Errors Cut Enron Payments to Cal-ISO

Enron Corp. said Monday that it underpaid the operator of California’s electricity grid by as much as $50 million because of “meter-reading errors” by its contractor, Computer Sciences Corp.

Enron disclosed the problem in a letter to the California Independent System Operator, saying the errors date to July 2001. But company spokesman Mark Palmer said that exactly what happened -- and who would foot the bill for the underpayment -- could not immediately be determined because the investigation began only recently.

El Segundo-based Computer Sciences, which was hired as “meter data management agent” for Enron’s energy services and marketing units, notified the company of the errors Nov. 20, according to the letter written by Enron attorney Gary Fergus. The Houston-based energy firm took a month to “verify the initial data and determine the types of errors” before writing to Cal-ISO, Fergus said in the letter.

Computer Sciences spokeswoman Janet Herin declined to elaborate on the problems but said, “We found an error on our part, but how that error occurred has to be looked into.”

Beginning in 1998, California’s energy deregulation plan allowed companies such as Enron to sell power to customers that had traditionally purchased their electricity from municipal or investor-owned utilities such as Edison International unit Southern California Edison.

Under the new system, Enron bought power through Cal-ISO and hired an independent firm to collect meter-reading data, which were then supplied to the company and to Cal-ISO. Cal-ISO utilized the data to determine how much to bill Enron for use of the grid.

According to Enron’s letter Monday, Computer Sciences’ mistakes included not reading some customer meters and reading other meters monthly instead of daily or even more frequently. Computer Sciences also reported inconsistencies in data used for billing customers, the letter said.

“The range of speculation as to the magnitude of the underpayment to the ISO is between $15 million and $50 million,” Fergus wrote.

Gregg Fisher, spokesman for Cal-ISO, said the agency held collateral from Enron that should cover any outstanding payments.

“We don’t think that this is a huge problem, but we don’t really know,” Fisher said.

It remains unclear whether Enron will turn to its customers to recoup the shortfall.

Among those that could be affected are the University of California and California State University systems, which until early this year had been jointly purchasing power from Enron for many of their campuses.

For the UC system, which had 1,500 accounts handled through Computer Sciences, months would sometimes pass between billings, said Maric Munn, associate director of energy and utility services for the office of the UC president.

“When we stopped getting bills, we had to hire an auditor to try to sort it out and tell us how much we should have been paying,” Munn said.

Munn said she believed individual campuses should have set aside enough money to cover any underpayment.

UC, under its joint deal with the Cal State system, bought about $50 million of power a year from Enron, she said.

Enron has not said what it would do to make up the underpayment.

“I don’t know whether we collected the right amount from customers and then underpaid the ISO, or if we under-collected from the customers and then underpaid the ISO,” said Palmer, the Enron spokesman.

Attorney Fergus told Cal-ISO that an accurate accounting might take four or five months, although Herin of Computer Sciences said her company hoped to have a firm figure by mid-January.

She added that the company believed the underpayment to be about $9 million, well below Enron’s estimate.

In a separate development, J.P. Morgan Chase & Co., suing to collect $1 billion from insurers to cover losses related to Enron’s bankruptcy filing last year, suffered a setback when a judge said a bank e-mail referring to “disguised loans” may be read to a jury.

Eleven insurance companies, including Chubb Corp. and CNA Financial Corp., have argued at trial in New York that they agreed to issue only surety bonds guaranteeing oil and gas trades and were deceived because the transactions turned out to be loans.

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Bloomberg News was used in compiling this report.