Nevada Power claims Enron didn’t plan to fulfill contract

Kevin Rademacher

Friday, Sept. 10, 2004 | 11:19 a.m.

Nevada Power Co. took its latest shot at Enron Corp. in testimony filed Thursday with the Federal Energy Regulatory Commission.

The filings are the most recent move in efforts by the Las Vegas electric company and its Reno-based sister utility -- Sierra Pacific Power Co. -- to scuttle the disgraced power trader's demands for $336 million in payments for contracts cancelled amid the fallout of the Western energy crisis of 2000-01.

Steven Oldham, former senior vice president for energy supply for the Nevada utilities, claimed in his testimony that Enron was unprepared to fulfill the contracts and was maneuvering to force a termination of the deals.

"There is substantial evidence Enron was intentionally acting to manufacture a default, all the while it was supposed to be negotiating in good faith with us," he said in testimony.

Enron terminated the contracts after the credit rating for the utilities was cut to junk status following a more than $400 million cost-recovery disallowance handed down by the state Public Utilities Commission. At that time, however, Enron was already in bankruptcy.

Oldham claimed that Enron also had not acquired the power it would have needed to fulfill the contracts and was, essentially, seeking "pure profit" through the termination payments.

"Because Enron had not purchased the power necessary to perform under the contracts, Enron did not have any sunk costs to protect," he said.

Oldham also said that Enron did not honor rules that give the utilities the opportunity to provide assurances to the power traders that they will meet financial obligations. While the utilities were expecting negotiations, Enron was plotting termination, he argued.

"Enron provided no counteroffers," his testimony said. "Enron did not even indicate that it disapproved or wanted a different offer. Instead, Enron simply terminated. ... Enron had engaged in a 'bait and switch.' Enron had led me and the management at the Nevada companies to believe that the structure of our proposal was one that was acceptable to them."

Following the termination of the contracts, utility executives -- and FERC staff -- later said power contracts signed during the energy crisis 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.

In July, however, FERC agreed to review the basis on which Enron exercised its right for termination payments. Hearings are scheduled to begin in Washington on Oct. 18. A decision is expected by the end of the year.

Enron has denied any wrongdoing in its handling of the Nevada contracts.

In other power news, a federal appeals court here ruled on Thursday that federal regulators erred in rejecting up to $2.8 billion in refunds owed to California electric customers resulting from what the court called "artificial manipulation on a massive scale" of the state's energy market during the energy crisis.

The ruling, by the 9th U.S. Circuit Court of Appeals, upheld the legality of wholesale electricity sales at market-based rates, a hotly disputed program at the center of the debate. But the court said the Federal Energy Regulatory Commission failed to monitor the energy-selling companies adequately, concluding that the failure to comply with the commission's reporting requirements "was rampant throughout California's energy crisis."

The court ordered the federal commission to reconsider the refund requests from a six-month period in 2000, when several energy companies failed to file quarterly rate reports. The commission had deemed the violations a technical compliance issue not subject to refunds.