Enron willing to settle Nevada dispute

Kevin Rademacher

Monday, Sept. 29, 2003 | 11:07 a.m.

After winning a round in court against Sierra Pacific Resources and its subsidiaries, including Nevada Power Co., Enron Corp. wants to negotiate a settlement.

"The ratepayers of Nevada would be a lot better off if we were to sit down and have meaningful settlement talks," said Mark Palmer, a spokesman for Enron Corp.

Palmer's statement came Friday, after a New York bankruptcy court judge issued a final order in a contract dispute between Enron -- the bankrupt notorious energy trader -- Nevada Power Co. and its sister company, Sierra Pacific Power Co. of Reno.

That order requires the Nevada utilities to pay Enron $336 million, including interest, for contracts signed, and later cancelled, during the Western energy crisis.

After a hearing on Thursday, Walter Higgins, chairman of Sierra Pacific Resources, indicated that appeals would continue in the case.

"We have said on numerous occasions that we plan to appeal the ruling throughout the court system," he said.

Palmer criticized that decision.

"It just adds unnecessary legal costs," he said. "I think we could settle this, and we have told them that."

Executives with Sierra Pacific Resources and Nevada Power declined to comment on Friday's ruling or Enron's statements.

Palmer said that despite the controversy surrounding Enron and its role in market manipulation and the energy crisis, what's left of the bankrupt company today has a singular purpose.

"The Enron estate exists for the purpose of maximizing value that will eventually be distributed to stakeholders in the process," he said.

The ruling has the Nevada utilities scrambling to secure a bond of $338 million to post for the judgment. If the judge accepts the bond, the companies would not have to pay the judgment while appealing. In its filing with the court, the companies warned that a failure to stay the judgment could force them into bankruptcy.

"In the absence of a stay pending appeal, irreparable injury is likely to occur both to the Nevada companies and to third-party creditors," the filing said. "The absence of a stay pending appeal ... will trigger judgment default provisions in over $1.9 billion of debt financing.

"This series of events would almost certainly lead to a filing under Chapter 11 of the U.S. Bankruptcy Code."

Nevada Consumer Advocate Tim Hay said if a bond is granted, staying the execution of the judgment in the case, there is little motivation for a settlement.

"I'd say it's very unlikely that a settlement could be negotiated," he said. "It may be a question of them playing the game out as long as they can."

Also on Friday, the utilities filed an application with the state Public Utilities Commission seeking an expedited ruling on a request to issue $338 million in secured, long-term debt to fund a bond in the Enron case.

Of the disputed Enron contracts, Nevada Power is responsible for $200 million and Sierra Pacific Power owes $87 million. The judge also ordered the payment of $49 million in interest. 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 power that was delivered under the contracts in April 2002.

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 PUC 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.

An initial ruling in the case was issued Aug. 28, indicating that the utilities would have to pay. Following that order, 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.

In issuing his decision the bankruptcy court Judge Arthur Gonzalez 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.