This earlier post told the story of the Snohomish County Public Utility District, which is riding an unparalleled wave of popularity among its customers despite hiking electricity rates 50 percent in the past four years and disconnecting a record number of customers for failure to pay bills.
The reason for this rather incongruous situation? The utility has been leading the public charge against the popular business whipping boy of the moment, Enron Corp.
Well, the utility’s anti-Enron public relations campaign appears to be working. Yesterday, the Federal Energy Regulatory Commission issued an order that determined that Enron was engaging in illegal activity at the time it entered into contracts with West Coast utilities during the West Coast power crisis of 2000-2001. Accordingly, FERC has ordered a hearing to determine whether Enron should be allowed to collect profits it would have received had those contracts been fulfilled. The hearing is expected to occur in May, and that hearing will be followed by FERC’s final decision later this year.
The decision is a landmark for West Coast utilities that continue to fight their Enron contracts because it is the first time that FERC has acknowledged that the contracts were signed under fraudulent pretenses. The utilities and cities involved terminated their contracts with Enron or watched as Enron terminate its contracts with them when the company slid into bankruptcy in late 2001.
When Enron went bankrupt, the Enron bankruptcy estate sued the utilities and cities for the money it would have made had the contracts been fulfilled. Enron is seeking a cool $300 million from a couple of Nevada utilities, and $122 million from the Snohomish County PUD, which signed a nine-year contract with Enron in January 2001 for power that was four times as expensive as it had been just months earlier. To come up with the $122 million, Snohomish contended that it would have to collect about $400 per customer.
As noted in the previous post, Snohomish searched through thousands of pages of Enron documents and paid for hundreds of hours of taped conversation transcripts involving Enron traders. The material turned out to be Watergatesque — the Enron traders joked about stealing money from California grandmothers and about the possibility of going to jail for their actions. With this explosive evidence, Snohomish sought a finding from FERC that it did not have to pay any damages to Enron under the terminated Enron contract. The FERC ruling on Friday means that Snohomish is inching closer to that goal.
Despite the FERC ruling and the tape recordings, the Enron Task Force has not taken much of an interest in pursuing former Enron traders on criminal charges. In October 2002, former Enron trader Tim Belden pleaded guilty to wire fraud for participating in trading schemes to game the California market, and two other former Enron traders — Jeffrey Richter and John Forney — later pleaded guilty to similar charges. However, those are the only former Enron traders who have been charged with crimes to date and, during a deposition in an Enron-related civil case last month, former Enron Online trading desk executive Louise Kitchen disclosed that the Justice Department had never even interviewed her.
Meanwhile, despite all of these legal machinations, the customers of the Snohomish PUD continue to pay much higher utility bills than utility customers in most other parts of the country. Perhaps the excess amount should be called the “flog Enron premium?”