Utilities Ask Court To Cancel Expensive Power Contracts

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Nevada's investor-owned electric utilities are asking a federal appeals court to overturn hundreds of millions of dollars in high-priced power contracts, alleging market manipulation by Enron Corp. and others.

The case, pending before the 9th U.S. Circuit Court of Appeals in San Francisco, stems from a Federal Energy Regulatory Commission case.

Nevada Power Co. of Las Vegas and Sierra Pacific Power Co. of Reno asked FERC to review prices under their multiyear contracts with about 10 suppliers during the Western energy crisis of 2001 and 2002. Prices were spiking at the time, and the Nevada companies wanted to change the contract terms when prices declined.

The federal regulatory agency refused to review whether the prices were "just and reasonable," or should be lowered.

In its denial, however, FERC mentioned concerns that other power merchants might be reluctant to build plants if they couldn't rely on wholesale power sales contracts.

Among suppliers were Houston-based Enron, which lost its rights to sell power because of market manipulation, and Houston-based Reliant Energy, which the federal government indicted in April for market manipulation.

The Nevada utilities called the ruling "perverse," arguing that the federal agency neglected its responsibility to consumers.

"The right of criminal conspirators to retain hundreds of million of dollars in ill-gotten gains took precedence over protecting consumers from a broken, manipulated market the agency failed to fix," they said their brief.

The Enron contracts are particularly important to the utilities, because Enron won a $336 million judgment against them after terminating the contracts.

Enron said it was entitled to terminate the contracts because the utilities' credit ratings dropped to junk bond levels in spring 2002. It obtained the $336 million judgment from a bankruptcy judge, based on the amount of profit more than market prices that it would have received had the contracts not been terminated.

It has not been made clear whether consumers or shareholders in Sierra Pacific Resources, the holding company for Nevada Power and Sierra, should bear the burden of the Enron judgment if the utilities lose. The state Public Utilities Commission has declined to rule on that issue before resolution.

The federal commission concluded the Nevada utilities assumed the risk that power prices would decline, according to the brief.

Roger Berliner, the Washington, D.C., lawyer representing the Nevada companies, said the loser in the appellate case will likely appeal to the U.S. Supreme Court.