UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

Division of Investment Management's
Reply Memorandum in Support of Its Motion
For Expedited Consideration of
Enron's Appeal of the Initial Decision

Enron's Opposition Memorandum is notable more for what it omits than what it says. Perhaps most significantly, Enron does not contest the Division's assertion that the current briefing schedule will result in an effective lack of Commission oversight of Enron under the Public Utilities Holding Company Act ("Act") until approximately the end of 2003, the point in time when Enron intends to complete its bankruptcy reorganization. Enron does not dispute that Commission review and prior approval of reorganization plans of registered holding companies is one of the more important Commission functions under the Act. Enron also does not (and cannot) dispute that its initial application for exemption under the Act has been pending for more than three years. Enron does not (and again, cannot) claim that the facts involved in its appeal are not largely settled, or that the parties' legal arguments are not already well developed.¹ Consequently, the parties appear to concur that the current briefing schedule is not justified solely by this matter's factual or legal complexity.

Enron instead raises two main arguments for retaining the current generous briefing schedule. First, Enron contends that it would be inconvenient for the company to comply with an expedited briefing schedule in light of the fact that it is purportedly devoting most of its resources to its pending bankruptcy reorganization plan, and because an expedited schedule could interfere with the parties' likely summer vacation plans. Opposition at 3-4. Second, Enron asserts that it is already subject to sufficient oversight by the bankruptcy court, and, to the extent that the Commission may have concerns about Enron's plan of reorganization, that the Commission can avail itself of Bankruptcy Code § 1109(a),² as an alternative to direct Commission participation in Enron's reorganization plans pursuant to the Act. Opposition at 2, 7-8.³ Enron's first argument is meritless: given the settled facts and well-developed legal arguments of the parties, briefing this matter on an expedited basis can easily be accomplished, with minimum inconvenience to the parties.

Enron's second argument is a red herring. In proffering Bankruptcy Code § 1109 as an adequate substitute to direct Commission participation in Enron's bankruptcy reorganization as required under the Act, Enron would relegate the Commission to the sidelines of its bankruptcy proceeding. The Commission should reject Enron's attempts to marginalize the Commission's role.

Section 11(f) of the Act provides the Commission with supervisory authority over the reorganizations of registered holding companies. In passing section 11(f), Congress explicitly provided the Commission with prior approval authority over the plan itself, giving the Commission a direct and significant role in the drafting process of a reorganization plan of a registered holding company.⁴ As the Division observed in its original Motion, at p. 6, the Commission reviews reorganization plans to ensure, among other things, that the plans are in the interests of utility consumers and investors, interests that include Enron's shareholders, the holders of all debt issued by Enron, and the holders of debt and equity securities issued by Portland General. In contrast, Enron's bankruptcy proceeding is primarily focused on the welfare of a narrow subset of the totality of interests protected by the Act, to wit, Enron's creditors. Congress gave the Commission the responsibility to review and approve holding company reorganization plans, precisely to provide the oversight it believed necessary to ensure that the interests of the public, the consumers, and the investors are not forgotten when a holding company reorganizes under the bankruptcy laws.⁵

In comparison to section 11(f), Bankruptcy Code section 1109 is a relatively weak provision. It gives the Commission the ability only to comment on Enron's plan, after it has been drafted and submitted to the Court and distributed to Enron's creditors. As the Tenth Circuit characterized section 1109's direct predecessor:

"The scope of the Commission's participation as a 'party in interest' has been restricted by the legislative history of the Bankruptcy Act which indicates the function of the Commission in Chapter X proceedings is that of an impartial advisor, 'in the role of amicus curiae.'"

SEC v.Templar, 405 F.2d 126, 1128 n.4 (10th Cir. 1969). And, further circumscribing the Commission's authority in cases that do not involve the regulation of registered holding companies, section 1109 explicitly prohibits Commission appeals of adverse rulings.

Consequently, it is no secret why Enron favors the generous briefing schedule set out in the June 11 Order, and urges that the Commission not deviate from that course. Simply put, delay in deciding Enron's applications helps Enron to continue to evade Commission oversight at critical juncture - the formulation and submission of Enron's plan of reorganization - where the Commission's involvement may be the most important to ensuring that the Act's purposes are adequately served, and where, moreover, the current schedule for deciding Enron's applications will likely effectively deny any Commission review of its plan. Enron prefers a reactive Commission, limited by section 1109 to speaking very softly and carrying no stick, to the Commission's active and direct role in Enron's reorganization process as mandated under the Act.

The Division has argued, and the Chief Administrative Law Judge has agreed, that Enron is subject to regulation under the Act as a holding company. One of the more significant functions Congress gave the Commission under the Act was a direct role in ensuring that holding company's reorganization plans are consistent with the Act's purposes. The complex nature of Enron's corporate structure and assets - which Enron admitted during this proceeding it did not fully understand and hence could not describe with any degree of precision or certainty - weighs strongly in favor of early Commission involvement in the reorganization process in the event that Enron's applications for exemption are finally denied, and suggests that Commission review of Enron's plan pursuant to the Act is both necessary and appropriate. See United Telephone and Electric Co., 3 S.E.C. 653, 655 (1938) (Commission examination of a holding company reorganization plan may include a determination, inter alia, whether such a plan would be "'unduly or unnecessary complex'").

In order for the Commission to effectively discharge its statutory obligations as a regulator in this instance,⁶ it should grant the Division's Motion and expedite consideration of Enron's appeal. Even in the event that the Commission decides to grant one or more of Enron's applications, expedited consideration will remove the uncertainty that currently exists, and do so in a manner that will avoid the increased disruption that Commission involvement at a later stage in Enron's bankruptcy process may entail.

For the foregoing reasons, and for the reasons in the Division's Motion, the Commission should grant the Division's Motion for Expedited Consideration, and set a briefing schedule that will permit the Commission to issue a final decision in this matter by August 29, 2003.

Dated: June 30, 2003

Respectfully submitted,

_____________________________
Paul F. Roye
David B. Smith, Jr.
Catherine A. Fisher
Martha Cathey Baker
David G. LaRoche
Deborah D. Skeens
Alberto H. Zapata
Christopher W. Chow
Arthur S. Lowry
Counsel for the Division of Investment Management
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

http://www.sec.gov/rules/other/enron-mem0630.htm