Steve: 

Mike Terraso asked me to send you some information relating to the timing and the potential process of the Clean Water Act Section 308 information request sent from EPA Washington to Enron Corp. As Mike likely mentioned, the request seeks information regarding "discharges" and "releases" of "oil" from pipeline facilities since July 1998. Although the information request was addressed to Enron Corp., we believe the EPA's focus should be on the EOTT pipeline system. We shared these and other thoughts with the agency when we met last week in Washington D.C. We hope to hear back from EPA soon regarding clarification/resolution of several issues discussed during the meeting (e.g., whether a response solely from EOTT is sufficient at this time).  

TIMING -- Enron Corp. received the information request on July 7, 2001. We requested and received a 90-day extension from the agency, thereby making our response due on November 7, 2001. The agency likely will require a considerable amount of time to review our response because we will report a fairly significant number of discharges/releases, which will be accompanied by a large number of responsive documents. It is unlikely that the agency will begin a serious review of our response until sometime following the 2001 holiday season. Based on our meeting in Washington, we do not expect a quick response in 2002 because the Water Enforcement Division has an extremely busy agenda and a small staff, which likely will preclude them from focusing solely on our response. In addition, we know that the agency sent out a similar information request to the Williams Companies. Thus, we do not expect a response from EPA until late spring-mid summer of 2002 at the earliest.

PROCESS -- After we submit our response to the information request, EPA could respond in several ways:

(1) The agency could request a meeting to discuss the materials submitted on November 7, 2001 or send out another request seeking additional information. We will be prepared to respond to any such request. (This is a fairly likely scenario)

(2) Either before or after requesting additional information, EPA could issue a notice of violation and begin some type of administrative enforcement action. This could take the form of a compliance order and administrative civil penalty (all internal to the agency) or a consent decree with an order entered by a federal court. An order could include a fine, required pipeline maintenance activities, and/or stipulated penalties for future discharges or releases. Although the differences with our situation appear to be significant, EPA recently settled an enforcement action with Koch Industries for oil spills from its pipeline system for $30 million. Under an enforcement action, we would attempt to negotiate the terms of the order with the agency and hopefully minimize the size of any proposed fine. We also believe that our actions (principally those of ETS as operator of the EOTT pipeline system) between now and the time of the agency's response will be helpful in attempting to mitigate any fine or course of action proposed by the agency. (This is also a fairly likely scenario)

(3) If our response is particularly troublesome to EPA, the agency could turn the matter over to the Department of Justice. Before this scenario would unfold; however, the agency likely would conduct additional inquiries (e.g., more focused information requests and employee interviews). This scenario would be most problematic because it likely would unfold only if the government (EPA and DOJ) consider the alleged violations extremely serious and possibly systematic. (Although possible, this is a less likely scenario)

If you have any additional questions, don't hesitate to contact me (3-7267).