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Town Square

A more entrepreneurial approach vs. Enron

Original post made by Diana Diamond, Palo Alto Online blogger, on Jul 16, 2006


I know I have written a lot about Enron and what I have called the City of Palo Alto's "cave-in" in terms of handing over a $21.5 million check as final settlement to a lawsuit Enron creditors brought against Palo Alto for breaking a contract with the energy company – even though Enron never delivered the electricity and natural gas it promised it would.

Snohomish County in the state of Washington had a similar contract but refused to settle. They used their ingenuity instead.

So it was interesting to read in the July 24 edition of Fortune magazine (page 32) their account of what happened — "A Feisty Utility Fends Off Enron's Big Bad Creditors." I quote in part from the article:

"Who can forget the voices of Enron's traders, caught on tape as a damaging wildfire raged during the California energy crisis, exulting in the profits they were reaping from the state's misery? "Burn, baby, burn," one said gleefully. ...

"Enron sued a lot of parties to collect money for its creditors, and over the years, most of them settled. But not the extraordinarily determined SnoPUD (Public Utility District No. 1 of Snohomish County, Washington), which argues that its contract was fraudulently induced, both because Enron hid its real financial condition and because of Enron's role in manipulating the Western power markets…

"SnoPUD has used traditional means, such as legal filings, to fight its battle. But it has also employed guerrilla tactics. Take those tapes. By law, traders have to record their conversations, and some 3,000 hours of tapes were confiscated from Enron in an FBI raid. But the overworked feds ignored the loot. So SnoPUD paid $200,000 to have the tapes transcribed. ...

"The tapes helped SnoPUD enlist politicians, and that was critical. It was bankruptcy court, which cares only about the fine print of the contract, that was supposed to determine SnoPUD's fate. But Senator Maria Cantwell of Washington got an amendment inserted in the Energy Policy Act of 2005, which stripped jurisdiction from the court and gave it to FERC (Federal Energy Regulatory Commission).

"On June 28, FERC ruled that SnoPUD didn't have to pay."

Enron is still fighting the case, but the SnoPUD victory seems a legitimate one.

I know that hindsight is great, but the message here for me is that SnoPUD used some ingenuity, creativity and stick-to-itiveness to battle Enron, because it felt that justice should prevail and it should not have to pay for something it never got.

SnoPUD isn't even in Silicon Valley, where we here are known for our entrepreneurial spirit, our stick-to-itiveness, our ingenuity and our creativity. Given our culture here, Palo Alto should have tried a whole lot harder to beat Enron -- $21 million is a lot of money, and we can never get it back.


(See my previous blogs on Enron.)

Comments

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Posted by Raul
a resident of another community
on Jul 16, 2006 at 4:52 pm

Diana,

You've got it wrong. The contract did not deal with oil or gas, but electricity. [This was corrected by Diana after an initial posting. Jay Thorwaldson, editor.] You should get your fact straight before opining.

I also think you should examine whether Snohimish's so-called "achievement" is rather the result of political pressure so that this is an example of our country being a country governed by men rather than laws."


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Posted by Ken
a resident of Ventura
on Aug 12, 2006 at 6:58 pm

Before you correct Diana, you might want to look at CMR:245:05 (June 6, 2005) which shows the contract was for BOTH natural gas and electricity. In fact, of the $21.5 million settlement, $18.06 million came from the city's Electric Utility Rate Stablization Reserve and $3.44 million from the Gas Utility Supply Rate Stablization Reserve.

Also, the Weekly itself mentioned the gas contracts in the third paragraph of this May 4, 2005 story <Web Link>.