Nevada Power fires another round at Enron

Kevin Rademacher

Tuesday, Oct. 28, 2003 | 11:09 a.m.

The latest shot in the ongoing battle between Nevada Power Co. and Enron Corp. was fired on Monday in a filing the Las Vegas utility made with Federal Energy Regulatory Commission.

Nevada Power, and its sister company Sierra Pacific Power Co. of Reno, claim that U.S. Bankruptcy Court Judge Arthur Gonzalez, who last month handed down a $336 million ruling in favor of Enron, did not allow the companies to investigate or submit additional evidence.

The utilities now say new evidence points to "the existence of a predetermined plan to terminate the Nevada companies' contracts."

In the filing the utilities point to a series of Enron e-mails from Jan. 16 and 17, 2002, which ask about the status of the contracts.

At that time, the utilities, struggling financially with the effects of the Western energy crisis, had asked its suppliers to extend the payment terms over time.

One Enron e-mail citied in the filing asked if an employee knew if the Nevada utilities were making timely payments. "I need to know for a complaint these parties filed at the FERC in which they are asking for relief from the terms of the deal," the e-mail said according to the filing.

In a response, another e-mail said "the estate would like to terminate with these counterparties if they fail to pay."

"Thus months before the credit downgrade that gave rise to Enron's demand for assurances, Enron had already determined that it would terminate these contracts given any pretext for doing so," the utilities claimed in the FERC filing.

Enron spokesman Mark Palmer said the contracts were not terminated at that time and that the bankrupt energy trader attempted to work with the utilities on a payment plan.

"We tried all along to figure out how we could continue to serve because we knew we would have a big fight on our hands if we cancelled," he said. "I'm sure they are going to grasp at as many straws as possible."

The dispute involves power contracts between the Nevada companies and Enron that were cancelled in May 2002. Enron cancelled the contracts after Sierra Pacific Resources, parent company of the utilities, had its credit rating cut to junk status.

In June, FERC ruled that the contracts were valid, despite market manipulation during the Western energy crisis that drove prices higher. The bankruptcy court deferred to FERC's decision when awarding the $336 million in termination penalties and interest.

The Nevada companies are now appealing to FERC that Enron violated market rules when it exercised a termination clause in the contracts.

In another legal proceeding, Nevada Power Co. last week filed a motion in U.S. District Court in Las Vegas to have its case against another power supplier, Morgan Stanley Capital Group Inc., postponed until after the outcome of the FERC case against Enron.

The motion indicated that the results of the Enron case would determine whether FERC will assert jurisdiction over the administration and enforcement of power contracts similar to those at the center of the Morgan Stanley lawsuit.

In March, Nevada Power filed a suit seeking protection from a $25 million contract termination claim made by Morgan Stanley. A month later, Morgan Stanley filed a counterclaim seeking the $25 million termination payment.

And this morning, the state Public Utilities Commission issued a draft order recommending the approval of a request from Nevada Power and Sierra Pacific Power to issue $338 million in debt as collateral for the bankruptcy court judgment. The collateral plan, if accepted by the bankruptcy court judge, would stay the execution of the judgment during the appeals process.

The PUC is expected to vote on the draft order at its meeting Wednesday morning. The bankruptcy court is expected to consider the bond proposal on Friday.