EVERETT – Snohomish County PUD agreed Friday to pay $18 million to bankrupt Enron Corp. and its creditors.
The payment ends a $180 million lawsuit Enron filed against the PUD when the utility sniffed corruption in 2001 and pulled out of a nine-year contract after just seven months.
It’s also a good ending to a saga in which the PUD played a key role in uncovering corruption within the Houston-based energy trader, PUD General Manager Steve Klein said.
“We found the skeletons in the closet,” Klein said. “It was a good thing we didn’t just take it and roll over.”
In its fight against Enron, the PUD uncovered audio recordings of traders discussing how to artificially shut down power production to boost the price. That evidence led to Enron’s demise.
The PUD’s three-member commission approved the settlement. Klein said the commission agreed to the settlement because it was a good business decision.
“In our case, 10 cents on the dollar is pretty damn puny,” Klein said. “In our case, I think it’s sending a message that we won.”
The settlement skirted a “roll of the dice” with a New York arbitration panel that could have cost the utility a lot more, Klein said.
The deal was struck on the eve of binding arbitration in New York in which Enron’s $180 million claim against the PUD would have been considered.
“We were in uncharted waters,” Klein said.
Other proceedings with the Federal Energy Regulatory Commission have been going well, but the utility has gotten some adverse rulings in the bankruptcy court.
Arbitration “would have been a roll of the dice for the entire $180 million claim,” Klein said. “There was no guarantee we were going to lose and no guarantee that we would win.”
The PUD snagged the best among hundreds of Enron settlements to date, PUD general counsel Mike Gianunzio said.
Others, including utilities, have settled for as much as 65 cents on the dollar.
The settlement still has to be approved by FERC and a New York bankruptcy court, but Klein said he expects that approval to happen.
The payment, likely to be made within 90 days, will come from utility reserve funds, not its $550 million budget, and it won’t result in a rate increase for the PUD’s 315,000 customers, Klein said.
In a strongly worded decision, FERC ruled a year ago that the PUD actually doesn’t owe anything to Enron.
That ruling came after the local utility battled back, uncovering evidence, including audio recordings of traders’ discussions, that Enron manipulated the market to jack up power prices.
The recordings reveal a work place where employees used expletives to describe the customers – specifically “poor” grandmothers in California – they bilked.
“Grandma Millie, man,” one trader said. “But she’s the one who couldn’t figure out how to (expletive) vote on the butterfly ballot.”
Meanwhile, thousands of Enron shareholders lost their life savings because of the company’s fraudulent practices.
At the time, PUD officials felt like David facing Goliath.
“A lot of times, Snohomish was treated pretty poorly,” Klein said. “Nobody else seemed to care.”
In May last year, former Enron executives Kenneth Lay and Jeffrey Skilling were convicted of fraud and conspiracy. Lay suffered a heart attack and died before he could be sentenced. Skilling was sent to prison for more than 24 years.
Members of the state’s congressional delegation responded strongly to news of PUD’s settlement.
“It’s an absolute outrage that ratepayers would be stuck for another dime,” U.S. Rep. Jay Inslee, D-Wash., said in a statement. He blames the administration for not acting faster to halt manipulation of energy prices.
“The only reason ratepayers aren’t paying $180 million is the tenacity of (the PUD) and congressional pressure,” Inslee said.
U.S. Sen. Maria Cantwell, who pushed regulators to recognize the PUD claims that it should pay nothing, said she’s glad the litigation is over.
“Given Enron’s insistence on endlessly suing Snohomish ratepayers, I am thrilled the nail is driven into the coffin once and for all,” she said. “In an ideal world, Snohomish consumers wouldn’t pay a dime … Standing up to Enron to save $160 million took guts.”
U.S. Rep. Rick Larsen, D-Wash., said his constituents have paid dearly for Enron’s “deplorable actions. This wise decision by the Snohomish County PUD brings closure and protects Snohomish County ratepayers from being penalized for Enron’s misdeeds.”
Thus far, the PUD has spent $16 million on the lawsuit, Klein said.
The long Enron battle is something that shouldn’t have happened in the first place, Klein added.
“As a nation, we have to make sure those sorts of things can’t happen again,” he said.
Reporter Jim Haley: 425-339-3447 or haley@heraldnet.com.
Reporter Krista J. Kapralos: 425-339-3422 or kkapralos@ heraldnet.com.
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