%,
after giving effect to the issuance.
--------------------
32 As indicated above, issuance of such securities would be subject to approval
of the Federal Energy Regulatory Commission. Portland General currently has FERC
authorization to issue short-term debt up to $550 million.
33 The underwriting fees, commissions and other similar remuneration paid in
connection with the non-competitive issue, sale or distribution of a security
pursuant to Portland General's requested authorization would not exceed an
amount or percentage of the principal or total amount of the security being
issued that would be charged to or paid by other companies with a similar credit
rating and credit profile in a comparable arm's-length credit or financing
transaction with an unaffiliated person.
22
Portland General requests that the Commission reserve jurisdiction
with respect to the issuances of short-term debt under the authorization
requested herein if, at the time of issuance, Portland General does not have an
investment grade credit rating from at least one nationally recognized
statistical rating organization./34
Under the terms of Portland General's $150 million 364-day revolving
credit facility ("Facility"), Portland General currently has approximately $130
million available borrowing capacity. Portland General may borrow, repay and
reborrow pursuant to the Facility for a period lasting through May 27, 2004. The
Facility is secured by Portland General's first mortgage bonds. The security
gives the lenders under the Facility pari passu status with Portland General's
first mortgage bondholders.
Portland General may obtain ratable advances in the form of either a
Floating Rate Advance or a Eurodollar Ratable Advance, or both, from each lender
under the Facility in proportion to the ratio that the lender's respective
commitment bears to the Aggregate Commitment, as provided below. Portland
General may also obtain facility letters of credit in an aggregate amount not to
exceed the lesser of (a) $100 million, and (b) the Aggregate Commitment of all
the Lenders, as changed from time to time pursuant to the terms of the Facility,
provided that the Aggregate Outstanding Credit Exposure of the Lenders shall not
exceed the Aggregate Commitment. All outstanding letters of credit executed
before the effective date of the Facility are deemed to have been issued
pursuant to the Facility.
Lender Commitment Amount
------ -----------------
(i) Bank One, N.A. $45,000,000
(ii) U.S. Bank National Association $40,000,000
(iii) Wells Fargo Bank, N.A. $30,000,000
(iv) Washington Mutual Bank $25,000,000
(v) Sterling Savings Bank $10,000,000
-----------------
Total Aggregate Commitment $150,000,000
The per annum interest rate for Floating Rate Advances under the
Facility is equal to the sum of (a) the higher of (i) the interest rate
announced by Bank One as its Prime Rate and (ii) the sum of the Federal Funds
Effective Rate/35 plus 0.5% per annum, plus (b) the Base Rate Applicable Margin
as set forth in a Pricing Schedule to the Facility. The interest rate for
Eurodollar Ratable Advances under the facility is equal to the sum of (a) the
quotient of (i) the
--------------------
34 The term "nationally recognized statistical rating organization" shall have
the same meaning as in Rule 15c3-1(c)(2)(vi)(F), 17 CFR 240.15c3-1(c)(2)(vi)(F).
Investment grade long-term debt is denoted by the Standard & Poor's ratings of
AAA, AA, A and BBB, with some ratings also including a + or - to further
differentiate creditworthiness. Moody's Investors Service uses the ratings Aaa,
Aa, A and Baa to denote investment grade long-term debt.
35 The term "Federal Funds Effective Rate," as used in the above discussion of
Portland General's short-term borrowing facilities, is the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal fund brokers on that day, as published for
that day by the Federal Reserve Bank of New York, or if the rate is not so
published on a business day, the average of the quotations at approximately
10:00 a.m. (Chicago time) on that day received by Bank One from three Federal
funds brokers of recognized standing.
23
Eurodollar Base Rate/36 applicable to the Eurodollar Interest Period, divided by
(ii) one minus the Reserve Requirement (expressed as a decimal) applicable to
the Eurodollar Interest Period, plus (b) the Eurodollar Applicable margin as set
forth in the Pricing Schedule of the Facility. A Facility fee of 0.25% per annum
is charged on the commitment amount, whether it is used or unused, and a letter
of credit fee of 1.25% per annum is charged on the undrawn stated amount
available under an issued letter of credit. The Facility fee and letter of
credit fee are set forth in a Pricing Schedule to the Facility and change based
on senior secured debt ratings of Portland General. Portland General must also
pay to each letter of credit issuer (a) a fronting fee in an amount agreed to by
Portland General and the issuer, and (b) documentary and processing charges in
connection with the issuance or modification of and draws under the letter of
credit.
Portland General is financially sound. As of the end of the September
30, 2003 fiscal quarter, Portland General had 52% common stock equity as a
percentage of total capitalization./37 Portland General's secured and unsecured
debt ratings are presently investment grade from both Moody's Investors Service
("Moody's") and Standard and Poor's ("S&P"). Fitch Ratings ("Fitch") rates
Portland General's secured debt at investment grade and unsecured debt at below
investment grade. Portland General's credit ratings as of September, 2003 are as
follows:
----------------------- ----------- ------- -----------
Moody's S&P Fitch
----------------------- ----------- ------- -----------
First Mortgage Bonds Baa2 BBB+ BBB-
----------------------- ----------- ------- -----------
Senior Unsecured Debt Baa3 BBB BB
----------------------- ----------- ------- -----------
Preferred Stock Ba2 BBB- B+
----------------------- ----------- ------- -----------
Commercial Paper Prime-3 A-2 Withdrawn
----------------------- ----------- ------- -----------
Portland General proposes to use funds raised under the short-term
authorization requested herein for general corporate purposes, including (1)
financing, in part, investments by and capital expenditures of Portland General,
(2) financing the working capital requirements of Portland General, (iii)
funding future investments in subsidiary companies, and (iv) repaying,
redeeming, refunding or purchasing any securities issued by Portland General.
Portland General also may issue letters of credit to provide credit support for
trading contracts and other uses, but would not use any financing authorized
herein for businesses other than those conducted by Portland General and its
subsidiaries. Portland General is restricted, without prior OPUC approval, from
making dividend distributions to Enron that would reduce Portland General's
common equity capital below 48% of total capitalization (excluding short-term
borrowings)./38
Portland General also seeks authorization to issue additional
short-term debt generally in the form of, but not limited to, institutional
borrowings, commercial paper and bid notes as may be necessary to replace,
extend, rearrange, modify or supplement the Facility described
--------------------
36 The term "Eurodollar Base Rate," as used in the above discussion of Portland
General's short-term borrowing facilities, is the applicable British Bankers'
Association Interest Settlement Rate for deposits in U.S. dollars appearing on
Reuters Screen FRBD as of 11:00 a.m. (London time) two business day prior to the
first day of the applicable Eurodollar interest period, and having a maturity
equal to such interest period.
37 For purposes of this measure, capitalization is defined as the sum of common
stock equity, preferred stock, and long and short-term debt.
38 See Exhibit L, Portland General Electric Company, Quarterly Report on Form
10-Q filed on November 20, 2003 (SEC File No. 1-5532-99).
24
above. Portland General may sell commercial paper, from time to time, in
established U.S., Canadian or European commercial paper markets. Such commercial
paper would be sold through agents at the discount rate or the coupon rate per
annum prevailing at the date of issuance for commercial paper of comparable
quality and maturities sold to commercial paper dealers generally. It is
expected that the agents placing the commercial paper for Portland General will
offer such paper at a discount to corporate, institutional and, with respect to
European commercial paper, individual investors. Institutional investors are
expected to include commercial banks, insurance companies, pension funds,
investment trusts, foundations, colleges and universities and finance companies.
Within the financing parameters described above, Portland General also
may establish bank lines of credit, directly or indirectly through one or more
financing subsidiaries. Loans under these lines will have maturities of less
than one year from the date of each borrowing. Alternatively, if the notional
maturity of short-term debt is greater than 364 days, the debt security will
include put options at appropriate points in time to cause the security to be
accounted for as a current liability under US generally accepted accounting
principles. Portland General also proposes to engage in other types of
short-term financing generally available to borrowers with comparable credit
ratings and credit profile, as it may deem appropriate in light of its needs and
market conditions at the time of issuance, provided that any such issuance of
short-term debt complies with the financing parameters included herein.
g. Foreign Assets
Enron's foreign pipeline, gas and electricity distribution and power
generation assets typically have FUCO status or exempt wholesale generator
("EWG") status at the project level. Enron has prepared and filed or is in the
process of preparing FUCO certifications to obtain FUCO status for the Enron
holding companies that hold a number of these projects. Most of these holding
companies were formed to hold assets along geographical lines (e.g., Enron South
America LLC holds many of the Enron interests in South American projects). A
FUCO exemption at the holding company level exempts many transactions relating
to these foreign projects, such as dividends, reorganizations, financings and
investments, from regulation under the Act. Many of the foreign assets will
likely be transferred into Prisma. As indicated above, the shares of Prisma may
be distributed to creditors in connection with the implementation of Enron's
chapter 11 plan or Prisma may be sold and the proceeds will then be distributed
to creditors.
Some Enron group companies, however, may be related to the business of
Prisma, but may not qualify for FUCO status because they may not directly or
indirectly own or operate foreign utility assets. Such companies may, for
example, have loans outstanding to a FUCO or a subsidiary of a FUCO. In other
cases, such as settlements or asset reorganizations, the securities of a FUCO
may be acquired by Enron group companies. Accordingly, the Enron group companies
request authorization under Section 33(c) and Rule 53(c) thereunder, to issue
new securities for the purpose of financing FUCOs (or to amend the terms of
existing financings) and to acquire FUCO securities in connection with
financings, settlements and reorganizations. Applicants request that
authorization for purposes of financing new investments in their existing
foreign utility operations be limited to $100 million. Authorization to
restructure or refinance existing FUCO investments would not be limited. Any
FUCO financings would be conducted
25
principally to maintain and preserve the value of the foreign assets in the
bankruptcy estate and not to develop any significant new projects. Proposed or
amended financings would not adversely affect Enron's financial condition and
would be entered into with Bankruptcy Court approval, if required to the extent
such transactions are not in the ordinary course of business. There will be no
impact on Portland General associated with the formation or financing of Prisma.
Enron seeks Commission authorization for the issuance of securities by
FUCO financing subsidiaries as described above. Under Rule 53(c), an applicant,
such as Enron, that is unable to satisfy the requirements of paragraphs (a) and
(b) of Rule 53,/39 must affirmatively demonstrate that the proposed issue and
sale of a security to finance the acquisition of an EWG, or the guarantee of a
security of an EWG:
(1) Will not have a substantial adverse impact upon the financial
integrity of the registered holding company system; and
(2) Will not have an adverse impact on any utility subsidiary of
the registered holding company, or its customers, or on the
ability of state commissions to protect such subsidiary or
customers.
The Commission has typically applied the standards of Rule 53(c) to
the financing of FUCOs in much the same manner as it is applied to EWGs. The
proposed FUCO financing will not have a substantial adverse impact on the
financial integrity of the Enron group. The purpose of the proposed financings
is not to invest significant additional sums in FUCOs, but to support existing
FUCO projects to maximize their value for the Debtors' estate and to restructure
existing financing arrangements as necessary to tailor each financing to the
financial condition of the underlying assets. Unsound financing that cannot be
supported by the cash flow of underlying assets will be novated or restructured
as appropriate and consistent with maximizing the value of the estate. The
proposed financing should therefore be authorized because it is expected to have
a positive impact on the financial condition of the Enron group. Because Enron
is liquidating, this proposal is significantly different from the typical
request for FUCO financing authority where the applicant seeks to invest
substantial funds for the purpose of expanding its foreign utility business.
The proposed FUCO financing also will not have an adverse impact on
Portland General or its customers or on the ability of state commissions to
protect such subsidiary or customers. Portland General will not contribute any
portion of the funding for the FUCO investments. Portland General is managed and
operated in a substantially autonomous manner. It has an investment grade credit
rating, its own credit facility and it has a substantial level of equity in its
capital structure. Portland General also has adequate financial resources to
support its capital expenditures and operating budget. See Exhibit H to the
disclosure statement, annexed as Exhibit Q hereto. The proposed FUCO investment
will not have an impact on Portland General. This view is confirmed in a letter
dated June 23, 1997 in which the OPUC states that it
--------------------
39 The lack of reliable historical financial information makes an attempt to
quantify Enron's "aggregate investment" in FUCOs, within the meaning of Rule
53(a), impracticable.
26
does not object to Enron's proposed FUCO investments and that such investments
would not adversely affect Portland General. The letter is included in this
Application as Exhibit P.
2. The Sale of Non-Utility Companies
The Debtors, non-Debtor associates, and certain other related
companies have completed a number of significant asset sales during the pendency
of the chapter 11 cases, resulting in gross consideration to the Debtors'
bankruptcy estates, non-Debtor associates, and certain other related companies
aggregating approximately $3.6 billion. These asset sales have been completed by
numerous Debtors, non-Debtor associates, and other related companies, and the
sale proceeds have, in certain instances, been used to repay indebtedness or
other claims, and may be further subjected to a variety of claims from related
and unrelated parties. In many instances, proceeds from these sales are
segregated, or in escrow accounts, and the distribution of such proceeds will
require either consent of the Creditors' Committee or an order of the Bankruptcy
Court.
In most cases, the sale transactions are for all cash consideration.
Cash sales of non-utility businesses do not require Commission authorization.
Some sales, however, may involve the acquisition of a security from the
purchaser or the company being sold. A security would be accepted only when the
transaction could not otherwise be negotiated for all cash consideration. For
example, a purchaser may insist on an escrow of part of the sales proceeds to
cover claims that may arise post-sale under an indemnification agreement. To
give the seller a secured interest in the escrow, the seller would issue a note
to the purchaser in the amount of the escrow with a right to set off amounts due
under the note for allowed claims under the indemnification agreement. For the
most part, the Debtors would seek to convert securities into cash. Any security
not converted into cash by the time the assets of the estates are distributed to
creditors would reside in the Remaining Assets Trust, and creditors would
receive an interest in that liquidating trust.
Indemnifications and guarantees by and between companies in the Enron
group also may be part of the sale of non-utility assets, non-utility securities
or settlements on claims with third parties. In the case of sales to third
parties, indemnifications are capped at no more than the amount of the sale
proceeds received by the seller. Applicants request indemnification and
guarantee authority to provide them with the flexibility to manage the process
of selling the assets of the estates in a manner that would maximize their
value./40
The acquisition of securities and the indemnification or other
extension of credit among affiliates generally requires SEC authorization under
Sections 9, 10 and 12(b) of the Act and Rule 45(a) thereunder. Applicants seek
blanket authorization for transactions involving the acquisition of securities,
indemnifications and guarantees described above as they would occur in
--------------------
40 In Xcel Energy, Inc., the Commission authorized cross-indemnification "solely
to facilitate the divesture of NRG and to preserve the responsibility for these
costs that NRG bears as a subsidiary of Xcel." Holding Co. Act Release No. 27736
(Oct. 10, 2003). Considering "the substance of [the] transaction over its form,"
and finding that the reciprocal agreements did not involve a proposal to borrow
or to receive "any extension of credit or indemnity," the Commission allowed the
proposal. In the present proposal, Applicants similarly request
cross-indemnification merely to "untangle the network of obligations and
exposure to which the [estates are]subject" and thus facilitate the sale of
assets in an efficient manner. Id
27
the context of the sale of any Enron group company/41 (except Portland General)
if such sale is (i) in the ordinary course of business of a debtor in possession
(directly or indirectly through debtor or non-debtor subsidiaries) or, (ii) is
authorized by the Bankruptcy Court./42 The acquisition of securities in such
circumstances is appropriate in the ordinary course of business of a debtor in
possession within the meaning of Section 9(c)(3) of the Act. The transparent
sale process supervised by the Bankruptcy Court and the Creditors' Committee
assures that value is maximized for creditors and justifies the Commission's
flexible authorization of these transactions.
Generally, as a method to maximize value for the creditors of the
Debtors and non-Debtor associates from a sale of assets, the selling Debtors and
non-Debtor associates will execute a "stalking-horse" purchase agreement with a
purchaser and then, pursuant to a Bankruptcy Court bidding procedures order,
conduct an auction for the sale of such assets whereby bidders are invited to
submit bids on terms that are higher or better than the terms under the
stalking-horse agreement. Many times a break-up fee is payable to the
stalking-horse purchaser upon the closing of a sale to another bidder. Sometimes
assets are sold without a stalking-horse auction in a "private sale" when the
Debtors determine that such an auction is impracticable or would not likely
maximize value for the creditors.
The transactions proposed herein would not involve indemnifications or
guarantees made by Portland General and would not have an adverse impact on that
company. In addition, the Commission's continuing ability to participate in the
chapter 11 process through its rights under Section 1109 of the Bankruptcy Code
assures that it can be heard on these transactions.
3. Dividends Out of Capital or Unearned Surplus
The Act prohibits the declaration and payment of dividends out of
capital or unearned surplus. Certain of the Applicants, in particular certain
limited partnerships make cash distributions portions of which are deemed to be
a return of partners' capital. The Act also restricts the acquisition,
retirement and redemption of securities by an issuer when the security is
acquired, retired or redeemed from an associated or affiliated entity. In this
section, Applicants request general relief from the dividend and acquisition,
retirement and redemption restrictions under Section 12(c) of the Act and the
rules thereunder as necessary in furtherance of the chapter 11 process to
reorganize and reallocate value in the Enron group that will ultimately be
distributed to creditors. Applicants also request specific relief for one
subsidiary company, Northern Border Partners, relating to distributions of
Available Cash (as defined herein) that are largely to be received by the public
unit holders of this non-debtor subsidiary.
Northern Border Partners, a limited partnership with ninety-one
percent (91%) of its partnership interests held by the public, owns and operates
interstate gas pipelines, gas gathering
--------------------
41 In addition, litigation with respect to claims may result in an Enron group
company receiving the securities of a party to the litigation as a settlement or
a judgment. Applicants request authorization to acquire securities in this
context also, where the litigation is in the ordinary course of business of a
debtor in possession.
42 Applicants may request that the Commission order Enron to divest certain of
its Debtor and non-Debtor subsidiaries for purposes of complying with section 11
of the Act. Applicants will enumerate such companies, if any, in a supplemental
submission and hereby request that the Commission reserve jurisdiction over this
matter pending the supplemental submission.
28
and other related facilities not involving distribution at retail. Northern
Border Partners makes regular quarterly distributions to its unit holders that,
for accounting reasons, are in part distributions out of the partners' capital,
even though they are derived entirely from operating cash flow. These
distributions raise the issue under Rule 46 with respect to whether they may be
made without prior Commission authorization if they are deemed in part to be a
dividend out of capital or unearned surplus. A failure to make a regular
quarterly distribution because Commission authorization was not obtained would
be extremely damaging to Northern Border Partners' reputation with existing and
potential investors as well as rating agencies, analysts, etc., and place it at
a competitive disadvantage vis-a-vis other master limited partnerships.
Dividends out of capital may be paid by companies in dissolution, or
to transfer the proceeds of a financing or asset sale to a parent company, or to
wind up their affairs, through periodic and liquidating distributions. The
Commission generally grants registered holding company non-utility subsidiaries
authorization to pay dividends out of capital or unearned surplus where to do so
would not violate applicable corporate law (or in the case of Northern Border
Partners, partnership law) and any financing covenants to which the payor is
subject./43 The Applicants seek a blanket exception from the dividend
restrictions under the Act as applied to all non-utility subsidiaries in the
Enron group subject to the conditions noted above./44
The Applicants represent that they will pay dividends and
distributions in accordance with applicable law, and will comply with the terms
of any agreements that restrict the amount and timing of distribution to
investors. For example, distributions made by Northern Border Partners are
controlled by Section 17-607 of the Delaware Revised Uniform Limited Partnership
Act. Section 17-607 provides that a limited partnership may not make a
distribution that would cause its liabilities to exceed its assets. See 6 DEL.
CODE ANN. ss. 17-607(a). Any capital distributed by Northern Border Partners
pursuant to the authorization sought hereunder would be paid in accordance with
state law, and thus, would not cause Northern Border Partners' liabilities to
exceed its assets. Furthermore, Northern Border Partners makes its quarterly
scheduled distributions in accordance with its Amended and Restated Partnership
Agreement, dated October 1, 1993 (the "Partnership Agreement"). The Partnership
Agreement requires an amount equal to one hundred percent (100%) of the
partnership's Available Cash to be paid to Northern Border Partners' interest
holders on a quarterly basis. Available Cash is defined under the Partnership
Agreement to include cash derived from all sources including partnership
holdings, financings and sale of assets less cash that is used for operating
expenses, taxes, debt service payments, capital expenditures and contributions
and increases to reserves. Therefore, if permitted, any distribution of payments
from Available Cash will be in accordance with
--------------------
43 See NiSource, Inc., Holding Co. Act Release Nos. 27789 (December 30, 2003);
Cinergy Corp., Holding Co. Act Release No. 27779 (December 22, 2003); Progress
Energy, Inc., Holding Co. Act Release No. 27728 (September 29, 2003).
44 Corporations may pay dividends out of current income and retained earnings
consistent with the restriction in Section 12(c) of the Act which limits only
dividends paid out of capital and capital surplus. Partnerships do not have a
retained earnings account, so partnership distributions of available cash would
come from current net income of the partnership, and partners' capital to the
extent current net income of the partnership is insufficient to cover the whole
distribution. Northern Border Partners' request to pay distributions in the
amount of its Available Cash may require authorization under Section 12(c) of
the Act to the extent that Available Cash exceeds current partnership net
income.
29
Northern Border Partners' duties under the Partnership Agreement and will not
impair Northern Border Partners' ability to meet its obligations, anticipated
expenses or liabilities.
The Commission has previously approved the payment of dividends out of
capital or unearned surplus by subsidiaries of a registered holding company when
the payment would not impair the subsidiary's ability to meet its obligations
and the subsidiary's assets would be sufficient to meet any anticipated expenses
or liabilities. See Entergy Corp., Holding Co. Act Release No. 26534 (June 18,
1996); AEP Generating Co., Holding Co. Act Release No. 26754 (August 12, 1997);
Northeast Utilities, Holding Co. Act Release No. 27529 (May 16, 2002); Excel
Energy, Holding Co. Act Release No. 27597 (November 7, 2002). The Partnership
Agreement requires that distributions to Northern Border Partners investors be
paid from Available Cash which, as described above, ensures that dividends will
only be paid after Northern Border Partners meets the obligations, anticipated
expenses or liabilities for which Available Cash was intended to cover.
Failure to permit Northern Border Partners to make its lawful
quarterly scheduled distributions would frustrate the Northern Border Partners
investors' ability to comply with their obligations under the Internal Revenue
Code of 1986, as amended (the "IRS Code"). It is a firmly established principle
of partnership taxation that regardless of the partnership distributions, each
limited partner investor of the partnership will be taxed on his distributive
share of income. See United States v. Basye, 410 U.S. 441 (1973); Cipparone v.
Commissioner, TC Memo 1985-234, 49 TMC 1942; Cooney v. Commissioner, 1 TCM 264
(1942). Under the IRS Code it is irrelevant whether Northern Border Partners
makes a distribution or the partnership profits are retained in the partnership
because the income must be accounted for on each partner's tax return and each
partner is required to pay taxes on his or her distributive share of income. See
26 USCS ss. 706(a) (2003). By precluding Northern Border Partners from making
its next scheduled distribution, the Commission would require Northern Border
Partners investors to pay taxes on income they did not receive.
Since Northern Border Partners has historically paid distributions on
a quarterly basis, suspending the payment of its regular distributions -
particularly when there is no cash shortfall to the partnership - would
unnecessarily upset investor expectations and damage Northern Border Partners'
reputation in capital markets. Northern Border Partners' investors are primarily
comprised of retirees that are especially dependent upon the steady flow of
income derived from Northern Border Partners' quarterly distributions. If the
Commission refuses to allow Northern Border Partners to make its quarterly
distributions, not only will Section 706(a) of the IRS Code require the holders
of Northern Border Partners' interests to recognize the amount that would have
been distributed as income on their individual tax returns, these individuals
may suffer from an inability to satisfy their own economic obligations given the
reduction in expected cash flow. Furthermore, investors in publicly-traded
limited partnerships expect quarterly dividends, and should Northern Border
Partners fail to pay such dividends, Northern Border Partners' investors could
invest in other publicly traded limited partnerships with similar yields and
asset profiles instead of Northern Border Partners.
Section 12(c) of the Act restricts the acquisition, retirement or
redemption of the securities of a registered holding company or subsidiary by
the issuer of such securities, in contravention of the rules, regulations or
orders of the Commission. Under Rule 42, the effect of
30
this prohibition is to continue to require Commission approval for purchases and
redemptions from associates and affiliates. To permit the Enron group companies
to transfer value among the companies in the Enron group as necessary to sell
assets or to transfer the proceeds of such sales from subsidiaries to parent
companies, Applicants request authorization for the Enron group companies, other
than Portland General, to acquire, retire and redeem securities that they have
issued./45
4. New Acquisitions
Through several subsidiaries, Northern Border Partners, a non-Debtor
subsidiary of Enron, owns transportation gas systems (Northern Border Pipeline
Company, Midwestern Gas Transmission Company, Viking Gas Transmission Company
and a one third interest in Guardian Pipeline, L.L.C.) and gas gathering systems
located in the Powder River Basin, the Wind River Basin, and the Williston Basin
located in Wyoming, Montana, and the Dakotas. Through its subsidiary, Crestone
Energy Ventures, L.L.C, Northern Border Partners owns a 49% interest in Bighorn
Gas Gathering, L.L.C.; a 33.33% interest in Fort Union Gas Gathering, L.L.C.;
and a 35% interest in Lost Creek Gathering, L.L.C. The gathering facilities
interconnect to the interstate gas grid pipeline serving natural gas markets in
the Rocky Mountains, the Midwest, and California. Northern Border Partners also
owns a minority interest in a gas gathering system in Alberta, Canada. Northern
Border Partners' 273-mile coal slurry pipeline connects a coal mine in Arizona
to a power station in Nevada.
The long-term financial condition of Northern Border Partners'
business depends on the continued availability of economic natural gas supplies
including western Canadian natural gas for import into the United States, the
demand for gas, and investments by others for exploration and drilling and the
construction of production, gathering, storage and transportation assets.
Northern Border Partners makes strategic acquisitions to enhance its network of
interstate natural gas systems and gas gathering and processing assets so that
it is best positioned to connect gas supplies to markets. For example, Northern
Border Partners, through its subsidiary, Bear Paw, works with producers to
construct gathering facilities. Also Northern Border Partners, through its
subsidiary, Northern Border Pipeline Company, is currently working with
producers and marketers to develop the contractual support for a new 300-mile
pipeline project, the Bison Pipeline, to connect the coal bed methane reserves
in the Powder River Basin to markets served by Northern Border Pipeline.
Northern Border Partners' goal is approximately $200 to $250 million of growth
capital expenditures annually through acquisitions and internal development.
Northern Border Partners targets businesses that leverage its core competencies
of energy transportation, are conservative in terms of commodity price risk, are
located in the U.S. and Canada, and provide immediate earnings and cash flow
contribution.
Northern Border Partners' assets have grown at an average annual rate
of 12.6%, or $318 million per year, since 1997 through pipeline expansions ($894
million in 1998) and acquisitions ($528 million in 2001). Since the partnership
cannot retain earnings, Northern
--------------------
45 Portland General has 249,727 outstanding shares of preferred stock. Should
Portland General exercise its right to redeem any of its preferred stock it
would rely on the exemption under Rule 42 for the acquisition of stock from
unaffiliated entities.
31
Border Partners funds this growth through an appropriate mix of additional
borrowings and equity issuances.
A registered holding company and its subsidiaries are generally
prohibited from acquiring securities and interests in businesses without prior
Commission authorization. In addition, the issuance and sale of most securities
by companies in a registered holding company system are subject to the Act.
Northern Border Partners seeks authorization to, directly or indirectly through
subsidiaries, issue and sell equity and debt securities to fund general
partnership operations and new acquisitions of assets producing qualifying
income and to acquire the securities of or other interests in gas-related
properties.
Northern Border Partners currently has an effective shelf registration
statement on Form S-3 for issuance of $500 million in equity or debt securities,
of which approximately $102 million in equity was issued in May and June 2003.
Depending on the results of its acquisition program, Northern Border Partners
believes that during the course of the next year it may need to issue an
additional $500 million to keep Northern Border Partners on an equal footing
with its competitors in the acquisition market. Therefore, Northern Border
Partners requests authorization under the Act to issue up to $1 billion of
equity and debt securities at any one time outstanding through July 31, 2005,
and to invest up to that amount in the acquisition of qualifying income assets
(described below) without further Commission authorization. Northern Border
Partners is not alone in seeking to acquire small and mid-sized energy projects;
for instance, in the past year, financial industry participants have shown
increasing interest in such assets, and Northern Border Partners needs the
requested flexibility under the Act to compete against their financial liquidity
and ability to successfully acquire such assets without prior regulatory
approval under the Act./46
Northern Border Partners requests authority to continue the ordinary
course of its natural gas gathering, processing, storage and transportation
operations in the United States and Canada ("Energy Assets"), which are
generally conducted through partnerships and other companies, and the through
the acquisition of partnership or joint venture interests. To that end, Northern
Border Partners requests authority to acquire and finance the acquisition of
Energy Assets and the securities of companies which solely develop, finance, own
and operate such Energy Assets within the United States and Canada up to a total
authorized additional investment of $1 billion through July 31, 2005. Such
authority is consistent with that conferred in American Electric Power, Inc.,
Holding Co. Act Release No. 26933 (November 2, 1998, File No. 70-9353). Northern
Border Partners further requests authority to finance the foregoing authorized
operations of it and its subsidiaries through the issuance of securities by it,
its partners or subsidiaries, through it and its partners and subsidiaries
acquiring or guaranteeing its securities and those of its partners or
subsidiaries, making capital contributions and through acquiring, forming or
recapitalizing subsidiaries owning or operating Energy Assets. Such authority is
consistent with that conferred in Cinergy Corp., Holding Co. Act Release No.2779
(December 23, 2003, File No.70-10172). The requested authorization does not
include any authority to acquire utility assets or the securities of
public-utility companies; nor does it include any
--------------------
46 Northern Border Partners' Quarterly Report on Form 10-Q is attached as
Exhibit R. Northern Border Partners' senior unsecured debt is rated A-/Baa2/BBB+
and as of September 30, 2003, it had assets of $2,572 million.
32
authority to encumber utility assets or to receive an extension of credit from
any public-utility company affiliate of Northern Border Partners.
Northern Border Partners would not issue securities for purposes of
financing these acquisitions if it does not have an investment grade credit
rating from at least one nationally recognized statistical ratings organization.
In addition, Enron's acquisition of Northern Border Partners securities issued
in connection with this expansion program would be limited to capital that is
required for Enron to retain its existing general partner percentage ownership
of Northern Border Partners. Currently, Enron holds 6.8% of the limited partner
interests in Northern Border Partners/47 and 1.65% of the general partner
interests (which constitute 82.5% of the general partner voting authority).
Lastly, Northern Border Partners would not acquire any assets that would subject
it to regulation as a public utility company under the Act.
5. Simplifying Complex Corporate Structure and Dissolving
Existing Subsidiaries
Enron is restructuring many of its subsidiaries in connection with the
formation of Prisma and CrossCountry, as well as in conjunction with some of the
requirements imposed by the terms of settlement agreements to resolve various
claims against Enron and related Debtors. Enron also is liquidating close to
1,000 surplus legal entities and businesses in which it no longer intends to
engage. Eventually, substantially all of the Debtors, including Enron, will be
liquidated. As previously noted herein, settling claims relating to financing
structures and liquidating businesses often involves the redemption or
retirement of securities and distributions in liquidation that may involve
actual or deemed returns of capital. Reorganizing complex structures may involve
the creation of new holding companies and liquidating or other trusts formed for
the benefit of the Debtors' estates and their creditors. In the context of
restructuring assets and entities, Enron group companies may receive
distributions or other returns of capital and may make capital contributions,
share exchanges, guaranties, indemnifications, and other transactions to move
companies, assets and liabilities within the Enron group as necessary to
implement a less complex and more sound corporate structure and as necessary to
implement settlements with third parties. Contracts may be assumed by a Debtor
and then assigned to another Enron group company or a third party. The
assignment of contracts that have value to another Enron group company could be
viewed as a dividend or capital contribution. These corporate simplification
transactions rationalize Enron's business operations into more coherently
organized groups of related properties and contracts. The simplification
transactions also play a valuable role in reducing costs for the Enron estate
associated with accounting, tax filings and liabilities, and management
expenses. Portland General is assisting in the sale of the subsidiaries of PGH
II, a non-utility Enron subsidiary. PGH II is a holding company with
subsidiaries engaged in telecommunications, district heating and cooling, and
real estate infrastructure development and construction. PGH II and its
subsidiaries have been managed historically by Portland General. With the
exception of the transactions related to these sales, Portland General and its
subsidiaries would not be involved in any of the proposed reorganization and
simplification transactions.
--------------------
47 Including the 2.710 million units held by Sundance Assets, LP.
33
Enron seeks Commission authorization to restructure, rationalize and
simplify or dissolve, as necessary, all of its non-utility businesses and
implement settlements (which may involve transactions as described above
regarding substantially all of its remaining direct and indirect assets) to
effect all transactions authorized by the Bankruptcy Court and otherwise as
necessary to simplify and restructure its businesses in furtherance of the
chapter 11 process. As previously requested in Item 1.E.3, Applicants seek
authorization to acquire, redeem and retire securities and to pay dividends out
of capital and unearned surplus provided that such transactions are consistent
with applicable corporate or partnership law and any applicable financing
covenants. Applicants also seek authorization to form, merge, reincorporate,
dissolve, liquidate or otherwise extinguish companies. Any newly formed entity
would engage only in businesses that the Enron group continues to engage in
pending the resolution of the chapter 11 cases. Further, Applicants seek
authorization to restructure, forgive or capitalize loans and other obligations
and to change the terms of outstanding non-utility company securities held by
other Enron group companies for the purpose of facilitating settlements with
creditors, simplifying the business of the group and maximizing the value of the
Debtors' estates./48
6. Rule 16 Exemptions
Citrus Corp. ("Citrus"), a holding company which is 50% owned by Enron
and 50% owned by El Paso Corp., has the following subsidiaries: FGT, Citrus
Trading Corp. ("CTC"), and Citrus Energy Services, Inc. ("CESI"). FGT is engaged
in the transportation of natural gas in interstate commerce, subject to the
jurisdiction of the Federal Energy Regulatory Commission. CTC is engaged in the
supply of natural gas, while CESI is engaged in transportation management,
having recently terminated its facilities operation and maintenance business.
FGT owns and operates gas transmission facilities that extend from South Texas
to South Florida along the Gulf of Mexico. Bridgeline Holdings, L.P.
("Bridgeline"), is an intrastate gas pipeline partnership that is engaged in the
storage, transportation and supply of natural gas in Louisiana. Enron indirectly
owns a 40% equity interest in the partnership and a 50% voting interest in the
partnership, with the remaining equity and voting interest held by ChevronTexaco
Corp.
Besides Northern Border Partners' extensive gas gathering operations
in the Williston Basin in Montana and North Dakota as well as in the Powder
River Basin in Wyoming, through its wholly owned subsidiary, Crestone Energy
Ventures, L.L.C., Northern Border Partners owns a 49% interest in Bighorn Gas
Gathering, L.L.C. ("Bighorn"), a 33.3% interest in Fort Union Gas Gathering,
L.L.C. ("Fort Union"), and a 35% interest in Lost Creek Gathering, L.L.C. ("Lost
Creek"), which collectively own over 300 miles of gas gathering facilities in
the Powder River and Wind River Basins in Wyoming. Northern Border Partners also
owns an undivided interest in a 86-mile gathering pipeline in Alberta, Canada.
--------------------
48 The Commission has on several recent occasions granted authorization to
registered holding companies to organize new nonutility holding company
subsidiaries, redeem and retire the securities of nonutility companies and to
pay dividends out of the capital and unearned surplus of nonutility subsidiaries
when such payments do not violate applicable corporate law in the state where
such companies are organized or the terms of applicable financing covenants. See
Ameren Corp., Holding Co. Act Release No. 27053 (July 23, 1999); FirstEnergy
Corp., Holding Co. Act Release No. 27694 (June 30, 2003); see also NiSource,
Inc., Holding Co. Act Release No. 27789, supra note 37.
34
The Bighorn and Fort Union systems gather coalbed methane gas produced
in the Powder River Basin in Wyoming. The remaining ownership interest in
Bighorn is held by Cantera Gas Company who is the operator. The remaining
ownership interest in Fort Union is held by Cantera Gas Company, Western Gas
Resources, Bargath, Inc. and CIG Resources Company. Cantera Gas Company is the
managing member, Western Gas Resources is the field operator and CIG Resources
Company is the administrative manager. Burlington Resources Trading, Inc. holds
the remaining interest in Lost Creek and is the managing member. The Lost Creek
system gathers natural gas produced from conventional gas wells in the Wind
River Basin in central Wyoming. Through its subsidiary, Border Midstream
Services, Ltd., Northern Border Partners owns an undivided interest in the Gregg
Lake/Obed Pipeline in Alberta, Canada which entitles Border Midstream to a
voting interest of 36%. The pipeline is operated by a third party, Central
Alberta Midstream.
Northern Border Partners also owns an undivided one-third interest in
Guardian Pipeline, L.L.C. ("Guardian"), a 141-mile interstate natural gas
pipeline system which transports natural gas from Joliet, Illinois to a point
west of Milwaukee, Wisconsin. Subsidiaries of Wisconsin Public Service and
Wisconsin Energy Corporation hold the remaining interests in this system.
Each of Citrus, Bridgeline, Bighorn, Fort Union, Lost Creek and
Guardian (the "Rule 16 Companies") seek to rely on an exemption from the
obligations, duties and liabilities imposed upon them under the Act as a
subsidiary or affiliate of a registered holding company. Accordingly, Applicants
request that the Commission authorize Enron to acquire its respective interests
in the Rule 16 Companies under Sections 9(a)(1) and 10, subject to any
requirement in the Plan or as may be imposed by the Bankruptcy Court for the
subsequent disposition of these assets. The exemption under Rule 16 will permit
these businesses to continue to operate in accordance with their usual practice
and to acquire new businesses consistent with the business categories enumerated
in Rule 16 without the need for additional authorization under the Act.
7. Affiliate Transactions
As a registered holding company, Enron would generally be prohibited
from providing services to Portland General for a charge, except for a short
period of time following registration or under special or unusual circumstances.
Portland General has entered into a master service agreement ("MSA")
with certain affiliates, including Enron./49 The MSA allows Portland General to
provide affiliates with the following general types of services: printing and
copying, mail services, purchasing, computer hardware and software support,
human resources support, library services, tax and legal services, accounting
services, business analysis, product development, finance and treasury support,
and construction and engineering services. The MSA also allows Enron to provide
Portland General with the following services: executive oversight, general
governance, financial services, human resource support, legal services,
governmental affairs service, and public relations and marketing services./50
Portland General would provide services to affiliates at cost under the MSA and
--------------------
49 See Exhibit M.
50 Subject to Bankruptcy Court approval, Enron currently does not intend to
charge Portland General for allocations related to these services in 2004.
35
affiliate services provided to Portland General also would be priced at cost. If
cost based pricing of particular services provided under the MSA would conflict
with the affiliate transaction pricing rules of the OPUC, Portland General and
Enron would refrain from providing or requesting such services, unless they have
first obtained specific authorization from the OPUC to use cost based pricing
for such services.
Enron provides certain employee health and welfare benefits, 401(k),
and insurance coverages to Portland General under the MSA that are directly
charged to Portland General based upon Enron's cost for those benefits and
coverages. The estimated cost of these services for the year 2004 in the
aggregate is $26 million. The provision of these services is anticipated to
continue until such services are replaced, which Enron expects will occur by the
end of 2004.
Portland General provides certain administrative services to Enron's
subsidiary Portland General Holdings ("PGH") and its subsidiaries under the MSA
that are allocated or directly charged to PGH and its subsidiaries based upon
the cost for those services. The estimated cost of these services for the year
2004 in the aggregate is $900,000.
Applicants request that the Commission reserve jurisdiction with
respect to any amendments to service arrangements involving Portland General,
such as the Transition Services Agreement, pending completion of the record.
The non-utility subsidiaries in the Enron group also are engaged in
providing services to one another. For example, CrossCountry Energy Services,
LLC ("CES") provides certain administrative and operating services to the
Pipeline Businesses. These services include, without limitation, environmental,
right-of-way, safety, information technology, accounting, planning, finance,
tax, procurement, accounts payable, human resources, regulatory, and legal
services. Each of the Pipeline Businesses reimburses CES for its costs for
rendering these services, depending on the service provided to such pipeline.
Costs may be billed based upon dedicated headcount, time spent providing the
service, miles of pipeline, payroll, assets, margins, and/or overall headcount.
Enron Operation Services Corp. ("EOSC") or its affiliates, including
CES, also provides services to Citrus and its subsidiaries under an operating
agreement originally entered into between an Enron affiliate and Citrus. The
primary term of the operating agreement expired on June 30, 2001; however,
services continue to be provided pursuant to the terms of the operating
agreement. Under an implied agreement pursuant to the terms of the operating
agreement, Citrus reimburses the service provider for costs attributable to the
operations of Citrus and its subsidiaries.
Northern Plains provides operating services to the Northern Border
Partners pipeline system pursuant to operating agreements entered into with
Northern Border Pipeline, Midwestern, and Viking. Under these agreements,
Northern Plains manages the day-to-day operations of Northern Border Pipeline,
Midwestern, and Viking, and is compensated for the salaries, benefits, and other
expenses it incurs. Northern Plains also utilizes Enron affiliates for
administrative and operating services related to Northern Border Pipeline,
Midwestern, and Viking. NBP Services provides certain administrative and
operating services for Northern Border Partners and its gas gathering and
processing and coal slurry businesses. NBP Services is
36
reimbursed for its direct and indirect costs and expenses pursuant to an
administrative services agreement with Northern Border Partners. NBP Services
also utilizes Enron affiliates to provide these services.
It is anticipated that at the closing of the transactions contemplated
by the CrossCountry Amended and Restated Contribution and Separation Agreement,
CrossCountry and Enron will enter into a Transition Services Agreement pursuant
to which Enron will provide to CrossCountry, on an interim, transitional basis,
various services, including, but not limited to, the following categories of
services: (i) office space and related services, (ii) information technology
services, (iii) SAP accounting system usage rights and administrative support,
(iv) tax services, (v) cash management services, (vi) insurance services, (vii)
contract management and purchasing support services, (viii) corporate legal
services, (ix) corporate secretary services, (x) off-site and on-site storage,
(xi) payroll, employee benefits and administration services, and (xii) services
from RAC on a defined project basis.
CrossCountry will provide to Enron, on an interim, transitional basis,
various services, including, but not limited to, the following categories of
services: (i) floor space for servers and other information technology
equipment, (ii) technical expertise and assistance, including, without
limitation, pipeline integrity, safety, environmental and compliance, (iii)
accounts payable support, and (iv) accounting services relating to businesses
owned directly or indirectly by ETS immediately prior to closing.
The parties are expected to enter into a Transition Services
Supplemental Agreement at the closing of the Amended and Restated Contribution
and Separation Agreement. Subject to the consent of the Creditors' Committee,
the Transition Services Supplemental Agreement will more fully delineate the
services provided within each category set forth in the Transition Services
Agreement. The charges for such transition services will be cost based. Certain
services will be charged on an "as needed" basis.
Provision of the transition services will commence on the effective
date of the Transition Services Agreement and terminate on December 31, 2004,
unless otherwise agreed in writing by the parties. However, except as otherwise
provided for in the Transition Services Supplemental Agreement, Enron may
terminate any transition service upon ninety days' prior written notice to
CrossCountry.
It is also anticipated that at the closing of the transactions
contemplated by the CrossCountry Amended and Restated Contribution and
Separation Agreement, Enron and certain of its subsidiaries and affiliated
companies will enter into a Cross License Agreement pursuant to which each of
the companies that are a party to the Cross License Agreement will grant,
without warranty of any kind, each and every other party and their respective
subsidiaries, all of the intellectual property rights of the party granting the
license in and to certain software programs, documentation, and patents
described in the Cross License, a non-exclusive, royalty free, sublicensable
license, with fully alienable rights, to (i) use, copy, and modify the licensed
programs and documentation; (ii) use, make, have made, distribute, and sell any
and all products and services of the party receiving the license as well as such
party's subsidiaries and sublicensees (if any); and (iii) engage in the business
of such party receiving the license and business of its subsidiaries and
sublicensees (if any) prior to, on, and after the closing date.
37
The Cross License Agreement will become effective on the closing date
and the licenses granted will continue in perpetuity unless licenses granted to
a breaching party are terminated by any affected non-breaching party in the
event such breaching party fails to cure a material breach of the Cross License
Agreement within thirty days after delivery of written notice of the breach.
Finally, prior to or at the closing of the CrossCountry Amended and
Restated Contribution and Separation Agreement, Enron and CrossCountry will
enter into a license or lease agreement under which CrossCountry will lease to
Enron adequate floor space in the Ardmore Data Center for servers and other
information technology equipment owned by the CrossCountry Enron Parties. The
space will be provided on a cost basis for a term to be specified in the Ardmore
Collocation License Agreement.
Prisma and Enron and its affiliates also expect to enter into certain
ancillary agreements, which may include a new Transition Services Agreement, a
tax allocation agreement discussed below, and a Cross License Agreement. The
employees of Enron and its affiliates who have been supervising and managing the
Prisma Assets since December 2001, became employees of a subsidiary of Prisma
effective on or about July 31, 2003. In connection therewith, as approved by the
Bankruptcy Court,/51 Enron and its affiliates entered into four separate
Transition Services Agreements pursuant to which such employees will continue to
supervise and manage the Prisma Assets and other international assets and
interests owned or operated by Enron and its affiliates. The ancillary
agreements, together with the Prisma Contribution and Separation Agreement, will
govern the relationship between Prisma and Enron and its affiliates subsequent
to the contribution of the Prisma Assets, provide for the performance of certain
interim services, and define other rights and obligations until the distribution
of shares of capital stock of Prisma pursuant to the Plan or the sale of the
stock to a third party. In addition, the Prisma Contribution and Separation
Agreement or the ancillary agreements are expected to set forth certain
shareholder protection provisions with respect to Prisma and may contain
indemnification obligations of the Prisma Enron Parties.
Transactions involving the sale of goods and services among associate
companies in a registered holding company system, although typically priced at
not more than cost, may be priced on another basis if each company is neither a
utility, a holding company, nor a company engaged in the business of selling
goods or services to associate companies./52 Most transactions among Enron group
companies do not involve a public utility since Portland General, the group's
sole public utility, purchases a very limited assortment of services from Enron
as described above. Transactions involving Enron, a holding company, and other
nonutility Enron group companies are more numerous. Rule 90(a)(1) restricts
Enron from providing services or selling goods to associate public utility
companies or a company engaged in the business of providing services or selling
goods to an associated public utility company./53 Enron seeks an exception from
this rule and the restrictions of Section 13(a) through July 31, 2005, based on
the special or
--------------------
51 Docket No. 11915, In re Enron Corp., et al., Chapter 11 Case No. 01-16034
(AJG), July 24, 2003 (U.S. Bankruptcy Court, S.D.N.Y.); Docket No. 13710, In re
Enron Corp., et al., Chapter 11 Case No. 01-16034 (AJG), Oct. 24, 2003 (U.S.
Bankruptcy Court, S.D.N.Y.).
52 Rule 90(d).
53 Enron provides services to non-utility associated companies that are not
public utilities or mutual service companies. Pursuant to section 13(a) of the
Act, these services are not subject to the jurisdiction of the Commission.
38
unusual circumstances of its bankruptcy. These services are currently provided
by Enron to Portland General at cost. In the case of insurance and employee
benefit services Portland General is currently unable to procure those services
on better terms, so these services are clearly of benefit to Portland General.
Moreover, because Portland General is to be sold, after which point the service
transactions between Enron and Portland General would stop, the relief requested
is merely temporary.
Applicants, other than Enron, that are providing goods and services at
terms other than cost to associate companies, other than Portland General, also
seek an exemption under Section 13(b) from the at cost rules under the Act
through July 31, 2005. As noted above, Portland General is expected to be sold
during this year, after which time Enron could de-register and the Act would no
longer apply to the Enron group. These transactions are in the ordinary course
of business and would not adversely affect Portland General. To the extent any
such service transaction is not in the ordinary course of business it would be
subject to Bankruptcy Court review and authorization. For all these reasons and
to avoid incurring the cost and experiencing the disruption associated with
establishing a new service company, an exemption from Section 13(b) is justified
for all service transactions conducted among Enron group companies consistent
with the ordinary course of business and with historical practice.
8. Tax Allocation Agreements
Enron has entered into agreements with Portland General and
Transwestern for the payment and allocation of tax liabilities on a consolidated
group basis. These agreements generally require the subsidiaries to pay their
separate return tax to Enron. In consolidation, Enron offsets the subsidiaries'
income with the losses, tax credits and other tax-reducing attributes of Enron
and other group companies and pays the resulting lower tax liability amount to
the Internal Revenue Service or other taxing authority. Under the agreements,
group companies, including Enron, that contributed tax benefits such as losses
or credits to the consolidated return are paid their proportionate share of the
tax reduction resulting from the use of such benefits in the consolidated tax
return filing. These consolidated tax filing agreements do not technically
comply with Rule 45(c) under the Act because Enron shares in the tax savings
from the consolidation ratably with other members of the consolidated tax filing
group that contributed tax benefits to the consolidated return. Enron seeks
authorization to continue to perform under these current agreements (or new
agreements on similar terms) and for CrossCountry to enter into a new tax
allocation agreement with Enron, when Transwestern is contributed to
CrossCountry. Any new agreements would vary from Rule 45(c) only in the manner
noted above. The Portland General and Transwestern/CrossCountry tax allocation
agreements are described in more detail below.
Enron also has other written and oral tax related agreements with
other Enron group companies. It is contemplated that these agreements will be
rejected as executory contracts by the Debtors on the Confirmation Date, with an
effective date as of December 2, 2001 (Enron's bankruptcy petition date).
Notwithstanding this rejection, Enron will continue to file a consolidated tax
return as required by the Internal Revenue Code. In such circumstances, Enron
will no longer charge companies with income the stand-alone tax that they would
pay on their income but for the consolidated losses. Enron generally would no
longer pay loss companies for the benefit of their losses used to offset income
on the consolidated return, except that it is
39
expected that payments to Enron under the Portland General, Transwestern,
CrossCountry and possibly Prisma tax allocation agreements would be shared with
all loss companies consistent with past practice. Portland General, Transwestern
and Prisma (discussed further below) are not part of this arrangement.
Applicants request authorization for Enron and the other Enron group companies
subject to the contract rejection described above to file consolidated returns
in accordance with the method described above.
The tax allocation agreements described in this section are necessary
to use the net operating losses, tax credits and other tax benefits held by the
Debtors and their subsidiaries to the fullest benefit of the creditors.
Consolidated tax filing allows the Debtors to reduce the net tax paid to the
Internal Revenue Service without adversely affecting the consumers of Enron's
public utility subsidiary, Portland General. Under the tax allocation agreement
with Portland General, the company would pay no more than its tax liability as
calculated on a separate basis, as if it were a stand-alone entity. The separate
return limitation included in the Portland General tax allocation agreement
assures that consumers are not harmed, while permitting the creditors of the
Debtors' estates to benefit and, accordingly, is consistent with the Act's
objective of protecting the interests of investors, consumers and the general
public interest. Notably, the OPUC rejected a petition by the Utility Reform
Project seeking that an investigation be opened into Portland General's income
tax payments since 1997. In its decision, the OPUC incorporated by reference a
report of its staff which report noted that:
in a rate proceeding PGE's rates are set based on its own
revenues, costs and rate base for a given test year. Income taxes
are calculated using PGE's net operating income. The tax effects
of Enron's other operations are ignored for purposes of setting
rates. This is consistent with standard rate making principles.
Calculating PGE's costs, including income taxes, for ratemaking
on a stand-alone basis protects PGE's customers from the
financial difficulties experienced by Enron's other subsidiaries.
When the Commission approved Enron's acquisition of PGE, it had
the option of incorporating the effects of Enron's non-utility
operations in PGE's rates or treating PGE as a stand-alone
entity. Consistent with long-standing OPUC policy, the Commission
chose the latter approach. In adopting the stipulation in Docket
UM 814, the Commission created a wall between PGE's operations
and Enron's other subsidiaries. As stated by Order No. 97-196:
"These conditions and commitments provide important measures and
requirements, beyond those provided by the Commission's statutory
authority and existing rules, to protect PGE's customers,
competitors, and the public generally."
40
The staff report also stated that, if PGE's rates were set in a manner
that captured some of Enron's tax losses, PGE's rates would also have needed to
reflect the expenses that created those savings and customers would be worse
off./54
a. Tax Agreements with Portland General
Portland General has entered into a tax-sharing arrangement with
Enron pursuant to which Portland General will be responsible for the amount of
income tax that Portland General would have paid on a "stand alone" basis, and
Enron will be obligated to make payments to Portland General as compensation for
the use of Portland General's losses and/or credits to the extent that such
losses and/or credits have reduced the consolidated income tax liability.55
Enron will be responsible for, among other things, the preparation and filing of
all required consolidated returns on behalf of Portland General and its
subsidiaries, making elections and adopting accounting methods, filing claims
for refunds or credits and managing audits and other administrative proceedings
conducted by the taxing authorities. Enron and Portland General will continue to
be parties to this tax sharing agreement, or a new agreement on similar terms,
until Enron and Portland General no longer file consolidated tax returns. It is
intended that Enron and Portland General will file consolidated tax returns
until Enron no longer owns 80% of the capital stock of Portland General, which
may occur by a sale of Portland General stock to Oregon Electric or a third
party, the transfer of Portland General to PGE Trust and distribution of PGE
Trust to creditors or the cancellation of Portland General stock held by Enron
to issue new stock to the creditors and the Disputed Claims Reserve. Enron will
allocate the consolidated tax liability for each taxable period to Portland
General and its subsidiaries in accordance with the requirements of the Internal
Revenue Code and Treasury Regulations.
b. Tax Agreements with Non-Utility Subsidiaries
The existing Transwestern tax allocation agreement would remain in
effect until it is superseded by the CrossCountry tax allocation agreement
becoming effective. At the closing of the transactions contemplated by the
CrossCountry Amended and Restated Contribution and Separation Agreement, each
CrossCountry subsidiary that is a member of the Enron tax group will enter into
a tax allocation agreement with Enron. This tax allocation agreement will set
forth the respective rights and responsibilities of the parties thereto with
respect to taxes. Under the agreement, the parties will cause their respective
subsidiaries to consent, to the extent necessary, to the filing of consolidated
returns by Enron, including consolidated returns for the tax year ended December
31, 2003, and for each year thereafter that they are eligible to file
consolidated returns, until such time as Enron, in the exercise of its sole
discretion, elects to refrain from filing consolidated tax returns. Enron will
be responsible for, among other things, the preparation and filing of all
required consolidated returns on behalf of the companies and their subsidiaries,
making elections and adopting accounting methods, filing claims for refund or
credit, and managing audits and other administrative proceedings.
--------------------
54 In the Matter of Utility Reform Project, Public Utility Commission of Oregon,
Order No. 03-214 (April 10, 2003), Appendix A, p. 2 (footnote omitted).
55 See Exhibit N. It is contemplated that the existing tax allocation agreement
with Portland General may be amended to provide that Enron would pay Portland
General for certain Oregon state tax credits generated by Portland General but
not used on the consolidated Oregon tax return. Enron and Portland General also
seek authorization to amend the Portland General tax allocation agreement
accordingly.
41
Similar to Portland General, under the agreement, each subsidiary of
CrossCountry that is a member of the Enron tax group will be obligated to pay
Enron the amount of income tax that such entity would have paid on a stand-alone
basis and each of the parties and their respective subsidiaries will be
compensated for the use of their respective net operating losses and/or tax
credits to the extent utilized in the Enron consolidated return (other than the
use of such losses or credits to offset gain in respect of an election pursuant
to section 338(h)(10) of the IRC).
Prior to a subsidiary of Enron that is a party to a tax allocation
agreement ceasing to be a member of the Enron consolidated tax group, all
intercompany payable accounts and intercompany receivable accounts of such
subsidiary will be offset and netted against each other. If the resulting net
balance is a payable from such subsidiary to Enron, then such subsidiary will
pay the amount due to Enron. If the resulting net balance is a receivable from
Enron to such subsidiary (other than Transwestern), then such subsidiary will
assign and transfer its interest in the receivable to Enron. If the resulting
net balance is a receivable from Enron to Transwestern, Enron and Transwestern
will determine how such receivable will be settled. The tax allocation agreement
will become effective on the closing date of the CrossCountry Contribution and
Separation Agreement. After the Effective Date, Enron and each subsidiary of
CrossCountry that is a member of the Enron tax group may continue to be parties
to the tax allocation agreement, or a new tax allocation agreement on similar
terms until Enron and the applicable subsidiaries no longer file consolidated
returns.
At the closing of the transactions contemplated in the Prisma
Contribution and Separation Agreement, Prisma will enter into a tax allocation
agreement with Enron. The Prisma tax allocation agreement is still in the
process of negotiation but it is expected to be generally similar to the
CrossCountry agreement described above, except that, under the Prisma agreement,
Prisma will be obligated to make dividend distributions to its shareholders in
certain minimum amounts (to the extent of available cash) for so long as Enron
or any affiliate or the Disputed Claims reserve is required to include amounts
in income for federal income tax purposes in respect of the ownership of Prisma
shares.
The value of Enron's tax losses and credits are assets of the
bankruptcy estate and it is appropriate that Enron retain these assets for the
benefit of the creditors of the estate. The tax losses that Enron and its
subsidiaries other than Portland General have incurred resulted from losses
incurred by Enron's creditors. Thus, it is appropriate that they should receive
the economic benefit of the associated losses. To allocate the benefit of such
losses to other Enron group companies, in some cases to non-Debtor companies,
would transfer the benefit to a different group of creditors and, perhaps the
customers of Portland General. This is not the appropriate result where the
subsidiary did not bear the burden associated with the expense that led to the
loss or tax credit. The losses that Enron has on its books were not incurred in
connection with Portland General's utility business, but were the losses that
Enron's creditors suffered. The relief requested herein is, therefore, necessary
to appropriately balance the interests of investors, now creditors, and
consumers under the Act./56
--------------------
56 The Commission has previously authorized tax allocation agreements that do
not comply with all of the provisions of Rule 45(c). SCANA Corporation, et al.,
Holding Co. Act Release No. 27774 (Dec. 18, 2003); Energy East Corporation, et
al., Holding Co. Act Release No. 35-27643 (Jan. 28, 2003); Progress Energy,
Inc., et al., Holding Co. Act Release No. 27522 (Apr. 18, 2002).
42
9. Form U5B Registration Statement
The Disclosure Statement is a comprehensive document detailing Enron's
businesses, assets, its recent history and its planned future under the Plan.
The Disclosure Statement contains a substantial portion of the information that
is required of a registrant under Form U5B. The Commission may, under Rule
20(a)(3), for cause shown, modify the particular requirements with respect to
the filing of information required by the rules or by a form adopted under the
Act. It would be an unnecessary burden on the Debtors' estate to prepare a
registration statement on Form U5B when a substantial and detailed document
describing the entire Enron group is readily available in the form of the
Disclosure Statement. Enron seeks a modification to the Commission's reporting
requirement to permit it to submit the Disclosure Statement in lieu of a
Registration Statement on Form U5B. Attached hereto as Exhibit O is a table
cross referencing the information requirements of Form U5B with particular
sections of the Disclosure Statement or other materials provided to the
Commission that provide substantially similar information. If the Commission
staff indicates to Enron that it requires additional information called for in
Form U5B but not included in the Disclosure Statement, Enron will undertake to
promptly provide such additional information.
Item 2. Fees, Commissions and Expenses
To be filed by amendment.
Item 3. Applicable statutory provisions and legal analysis
Sections 6(a), 7, 9(a), 10, 12, 13 of the 1935 Act and Rules 16,
42-46, 52-53, 54, 80-87, 90-91 are considered applicable to the proposed
transactions.
Item 4. Regulatory approvals
No state or federal regulatory agency, other than this Commission, has
jurisdiction over the transactions for which authority is requested herein. The
Bankruptcy Court has jurisdiction over the Plan and the transactions
contemplated therein.
Item 5. Procedure
Applicants respectfully request the Commission to issue and publish
forthwith the requisite notice under Rule 23 with respect to the filing of this
Application, such notice to specify the minimum period allowed for the
submission of comments. It is submitted that a recommended decision by a hearing
or other responsible officer of the Commission is not needed for approval of the
Application. The Division of Investment Management may assist in the preparation
of the Commission's decision. There should be no waiting period between the
issuance of the Commission's order and the date on which it is to become
effective.
Item 6. Exhibits and Financial Statements
Exhibits:
43
Exhibit B-1 Term sheet containing transaction details for the sale of
the common stock of Portland General to Oregon Electric.
Exhibit B-2 Stock Purchase Agreement Between Oregon Electric Utility
Company, LLC and Enron Corp. dated November 18, 2003,
incorporated by reference to Exhibit G of the application of
Stephen Forbes Cooper, LLC, PGE Trust and Enron Corp. in SEC
File No. 70-11373.
Exhibit F-1 Opinion of counsel (to be filed by amendment)
Exhibit F-2 Past tense opinion of counsel (to be filed by amendment)
Exhibit G Form of Notice
Exhibit H List of Enron Corp. subsidiaries
Exhibit I-1 Fifth Amended Joint Plan of Affiliated Debtors Pursuant to
Chapter 11 of the United States Bankruptcy Code dated
January 9, 2004, incorporated by reference to Exhibit 2.1 of
the Enron Corp. Current Report on Form 8-K dated January 9,
2004 (filed January 12, 2004, SEC File No. 001-13159).
Exhibit I-2 Disclosure Statement for Fifth Amended Joint Plan of
Affiliated Debtors Pursuant to Chapter 11 of the United
States Bankruptcy Code dated January 9, 2004, incorporated
by reference to Exhibit 2.2 of the Enron Corp. Current
Report on Form 8-K dated January 9, 2004 (filed January 12,
2004, SEC File No. 001-13159).
Exhibit J-1 Docket No. 15303, In re Enron Corp., et al., Chapter 11 Case
No. 01-16034 (AJG), Jan. 9, 2004 (U.S. Bankruptcy Court,
S.D.N.Y.), incorporated by reference to Exhibit H of the
application of Stephen Forbes Cooper, LLC, PGE Trust and
Enron Corp. in SEC File No. 70-11373.
Exhibit J-2 Docket No. 15296, In re Enron Corp., et al., Chapter 11 Case
No. 01-16034 (AJG), Jan. 9, 2004 (U.S. Bankruptcy Court,
S.D.N.Y.), incorporated by reference to Exhibit I of the
application of Stephen Forbes Cooper, LLC, PGE Trust and
Enron Corp. in SEC File No. 70-11373.
Exhibit J-3 Docket No. 0034, In re Enron Corp., et al., Chapter 11 Case
No. 01-16034 (AJG), Dec. 3, 2001 (U.S. Bankruptcy Court,
S.D.N.Y.)
Exhibit J-4 Docket No. 1666, In re Enron Corp., et al., Chapter 11 Case
No. 01-16034 (AJG), Feb. 25, 2002 (U.S. Bankruptcy Court,
S.D.N.Y.)
Exhibit K OPUC Order No. 97-196, dated June 4, 1997
Exhibit L Portland General's Quarterly Report on Form 10-Q, filed on
November 20, 2003, incorporated by reference to SEC File No.
1-5532-99
Exhibit M Master Service Agreement, incorporated by reference to
Exhibit E of the application of Stephen Forbes Cooper, LLC,
PGE Trust and Enron Corp. in SEC File No. 70-11373.
Exhibit N Tax Sharing Agreement, incorporated by reference to Exhibit
F of the application of Stephen Forbes Cooper, LLC, PGE
Trust and Enron Corp. in SEC File No. 70-11373.
Exhibit O Table cross referencing the information requirements of Form
U5B with particular sections of the Disclosure Statement (to
be filed by amendment)
Exhibit P Letter dated June 23, 1997 in which the OPUC states that it
does not object to Enron's proposed FUCO investments and
that such investments would not adversely affect Portland
General, incorporated by reference to Exhibit A of Enron
Corp. Notification of Foreign Utility Company Status on Form
U-57
44
dated August 25, 2003 in SEC File No. 73-00063.
Exhibit Q PGE Financial Projections -- 2003-2006, Exhibit H of
Disclosure Statement for Fifth Amended Joint Plan of
Affiliate Debtors Pursuant to Chapter 11 of the United
States Bankruptcy Code dated January 9, 2004, incorporated
by reference to Exhibit 2.2 of the Enron Corp. Current
Report on Form 8-K dated January 9, 2004 (filed January 12,
2004, SEC File No. 001-13159).
Exhibit R Northern Border Partners' Quarterly Report on Form 10-Q,
filed on November 13, 2003, incorporated by reference to SEC
File No. 1-12202.
Item 7. Information as to Environmental Effects
None of the matters that are the subject of this Application involve a
"major federal action" nor do they "significantly affect the quality of human
development" as those terms are used in section 102 (2)(c) of the National
Environmental Policy Act. The matters that are the subject of this Application
will not result in changes in the operation of Enron or its subsidiaries or
affiliates that will have an impact on the environment. Enron is not aware of
any federal agency that has prepared or is preparing an environmental impact
statement with respect to the transaction.
45
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned companies have duly caused this statement to be
signed on their behalf by the undersigned officers thereunto duly authorized.
Date: February 5, 2004
ENRON CORP. on its behalf and on behalf of its
subsidiaries listed on Exhibit H.
By: /s/ Raymond M. Bowen, Jr.
-------------------------
Name: Raymond M. Bowen, Jr.
Title: Executive Vice President and Chief
Financial Officer of Enron Corp.
EXHIBIT INDEX
Exhibit B-1 Term sheet containing transaction details for the sale of
the common stock of Portland General to Oregon Electric.
Exhibit B-2 Stock Purchase Agreement Between Oregon Electric Utility
Company, LLC and Enron Corp. dated November 18, 2003,
incorporated by reference to Exhibit G of the application of
Stephen Forbes Cooper, LLC, PGE Trust and Enron Corp. in SEC
File No. 70-11373.
Exhibit G Form of Notice
Exhibit H List of Enron Corp. subsidiaries
Exhibit I-1 Fifth Amended Joint Plan of Affiliated Debtors Pursuant to
Chapter 11 of the United States Bankruptcy Code dated
January 9, 2004, incorporated by reference to Exhibit 2.1 of
the Enron Corp. Current Report on Form 8-K dated January 9,
2004 (filed January 12, 2004, SEC File No. 001-13159).
Exhibit I-2 Disclosure Statement for Fifth Amended Joint Plan of
Affiliated Debtors Pursuant to Chapter 11 of the United
States Bankruptcy Code dated January 9, 2004, incorporated
by reference to Exhibit 2.2 of the Enron Corp. Current
Report on Form 8-K dated January 9, 2004 (filed January 12,
2004, SEC File No. 001-13159).
Exhibit J-1 Docket No. 15303, In re Enron Corp., et al., Chapter 11 Case
No. 01-16034 (AJG), Jan. 9, 2004 (U.S. Bankruptcy Court,
S.D.N.Y.), incorporated by reference to Exhibit H of the
application of Stephen Forbes Cooper, LLC, PGE Trust and
Enron Corp. in SEC File No. 70-11373.
Exhibit J-2 Docket No. 15296, In re Enron Corp., et al., Chapter 11 Case
No. 01-16034 (AJG), Jan. 9, 2004 (U.S. Bankruptcy Court,
S.D.N.Y.), incorporated by reference to Exhibit I of the
application of Stephen Forbes Cooper, LLC, PGE Trust and
Enron Corp. in SEC File No. 70-11373.
Exhibit J-3 Docket No. 0034, In re Enron Corp., et al., Chapter 11 Case
No. 01-16034 (AJG), Dec. 3, 2001 (U.S. Bankruptcy Court,
S.D.N.Y.)
Exhibit J-4 Docket No. 1666, In re Enron Corp., et al., Chapter 11 Case
No. 01-16034 (AJG), Feb. 25, 2002 (U.S. Bankruptcy Court,
S.D.N.Y.)
Exhibit K OPUC Order No. 97-196, dated June 4, 1997
Exhibit L Portland General's Quarterly Report on Form 10-Q, filed on
November 20, 2003, incorporated by reference to SEC File No.
1-5532-99
Exhibit M Master Service Agreement, incorporated by reference to
Exhibit E of the application of Stephen Forbes Cooper, LLC,
PGE Trust and Enron Corp. in SEC File No. 70-11373.
Exhibit N Tax Sharing Agreement, incorporated by reference to Exhibit
F of the application of Stephen Forbes Cooper, LLC, PGE
Trust and Enron Corp. in SEC File No. 70-11373.
Exhibit P Letter dated June 23, 1997 in which the OPUC states that it
does not object to Enron's proposed FUCO investments and
that such investments would not adversely affect Portland
General, incorporated by reference to
2
Exhibit A of Enron Corp. Notification of Foreign Utility
Company Status on Form U-57 dated August 25, 2003 in SEC
File No. 73-00063.
Exhibit Q PGE Financial Projections -- 2003-2006, Exhibit H of
Disclosure Statement for Fifth Amended Joint Plan of
Affiliate Debtors Pursuant to Chapter 11 of the United
States Bankruptcy Code dated January 9, 2004, incorporated
by reference to Exhibit 2.2 of the Enron Corp. Current
Report on Form 8-K dated January 9, 2004 (filed January 12,
2004, SEC File No. 001-13159).
Exhibit R Northern Border Partners' Quarterly Report on Form 10-Q,
filed on November 13, 2003, incorporated by reference to SEC
File No. 1-12202.
3
Dates Referenced Herein and Documents Incorporated by Reference
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