Enron Fires Off Lawsuit Against California Senate Committee

After being cited for contempt last month for not handing over confidential documents detailing its western power trading operations, Enron Corp. returned fire at California lawmakers last week, accusing them of making it a "convenient political scapegoat to shoulder the blame for California's policy mistakes and changes in market fundamentals." The Houston-based marketing and trading giant filed a lawsuit in the Superior Court of the State of California in Sacramento against the Senate Select Committee to Investigate Price Manipulation of the Wholesale Energy Market.

Enron told the court the documents requested by the committee in its subpoena contain trade secrets, yet the committee has "refused to agree to a protective order" that would shield the confidential documents from its competitors. Without responding to Enron's objections, the committee found Enron in contempt on June 28. It also found Mirant in contempt but has since dropped that citation following negotiations with the company. Several other large merchant generation and power marketing firms also have reached agreements with the committee and have provided documentation detailing their trading activities.

Enron is seeking a declaration by the court that it need not produce the confidential information except under a protective order and that the committee has violated Enron's rights of due process by its finding of contempt. Enron also seeks a declaration that the committee's subpoena is invalid under California law because it involves trade secrets, seeks documents that are outside its jurisdiction and is not seeking information pertinent to its proper legislative function.

Enron told the court the "expansive subpoenas...sweep far past any conceivable legislative action. The sheer volume of the requested information would render it unusable by the Senate." Enron also seeks an injunction and protective order by the court that no contempt proceedings may be pursued nor considered valid until its objections are heard by an impartial hearing officer and its confidential documents are protected from unlawful disclosure.

California's own policy failures and "flawed deregulation scheme" caused the wholesale power market distortions over the past year, said Enron's Executive Vice President Steven J. Kean in a letter sent to Committee Chairman Sen. Joseph L. Dunn last week. "California's financial crisis was created by and has been extended by a series of policy missteps and political miscalculations. And California policy makers have prolonged the problem by focusing on blame and demonizing `out-of-state generators' and other suppliers rather than addressing the structural problems afflicting California's electricity market. This blame-game approach has diverted scarce time and resources away from real fact-finding and problem solving and has cost California consumers billions of dollars as a result."

He said rather than focusing on Enron, which represents a tiny fraction of the overcharges as calculated by the state electric grid operator, the investigation should have focused on why the state's three utilities rejected power sales offers at fixed long-term rates from Enron and other suppliers last summer. "The savings for citizens in San Diego from Enron's offer alone would have been more than $1 billion."

Kean noted that the committee has singled out Enron for scrutiny when the company represents only 0.4% ($39 million) of the $8.9 billion in overcharges estimated by the California ISO. Furthermore, under the assumption that refunds would be owed to power buyers during the time period in question, Enron likely would end up a net recipient of refunds because it is mainly a buyer in the California market--the company only holds a small amount of wind power and its production is under long-term contracts, Kean added. Enron strongly disagrees with the ISO's calculations because they are "mired in numerous faulty assumptions and `what if' calculations that either ignore or distort the facts," he said, noting the a FERC administrative law judge also agreed the ISO's methodology is flawed. "In addition there is no legal basis for any refunds in the absence of specific fact-based findings by the Federal Energy Regulatory Commission of unlawful exercise of market power."

The committee simply lacks jurisdiction over the information requested in its subpoena, Kean said, and Enron will not provide the documents requested. He said the impartial neutral court would determine Enron's rights and obligations under the Select Committee's subpoena. Enron, meanwhile, will make some documents available to the committee, but only non-confidential documents "where Enron has no objection to their production," he said.

The committee last week voted 6-0 to move against Enron after an angry hearing in which Enron representatives repeatedly questioned the committee's authority. If passed by the full Senate, the contempt citation would be the first imposed by California's Senate since 1929. While deciding to move against Enron, the committee voted to terminate contempt proceedings against generator Mirant Corp., saying that company was now cooperating with its investigation.

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