Supreme Court ruling helps PUD’s case in contract dispute

The Snohomish County Public Utility District won another chance Thursday to convince federal regulators to tear up a $200 million electricity contract signed during the West Coast energy crisis.

The U.S. Supreme Court provided the opportunity by directing the Federal Energy Regulatory Commission to decide if the PUD’s contract with Morgan Stanley Capital Group Inc. is valid.

In a 5-2 ruling, justices concluded federal regulators had the power to intercede in the dispute and followed the wrong legal path to justify staying out of it.

“The game isn’t over. It opens the door for FERC to go back to look at the contract, determine if it was just and reasonable for consumers and it gives us a chance to show that the marketplace was dysfunctional,” said PUD spokesperson Neil Neroutsos.

This case, which could net the utility district tens of millions of dollars, spotlights the response of federal regulators when ­electricity prices soared in 2000 and 2001 due to manipulation of the energy market by suppliers such as Enron Corp.

PUD signed its deal with Morgan Stanley in 2001 and soon started trying to get out of it because the price of electricity the PUD paid was four times the historic rate. The contract ends in 2009.

Prices soared due to fraudulent market manipulation uncovered by PUD investigators. The utility district pleaded with federal regulators to intervene and use its authority to lower rates.

The commission said it lacked such power.

Supreme Court justices disagreed and kicked the matter back into the hands of FERC. They also prescribed a higher legal bar for the utility district to scale to get the electricity contract tossed out.

Justice Antonin Scalia, writing for the majority, said all contracts are presumed to be just and reasonable and FERC “may abrogate a valid contract only if it harms the public interest.”

Eric Christensen, assistant general counsel for the PUD, said harm occurred to those people forced to pay a lot more for electricity because of the market manipulation.

In order for the PUD to net a hefty refund of what it paid to Morgan Stanley, federal regulators would have to decide to invalidate and rewrite the contract with a lower price for the electricity.

The two sides also could reach a settlement, though they have not held any such talks.

“Not at this point,” Christensen said. “But I wouldn’t be surprised if that happens.”

In dissent, Justice John Paul Stevens said that both the commission and the court majority have construed the federal regulators’ authority too narrowly, setting up a rigid standard that Congress did not intend. Justice David Souter also dissented.

Chief Justice John Roberts and Justice Stephen Breyer did not participate in the case.

The Associated Press contributed to this report.

Reporter Jerry Cornfield: 360-352-8623 or jcornfield@heraldnet.com.

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