Town Square

Enron wins again, Palo Alto and other cities lose

Original post made by Diana Diamond, Palo Alto Online blogger, on Jun 20, 2006

Enron wins again! The company that manipulated natural gas and electricity prices, gouging thousands of Californians, including Palo Alto residents, has just won a $50 million settlement from two utilities – Silicon Valley Power, part of the city of Santa Clara, Calif., and Valley Electric Association a cooperative that serves the region west of Las Vegas.

The two utilities are paying $50 million to Enron for electricity they agreed to buy but that Enron will never deliver. Moreover, Enron is collecting a termination fee for ending the contract.

That’s akin to signing a contract for buying furniture, never having the furniture delivered, but then being charged thousands of dollars for terminating the contract, knowing you will never ever get the furniture.

The agreement makes Palo Alto's settlement of $21.5 million a year ago now seem in line with these two new agreements -- and Palo Alto's case did not drag on as long. I was upset about the city settling so easy, but now it just looks like Enron has some very good lawyers.

But the notion of cities paying out millions of dollars to Enron makes my stomach turn. It was a corrupt, manipulative company. And we are the ones who are paying –- it is our $21.5 million in tax dollars and utility fees that are being forked over to Enron. In Palo Alto, our utility prices rose shortly after the settlement. Let’s just call that a coincidence, right?

The decision by the Federal Energy Regulatory Commission is quite unusual in the way it favored Enron’s creditors. And it certainly makes me wonder about this commission that is looking into the Enron escapades.

An article in the June 14 New York Times' business section states that the staff of FERC will not investigate fraud claims against Enron for manipulating electricity prices, even though Enron made $1.6 billion in profits from what the commission's own staff publicly testified was "unjust and unreasonable” pricing.

Even more upsetting is that Enron is going to collect the $50 million from the people of Santa Clara and Las Vegas simply because of the “termination fee” it charged in its contract. In other words, because the contract was signed and then terminated, FERC has ruled that Santa Clara owes Enron $36.5 million and Valley Electric Association owes $14 million. The fact that Enron delivered no gas and electric doesn’t seem to matter.

That’s not fair. As Representative Jay Inslee, a Washington Democrat said to the Times, the settlement was “the equivalent of Bonnie and Clyde, having been arrested, demanding that the banks refund the money they stole and the government making the banks give them the money.”

But because this was about a contractual dispute about termination fees rather than unjust profits by Enron, FERC said the two utilities had to pay.

Moreover, FERC said the settlement releases “the Enron Parties from all existing and future claims under any legal theory or cause of action” that Enron charged and collected too much, manipulated the electricity and gas markets, or was unjustly enriched.

So Palo Altans, as we pay our utility bills each month, just think of all those Enron creditors laughing all the way to the bank.


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Posted by Art Kraemer
a resident of Crescent Park
on Jun 20, 2006 at 3:15 pm

Where were the legal staffs of Palo Alto and the other cities when they signed contracts that contained the temination clauses that gave Enron protection but no protection to the cities? "Due diligence" obviously didn't happen.

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Posted by Diana Diamond
Palo Alto Online blogger
on Jun 20, 2006 at 4:13 pm

Diana Diamond is a registered user.

Great question, Art. I can't understand why Enron would have a termination penalty but the cities did not include any protection if Enron failed to deliver. Maybe they were so anxious about ensuring that customers continued to get gas and electric that they rushed into the contract.

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Posted by Art Kraemer
a resident of Crescent Park
on Jun 20, 2006 at 5:31 pm

Diana, You are probably correct. They rushed into the contract. Did those in charge, namely, Utilities Director Ulrich skip the legal review or did the legal staff just miss it? Now that the Weekly has access to the Palo Alto Utilities investigation information, perhaps someone should investigate whether allowing Ulrich to retire on a very large pension and full medical coverage was proper or should he have been fired for cause.

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Posted by Jeramy Gordon
a resident of another community
on Jun 22, 2006 at 10:47 pm

Diana, congrats on your new position at the Weekly. I look forward to reading your blog so I can keep up on all the crazies in Palo Alto. Shoot me an e-mail sometime, we need to catch up. — Jeramy