Nevada may have paid price for Enron’s dealings

Thursday, May 9, 2002 | 10:54 a.m.

If Enron Corp. sought to manipulate California's energy market, as newly released company memos suggest, it is possible such action could have driven up wholesale prices Nevada Power Co. paid for electricity.

So said state Consumer Advocate Timothy Hay and Chairman Donald Soderberg of the state Public Utilities Commission, who have had casual conversations about the potential impact Enron has had in Nevada. But both men cautioned that Enron's dealings in California were different from what they were in Nevada.

"The problem we have with the transactions with Enron are for power to be delivered at a future time, not on the spot market as was the case in California," Hay said.

Soderberg said Wednesday he would like to have further discussions with Hay to determine whether the state should take a more active role in exploring Enron's possible impact on energy prices paid by Nevada Power parent Sierra Pacific Resources. Hay represents the Bureau of Consumer Protection, a branch of the Nevada attorney general's office.

Soderberg conceded, however, that Nevada could have a difficult time collecting money from Enron in the event market manipulation was proven to have impacted the Nevada utilities. That's because Enron is still in bankruptcy.

"That would be a very interesting legal question but we have to take a shot at it," Soderberg said. "Clearly when someone is bankrupt it is hard to get money out of them."

The Los Angeles Times reported Tuesday that Enron memos uncovered during an investigation by federal regulators showed that the Houston company sought to create artificial energy shortages in California through aggressive trading tactics, causing prices to skyrocket.

"Based on what I've read so far it does appear to be an attempt by Enron to do that," Soderberg said. "But it's hard to say how far they went."

However, Soderberg said he agreed with Hay that there could be an indirect connection between Enron's purported manipulation of the spot market in California -- which typically involves energy to be used within 24 hours of purchase -- and the high wholesale prices Nevada Power has been paying through short, medium and long-term contracts.

Hay said that keeping spot market prices artificially high in California for long periods of time could have caused wholesale prices elsewhere in the West, including Nevada, to rise as well. However, Hay said there is little chance Nevada Power would have been impacted directly by spot market manipulation because the Las Vegas utility buys little of its power on that market.

"The attorney general's office does not confirm or deny if a particular entity is being investigated until it is publicly disclosed," Hay said. "But we've been coordinating with other Western states on this issue since early last summer."

The Federal Energy Regulatory Commission, in fact, has been investigating whether Enron manipulated the Western energy market before going bankrupt last year. Enron had been the biggest wholesaler in the West, a middleman that served as a go-between for companies that wanted to sell energy and utilities such as Nevada Power that wanted to buy it.

Last year, Nevada Power paid Enron $504 million for energy and sold back $114 million. But Nevada Power took a 50 percent loss on the amount it sold back to Enron, according to critics such as Hay.

Sierra Pacific and Nevada Power have since asked federal regulators to release the utilities from high-priced wholesale electricity contracts that they signed with Enron and other suppliers. It is a request supported by Hay and the PUC.

"Our nexus with Enron are the contracts that they had with Sierra Pacific," Soderberg said. "What we're looking at is whether we can expand our complaint against them and other sellers of power to Sierra Pacific. We want the contracts going forward to be at a reasonable rate."

Enron stopped delivering energy to the Nevada utilities on Tuesday. That decision was based on concerns from Enron that the utilities' battered credit ratings would make it difficult for them to pay for future energy.

But Sierra Pacific Resources Chairman Walt Higgins has said his company will vigorously fight claims that it owes Enron $305 million for the contracts that run through next year. The $305 million represents the value of the contracts above current wholesale prices, which have been declining. Sierra Pacific has stated that it was unfair for federal regulators last year to cap spot market prices paid by Californians without capping wholesale prices paid by Nevada utilities.

"All we have today are press reports and that is not enough to draw conclusions," Nevada Power spokeswoman Sonya Headen said of the latest Enron revelations in a prepared statement. "However, we have had a long-standing concern how dysfunctional power markets have been and we will be watching this issue with great interest."

But Hay said Sierra Pacific may have cost ratepayers millions of dollars because it could have filed its complaint about the high-cost power contracts from Enron and other companies much sooner than it did. Sierra Pacific filed its complaint in December, but that was six months after Hay first encouraged Sierra Pacific to do so in a letter to Higgins.