FERC to review Nevada Power’s Enron contracts

Kevin Rademacher

Friday, July 23, 2004 | 10:43 a.m.

With more than $300 million at stake for Nevada's investor-owned electric utilities, the Federal Energy Regulatory Commission on Thursday said it will revisit the contracts those companies had with disgraced power trader Enron Corp.

FERC's announcement that it had set the issue for an expedited hearing comes after months of pleading from executives with Nevada Power Co. of Las Vegas and its sister utility, Sierra Pacific Power Co. of Reno.

"This is what we have been asking for, our day in court before FERC," said Michael Yackira, chief financial officer for the utilities' parent company, Sierra Pacific Resources.

Donald Soderberg, chairman of the Nevada Public Utilties Commission, also was pleased with the progress.

"The FERC movement is good news," he said.

The utilities entered into power-buying contracts with Enron during the Western energy crisis of 2000-01. Enron canceled the deals in 2002 after the Nevada utilities had their credit cut to junk status amid the fallout from the crisis.

Enron subsequently demanded millions of dollars in termination payments from the utilities despite the fact that most of the power was never delivered.

Utility executives -- and FERC staff -- later said the contracts were tainted because of market manipulation on the part of Enron and others. Still, in June 2003 FERC upheld the contracts.

Two months later, despite pleadings from the utilities, a U.S. Bankruptcy Court judge in New York ruled that -- based on the FERC decision -- Nevada Power and Sierra Pacific Power must pay Enron the $336 million.

The FERC order said that an administrative law judge will take up the Nevada utilities' specific claim that Enron acted improperly when it terminated the contracts. A date for the hearing -- which is likely to be held in Washington -- was not set, but in its order FERC said it should be able to issue a decision by May 31, 2005.

While the outcome of the coming hearing remains uncertain, bringing closure to the Enron chapter of the state's utility industry will be a key milestone in returning Nevada Power and Sierra Pacific to financial health.

"Until the Enron litigation is out of the way, it will be a major obstacle for them," said Jake Mercer, a utilities analyst with Piper Jaffray & Co. "I think this is a turnaround situation, but the Enron issue has got to be cleared up."

Yackira agreed that the utilities' still-junk-rated credit will not improve without a resolution.

"With a $336 million judgment hanging over our head, it's not going to go anywhere," he said.

Ironically, the long wait for a FERC hearing could benefit the companies in making their case.

"We have been saying that as time goes on, more and more information becomes available that shows the depth of the behavior of Enron," Yackira said.

The additional information also served to increase the pressure on FERC in recent weeks to take up the case. CBS News ran a national story that included volatile excerpts of recorded conversations between a power trader for the Colorado River Commission and officials from Enron and other power marketers.

Nevada Power officials claim that the obscenity-laced conversations prove Enron and the CRC conspired to manipulate the power markets and damage the utility.

Subsequently, other utilities with claims against Enron did the same, turning up similarly damaging recordings.

"There seems to be a greater wealth of evidence now of Enron's wrongdoing," Soderberg said. "Maybe how long this has taken could help."

In addition, Nevada's congressional delegation has sent at least three letters to FERC commissioners demanding that they take up the case. Those pleas intensified Monday when Sen. Harry Reid demanded the resignation of Chairman Patrick Wood and Commissioner Nora Mead Brownell. Reid said they are failing to protect Nevada consumers.

He said that their tenures were tainted because they were recommended to President Bush by former Enron Chief Executive Ken Lay, who was indicted this month for his part in the Enron collapse.

Reid and fellow Sen. John Ensign hailed news of the coming hearing.

"The decision is a long time coming," Reid said. "I don't know what took FERC so long to move forward, but I am glad they are doing so now ... I hope in addition to acting very quickly they will also be fair because the outcome of this case means a lot to Nevadans."

Said Ensign: "I believe the days of these fraudulent contracts hanging over the heads of Nevada ratepayers are numbered."

Enron officials could not be reached for comment.

FERC's announcement of the Nevada hearings was attached to a larger statement in which regulators said Enron has been ordered to forfeit $32.5 million in unjust profits gained by its manipulation of El Paso Electric Co.'s wholesale power sales.

The order also indicated that Enron could be ordered to disgorge additional profits it reaped during the Western energy crisis. That money would ultimately be returned to customers.

Soderberg said PUC attorneys were investigating the order to determine of Nevada customers could benefit from the $32.5 million or any additional refunds. He also indicated that it is further evidence for the Nevada utilities in their attempt to prove Enron's strategy to drive up power prices.