FERC should clarify a recent order in which it ordered Enron to forfeit $32.5 million in unjust profits by confirming that it didn’t intend to exclude from the scope of the proceeding Enron contracts that were executed from Jan. 16, 1997 to June 25, 2003 and under which Enron “continues to demand, but has not yet collected, unjust profits in the form of termination payments,” a collection of western-based electric utilities, state attorney generals and utility regulators said on Wednesday.

In its July 22 order, FERC affirmed the findings of an administrative law judge (ALJ) and ordered Enron to forfeit the unjust profits because it violated its market-based rate authority (see NGI, July 26). The Commission’s order opened the door to further disgorgement of profits, to be turned back to customers, pending an administrative proceeding.

But a group of power-related entities based in the Pacific Northwest and West this week sought clarification from FERC on key matters stemming from last month’s order.

The filing was made jointly by: the Public Utility District No. 1 of Snohomish County, Washington, Nevada Power Co., Sierra Pacific Power Co., the city of Palo Alto, CA, the Office of the Nevada Attorney General’s Bureau of Consumer Protection, the Attorney General of the State of Washington and the Public Utilities Commission of Nevada.

The Western parties said that the primary focus of FERC’s order understandably centers on a specific remedy recommended by FERC ALJ Carmen Cintron in Docket No. EL02-113 — namely, the “retroactive disgorgement of profits” Enron already has been paid for deliveries of electricity.

“However, there is a significant subset of contracts executed during the period when Enron was in violation of Commission tariffs/orders and for which the remedy of ‘retroactive disgorgement,’ at least in the strict sense of disgorgement of profits already extracted by Enron, is potentially inapplicable,” the Western entities said.

They noted that Enron executed numerous forward contracts during the period when Enron was in violation of Commission tariffs/orders under which Enron “has not only extracted unjust profits in the past, but Enron continues to demand the payment of unjust profits in the future.”

These forward contracts were terminated prior to completion of Enron’s performance under the contracts. “There is substantial evidence demonstrating that Enron engaged in a campaign designed to force termination of forward contracts so that it could sweep up cash in the form of termination payments,” the Western parties said.

Once these forward contracts were terminated, Enron “claimed rights to the full profits of the contracts, in the form of termination payments, even though Enron was no longer supplying power under the contracts and would not incur any costs of serving customers under the contracts.”

Thus, payments sought by Enron under forward contracts that have been early terminated involve the recovery of unjust charges that would be “pure windfall to Enron under the unique circumstance presented here,” the Western entities said. For the Western parties alone, the unjust profits Enron seeks in the form of termination payments are staggering: approximately $500 million, they noted.

The Western parties said that Enron should not be allowed to reap unjust profits prospectively in the form of termination payments under contracts executed by Enron when Enron was in violation of its market-based rate authority and other tariffs on file at FERC.

“Indeed, it would be illogical, as well as discriminatory, for the Commission to authorize the presiding judge to recommend remedies that may include ‘retroactive disgorgement’ of ‘all profits’ but to exclude the issue of an ‘appropriate remedy’ for parties still subject to Enron’s claims for unjust profits from early terminated contracts. Simply put, it makes no sense to require Enron to disgorge unjust profits retroactively, but to allow Enron to extract additional unjust profits prospectively from the Western parties.”

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