UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION

PETITION FOR REVIEW OF ENRON CORP.

Pursuant to Rules 410 and 411 of the Commission's Rules of Practice, 17 C.F.R. § 201.410 and 201.411 (2002), Enron Corp. ("Enron") hereby submits a petition for review of the Initial Decision issued on February 6, 2003 in the above captioned proceeding ("Initial Decision").

I. INTRODUCTION

Enron is a public utility holding company under the Public Utility Holding Company Act of 1935 ("PUHCA" or the "Act") by reason of its ownership of the outstanding voting common stock of Portland General Electric Company ("Portland General"). There are two applications for exemption at issue in this proceeding: an application for exemption under Section 3(a)(1) of the Act, that is based on the intrastate character of Enron's and Portland General's public utility activities, and an application for exemption under Section 3(a)(3), or, in the alternative, Section 3(a)(5) of the Act, that is based on Enron's incidental holding company status and the temporary need for the exemption. Enron is entitled to the exemptions that it has requested as a matter of correct statutory interpretation, Commission precedent and sound regulatory policy.

As explained more fully below, the Initial Decision contains several errors of fact and law, and constitutes an exercise of discretion and an important decision of law and policy, such that Commission review is required.¹

A. Section 3(a)(1)

The record clearly demonstrates that by every relevant measure Portland General is intrastate in character. "Intrastate in character" is a term of art under the Act. In determining whether a holding company is intrastate in character the Commission considers (i) the activities of its public utility subsidiaries only, excluding all non-utility businesses conducted by the holding company system, regardless of where the activity is conducted, and (ii) whether the holding company and its public utility subsidiaries are subject to effective regulation by the state or states where they conduct their utility businesses. On these points there is no dispute between the parties.

Operating in interstate commerce is not synonymous with out-of-state utility activity for purposes of Section 3(a)(1).² Until the Initial Decision, the Commission had never held that in-state utility activities that constitute interstate commerce, for example the ownership and operation of a high voltage transmission system, constituted out-of-state activity for purposes of applying the Section 3(a)(1) exemption. The Initial Decision improperly extends Commission precedent to create new standards for qualifying for exemption under Section 3(a)(1); standards that significantly limit the availability of the exemption not just for Enron, but for many other exempt holding companies.

This case is about whether Enron, an Oregon holding company, is entitled to an exemption under PUHCA when its only utility subsidiary, Portland General, is also organized in Oregon, serves customers located solely in Oregon, and is subject to the effective regulation of the Oregon Public Utility Commission ("OPUC").

The Commission has found that Congress intended Section 3(a)(1) to be available to holding companies that, together with their utility subsidiaries, have their utility activities effectively regulated by a single state.³ The record in this matter demonstrates that the OPUC effectively regulates Portland General and Enron's actions with respect to Portland General. The record also shows that Portland General has no service territory or retail customers located outside Oregon. Further, to the extent Portland General conducts any substantial business activities outside of Oregon, the record shows that such business is related to and in furtherance of Portland General's obligations under Oregon law to serve its Oregon customers reliably, economically and efficiently and that it is adequately regulated by the OPUC. The OPUC's Reply Brief could not state the point more clearly: "The OPUC continues to believe that it has adequate authority to regulate Portland General's utility activities regardless of whether Portland General transacts some out-of-state wholesale sales and owns a part interest in the Colstrip generating plants in Montana. The OPUC effectively regulates both of these activities by having access to the books and records of Portland General and regulating the retail rates charged to Portland General's Oregon customers."⁴ Based on these uncontroverted facts, the Commission should grant Enron an exemption under Section 3(a)(1).

The Presiding ALJ misread Commission precedent and misapplied Section 3(a)(1). The Presiding ALJ misapplied the law by failing to consider Portland General's utility activities in the context of modern-day utility industry practice and the state regulatory environment. In particular, Commission precedent under Section 3(a)(1) has always looked to the locus of a utility's activities, the location of its customers and plant, and the source of its revenues and income to determine whether the utility was intrastate in character and thus subject to effective state regulation.⁵ This method is consistent with the premise of the exemption that supplemental federal regulation under PUHCA is not necessary where adequate state regulation can be demonstrated.

The Presiding ALJ took the opposite approach in the Initial Decision's Section 3(a)(1) analysis. The Presiding ALJ applied a traditional Commerce Clause analysis - examining all of PGE's interstate contacts - and found that PGE was engaged in substantial interstate activity. Because the ALJ found that PGE was interstate in character the exemption was not available despite the OPUC's protests that such activity was focused on providing service to Oregon utility customers and the OPUC's statement that it could effectively regulate Portland General.⁶

It is immaterial to the analysis of whether a holding company's utility activities are substantially intrastate in character and subject to effective state regulation that: (a) a utility may purchase a significant amount of energy out of state, or; (b) that its transmission system, located almost exclusively within the state, is used in interstate commerce, or; (c) that the utility sells its surplus power in wholesale energy markets located out of state; unless it is also clear from the record that those activities impede effective state regulation. Nevertheless, the Presiding ALJ erroneously found all these factors material to the exemption determination despite substantial evidence of effective state regulation.⁷

Commerce Clause analysis is misplaced because the correct question is not whether there is a jurisdictional basis to apply PUHCA to a holding company, but whether a holding company should be regulated under PUHCA. As noted above, the question with respect to the Section 3(a)(1) exemption is not whether a holding company is engaged in interstate commerce, but the degree of out-of-state utility activity that is present. The question for consideration, therefore, is whether given the Commission's jurisdiction over Enron, an exemption under Section 3(a)(1) is appropriate and consistent with the statutory language, Commission precedent, Portland General's preponderance of intrastate utility activities and the effective regulation of the OPUC to which both Enron and Portland General are subject. In undertaking this analysis, the focus should not be on the degree of interstate commerce, but on the character of Portland General's in-state and out-of-state utility operations.⁸

Under Commission precedent, Section 3(a)(1) may not be available if a material utility subsidiary of a holding company serves a significant number of customers located outside its state of organization, or significant utility assets are located out of state. These aspects of a utility's out-of-state operations would generally be reflected in significant revenues or income derived from out-of-state sources. These factors all may be significant to qualifying under Section 3(a)(1) because they may indicate that the utility is not subject to effective state regulation. It is noteworthy that the out-of-state purchase of energy cited by the Presiding ALJ (as contrasted with sales) has never before been a factor in the Section 3(a)(1) analysis because the location where energy purchases occur is unrelated to whether the state regulator with jurisdiction over the utility's service territory can adequately protect end-use customers. The Presiding ALJ erred because she failed to focus on the appropriate, relevant factors in determining whether an exemption under Section 3(a)(1) was available to Enron.

The simple question that the Presiding ALJ should have asked is: "Are Portland General's activities outside of Oregon so extensive that the utility cannot be adequately regulated at the state level?" If, as we believe, the answer is "no," then Portland General should be deemed intrastate in character and the exemption would be established under the objective criteria of Section 3(a)(1). That determination would end Phase I of the Commission's review of Enron's Section 3(a)(1) application and take us to Phase II. Under Phase II, the Commission would determine whether, regardless of any entitlement to the exemption under the objective criteria of the Act, Enron should nevertheless be denied an exemption under the "unless and except" clause of Section 3 because the protection of investors, consumers and the public interest generally require that Enron be subject to full regulation under PUHCA.

The Initial Decision reflects errors in applying the two-phase hearing plan set out in the Commission's October 7, 2002 Hearing Scheduling Order.⁹

Specifically, the Presiding ALJ appears to have interpreted the order's instructions to defer consideration of broad public interest issues until Phase II as direction that the statutory language of Section 3(a)(1), and in particular the term "intrastate in character," should be interpreted without consideration of the policy objectives of the Act. Although the Hearing Scheduling Order was intended to promote the efficient administration of this proceeding, it was error, and inconsistent with Commission precedent, to have applied it in a manner that precluded the interpretation of Section 3(a)(1) within the broader context of the Act.

The Presiding ALJ's erroneous interpretation and application of the Hearing Scheduling Order led to a restricted consideration of the facts of this case and, ultimately, an interpretation of Enron's applications in isolation of important public interest concerns. This is most evident in the Presiding ALJ's focus on gross revenues as the most important and relevant "objective" criteria for determining whether Portland General is predominantly intrastate in character. Consequently, the Presiding ALJ erroneously excluded numerous policy justifications for Portland General's particular operating circumstances - even when these policy reasons were advanced by the OPUC, a regulator with decades of experience regulating Portland General and direct responsibility for the protection of Oregon consumers. Section 1(c) of the Act states that it is "the policy of this [Act], in accordance with which policy all the provisions of this [Act] shall be interpreted, to meet the problems and eliminate the evils as enumerated in this section . . .." As that section requires, even the "objective" criteria of the Act must be interpreted in light of the Act's purpose. Accordingly, the Commission should grant this petition to assure that Enron's rights to due process under the law are not denied by the Presiding ALJ's restrictive application of the phased process outlined by the Hearing Scheduling Order.

In addition, Commission review is appropriate because the Initial Decision raises serious practical problems, not only for Enron, but for many of the approximately 100 other public utility holding companies that are exempt under Section 3(a)(1). In this regard, the Initial Decision has the broad effect of a rulemaking without the benefit of traditional notice and comment procedures that would protect all affected parties.¹⁰ Applying the Commerce Clause analysis used in the Initial Decision, it is possible that many Section 3(a)(1) exempt holding companies will no longer qualify for the exemption because they are engaged in substantial activities in interstate commerce. As noted above, interstate commerce has never been the focus of the analysis under Section 3(a)(1). The analysis has focused on the in-state and out-of-state utility activities.

There are several consequences associated with a possible loss of exemption. First, investors in utilities and their exempt holding companies may be adversely affected because the market for corporate control over such companies may become less robust when potential acquirers cannot also qualify for an exemption under Section 3(a)(1).¹¹ It is unfortunate that the Presiding ALJ excluded the relevant and material testimony of an experienced investment banker proffered by Enron demonstrating a likely drop in the value of Portland General's shares resulting from a denial of the Section 3(a)(1) exemption. This testimony highlights a scenario of decreased utility share value that is not just applicable to Portland General but to any Section 3(a)(1) holding company. Second, utility shareholders and consumers may suffer as utilities withdraw from efficient energy transactions in competitive interstate markets in an effort to bring more of their transactions intrastate to maintain the PUHCA exemption. A related consequence of this behavior is that the efforts of the Federal Energy Regulatory Commission ("FERC") to encourage the development of competitive, multi-state markets where many utilities buy and sell power may be set back by industry response to the Initial Decision. In addition, the Initial Decision ignores region-specific differences among utilities such as the Northwest hydro-electric system. The nature of that hydro system, much of which is located on the Columbia River, led to the formation of the mid-Columbia Washington energy trading hub in which virtually all Northwest utilities participate. For these reasons, the Commission should carefully consider the policy implications of the Initial Decision. Once it has, the Commission should reverse the Initial Decision and grant Enron (for the benefit of the creditors of the bankruptcy estate) the exemption under Section 3(a)(1) to which it is entitled.

B. Sections 3(a)(3) and 3(a)(5)

The record also demonstrates that Enron is entitled to an exemption under Section 3(a)(3) as a company that is only incidentally a holding company since it is primarily engaged in a reorganization and divestiture of assets under Chapter 11 of the Bankruptcy Code. Enron also is entitled to an exemption under Section 3(a)(5) because the anticipated sale of certain wind-powered generating projects that are qualifying facilities ("QFs") under the Public Utility Regulatory Policies Act of 1978 ("PURPA") and the possible sale of Portland General indicate that the need for the exemption is only temporary.¹² Moreover, Enron otherwise qualifies for the Section 3(a)(5) exemption under Commission precedent because it is principally engaged in holding energy-related businesses of the type that Congress determined should not be regulated under the Act.

The Initial Decision failed to appropriately apply Sections 3(a)(3) and 3(a)(5) in the unique context presented by this case. The bankruptcy of Enron and its reorganization under the supervision of the Bankruptcy Court require a solution under PUHCA that more carefully balances the interests of Enron's creditors with the policy objectives of the Act. This case is not about Enron and its alleged transgressions, it is about protecting value in the Enron debtor estate for the investors that have been harmed by the company's bankruptcy. For example, Enron projects that the financial burden of registering as a holding company under the Act, should its exemption applications be denied by the Commission, would exceed $1 million solely for the preparation of historical financial statements and various reports and applications required under PUHCA. Enron already files reports with the Bankruptcy Court and seeks approvals from the Court and the creditors' committee for any transaction outside the ordinary course of business. Contrary to the Presiding ALJ's assertions in the Initial Decision, Enron is not seeking to avoid registration out of "a dislike for the provisions of PUHCA, and self-interest" but is merely seeking to protect the interests of its creditors.¹³ Given the ongoing bankruptcy proceedings there does not appear to be any incremental benefit to investors, consumers or the public from increased PUHCA regulation at this time. PUHCA will not protect investors better than the Bankruptcy Court and the creditors' committee. It will not protect utility customers better than the OPUC and the FERC.

Enron has no fundamental objections to PUHCA or its regulatory objectives, but it does object purely on economic grounds to the ill-timed imposition of registration under the Act when to do so would harm the interests that the Act was designed to protect. Registration would: (a) trigger an adverse regulatory status change for Enron's QF wind-powered generating plants that have power purchase contracts that depend on maintaining QF status - thus dramatically reducing their value; (b) make exempt holding company status for a potential acquirer of Portland General unavailable thereby reducing the value of Enron's common stock interest in Portland General, and; (c) reduce the value of the Enron debtor's estate generally through the added cost of compliance with duplicative or unnecessary PUHCA reporting and approval requirements. These adverse effects will not harm Enron or its management, but they will remove a not-insignificant chunk from the bankruptcy estate and from creditors' pockets. Registration does not appear to provide any benefit to the constituents the Act is designed to protect that would offset such harmful effects. It has been Enron's consistent position in this matter that PUHCA was not intended to produce such a result and the Commission is not required by the Act to effect such a result.

That Enron objects to the ill-effects registration under the Act would visit on the bankruptcy estate does not mean that the Commission must forego all regulation of Enron under PUHCA. A conditional exemption featuring requirements to report such information as the Commission deems necessary and appropriate or to obtain Commission authorization for certain transactions would be the right kind of flexible application of the Act that achieves the legislative purpose of PUHCA without unintended harms. Enron would welcome the opportunity to work with the Commission and its staff to develop a creative solution that preserves the Commission's legitimate regulatory interests without causing undue harm to Enron's creditors.

From the outset of this case, Enron has acknowledged that Portland General represents a substantial part of Enron's revenues and income now that it is bankrupt. As a result, Enron does not comfortably fit within the generally accepted view of a company that qualifies for exemption under Sections 3(a)(3) and 3(a)(5) of the Act. Nevertheless, Enron believes that Section 3(a)(3) which is available to "incidental" holding companies, and Section 3(a)(5) which is available to holding companies that have non-utility activities of the type that Congress has traditionally considered exempt under the Act, are appropriate for Enron given its transitional nature as a company that is undergoing a complete reorganization in bankruptcy, including substantial divestitures of assets.

In recognition of its transitional nature, Enron has proposed that it be conditionally or temporarily exempted under Sections 3(a)(3) or 3(a)(5) for a limited period of time that would permit it to dispose of its QF investments. Once the QFs are disposed Enron would relinquish the exemption or it could terminate automatically.¹⁴ This relief is not unprecedented. The Commission has a long history of fashioning flexible remedies under the Act that promote the orderly disposition of businesses, not fire sales, for the plain reason that orderly dispositions preserve shareholder value consistent with the intent of PUHCA to protect investors. As recently as 2001, the Commission fashioned a conditional exemption remedy for AES Corp. when it was faced with the potential loss of QF investment values similar to Enron. AES sought to acquire a public utility subsidiary that would cause it to lose its exemption under Section 3(a)(5) and cause harm to its QF investments. The Commission permitted the acquisition and allowed AES to maintain its Section 3(a)(5) exemption for two years while AES divested utility holdings that precluded its qualifying for the exemption under the traditional exemption criteria.¹⁵

Enron seeks the same sensible, flexible relief from the Commission that it made available to AES. The Initial Decision failed to appropriately apply Commission precedent in this regard and for that reason the Presiding ALJ made an error of law. The Initial Decision needlessly harms the value of Enron's QF interests and the value of the Enron estate that is available to satisfy Enron's creditors. For this reason the Initial Decision also offends the policy that the Act should be interpreted and applied to protect the interest of investors. This important policy issue demands Commission review.

The policy issues in this case need to be separated from the turbulence surrounding Enron's name in other forums and the implications of requiring Enron to register at this time given its unique circumstances should be carefully considered. Should the Commission ultimately decide to deny the exemptions notwithstanding Enron's arguments in this proceeding and require registration, Enron requests that the Commission take notice of the unusual nature of Enron's bankruptcy and recognize the need for coordination between the Commission and the Bankruptcy Court.

II. BASIS FOR REVIEW (17 C.F.R. §§ 201.410(b) and 201.411(b)(2))

A. Findings or Conclusions of Fact

The Initial Decision contains the following erroneous findings or conclusions of material fact:

• The Presiding ALJ made an erroneous conclusion of material fact that Portland General derived on average, from 1999 to 2001, 34.14% of its revenues from out-of-state sales of electricity without taking into account the character and purpose of those sales. The Presiding ALJ failed to take into account the character of Portland General's utility activities as required by the statutory language of Section 3(a)(1) and, consequently, erroneously concluded that Portland General's out-of-state sales were a much greater portion of Portland General's revenues than indicated by the character and purpose of those sales. Initial Decision at 22.
   
• The Presiding ALJ erroneously found that retail customers of Portland General do not receive economic benefits from Portland General's marketing in electricity. Initial Decision at 21.
   
• The Presiding ALJ cited to several aspects of the relationship between Enron and Portland General that in her view illustrate concerns that PUHCA was designed to prevent and rebut Enron's contention that granting the exemptions would not lead to abuses under PUHCA. The Presiding ALJ's examples are, however, erroneous. In one case, a $48 million account receivable from Enron held on Portland General's books was the product of Enron's acquisition of Portland General and was in fact implemented in accordance with an order of the OPUC. Initial Decision at 24-25.

B. Conclusions of Law

The Initial Decision contains the following erroneous conclusions of law:

• The Presiding ALJ erred in denying the joint motion of Enron, Edison, FPL and Sithe for a postponement of a decision on Enron's Sections 3(a)(3) and 3(a)(5) Application. Initial Decision at 4.
   
• The Presiding ALJ erroneously found that requirements of the Financial Accounting Standards Board ("FASB") that established a new US GAAP standard requiring utilities to net their power trading activities for financial reporting purposes does not govern how revenues should be viewed under Section 3(a)(1) of the Act when determining whether an activity is predominantly intrastate in character. Initial Decision at 20.
   
• The Presiding ALJ erroneously found that Portland General's interstate power trading activities (for the non-retail book) are relevant to whether Portland General is predominantly intrastate in character due to the level of revenues earned from that activity. The Presiding ALJ did not address Enron's argument that such activity is not utility activity in nature (as indicated in a number of no-action letters issued by the Division of Investment Management to power marketing companies and Rule 58 under the Act) and therefore the associated revenues should not be counted in determining whether Portland General's utility activities are intrastate in character. Initial Decision at 20.
   
• The Presiding ALJ gave undue weight to the Commission's gross-to-gross revenues test. This test is used to determine whether a utility company is material to a holding company under Section 3(a)(1) - an aspect of the exemption determination that was not at issue in this case. The gross-to-gross test is not the standard by which the Commission establishes whether a utility subsidiary is "predominantly intrastate in character" under Section 3(a)(1), rather the Commission reviews all aspects of utility operations in light of the effectiveness of state regulation.
   
• The Presiding ALJ failed to afford the OPUC's position the weight it should have under Commission precedent. Initial Decision at 21.
   
• The Presiding ALJ erroneously found that prior Commission precedent precludes Enron's argument that the point of title transfer in a wholesale sale of electricity is established merely for convenience and should not be regarded as establishing the source of revenues related to the sale under certain circumstances. Initial Decision at 21.
   
• The Presiding ALJ erred in finding that the amount of Portland General's owned generation located out of state is an appropriate factor upon which to deny an exemption under Section 3(a)(1) given that it was dedicated wholly to serving Portland General's Oregon customers. Initial Decision at 22.
   
• The Presiding ALJ erred in finding that the amount of power that Portland General purchased from out-of-state and that the use of Portland General's transmission system in interstate commerce are appropriate factors upon which to deny an exemption under Section 3(a)(1). Initial Decision at 22.
   
• The Presiding ALJ erred in finding that participation in energy trading hubs located outside the state where the applicant holding company and its utility subsidiary are organized is inconsistent with exemption as a predominantly intrastate utility holding company under Section 3(a)(1). Initial Decision at 14-20.
   
• The Presiding ALJ erred in finding that Portland General's ownership of transmission lines and equipment located almost exclusively within the state of Oregon is an appropriate factor upon which to deny an exemption under Section 3(a)(1). Initial Decision at 22.
   
• The Presiding ALJ erroneously based her conclusion that Portland General is not intrastate in character on the fact that Portland General's transmission system is a part of the Western Electricity Coordinating Council. Initial Decision at 22.
   
• The Presiding ALJ refused to consider evidence that a denial of the Section 3(a)(1) exemption would substantially curtail the market for Portland General's common stock to the detriment of Enron's creditors. The Presiding ALJ erroneously refused to consider this proffered evidence even though it related directly to interests protected under PUHCA. Consequently, the Presiding ALJ committed a prejudicial error that denied Enron a full and fair hearing under PUHCA.
   
• The Presiding ALJ refused to consider other policy arguments under PUHCA presented by Enron on the basis that they were inconsistent with the phasing of the proceeding set forth in the Commission's Hearing Scheduling Order of October 7, 2002, thereby denying Enron a full and fair hearing under PUHCA.
   
• The Presiding ALJ made an erroneous conclusion of law in applying the Commission's precedent in AES II which permits a holding company to temporarily maintain an exemption under Section 3(a)(5) even though it may have material public utility subsidiaries. The Presiding ALJ's error of law precluded her from finding that the possible sale of Portland General or Enron's QF assets in the near future is an adequate basis for a temporary exemption under Section 3(a)(5). Initial Decision at 24.
   
• The Presiding ALJ refused to consider evidence that the supervision of Enron's business by the Bankruptcy Court and the committee of unsecured creditors adequately protects Enron's creditors, consumers and the public interest such that additional regulation at this time under PUHCA was not necessary and was, indeed, harmful. Consequently, the Presiding ALJ committed a prejudicial error that denied Enron a full and fair hearing under PUHCA.

C. Policy Issues

The Initial Decision constitutes an exercise of discretion and a decision of law and policy that is important and that the Commission should review.

• The Initial Decision applies general Commerce Clause analysis to the determination of whether a holding company is predominantly intrastate in character and is entitled to an exemption under Section 3(a)(1) with the possible result that a holding company of virtually any utility engaged in interstate commerce would find the Section 3(a)(1) exemption unavailable. Initial Decision at 14. Consequently, shareholders of Section 3(a)(1) exempt companies across the United States may see share values adversely affected if the Initial Decision is affirmed, utilities may withdraw from efficient transactions in interstate markets and the efforts of the FERC to expand wholesale power markets will be adversely affected.
   
• The Initial Decision raises the issue whether the Commission's traditional policy of assigning revenues from power sales transactions to the point of title transfer continues to be appropriate given the dramatic evolution in utility business practices and FERC policies promoting the extension of interstate wholesale power markets. The Initial Decision forces existing Section 3(a)(1) exempt companies to choose between accessing the interstate energy markets or preserving their exempt status. The Initial Decision also encourages utility restructuring that could potentially remove power trading activity from state regulatory scrutiny by placing trading operations in unregulated nonutility subsidiaries.
   
• The Initial Decision acknowledges that a number of the questions raised by Enron in connection with the issue of whether Portland General is intrastate in character "raise policy issues that deserve consideration in another forum . . ." Initial Decision at 22. Among those are: (a) whether a finding such as the one made in the Initial Decision that Portland General is not intrastate in character makes Section 3(a)(1) irrelevant in the context of the electricity industry today, (b) whether if restructured, Portland General's wholesale trading activities would not be considered to be utility activity, and consequently Portland General would be deemed to be intrastate in character despite the fact that it would be carrying out the exact same activity, and (c) whether the Commission intends to examine other utilities that have followed government policies and disposed of owned generation and increased their trading activities in interstate electricity markets. With respect to these points, there is little data in the record or, to Enron's knowledge, in the Commission's own files upon which important policy issues such as these can be decided.¹⁶ A rehearing is necessary to provide an opportunity for industry participants to make their views known about the broad implications of this decision.
   
• The Initial Decision fails to adequately consider alternatives to a denial of the exemption applications that could protect the interests of investors, consumers and the public without causing undue harm to Enron's creditors. For example, the Commission could fashion a conditional exemption remedy that would provide full protection under the Act while not imposing unnecessary burdens and costs on Enron's debtor estate. Given the substantial supervision of the Bankruptcy Court and the creditors' committee in connection with Enron's bankruptcy, Commission review is necessary to assure that the regulatory policy applied under PUHCA to bankrupt holding companies properly balances important competing interests.
   
• The Initial Decision fails to provide a remedy that would adequately address the interests that the Act was designed to protect (i.e., investors and consumers). Enron proffered evidence that the Presiding ALJ rejected indicating that compliance with numerous reporting and filing requirements under the Act would be duplicative of Bankruptcy Court approvals, require the production of extensive financial information that Enron does not have and can obtain only at great expense, and would distract Enron's management from the rapid reorganization of Enron as necessary to promptly satisfy creditor claims. The Commission should consider the policy implications of requiring unnecessary costly filings and reports under PUHCA when doing so would be to the detriment of Enron's creditors and contrary to the sound administration of the Act.

All of these issues are important and merit review by the Commission. The Commission must resolve these questions as a part of this proceeding because they directly impact Enron's entitlement to the exemptions for which Enron has applied.

III. SUPPORTING REASONS (17 C.F.R. § 201.410(b))

A. Motion to Stay

The Initial Decision incorrectly denied the motion for stay submitted by Enron and certain limited participants. The motion was submitted to permit a settlement to be approved that would benefit Edison's consumers by establishing reduced rates for the sale of capacity from the QFs to Edison. In addition, the settlement provides a fair resolution of the risks faced by sophisticated parties in complex litigation and a fair balance of costs and benefits related to those risks. The benefits of the settlement establish that it is in the public interest and consistent with the protection of investors and consumers.¹⁷

The Presiding ALJ did not identify any other body of investors or consumers that would require immediate protection under PUHCA such that their interests would be prejudiced by a postponement of the decision on Enron's application under Sections 3(a)(3) and 3(a)(5) of the Act. In fact, as it has been argued by Enron, FPL and Sithe in this proceeding, it is the denial of the application in a manner that does not allow adequate time for the owners of the QFs to sell or restructure such entities that is prejudicial to the interest of investors and consumers. Contrary to what is stated in the Initial Decision, the purpose of the motion for stay is not to allow the application to remain pending and continue Enron's Sections 3(a)(3) and 3(a)(5) exemptions indefinitely. Rather, the application (and the exemptions) would be continued only to the extent necessary to resolve a number of complex litigated proceedings currently pending before the California state courts, the FERC and this Commission. It is clearly in the public interest to avoid such costly litigation when all the parties with an economic interest in the litigation believe that they may reach a mutually satisfactory resolution by settlement. In addition, it is not in the public interest to deny the postponement and prevent the settlement from being fully implemented when no body of investors or consumers would be harmed by the limited extension of time requested in the motion.

Consequently, the Presiding ALJ's decision denying the motion to stay was a clearly erroneous conclusion of law.

B. 3(a)(1) Application

1. Wholesale Trading Revenues

Although the Initial Decision purports to apply the "flexible" approach that the Commission has used in reference to PUHCA exemptions, the Initial Decision's findings reveal the use of a bright line test with respect to the level of revenues derived by Portland General from interstate wholesale trading activities. The Initial Decision fails to correctly evaluate the purpose of Portland General's wholesale trading activities conducted principally to benefit its Oregon retail customers. Thus, the Initial Decision's analysis of the level of revenues earned by Portland General from out-of-state wholesale trading is flawed.

The preponderance of the evidence, including evidence proffered by Enron and the OPUC, indicates that Portland General's wholesale sales of energy, regardless of where they took place, were for the purpose of providing utility service in Oregon and were, therefore, intrastate in character. The Presiding ALJ failed to take into account the character of Portland General's utility activities as required by the statutory language of Section 3(a)(1) and, consequently, erroneously concluded that Portland General's out-of-state sales were a much greater portion of Portland General's revenues.

The purchase and sale of energy between utilities or at power marketing hubs is accepted utility practice that is done for reliability purposes and to lower the costs of supplying power to customers. Marketing hubs are effectively a source of capacity for regional utilities. To the extent utilities are discouraged from trading at those hubs, liquidity deteriorates and the reliability of this resource suffers. In Portland General's case, it has been purchasing and selling energy at the mid-Columbia hub since the 1950's when the hydro-electric facilities that serve as the basis for much of that trading were first placed in service. If energy trading conducted by utilities is subject to effective state regulation there is no reason to view it as inconsistent with the intrastate character of the utility even if the purchase or sale transactions take place outside of the utility's state of organization. Where, however, a utility sells power outside of its state to end-use customers located in another state, issues of effective state regulation become more likely. The question whether out-of-state customers are adequately served and whether they are subsidized by or subsidizing in-state customers may well arise. A utility with multi-state retail utility operations, therefore, may not be sufficiently intrastate in character such that it could be effectively regulated. In such cases the exemption should not be available. Portland General does not have multi-state retail utility operations and it is effectively regulated by the OPUC.

This is the first time that a holding company without retail utility operations outside its state of organization has been denied an exemption under Section 3(a)(1) due to out-of-state wholesale power trading, an activity that the Commission has found does not constitute utility activity when carried on through a separate subsidiary. In particular, in other Section 3(a)(1) cases the number of retail customers served by out-of-state operations was small to none and the operations of the utility was subject to effective state regulation. Similarly, Portland General has no retail customers outside Oregon and its operations are effectively regulated by the OPUC. Consequently, the Presiding ALJ made an erroneous conclusion of law when she found that the extent of Portland General's out-of-state wholesale purchases and sales precluded a finding that it was intrastate in character. The result of the Initial Decision is startling new precedent.

A review of the Section 3(a)(1) cases reveals similarities that reflect how the exemption should properly be applied. Each case is generally divided into two parts.¹⁸ The first part is concerned with narrowing the inquiry to the holding company and its public utility subsidiaries that provide a "material part of its income." To determine whether a subsidiary is material to the holding company the Commission has traditionally applied what is referred to as the "gross-to-gross" revenues test, although variations on that test are numerous in recent precedent.¹⁹ In a case where there is only one public utility subsidiary in a holding company system, the materiality analysis is irrelevant.

The second part of the Section 3(a)(1) exemption determination is focused on determining whether the holding company and the "material" public utility subsidiaries identified in the first part of the analysis are each "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." Notably, the second part of the exemption determination does not refer to income or revenues, but to "character." Consequently, there was no need to apply the "gross-to-gross" test or any variant of that test to establish that Portland General was or was not material to Enron.

The second part of the exemption determination was the central issue of this case. In making the predominantly/substantially intrastate determination the precedent indicates that the Commission should evaluate "a variety of quantifiable factors in order to compare a company's out-of-state presence with its in-state presence."²⁰ The Commission considers factors such as where the retail customers are located, what counties are served, where the utility plant is located and whether sales and income were attributable to out-of-state activities. The "gross-to-gross" revenues test is not elevated above all other factors in the predominantly/substantially analysis.²¹ Indeed, a recent Commission decision indicates that the Commission takes great effort to carefully examine the source of revenues to make sure that any revenues comparison is not misleading and does not distort the significance of the actual utility services conduced in-state and out-of-state. This inquiry demonstrates that it is the nature of the underlying utility business that controls the outcome of the exemption determination, not an artificial comparison of gross revenues or any other financial indicator for that matter.

In C&T Enterprises, Inc. ("C&T Enterprises"), the Commission considered whether a Pennsylvania electric utility holding company exempt under Section 3(a)(1) could acquire Valley Energy, Inc. ("Valley"), a gas utility company operating in both New York and Pennsylvania, and continue to maintain its exemption.²² Having determined that Valley was material to C&T Enterprises the Commission proceeded to the second step of the analysis; the predominantly/substantially intrastate inquiry. Valley provided gas service in one county in Pennsylvania and two counties in New York and to approximately 5,000 Pennsylvania customers and 1,300 New York customers. Valley was subject to the regulation of both the Pennsylvania and New York public utility commissions. To determine whether Valley was predominantly and substantially intrastate (i.e., Pennsylvania) in character, the Commission considered an assortment of financial indicators and it inquired extensively into the utility business reasons behind those numbers. The various financial indicators are summarized below and the percentages represent the portion of each financial indicator that is attributable to Valley's utility operations in New York for the most recent period presented in the record - the six months ended June 30, 2002.

The percentages reveal first that a holding company can have a significant out-of-state presence and continue to qualify for the exemption under Section 3(a)(1). They also show that one financial indicator viewed in isolation cannot be expected to provide an accurate picture of the real nature of a utility's business. For example, Valley's net utility income was derived almost exclusively from its New York operations during the period in question. It would be foolish to suggest, however, that it is predominantly a New York utility, rather than a Pennsylvania utility based solely or predominantly on that one indicator. The other indicators show that Valley's real New York operations accounted for between 13.5% and 20.5% of its utility business. A comparison of customers served in New York and Pennsylvania also supports this view as approximately only 20% of Valley's customers are located in New York.

When Portland General's utility operations are viewed under the prism of the C&T Enterprises decision it should be clear that Portland General is a predominantly intrastate Oregon utility. All of Portland General's retail customers are located in Oregon, approximately the same percentage of its net utility plant is located in Montana (i.e., the Colstrip plant) as was Valley's in New York, Portland General's employees and offices are all located in Oregon, it serves only Oregon counties, its tax bills for income, property, franchise fees and other taxes are paid substantially to Oregon, and it is regulated on the state level by only the OPUC. Portland General's only indicator that is an outlier, like Valley's 99.6% New York net income, is Portland General's gross revenues derived from wholesale sales of power outside of Oregon. Because this number, like Valley's New York net income, does not reflect the reality of Portland General's utility operations it should be disregarded for purposes of the predominantly/substantially standard.

Precedent developed in C&T Enterprises, NIPSCO, and other Commission decisions requires the Commission to critically review utility financial information to determine the true nature of the underlying utility operations. For example, in C&T Enterprises the Commission reviewed Valley's gross revenues from its New York and Pennsylvania operations and found within this individual gas utility company that there were differences between the type of utility operations conducted in Pennsylvania and New York. In particular, industrial gas customers that purchase transportation services only accounted for a much larger portion of the customer base in Pennsylvania and, consequently, a gross revenues comparison between the New York and Pennsylvania operations would show a distorted picture, exaggerating the size of the New York operations where customers more often purchased the commodity gas as well as transportation services.²³ To avoid this distortion, the Commission chose to compare the New York and Pennsylvania operations based on operating margins which are gross revenues less the cost of gas. In this manner, the transmission and distribution activity in each state could be compared on an even basis.

This seemingly arcane distinction is critical to properly understanding Portland General's situation which is remarkably similar to Valley. Portland General's activity in Washington is very different from its activity in Oregon. In Oregon, Portland General generates electricity in bricks and mortar plants that it owns, it transmits and distributes that electricity to customers over wires, poles and towers that it owns and it provides that power to end-use consumers under terms of service subject to the full regulation of the OPUC. In Washington, by contrast, Portland General purchases power under long and short-term contracts both in bilateral transactions and at market hubs and it sells surplus power at the established wholesale market hubs. Portland General owns no bricks, mortar, wires, poles or towers in Washington or elsewhere out of state, with the exception of a portion of the Colstrip mine-mouth plant located in Montana. It is a net purchaser because it buys more power to serve Oregon consumers than it sells at wholesale. All of Portland General's customers outside of Oregon are wholesale customers. To consider Portland General's utility activity on a gross revenues basis instead of, as in C&T Enterprises, on a net revenues basis (revenues from the sale of electricity less the cost of purchasing the electricity) is to grossly distort the reality Portland General's wholesale trading activities.

Indeed, one need only to look at GAAP requirements that companies engaged in energy trading must net trading costs against gross revenues for additional persuasive evidence that gross revenue measures for a company like Portland General would be misleading and not representative of the underlying nature of its utility business. By rejecting the GAAP netting requirement and applying a gross revenues test contrary to the C&T Enterprises precedent, the Presiding ALJ committed a materially prejudicial error of law. The Initial Decision illustrates the danger of picking and choosing among GAAP principles in applying the PUHCA exemptions. The better procedure would be to start with GAAP figures and then consider other factors as appropriate.

C&T Enterprises was correctly decided and it stands for the proposition that when considering whether a utility is predominantly intrastate in character the Commission must look at the nature of the utility business and evaluate it using an unbiased screen. The Presiding ALJ did not apply an unbiased screen when she examined Portland General's revenues. The activities in Oregon and outside of Oregon were dramatically different, yet she refused to use a net revenues approach to uncover the true nature and financial impact of the utility activity conducted out-of-state.

In Portland General's case, out-of-state purchases of power exceeded out-of-state sales in every year from 1998 to the present. On an intrastate basis purchases also exceeded sales.²⁴ Accordingly, if the Commission nets the cost of power purchased from revenues from both in-state and out-of-state activities for Portland General, as it did with the cost of gas for Valley, the result would be an accurate comparison of the underlying utility business both inside and outside Oregon. After the cost of power is removed from gross revenues what remains is revenues that compensate for the other utility services provided by Portland General, essentially the transmission and distribution function. Since Portland General's distribution network is entirely within Oregon and its transmission system, with the exception of a negligible portion associated with the Montana Colstrip plant, also is in Oregon, Portland General's net revenues are almost wholly from Oregon. If the Commission is to apply a consistent methodology to its exemption determinations under Section 3(a)(1), it must find under the C&T Enterprises precedent that Portland General is predominantly intrastate in character and that Enron is entitled to an exemption under Section 3(a)(1).

2. Point of Title Transfer

The Initial Decision's reliance on the argument of the Division of Investment Management ("Division") that the Commission has "always concerned itself with where the sales of electricity take place - where title passes" is misplaced - especially since there is no clear explanation anywhere in Commission precedent justifying this standard. The Initial Decision also appears to hold that the participation in energy trading hubs located outside the state where the applicant holding company and its utility subsidiary are organized is inconsistent with exemption as a predominantly intrastate utility holding company under Section 3(a)(1). This position is directly contrary to the Commission's decision in NIPSCO which found that activities at interstate trading hubs are consistent with a Section 3(a)(1) exemption. The record contains persuasive evidence with respect to why the Commission's title transfer rule does not accurately reflect where revenues from actual utility operations should be assigned given the manner in which utilities today procure their energy supplies. For example, the record shows that Portland General must acquire long-term power contracts to assure reliable energy supplies for its Oregon customers, but on a short-term basis it must sell surplus power at the interstate market hubs to minimize the overall costs of power to its ratepayers. Such behavior is encouraged by the OPUC and is in fact required by Oregon law that imposes the obligation of providing reliable and efficient service on Portland General. Nevertheless, the Commission's title transfer rule would penalize a holding company of a utility that behaves as Portland General does because it would consider the revenues derived from the interstate sales of surplus power as out-of-state utility activity. The Presiding ALJ has made a material error of law in failing to adapt the antiquated title transfer doctrine to the reality of modern utility practice.

Unthinking allegiance to the title transfer doctrine also creates difficult policy issues that the OPUC identified, but the Presiding ALJ ignored or dismissed. As the OPUC stated on pages 3-4 of its reply brief:

In addition, the adoption of the Division's bright line test, which is based only on the percentage of utility revenues collected from out-of-state power sells, has the potential to result in adverse utility behavior. Portland General is not the only utility that sales excess power into the wholesale market. Nearly all utilities sell excess power, which often ends up out of the state. Adoption of the Division's bright line test could result in utilities deciding to sell excess power within the state, often at lower prices. Adoption of such a test could also hinder the ability of utilities needing the excess power to purchase that excess power at the most effective location because utilities such as Portland General would have an incentive to sell their excess power within the state, which may not be the most effective location for the utility that needs power. Such behavior would negatively affect both customers who receive the benefit of the excess power sales netted against the utilities' power costs and customers in those areas that have a need for the excess power.

In Portland General's situation, adoption of the Division's test could have additional negative implications. Portland General's load contains power from thermal resources. When Portland General is given the opportunity to purchase less expensive hydroelectric power, it can then sell that excess thermal power in the wholesale market, resulting in a benefit to Oregon retail customers. If the Commission, however, creates a disincentive for Portland General to sell excess power out-of-state by subjecting it to Commission regulation, Portland General may decide not to purchase the less expensive hydroelectric power and, instead, serve its native Oregon load with its higher cost thermal resources. Application of Section 3(a)(1) of the Act should not create an incentive for Portland General, or other utilities, to pursue behavior adverse to its retail customers, especially in this situation where the OPUC adequately and effectively protects all of Portland General's retail customers.

The Commission should take this opportunity to review the title transfer doctrine and the role of power trading hubs in light of the problems identified by the OPUC. This doctrine must be reexamined given the evolution of wholesale power markets over the past decade and disaggregation in the electric utility industry which have led to the increasing importance of energy trading and the use of regional market hubs for wholesale transactions. Although title to power in many cases may transfer at the market hubs, this one aspect of the power sales contract does not indicate where the power was generated or where it will eventually be used and, consequently, provides little information about the true nature of a utility's wholesale power trading business. Since it provides so little information about the nature of a utility's business it makes little sense to base an exemption determination in large part upon this one factor. The Commission should review the Initial Decision and update its title transfer doctrine in light of the electricity industry today. The doctrine is dated and inconsistent with current prudent utility industry practice. As noted elsewhere in this petition, Enron believes that wholesale power trading activity should not constitute utility activity whether it is carried on through a separate subsidiary of through the utility directly.

3. Commerce Clause Analysis

It is a given that Portland General is engaged in interstate commerce. Portland General like virtually all other continental U.S. public utility companies purchases power in interstate commerce and uses its transmission network to effect transactions in electricity in interstate commerce. The Initial Decision sets new Commission policy in applying general Commerce Clause analysis to the determination of whether a holding company is predominantly intrastate in character. In contrast, Commission precedent indicates that the Section 3(a)(1) analysis is more narrowly focused and is principally concerned with the locus of the utility activities of a registered holding company and whether the utility subsidiary and the holding company are subject to effective state regulation. Under prior Commission precedent the location of utility plant and customers, and the source of revenues and income were the essence of the Section 3(a)(1) analysis. To Enron's knowledge, the Commission has never before based the denial of a Section 3(a)(1) exemption on out-of-state power purchase contracts or participation in an interconnected multi-state transmission grid. The Initial Decision's new test under Section 3(a)(1) sets a dramatically new policy for the availability of the exemption for all utilities in the United States. It is dramatic because any utility with more than a minimal participation in interstate commerce through its power purchasing function and transmission grid would disqualify its holding company from the exemption. Accordingly, the Initial Decision raises an issue of law and policy that should be reviewed by the Commission.

The Initial Decision inexplicably detours beyond the bounds of prior Commission precedent cited by Enron, the Division and the limited participants to apply a new test for Section 3(a)(1). In particular, the Initial Decision finds that (i) Portland General's interstate power purchases (ii) Portland General's ownership of a transmission network located almost exclusively within the state of Oregon, and (iii) the fact that Portland General's transmission system is interconnected with other transmission systems in the same regional reliability council are appropriate factors upon which to deny an exemption under Section 3(a)(1). Commission precedent does not support the use of such factors in determining the availability of an exemption under Section 3(a)(1).

The implications of such a far-reaching decision - that any utility engaged in interstate commerce disqualifies its holding company from an exemption under Section 3(a)(1) - are so contrary to Commission precedent that neither Enron nor the Division imagined that it was necessary to brief these issues. In fact, the Commission's Hearing Scheduling Order set three discrete areas of inquiry for the hearing: (i) whether Portland General's out of state revenues were too large to allow Enron to qualify for exemption, (ii) whether Portland General's utility assets located outside of Oregon similarly disqualified Enron for exemption and (iii) whether Portland General's Pacific Northwest Intertie disqualified Enron for exemption.

Neither the Division nor any participant in this proceeding has argued that Portland General's out of state purchases of power should disqualify it for exemption under Section 3(a)(1), yet that is what the Presiding ALJ has found. Neither the Division nor any participant in this proceeding has argued that Portland General's transmission network, located almost exclusively within Oregon, could disqualify it for exemption under Section 3(a)(1), yet that is what the Presiding ALJ has found.

In addition, except for utilities located in Hawaii and Alaska, we would expect that virtually all utilities in the U.S. today acquire significant amounts of power in the interstate energy markets and have transmission and distribution systems that are interconnected with other utilities located in a multi-state region. The Presiding ALJ's decision for all practical purposes writes Section 3(a)(1) out of the Act, is overbroad, and is clearly erroneous as a matter of law. Because the Presiding ALJ misapplied the Commission's precedent and expanded the inquiry in this matter beyond the scope of the Hearing Scheduling Order, the Initial Decision should be reviewed and reversed.

The Initial Decision also notes that 14% of Portland General's owned generation is located outside of Oregon. The Initial Decision failed to consider that because Portland General is a capacity short utility, the reference to Portland General's owned generation is inappropriate and misleading. Portland General's generation located outside of Oregon accounts for approximately 8% of its firm generating resources (i.e., owned generation and long-term purchases) and 13.1% of the total undepreciated book value of Portland General's utility plant. This percentage of out-of-state utility assets was found to be acceptable in C&T Enterprises.

Furthermore, the Initial Decision fails to afford the position taken by the OPUC, the sole state regulatory commission affected in this proceeding, the deference that is traditionally granted under Commission precedent. Throughout the history of the Act, but particularly in modern times, the Commission has shown great deference to the views and concerns of state regulators.²⁵ The OPUC has expressly stated that Portland General's wholesale purchases and sales are designed to benefit Oregon consumers by procuring energy efficiently and has stated on the record that it is able to protect the interests of Oregon consumers regardless of where any particular sales by Portland General take place. In addition, the OPUC has the authority to protect Portland General, its investors and its customers from Enron under Oregon law and via a number of conditions imposed at the time of the merger of Enron and Portland General's then parent company, Portland General Corporation. The OPUC's views are unrebutted and entitled to great deference. These views provide strong support for a grant of exemption under Section 3(a)(1).

4. Nature Of Power Marketing Activities

The Commission has found that companies engaged in the brokering, marketing and trading of energy, natural gas and other combustible fuels are non-utility companies, provided that they also are not engaged in the ownership or operation of utility facilities.²⁶ If Portland General restructured its wholesale trading operations into a separate subsidiary or other affiliate, there probably would no longer be a dispute about whether Enron meets the objective criteria of Section 3(a)(1). Accordingly, if wholesale trading in a separate subsidiary or other affiliate would not constitute utility activity for purposes of determining the character of Portland General under the Act, where such trading activity occurs outside of the state for efficiency and cost purposes, but still under express OPUC authority, the activity should also be considered non-utility activity. The Commission should clarify that power marketing activities conducted by public utility companies should not be a basis for a denial of an exemption under Section 3(a)(1) and, accordingly, find that Portland General's power marketing activities were consistent with the exemption.

5. Evidence Concerning Impact of Section 3(a)(1) Exemption on Portland General's Value

Enron has argued in this proceeding that a denial of the exemption under Section 3(a)(1) would reduce both the marketability of Portland General and the likelihood that Portland General will be sold to a third party. If Portland General cannot be sold because its purchaser will not qualify for an intrastate exemption or it can be sold only to a very limited group of potential purchasers Portland General could be ensnared in the Enron bankruptcy reorganization process indefinitely. Therefore, Enron has argued that denying, not affirming, the exemption would be harmful to Portland General's customers and investors and Enron's creditors. The Presiding ALJ erroneously refused to consider this proffered evidence even though it related directly to interests protected under PUHCA.²⁷ Consequently, the Presiding ALJ committed a prejudicial error that denied Enron a full and fair hearing under PUHCA.

C.Application Under Sections 3(a)(3) and 3(a)(5)

The Initial Decision contradicts the policy that the Act should be interpreted and applied to protect the interests of investors. This important policy issue demands Commission review in an environment that is free of the accusations and turbulence surrounding Enron in other fora. The implications of requiring Enron to register at this time given its unique circumstances as a company in bankruptcy reorganization should be carefully considered.

Enron's current circumstances as a bankrupt company subject to the supervision of the Bankruptcy Court require a solution under PUHCA that more carefully balances the interests of Enron's creditors with the policy objectives of the Act because an ill-timed requirement that Enron register under PUHCA could cause significant harm to the value of Enron's assets and the debtor estate available to address creditors' claims. In short, a solution harmonizing the objectives of the bankruptcy process with the protections of PUHCA for investors, consumers and the public is required.

Enron proposes that the best way to achieve this end is for the Commission to grant it a temporary or conditional exemption under Sections 3(a)(3) and/or 3(a)(5) of the Act. An exemption for a limited period of time would provide the opportunity to sell QF assets and/or Portland General and help to preserve value for Enron's creditors.

Commission precedent favors such a result because the alternative, a fire sale, would harm creditors and is contrary to PUHCA. The Presiding ALJ read Commission precedent in AES II too narrowly, and consequently made an erroneous conclusion of law, when she determined that the case did not provide a basis for a temporary exemption. Enron has the same problem that AES had with temporary non-compliance with the PURPA QF ownership restrictions. The Commission's willingness to interpret the Act flexibly to protect the value of AES's QFs for the benefit of its shareholders is equally justified for Enron's investors and its creditors. They are no less deserving.

IV. CONCLUSION

The Initial Decision contains several errors of fact and law, and constitutes an exercise of discretion and an important decision of law and policy that affects Enron, other exempt holding companies, and state regulatory commission jurisdiction, such that Commission review is required. Wherefore, for the foregoing reasons, Enron respectfully requests that the Commission grant this petition for review, reverse the Initial Decision, and grant Enron's applications for exemption. Accordingly, Enron requests the opportunity to brief the issues raised herein so that the Commission can make a fully informed decision.

Respectfully submitted,
 
 
__________________________________
William S. Lamb
Charles A. Moore
Sonia C. Mendonca
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-5389
Attorneys for Enron Corp.

Dated: February 27, 2003

Footnotes