A feisty utility takes on Enron
In a classic David vs. Goliath tale, a tiny outfit used some damning recordings and its media savvy to thwart a lawsuit brought by Enron.
By Bethany McLean, Fortune Magazine editor-at-large

(Fortune Magazine) -- Who can forget the voices of Enron's traders, caught on tape as a damaging wildfire raged during the California energy crisis, exulting in the profits they were reaping from the state's misery? "Burn, baby, burn," one said gleefully.

Many of those tapes would never have seen the light of day if it weren't for a battle between the mighty Enron, or what remains of it, and the not-so-mighty Public Utility District No. 1 of Snohomish County, Wash., or SnoPUD.

In late June the Federal Energy Regulatory Commission (FERC) ruled in favor of the Lilliputian utility in its long-running contract dispute with the bankrupt energy trader - perhaps writing the final chapter of what appears to be a classic David vs. Goliath tale. Only this time David was armed with preternatural media savvy.

The saga began in early 2001 when SnoPUD, a not-for-profit that serves some 300,000 customers on Puget Sound, signed an eight-year contract with Enron for the delivery of power. It was the height of the electricity crisis, and SnoPUD was desperate.

As Enron plummeted into bankruptcy, SnoPUD terminated the contract. In early 2003, Enron sued on behalf of its creditors, seeking a $117 million "termination payment" from SnoPUD.

Let the litigation begin

Enron sued a lot of parties to collect money for its creditors, and over the years, most of them settled. But not the extraordinarily determined SnoPUD, which argues that its contract was fraudulently induced, both because Enron hid its real financial condition and because of Enron's role in manipulating the Western power markets.

Enron, on the other hand, has accused SnoPUD of trying to "renege on an agreement" and has noted that its creditors aren't just big banks but also West Coast consumers whose utilities are owed money by Enron.

SnoPUD has used traditional means, such as legal filings, to fight its battle. But it has also employed guerrilla tactics. Take those tapes. By law, traders have to record their conversations, and some 3,000 hours of tapes were confiscated from Enron in an FBI raid. But the overworked feds ignored the loot. So SnoPUD paid $200,000 to have the tapes transcribed.

"There were all these moments of 'They didn't just say that, did they? Yes, they did!' " recalls SnoPUD's assistant general counsel, Eric Christensen. SnoPUD contacted the press, and by the spring of 2005 the words of Enron's traders were all over the news.

The tapes helped SnoPUD enlist politicians, and that was critical. It was bankruptcy court, which cares only about the fine print of the contract, that was supposed to determine SnoPUD's fate.

But Senator Maria Cantwell of Washington got an amendment inserted in the Energy Policy Act of 2005, which stripped jurisdiction from the court and gave it to FERC. And FERC, it's safe to say, knew which way the politicians expected it to rule.

On June 28, FERC ruled that SnoPUD didn't have to pay. One FERC commissioner, however, cited the "inordinate amount of intrusion and the focus on a particular outcome."

And Enron hasn't given up. On July 26 a New York court will hear arguments on whether FERC was given exclusive jurisdiction and whether the Cantwell amendment was in fact constitutional.

Christensen says that this amounts to "throwing a bunch of manure at the barn door and hoping something sticks." Of course, bankruptcy is never pretty.

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