US: 2 Utilities to Pay Enron $50 Million in Settlement

Two small utilities are set to pay more than $50 million to Enron for electricity that they agreed to buy but that Enron will never deliver, under terms of a settlement that raises larger issues.

As part of the settlement, which may be approved as early as today, the staff of the Federal Energy Regulatory Commission will not investigate fraud claims against Enron for manipulating electricity prices, critics say. They added that the settlement might allow the destruction of evidence crucial to proving that Enron cheated customers and would prevent others from resolving their fraud claims.

Brian Lee, a commission spokesman, said the criticisms were ill-informed and baseless. He said the settlement did not prevent the handful of utilities and customers who had to yet to resolve their fraud claims to continue pursuing their complaints before the commission.

Enron, which is in bankruptcy proceedings, made $1.6 billion in profits from what the commission's staff has testified was "unjust and unreasonable" pricing. The commission ruled earlier that Enron could be forced to give up all its profits since 1997 because of its manipulations.

Enron said that under terms of its contracts with the two utilities, it was owed more than $170 million whether or not the power was delivered. The utilities said that they did not owe anything but decided to pay the smaller amount to remove a big financial risk from their books.

Critics noted that the commission chairman, Joseph T. Kelliher, had said that on his watch any firm that extracted profit through market manipulations would be forced to disgorge all profits.

Mr. Lee said that policy was still in force, but said the settlement with the two utilities involved a contractual dispute about termination fees, not profits. What critics are arguing, he said, "is the termination fee is an unjust profit and that is something the commission has not weighed."

Representative Jay Inslee, a Washington Democrat, said that the settlement was "the equivalent of Bonnie and Clyde, having been arrested, demanding that the banks refund the money they stole and the government making the banks give them the money."

He said that since Enron had never delivered the power it should not be entitled to collect fees that were due when a contract was terminated. Enron is seeking $116 million, plus interest, for power it never delivered to the 600,000 customers of the Snohomish Public Utility District in Washington, which is not a party to the settlement.

Senator Maria Cantwell, a Washington Democrat, said the commission "has abdicated its responsibility" to protect consumers and taken the side of Enron and its creditors, "instead of looking out for the public interest."

The settlement also drew complaints from a cement company that has been billed $4.2 million for electricity that Enron will never deliver to its Montana kiln operation. Jack Ross, senior vice president and general counsel for the Ash Grove Cement Company, said he was at a loss to understand why the commission staff agreed to the settlement.

"We thought FERC would be an advocate for the consumer and we are an energy consumer," Mr. Ross said. "We felt the staff decision was more aligning itself on the Enron side and we were very surprised that they were so cozy on the Enron side."

The settlement would apply directly to the commission staff, Enron and two electric utilities. Silicon Valley Power, part of the city of Santa Clara, Calif., would pay Enron $36.5 million for power it agreed to buy, but that Enron never delivered. Valley Electric Association, a cooperative which serves the rural desert region west of Las Vegas, would pay $14 million. Both would get some money back from the Enron bankruptcy proceedings.

Neither accused Enron of price gouging. Enron sought $147 million from Silicon Valley Power and more than $20 million from Valley Electric in contract termination fees.

The critics said the settlement would make it hard for the cement company and several public power agencies to fight Enron's efforts to collect more than $130 million for power that would never be delivered.

They pointed to Paragraph 12 of the proposed settlement:

"Staff agrees as of the settlement effective date to release the Enron Parties from all existing and future claims under any legal theory or cause of action that: (1) Enron charged, collected, or paid unlawful rates, terms or conditions for electric energy, ancillary services, or transmission congestion or natural gas in the western markets; (2) Enron manipulated the western electricity or natural gas or associated markets in any fashion, or otherwise violated any applicable tariff, regulation, law, rule, or order relating to the western markets; (3) Enron was unjustly enriched."

• 106 Money & Politics
• 185 Corruption
• 208 Regulation