[Federal Register Volume 67, Number 198 (Friday, October 11, 2002)]
[Notices]
[Pages 63464-63465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26025]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 27574; File No. 3-10909]


Public Utility Holding Company Act of 1935; Administrative 
Proceeding; Applications of Enron Corp. for Exemptions Under the Public 
Utility Holding Company Act of 1935, (Nos. 70-9661 and 70-10056)

October 7, 2002.

Order Scheduling Hearing Pursuant to Section 19 of the Public Utility 
Holding Company Act of 1935

    Enron Corp. (``Enron''), an Oregon corporation with headquarters at 
1400 Smith Street, Houston, Texas 77002-7361, has filed two 
applications with the Securities and Exchange Commission 
(``Commission'') seeking orders exempting Enron from all provisions of 
the Public Utility Holding Company Act of 1935 (the ``Act'') except 
section 9(a)(2). Enron represents that it is a public utility holding 
company by reason of its ownership of all of the outstanding voting 
securities of Portland General Electric Company (``Portland General''). 
In one application, Enron requests exemption under section 3(a)(1) of 
the Act.\1\ In the other application, Enron requests exemption under 
sections 3(a)(3) and 3(a)(5) of the Act.\2\
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    \1\ SEC File No. 70-10056 (filed Feb. 28, 2002; Amendment No. 1 
filed May 31, 2002). Enron had previously been exempt under section 
3(a)(1) by virtue of making certain representations on Form U-3A-2, 
pursuant to Rule 2 under the Act (17 CFR Sec.  250.2). Enron states 
that it ``is presently unable to collect and produce the information 
required by Form U-3A-2,'' and it therefore seeks an order of 
exemption rather than exemption by operation of Rule 2.
    \2\ SEC File No. 70-9661 (filed Apr. 12, 2000). At the time that 
Enron filed this application for exemption under sections 3(a)(3) 
and 3(a)(5), Enron was already exempt under section 3(a)(1) by 
operation of Rule 2. Enron nevertheless requested exemption under 
sections 3(a)(3) and 3(a)(5) because an exemption under those 
provisions (unlike an exemption under section 3(a)(1)) would have 
the effect of affording Enron relief from the ``qualifying 
facility'' (or ``QF'') ownership restrictions under the Public 
Utility Regulatory Policies Act of 1978 and the rules of the Federal 
Energy Regulatory Commission thereunder.
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    We have reviewed the applications. For the reasons described below, 
we conclude that it is appropriate to hold a hearing on Enron's 
applications before ruling on them.
    An exemption under section 3(a)(1) is available to a public-utility 
holding company if--

such holding company, and every subsidiary company thereof which is 
a public-utility company from which such holding company derives, 
directly or indirectly, any material part of its income, are 
predominantly intrastate in character and carry on their business 
substantially in a single state in which such holding company and 
every such subsidiary company thereof are organized.\3\

    \3\ 15 U.S.C. Sec.  79c(a)(1).

    We cannot, from the face of Enron's application for an exemption 
under section 3(a)(1), determine facts sufficient to conclude that 
Enron meets the statutory criteria. Among other things, we must 
determine whether Portland General is predominantly intrastate in 
character and carries on its business substantially in a single 
state.\4\ That issue is clouded by representations in the application 
that raise questions concerning (1) Portland General's 20% ownership 
stake in the Pacific Northwest Intertie,\5\ (2) the extent to which 
Portland General uses its stake in the Pacific Northwest Intertie to 
facilitate sales of electricity outside of Oregon delivered at the Mid-
Columbia trading hub, and (3) the percentage of Portland General's 
revenue that is generated through its ownership of a station in 
Colstrip, Montana.
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    \4\ See NIPSCO Industries, Inc., Holding Co. Act Release No. 
26975 (Feb. 10, 1999).
    \5\ According to Enron's application, the Pacific Northwest 
Intertie is a 4,800 MW transmission facility between the towns of 
John Day in Northern Oregon, and Malin, in Southern Oregon which is 
near the California border. Enron represents that this line is 
primarily used for interstate sales and purchases of electric energy 
among the Bonneville Power Administration (a federal agency that 
markets electric energy generated by federal hydroelectric dams 
located on the Columbia River in Oregon and Washington), utilities 
in the Pacific Northwest, and certain California utilities.
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    An exemption under section 3(a)(3) is available to a public-utility 
holding company if--

such holding company is only incidentally a holding company, being 
primarily engaged or interested in one or more businesses other than 
the business of a public utility company and (A) not deriving, 
directly or indirectly, any material part of its income from any one 
or more subsidiary companies, the principal business of which is 
that of a public utility company, or (B) deriving a material part of 
its income from any one or more such subsidiary companies, if 
substantially all the outstanding securities of such companies are 
owned, directly or indirectly, by such holding company.\6\

    \6\ 15 U.S.C. Sec.  79c(a)(3).

    We cannot, from the face of Enron's application for an exemption 
under section 3(a)(3), determine facts sufficient to conclude that 
Enron meets the statutory criteria. To find that these criteria are 
satisfied, we must determine, among other things, that Enron's 
ownership of Portland General bears a necessary functional relationship 
to, and primarily serves the needs of, Enron's nonutility 
operations.\7\ We must also make determinations concerning, among other 
things, Enron's income derived through Portland General in comparison 
with Enron's other income.\8\ Because Enron is currently being 
reorganized under the supervision of the United States Bankruptcy Court 
for the Southern District of New York, and because of related 
disruptions to its business and financial affairs,\9\ the record must 
be more fully developed before we can determine whether Enron satisfies 
the 3(a)(3) criteria.
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    \7\ See generally Electric Bond and Share Company, 33 S.E.C. 21, 
41-43 (1952); Standard Oil Company, 10 S.E.C. 1122, 1125-28 (1942); 
Manufacturer's Trust Company, 9 S.E.C. 283, 288 note 5 (1941); 
Cities Service Co., 8 S.E.C. 318, 329-32 (1940). In its application, 
Enron asserts that it is ``only incidentally'' a holding company in 
that its affiliation with Portland General has given Enron ``insight 
and access to new business opportunities in the broader energy 
industry,'' and that Portland General has provided Enron with 
``valuable expertise in evaluating regional electric distribution 
assets that complement Enron's strategy.''
    \8\ See, e.g., Cities Service Co., 8 S.E.C. 318 (1940). We must 
also consider whether Portland General is small other than in 
relation to Enron, which requires us to consider Portland General's 
size in relation to the state, regional and national electricity 
markets in which it operates. Id.
    \9\ In its application for exemption under section 3(a)(1), 
Enron has acknowledged this disruption, stating that ``[a]s a 
consequence of the bankruptcy, the loss of a substantial portion of 
its staff, and the dismissal of its auditor Arthur Andersen LLP, 
Enron is presently unable to collect and produce the information 
required by Form U-3A-2, including the consolidating financial 
statements of Enron and its subsidiaries for the year ended December 
31, 2001.''
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    An exemption under section 3(a)(5) is available to a public-utility 
holding company if--

such holding company is not, and derives no material part of its 
income, directly or indirectly, from any one or more subsidiary 
companies which are, a company or companies the principal business 
of which within the United States is that of a public-utility 
company.\10\
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    \10\ 15 U.S.C. Sec.  79c(a)(5).

    We cannot, from the face of Enron's application for an exemption 
under section 3(a)(5), determine facts sufficient to conclude that 
Enron meets the statutory criteria. An application for exemption under 
section 3(a)(5) requires us to make some of the same determinations as 
are required for an exemption under section 3(a)(3), including 
determinations about relationships between Enron's income derived from 
Portland General and Enron's other income.\11\ For the reasons 
described above, a more fully developed record is required to make that 
determination. In addition, determining

[[Page 63465]]

whether to grant an exemption pursuant to section 3(a)(5) requires us 
to determine whether Enron is the type of holding company to which 
section 3(a)(5) was intended to apply.
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    \11\ See, e.g., AES Corporation, Holding Co. Act Release No. 
27063 (Aug. 20, 1999); Cities Service Co., 8 S.E.C. 318 (1940).
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    Finally, if a more fully developed record shows that Enron 
satisfies the more specific statutory criteria for any one of the three 
exemptions discussed above, we must nevertheless decline to grant the 
exemption if we find that the exemption would be ``detrimental to the 
public interest or the interest of investors or consumers.''\12\ In 
this particular matter, in light of the acknowledged disruptions to 
Enron's business and financial affairs,\13\ we believe that the 
question of whether an exemption would be detrimental to the public 
interest or the interest of investors and consumers is itself a 
question that should be the subject of a hearing before any exemption 
is granted.
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    \12\ 15 U.S.C. Sec.  79c(a).
    \13\ See note 9, supra.
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    We also recognize, however, that the question of whether an 
exemption would be detrimental to the public interest or the interest 
of investors and consumers is a question that we need reach only if it 
first appears that Enron satisfies any of the specific statutory 
criteria for an exemption. We therefore conclude that the most 
efficient way to proceed with a hearing on Enron's applications is in 
two phases. Phase I will be for the limited purpose of determining 
whether Enron satisfies any of the particular statutory criteria for an 
exemption under section 3(a)(1), section 3(a)(3), or section 3(a)(5) of 
the Act, and evidence and arguments presented shall be limited to those 
specific questions. Phase II, if the hearing officer determines it to 
be necessary, will be for the purpose of determining whether granting 
an exemption to Enron would be detrimental to the public interest or 
the interest of investors or consumers.
    For the foregoing reasons,
    It Is Ordered that a hearing shall be commenced, pursuant to 
section 19 of the Act and in accordance with the Commission's Rules of 
Practice,\14\ at a time and place to be fixed by further order, for the 
purpose of determining whether Enron satisfies the statutory criteria 
for an exemption under section 3(a)(1), section 3(a)(3), or section 
3(a)(5) of the Act and, if so, whether granting such an exemption would 
be detrimental to the public interest or the interest of investors or 
consumers;
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    \14\ 17 CFR Part 201.
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    It Is Further Ordered that Commissioner Roel C. Campos shall 
preside as hearing officer at the hearing, shall exercise the authority 
described in Commission Rule of Practice 111,\15\ and shall, pursuant 
to Commission Rule of Practice 360,\16\ prepare an initial decision;
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    \15\ 17 CFR Sec.  201.111.
    \16\ 17 CFR Sec.  201.360.
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    It Is Further Ordered that Enron and the Division of Investment 
Management shall be parties to the proceeding and that Enron, as the 
proponent of the exemptive orders it seeks, shall, pursuant to 5 U.S.C. 
Sec.  556(d), bear the burden of proving that it is entitled to such 
exemptive orders;
    It Is Further Ordered that any person who seeks to intervene as a 
party pursuant to Rule of Practice 210(b) \17\ shall file a motion to 
intervene with the Secretary of the Commission no later than October 
21, 2002, and any person who seeks to participate on a limited basis 
pursuant to Rule of Practice 210(c) \18\ shall file a motion for leave 
to participate with the Secretary of the Commission no later than 20 
days prior to the date fixed for the Phase I hearing. A movant shall 
serve a copy of any such motion upon Enron at the address noted above 
in accordance with Rule 150(c) of the Commission's Rules of Practice, 
and proof of such service shall be filed with the Secretary of the 
Commission contemporaneously with the motion. Any such motion shall 
state whether the movant seeks to intervene or participate for purposes 
of Phase I only, Phase II only, or both Phases, and shall describe the 
nature and extent of the movant's interest with respect to each such 
Phase. Such motions as have already been received concerning Enron's 
applications shall be considered as timely filed in this matter,\19\ 
although movants may supplement those motions in light of this Order if 
such supplements are received no later than October 21, 2002;
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    \17\ 17 CFR Sec.  201.210(b).
    \18\ 17 CFR Sec.  201.210(c).
    \19\ Motions to intervene have been received from Southern 
California Edison Company (received March 27, 2002), Sithe/
Independence Power Partners, L.P. (received April 16, 2002), and the 
Electric Power Supply Association (received April 16, 2002).
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    It Is Further Ordered that, without prejudice to the ability of the 
hearing officer to decide that additional factual or legal issues 
should be considered as part of the hearing in this matter, particular 
attention should be given at the hearing to the questions described 
above; and
    It Is Further Ordered that the Secretary of the Commission shall 
give notice of the hearing by sending copies of this Order by certified 
mail to Enron at the address noted above; that the Secretary of the 
Commission shall mail a copy of this Order to each of the persons that 
have sought to intervene concerning Enron's applications; and that 
notice to all other persons shall be given by publication of this Order 
in the Federal Register.

    By the Commission.
Margaret H. McFarland
Deputy Secretary.
[FR Doc. 02-26025 Filed 10-10-02; 8:45 am]
BILLING CODE 8010-01-P