Palo Alto Settles with Enron

By Published On: May 7, 2005

The city of Palo Alto?s rates will not be increased to cover a $21.5 million settlement it reached with Enron to settle litigation over its termination of two power deals signed during the energy crisis. Palo Alto was concerned it could be hit with a tab of up to $60 million if it continued fighting but lost its case against the bankrupt former energy trader. Enron claimed the city wrongfully ended electricity and gas deals made in 2001. ?We got to a number we could both live with,? said Grant Kolling, Palo Alto senior assistant city attorney. As part of the settlement announced May 2, Palo Alto agreed to end its involvement in all litigation related to Enron during the crisis, including the D.C. Circuit Court of Appeals and regulatory challenges at the Federal Energy regulatory Commission. The settlement will be paid for with city reserves, with $18 million taken out of the electric reserves and $3.5 million from the gas reserves, according to Girish Balachandran, the city?s assistant director of utilities. For unrelated reasons, the public utility has recommended a 19.5 percent increase in electric rates to cover the replacement power necessitated by the huge void created by last year?s expiration of its Western Area Power Administration contract. The city settled with Enron although in March it and Santa Clara County made a bit of headway in their ongoing tug of war with the company and its creditors at FERC over possible disgorgement of profits for allegedly overpriced contracts (<i>Circuit</i>, March 18, 2005). The show-cause hearing, originally set for early August, was postponed. ?Litigating to the bitter end, there is only one winner,? Kolling noted. The U.S. Bankruptcy Court for the Southern District of New York approved the agreement on April 21. In the midst of the energy crisis, Palo Alto agreed to buy up to 25 MW of electricity from Enron for $95/MWh over 44 months. It also signed a gas deal and made a dozen purchases. In November 2001, the city terminated its contracts after Enron?s financial scandals and havoc came to light. In 2003, Enron sued Palo Alto for ending the deals, claiming it was owed $48 million, plus annual interest of more than 9 percent and attorneys? fees. The city will pay Enron $15 million at the end of this week and another $6.5 million by October 1, 2005.

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