Munis Make Headway Against Enron Charges at FERC

Public utilities in Santa Clara County and Palo Alto won a patch of ground March 11 in their ongoing tug of war with Enron and its creditors. The decision means the Federal Energy Regulatory Commission may consider forcing Enron to disgorge profits from the utilities? allegedly overpriced long-term contracts at the main ?show-cause? hearing that begins in May. John Roukema, assistant director of Silicon Valley Power, said he?s gratified by the latest decision. ?They?re asking Enron to show cause on why they shouldn?t have their market rights revoked based on entering into these in a fraudulent manner,? he said. Despite its bankruptcy, Enron is suing Silicon Valley and city of Palo Alto utilities for almost $200 million because the utilities canceled what they considered overpriced long-term contracts in 2001. The utilities under contract with Enron are trying to avoid termination penalties, while Enron is trying to show it lived up to its commitments as a market-based electricity vendor. The Texas energy services company claims the utilities canceled without proving that doing so was in the public interest, giving the company the right to cancellation fees?$146.5 million from Silicon Valley and $40 million from Palo Alto. The utilities are fighting back, not only at FERC, but also in federal district court and bankruptcy court. The utilities say the numbers are outrageous?that the termination fees Enron is requesting are based on artificially inflated electricity prices from the heart of California?s electricity crisis. FERC gave Enron market-based rate authority, which gave the company limited rights to sell electricity at market rates, rather than at a fixed tariff. Palo Alto claims the high prices were an abuse of Enron?s market-based rate authority. Silicon Valley?s Roukema said his utility doesn?t dispute the prices but denies that it ever canceled the contract. ?We were always ready to take the power supplied by Enron,? he said. In any case, he added, ?The termination penalty was inappropriate and unjust.? Grant Kolling, Palo Alto senior city attorney, said that until the end of last week, the utilities were unsure whether FERC would consider contracts longer than one year. The commission clarified that it would indeed look at longer-term contracts because the utilities negotiated those contracts while worrying about high spot prices that resulted from alleged fraud. In the recent decision, FERC commissioners, led by chair Pat Wood, wrote, ?Enron was in violation of its market-based rate authority? when it signed long-term contracts with the utilities in 2000. Neither Enron headquarters, which no longer has media relations staff, nor the company?s lawyers were available to comment on the case. The decision is significant because in 2003, FERC decided that Enron?s profits from ?improper gaming and/ or partnership activities? would have to be returned to companies that overpaid. Palo Alto?s Kolling said, ?The thrust of the hearing that starts in May is: Did Enron in fact manipulate energy markets in 2000 and 2001, and if so, what are appropriate legal remedies for that type of conduct?? Some utilities in similar circumstances settled with Enron, but Palo Alto ?has not to date,? Kolling said. The city has been negotiating with Enron since the bankruptcy court ordered them to sit down in February 2003. Regardless of the outcome of the case at FERC, the federal bankruptcy court in New York gets final say. Kolling said he doesn?t expect the overall case to wrap up for another two years.

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Munis Make Headway Against Enron Charges at FERC

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