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Enron-FERC Staff Settlement Comes Under Fire from Montana AG, U.S. Senator

April 17, 2006
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A recently filed settlement between Enron and FERC trial staff that resolves certain matters and claims tied to Enron's actions and transactions in western energy markets over several years [EL03-180, et al.] has come under attack from the Montana attorney general and U.S. Sen. Maria Cantwell (D-WA).

Enron last month said that it had reached agreements to settle all civil and contractual claims between the company, including certain of its subsidiaries, and three parties -- FERC trial staff, the city of Santa Clara, CA, and Valley Electric Association Inc.

But in a recent filing, the Montana attorney general said the settlement reached between Enron and FERC trial staff should be rejected by the full Commission for the following reasons: (i) it "discriminates between those parties who have filed testimony and those who have not;" (ii) it "treats unequally parties who do not have timely filed claims in the Enron bankruptcy or who have filed no claim in the bankruptcy;" and (iii) the settlement of $10 million is "unreasonably low."

The Montana attorney general noted that three parties in the docket have not filed testimony -- Montana, the port of Seattle and the city of Tacoma, WA. Montana intervened late in the docket and filed no testimony "because the docket had progressed to the stage of pre-filed supplemental testimony, the opportunity for filing direct testimony having passed."

But FERC trial staff "filed testimony that confirmed...Enron's illegal activities. Because Section 5.2 of the settlement requires trial staff to withdraw its testimony, related exhibits, discovery and prohibits FERC staff from voluntarily giving testimony, Montana will not have that testimony or other documentary evidence generated by FERC staff on which to rely to establish liability or to ascertain reasonably the profits that Enron gained through its illegal activities in Montana in either phase I or phase II of this docket."

The Montana attorney general said the joint offer of settlement "provides no explanation or justification for depriving parties who have not filed testimony (or any of the other remaining parties for that matter) of the ability to rely upon FERC-generated testimony, exhibits and other evidence of record in this docket, particularly when such documents were filed in furtherance of the public interest in holding Enron accountable for the harm it caused through its illegal behavior. No party will be able to rely on any FERC-generated documents in either phase I or phase II proceedings."

The Montana attorney general also noted that trial staff has settled its claims against Enron for up to $10 million, depending on the outcome of the phase II proceeding. "As a practical matter, because the $10 million is the maximum amount that will be recognized in the Enron bankruptcy, the amount realized by any claimant will be markedly less. Trial staff offers no explanation or justification for its decision to settle for $10 million, particularly in light of the evidence in the record regarding the staggering amount of profits Enron earned illegally."

Meanwhile, Cantwell last Monday sent a letter to FERC Chairman Joseph Kelliher outlining her objections to the settlement and urging that FERC reject it in favor of a settlement more equitable to Northwest ratepayers.

"Given mounting evidence of the damage Enron's market manipulation schemes did to the Northwest economy and consumers, I believe the proposed settlement -- which would likely return less than $3 million of Enron's illegal profits to the ratepayers of my region -- is woefully inadequate," wrote Cantwell.

"The terms of the proposal would also complicate efforts to achieve a full and fair hearing of evidence related to Enron's market manipulation and its attempt to collect profits associated with power never even delivered, from entities such as Washington state's Snohomish Public Utility District (PUD) and other Northwest businesses," the lawmaker said.

Among other things, Cantwell noted that the current proposal would provide "only $10 million in unsecured claims against the Enron estate, to be split among the parties, mainly in the Northwest, that have not yet settled with Enron. It is important to note, however, that in actuality, this $10 million is actually worth only $2.29 million because, under the current Enron bankruptcy plan, such claims will be paid out at 22.9%."

She said the $400 million "penalty" claim called for in the settlement "is worth nothing at all. Because the claim is subordinated, it will not be paid in any amount by the Enron estate."

Cantwell went on to say that while "it's true that few parties with claims against Enron will see anything resembling the compensation they rightfully deserve, the Enron/FERC settlement proposal is decidedly inequitable for Northwest consumers and business. This is particularly true given audiotape evidence and documents on file at the Commission that show that Enron's profits in Northwest markets during the Western energy crisis surpassed its profits in California."

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