The Snohomish County PUD will pay $18 million to settle a $180 million claim by Enron that the PUD owed money for pulling out of an energy contract signed in 2001.
* The $18 million payment will come out of the PUD’s budget reserves. PUD rates are not expected to increase.
* Enron and the PUD were scheduled to appear before a three-judge arbitration panel Monday. That panel could have ordered the PUD to pay Enron the full $180 million. Because the case was settled Friday, arbitration is canceled.
* The PUD has 315,000 customers and an annual budget of about $550 million.
Q &A
Did the Snohomish County PUD win the fight against Enron Corp.?
“I believe we did win. We exposed a tremendous flaw in the system,” PUD General Manager Steve Klein said. “As a result of what we did, it’s going to be far, far more difficult for something like this to happen again in the future.”
Why did the PUD agree to pay $18 million when federal regulators said last year that it doesn’t owe Enron anything?
Even though federal regulators ruled that the PUD doesn’t owe Enron a dime, a New York bankruptcy court ordered that the case be heard by a three-judge panel beginning Monday, Klein said. That panel could have agreed with federal regulators, or it could have ordered the PUD to pay Enron the full $180 million.
“If you can put 10 cents on the dollar to avoid that steep roll of the dice come Monday, along with stopping the continued funding of complex and expensive litigation, when you look at it financially, it makes good business sense,” Klein said.
Will PUD rates go up to pay for the $18 million settlement?
No, Klein said. The PUD has a $550 million annual budget that includes enough money in reserve to pay the settlement without affecting PUD rates.
How much money does the PUD have in reserve?
That changes on a daily, weekly and monthly basis, Klein said.
“What our reserves are today, I don’t know exactly, but they’re sufficient enough,” he said.
If the PUD is saving millions in legal fees by settling this claim, will PUD rates will go down?
“It’s definitely good news that this expense is going away, but it’s not necessarily an offset to other things,” Klein said. “We’re one of the fastest-growing counties and we have a real challenge to keep our system in such a way as to be able to accommodate (that growth). We have circumstances where different costs are going up. At the same time, we’re doing things to lower costs in other areas.”
What does this settlement mean for Snohomish County residents?
The PUD and its customers saved more than $100 million by pulling out of a high-priced energy contract and ending expensive litigation, Klein said.
“We were able to bring this to resolution without a negative impact on them,” Klein said.
Have PUD customers paid high rates due to the Enron contract?
The PUD pulled out of the Enron contract after just a few months, Klein said. Rates later increased through the PUD’s contracts with the Bonneville Power Administration.
“The PUD abruptly terminated (the Enron contract) and has not paid anything (to Enron) since then,” Klein said.
The PUD is still engaged in other legal battles related to the contract with Enron. What’s at risk?
Those claims are against banks that financed Enron’s marketing schemes.
“If we fail and don’t get any money, we won’t have to pay anything,” Klein said. “The upside is that we could recover dollars that will help offset the $18 million.”
One of those banks, the Morgan Stanley Corporation, is appealing the PUD’s suit against it to the U.S. Supreme Court.
What can be learned from this?
Companies that appear to be legitimate can do outrageous things if they’re not policed,” Klein said.
“What happened here is that despite the cries of Snohomish and others, no policing occurred, and it continued,” he said. “Had this thing been policed correctly, several years earlier this thing should have been able to be resolved in our favor without the expenditure of the effort and money.”
How can Snohomish County residents be certain that the PUD won’t find itself in this spot again if there is another energy crisis?
“I can’t say it will never happen again,” Klein said. “But certainly by Snohomish’s relentless effort to expose this, it has become an issue to the point where we have our (federal) delegation seeking to strengthen statutes so that it doesn’t happen again.”
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