Tuesday, Sept. 16, 2003 | 11:01 a.m.
A U.S. Bankruptcy Court judge on Monday upheld his summary judgment ordering Nevada Power Co. owner Sierra Pacific Resources and its subsidiaries to pay Enron Corp. more than $300 million for canceled power contracts.
The ruling issued by New York Judge Arthur Gonzalez dismissed counterclaims and defenses presented last week by Nevada Power Co. of Las Vegas and its sister company Sierra Pacific Power Co. of Reno. Both are subsidiaries of Sierra Pacific Resources.
A Sept. 25 hearing has been set for both companies to make claims for terms to be included in a final order, said Jack Leone, a spokesman for Sierra Pacific Resources. A final order will be issued following that hearing. The Nevada utilities will then have 10 days to file an appeal.
If Enron gets its way, that final order could add millions to the original $312 million total.
Enron Power Marketing Inc., an Enron Corp. subsidiary, last week asked the court to add more than $49 million in interest charges to the final order. Enron also asked the judge to include $112,000 a day in interest during any further appeals by Sierra Pacific Resources.
Leone said the company was "prepared to appeal throughout the court system." He added that the company would not comment further on the case until after a final order is issued.
The court ruled on Aug. 28, that the utilities must pay the $312 million to Enron for power contracts cancelled in 2002.
Nevada Power is responsible for about $200 million of those contracts. Sierra Pacific Power owes about $87 million. The totals represent power that was never delivered. In December an additional $25 million was placed in an escrow account by the utilities to cover what power delivered under the contracts in April.
In May 2002, Enron exercised a clause in the contracts allowing it to terminate the deals if the companies lost credit worthiness. That happened after the state Public Utilities Commission disallowed $437 million of a proposed $922 million rate increase Nevada Power sought in 2002 to cover the cost of buying power during the Western energy crisis.
Nevada Power and Sierra Pacific had their credit ratings cut to junk status shortly after the PUC's March 2002 ruling, allowing the contracts to be terminated, Enron has claimed.
Following last month's ruling, Sierra Pacific Resources notified the U.S. Securities and Exchange Commission that it may issue debt to cover the ruling in the event that it is upheld or collateral is demanded during the appeal process.
Based on property owned by the utilities, the company could issue as much as $1.14 billion in mortgage-secured debt, the filing said. The filing added, however, that any debt issuance would require the approval of state regulators, and the company made no assurances of its financial health in the event that payment or collateral is ordered by the court.
"Any requirement to pay or provide security for (Enron's) claims for termination payments could adversely affect Sierra Pacific Resources', Nevada Power Co.'s and Sierra Pacific Power Co.'s cash flow, financial condition and liquidity, and could make it difficult for one or more ... to continue to operate outside of bankruptcy," the filing said.
In issuing its decision the bankruptcy court judge did not make an affirmative ruling upholding the disputed contracts. Instead he deferred to a previous ruling by the Federal Energy Regulatory Commission that found that preserving the sanctity of the contracts better served the public interest than setting aside deals that were tainted by market manipulation.
That ruling came weeks after FERC staff released an extensive report confirming that manipulation by "rogue" energy traders, including Enron, had driven up the energy prices and inflated contracts.
FERC has indicated that it may grant the Nevada utilities' request for a rehearing on the matter.
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