Enron Settles State Claim of Price Gouging
Enron Corp. agreed Friday to a $1.52-billion settlement of accusations that it gouged Californians during the 2000-01 energy crisis, but utility customers probably will receive just a small fraction of the money.
That’s because Enron, the onetime hotshot energy trader, sought U.S. Bankruptcy Court protection from its creditors in December 2001, and the state will have to get in line with many others seeking cash from the Houston company.
Still, state officials said they were pleased to nail down the settlement, which includes a hefty penalty and exceeds the $60 million they once demanded from Enron as part of a quest for $9 billion in alleged overcharges from power suppliers during the energy crisis.
The settlement’s size reflects Enron’s key role in the yearlong market meltdown that brought record prices and rolling blackouts to the customers of Southern California Edison Co., Pacific Gas & Electric Co. and San Diego Gas & Electric Co. Enron’s traders devised schemes with such names as “Fat Boy” and “Death Star” to manipulate the energy marketplace in California and other Western states -- behavior captured in well-publicized recordings of company employees gloating over the plight of “Grandma Millie” and other hapless ratepayers.
“Enron was the leader of the industry that created many of the devices that allowed the piracy to occur,” California Atty. Gen. Bill Lockyer said in an interview. Californians, he added, may feel “a sense of justice and revenge with this settlement.”
Gov. Arnold Schwarzenegger called the settlement, which he estimated had a cash value of $260 million, a victory for ratepayers that would also help lower electricity costs.
“I will continue to press for settlements of all outstanding claims against those who unfairly profited at the expense of California’s ratepayers,” the governor said in a statement. “We must also work to make sure that California never finds itself in a position to be taken advantage of again.”
Under terms of the agreement, California parties -- including the state Department of Water Resources and the three utilities -- would share $47.5 million in cash. In addition, they would receive an unsecured claim of $875 million in Enron’s bankruptcy proceeding; the states of Washington and Oregon would get $22.5 million of that.
Also, the attorneys general of California, Oregon and Washington are penalizing the company $600 million, which would become a subordinated bankruptcy claim.
“Settlements such as this one allow us to remove claims against the estate so that we can accelerate distributions to all other creditors,” Enron’s interim chief executive, Stephen Cooper, said in a statement.
Officials are anticipating that they may collect 22% to 30% of the unsecured claim, said Erik Saltmarsh, executive director of the state’s Electricity Oversight Board. It is less certain that the states will collect the $600-million penalty, he said.
But Saltmarsh said that even with limitations, the state stood to get far more than 100 cents on the dollar of its initial claim for overcharges from Enron. In early agreements with other energy suppliers, California parties have accepted less than 100% of what they sought.
But Enron was viewed differently. Although it was a relatively minor player in volumes of energy it traded in California, it was seen as a ringleader in market-gaming strategies. As a result, state officials sought to hold it responsible for more than just its overcharges.
“In many respects, they did more than their share in messing up the market,” Saltmarsh said. “The settlement recognizes that Enron was more than just the recipient of overcharges. It was the cause of them.”
The announcement comes five months after staff at the Federal Energy Regulatory Commission recommended that Enron pay almost $1.7 billion for improper trading in the West. The settlement, which would end the state’s claims against Enron at FERC and in court, must be approved by FERC, the California Public Utilities Commission and the U.S. Bankruptcy Court.
Lockyer acknowledged Friday that the final amount would be lower than $1.52 billion. “We can only squeeze so much out of this corporate turnip,” he said.
Consumer advocates welcomed the agreement but said the state should continue to push its claims.
“We were all outraged when we heard the Enron traders bragging about how they were ripping off Grandma Millie,” said Steve Blackledge, legislative director of the California Public Interest Research Group. “It’s only the first step. Everyone owed money from Enron will be in bankruptcy court with their hand out, and we need the attorney general to fight for us just as aggressively there.”
The money that California ultimately receives would go to several areas, the attorney general’s office said Friday. These include compensating ratepayers for overcharges and reducing the financial burden of PG&E; ratepayers under their utility’s bankruptcy settlement.
State regulators would determine the means by which ratepayers would benefit.
FERC Chairman Joseph T. Kelliher congratulated the various parties to the settlement, which his panel might take up in the next several weeks.
“The dark cloud of litigation and regulatory uncertainty has been hanging over California for five years now,” Kelliher said in a statement. “That’s too long. It’s time for all of us to step up to the plate and resolve these remaining issues.”
The Enron claims are a small portion of the $8.9 billion that California has been seeking in a major energy refund case that has been pending for years. Federal energy officials have suggested that the final number may be closer to $3 billion.
“This brings final resolution to what was obviously a very dark chapter in California history,” said Joseph Desmond, chairman of the California Energy Commission. “While we certainly would wish for a higher settlement, this represents the consensus of all parties.”
PUC President Michael R. Peevey said, “No dollar amount will ever be enough to compensate California’s electricity consumers for the harm Enron caused. But this settlement, like the ones before it, shows the dedication and hard work of the PUC staff, the attorney general and other California parties -- all working on behalf of consumers to obtain justice for the gaming and manipulation perpetrated by Enron.”
Times staff writer Marc Lifsher contributed to this report.