Publication Date: Wednesday, March 16, 2005
Power struggle with Enron
Power struggle with Enron
(March 16, 2005) Failed corporation charges city owes it $48 million
by Jocelyn Dong
A federal investigation into alleged malfeasance by the beleaguered Enron Corporation could benefit the City of Palo Alto.
Enron, which claims the city owes it $48 million for early termination of a contract, is being investigated for inflating electric and natural gas prices by manipulating the market. The actions could have impacted the city's contract with the corporation.
On Friday, the Federal Energy Regulatory Commission ordered a comprehensive review of all evidence that Enron may have broken the law and appeared to include Palo Alto's contracts under that ruling.
Council member Bern Beecham, who represents Palo Alto for the Northern California Power Agency, said the commission's order Friday "may tend to invalidate contracts we had with them."
In May 2001, the city signed contracts with Enron to provide natural gas and electricity. The city terminated those agreements on Nov. 30, 2001, when it became apparent the failing company would be unable to fulfill its contracts, according to the city.
Enron filed for bankruptcy protection a few days later, on Dec. 2. More than a year later, in Feb. 2003, the bankruptcy court in New York ordered Houston-based Enron and Palo Alto to negotiate a settlement regarding the city's termination of the contracts. Enron alleges Palo Alto owes it $48 million.
Other cities' utilities, including Snohomish County, Wash., and Santa Clara, are also involved in disputes with Enron, with the company claiming Santa Clara's Silicon Valley Power owes it $147 million and Snohomish County $122 million.
Palo Alto's Senior Assistant City Attorney Grant Kolling has been representing the city in negotiations for the past two years. Kolling said it was too early to tell if Friday's ruling affects the bankruptcy negotiations, but that "it's a movement in the direction that claimants did argue just last year."
The bankruptcy court is separate from the workings of the Federal Energy Regulatory Commission. Only if the judge in the bankruptcy court were to decide that negotiations weren't going anywhere would Palo Alto be able to terminate the settlement talks, Kolling said.
Over the past months, damning audiotapes of Enron energy traders have surfaced, due to an investigation by officials with Snohomish County Public Utility District. On the tapes, employees' phone conversations revealed both intent to commit illegal activity as well as the actual acts, according to Snohomish County officials.
The utility district hopes the evidence substantiates that Enron should be required to forfeit all illegal profits and that termination payments should be voided.
That outcome would be ideal for Palo Alto as well, which faces a budget deficit of $5.2 million this year.
Senior Staff Writer Jocelyn Dong can be reached at jdong@paweekly.com.
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