Houston’s Enron Corp. ended a years-long legal battle over its role in California’s energy crisis, agreeing to a $1.52 billion settlement that will be paid to three Western states, the parties announced Friday.
Although the figure is a large one, experts predict Enron will likely shell out only a fraction of the payment as it emerges from bankruptcy protection and sheds assets to pay off creditors.
California, promised upward of $1 billion under the settlement, will likely recoup no more than $246 million to $267 million, according to officials from Southern California Edison and the state’s Electricity Oversight Board. Most of that money is intended to provide rate relief to some 8 million power customers across the state.
“It’s justice in name. I don’t think California ratepayers will actually feel much financial relief from the settlement,” said Doug Heller, executive director of the Foundation for Taxpayer & Consumer Rights.
Pacific Gas and Electric and Southern California Edison executives saw the pact as another step in resolving the overcharge issue.
“We are very pleased our customers will receive a measure of compensation for the harmful impact of Enron‘s well-publicized manipulation of California’s energy markets,” Edison Chairman John Bryson said in a statement.
Once a high-flying energy trader, Enron was reviled by Californians who accused the company of engineering a massive scheme to rig electricity prices during the energy crisis in 2000 and 2001.
During the early days of the energy crisis, Enron traders boasted about gaming the state’s electricity market by diverting inexpensive hydroelectric power headed to California to other states where prices were higher. On internal Enron audiotapes, they bragged about gouging a “Grandma Millie” in California.
“They were such a bad actor. With Enron, there was almost no penalty harsh
enough,” said Erik Saltmarsh, head of the state Electricity Oversight Board.
In July 2004, the Federal Energy Regulatory Commission ordered Enron to pay $32.5 million in profits to California based on wholesale power sales. The state claimed it was owed about $60 million in ill-gotten profits alone, and Attorney General Bill Lockyer vowed to continue the fight. The $32.5 million ruling also must go through the bankruptcy court.
“They were the leader of the pack that created a lot of the market manipulation gains. Californians want revenge for the piracy,” Lockyer said. “There may be a feeling partial justice has been done.”
Because of how the deal is structured, Enron‘s actual payment will be determined by the bankruptcy court. Here’s how the settlement breaks down:
* California and three utilities – PG&E, Southern California Edison and San Diego Gas & Electric – would receive an $875 million unsecured bankruptcy claim, plus $47.5 million in cash.
* California would pay $45 million of the $875 million to Washington and Oregon.
* The agreement calls for Enron to pay the three states a combined $600 million in penalties.
It will be tough to collect either the $600 million fine or all of the unsecured claim. Bankruptcy laws put these low-priority claims in the back of the list of creditor payments, meaning Enron isn’t likely to have any money left to cover this payout.
“I would have liked to have gotten more,” Lockyer said. “But the reality is that Enron imploded under the weight of its greed and corruption. So there is only so much you can squeeze out of this corporate turnip.”
In December 2001, Enron suffered a spectacular collapse as complex accounting
schemes unraveled, revealing inflated earnings and hidden debts.
Investors lost billions of dollars and thousands of employees lost their livelihoods as the stock plummeted and the company filed for bankruptcy protection. Two of Enron‘s former leaders face criminal trials, and 16 other officials have pleaded guilty.
Once the nation’s seventh-largest company, it emerged from Chapter 11 bankruptcy protection a year ago and plans to pay creditors about $12 billion of $65 billion owed. The money would be raised by selling assets such as its pipeline and utilities.
The first creditor payments were made in April. The next are scheduled for October.
California officials have gone after a number of power companies for electricity and natural gas overcharges that they say occurred during the energy crisis. Overall, they say, the state is owed $9 billion in refunds for ill-gotten profits and overcharges.
Federal regulators and a New York district bankruptcy court must approve the settlement.
Stephen Cooper, Enron‘s interim chief executive officer, called the agreement a significant move toward wrapping up the bankruptcy ordeal. This allows “us to remove claims against the estate so that we can accelerate distributions to all other creditors,” he said in a statement.
The Bee’s Gilbert Chan can be reached at (916) 321-1045 or [email protected]