Outcomes in Enron Battle Reflect Shifting Odds.

By Published On: July 7, 2006

Unlike public power agencies in California, the Snohomish Public Utilities Commission will likely avoid paying Enron significant fees for canceling its energy contract. Last week, the Federal Energy Regulatory Commission found in Snohomish’s favor, ruling that it didn’t have to pay $120 million for the contract termination after finding that the fallen energy-trading giant committed fraud at the time the deal was signed. Enron vowed to appeal. At the same time, FERC finalized Silicon Valley Power’s $36.5 million settlement reached with Enron more than a year ago. Federal regulators also did the requisite sign-off on the Metropolitan Water Agency of Southern California’s agreement to pay Enron $316,000 for another settlement. In another instance of munis mired in suits over payments to Enron, the city of Palo Alto agreed to pay $21 million to settle its litigation with Enron over the early termination of some power deals more than a year ago. The different outcomes represent different facts, strategies, and risk assessments. They also represent differing levels of political support that the agencies received, as well as the effect of the Energy Policy Act of 2005 and the convictions of former Enron chair Ken Lay and chief executive officer Jeff Skilling in late May. “Things changed in a way that I don’t think anyone expected,” Grant Kolling, Palo Alto’s senior assistant city attorney, told Circuit. The California munis reached the settlements to stem the escalating cost of attorneys’ fees and associated legal fees. “We are glad to get the litigation behind us,” said John Roukema, Silicon Valley assistant director. Because it continued to fight the suit and had a team of investigators comb through Enron-related documents, Snohomish accessed critical information, and it got the benefit of the passing of time and the 2005 Federal Energy Policy Act’s enactment. The new federal law includes a provision that gives FERC, and not the bankruptcy court, exclusive jurisdiction over the contract disputes at issue. Kolling said the law was a “substantial change” – in no small part because the federal judge handling Enron’s bankruptcy was “one of the most prodebtor judges in a prodebtor jurisdiction.” “Snohomish stuck with it, rolled the dice, and won,” Kolling pointed out. “We took a hard line,” said Snohomish assistant general counsel Eric Christiansen. Christiansen noted that Enron took one position when the contracts were signed during the 2000-01 Western energy crisis, and a contrary position at trial. He said the muni’s board also was strongly committed to pursuing the fraud allegation to the bitter end. It filed a Freedom of Information Act claim with the Department of Justice to access large quantities of Enron’s records. Furthermore, Washington Democratic senator Maria Cantwell and the rest of the Northwest delegation fought hard on Snohomish’s behalf. Cantwell also introduced the provision included in EPAct that gave FERC sole say over the contract issues. Snohomish’s deal with Enron was for 25 MW for $109/MWh from April l, 2001, to December 31, 2009. Palo Alto reached a $21.5 million settlement in December 2004 on a $60 million claim. The deal arose from the early termination of a contract under which the city agreed to buy up to 25 MW of power for $95/MWh over 44 months from Enron. In March 2006, Silicon Valley agreed to settle the $147 million termination claim brought by Enron for $36.5 million, before the convictions of Enron’s former executives. It signed two contracts. The first was for 75 MW from April 2001 to 2009 for $275 million. The other deal was for 50 MW for five years, at a cost of $145 million. The Metropolitan Water Agency of Southern California settled with Enron for $316,000. It signed an agreement with Enron to power its Colorado River Aqueduct for between $22.50/MWh and $113/MWh, depending on market conditions. Although Snohomish appears to have been able to avoid paying Enron, Christiansen isn’t critical of California munis’ decision to settle. “I’d call it a win, settling a $150 million legal battle for $30 million,” he said.

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