Press Release of Senator Cantwell

Senate Passes Energy Bill That Would Prevent Enforcement of Manipulated Enron Contracts

Tuesday, June 28,2005

WASHINGTON, D.C. – The U.S. Senate today passed new energy legislation, including a provision authored by U.S. Senator Maria Cantwell (D-WA) that will prevent a federal bankruptcy court from forcing Snohomish Public Utility District (PUD) and its customers to fork over another $122 million to Enron. Cantwell added the “Enron relief” provision during the Senate Energy Committee's mark-up of the measure. The full Senate today approved the legislation (S. 10/HR. 6) by a vote of 85-12.

“There is no way under the sun that my constituents owe Enron another penny,” said Cantwell, a member of the Senate Energy Committee. “Not one single penny more.”

“The Senate today struck a blow for justice and for Western consumers. This provision makes an important statement. This is not the kind of country where we will reward Enron with millions for its criminal conspiracy to commit fraud; a fraud of outrageous proportions perpetrated against the consumers of Washington state.”

The Cantwell provision (Sec. 1270) prohibits the Bankruptcy Court from enforcing payments on power contracts that are unjust, unreasonable or contrary to the public interest. The provision was written to target manipulated power contracts between Enron and utilities including Washington state's Snohomish PUD and others in the West. The contracts were cancelled when the energy giant began its slide into bankruptcy. But once they were cancelled, Enron turned around and sued utilities for “termination payments,” seeking to collect profits on power that was never even delivered.

While the Federal Energy Regulatory Commission (FERC) has been conducting its proceedings to provide remedies for the consumers harmed by market manipulation, Enron has nevertheless continued pursuing collection of these “termination payments” in bankruptcy court. In fact, the court has already ruled that other Enron victims – Nevada Power Company and Sierra Pacific Power Company – should have to pay these fees, which come to more than $330 million for the two Nevada utilities. The court went so far as to enjoin FERC from proceeding with its own specific inquiry into whether Enron is owed the termination payments in those cases.

Meanwhile, Snohomish PUD and Cantwell earlier this year marked the biggest victory yet in the FERC case, when the Commission in March issued an order that found, for the first time, “the termination payments are based on profits Enron projected to receive under its long-term wholesale power contracts executed during the period when Enron was in violation of conditions of its market-based rate authority.”

“Imagine making it through the years-long process of proving the case against Enron and proving it to FERC, only to find out at the end of the day that the bankruptcy court would intervene and force these termination payments anyway,” said Cantwell. “This provision says very clearly to FERC, ‘Do your job to protect consumers, and when you make a decision, that decision will stand.' Interpreting our nation's energy consumer protection laws is not the job of a bankruptcy judge.”

The Enron contract issues with Snohomish PUD go to trial at FERC in September 2005. A ruling on that trial is expected in January 2006. (The outcome of the trial is decided by a FERC administrative law judge.) If that ruling is appealed by either side, the full FERC (five commissioners) is expected to rule on the appeal in the summer of 2006.

The legislation passed by the Senate today includes a number of other consumer protection provisions authored by Cantwell, in response to the Western energy crisis. Specifically:

Banning Energy Market Manipulation : Section 1263 of the Senate bill adds to the Federal Power Act a specific, statutory ban on all forms of electricity market manipulation—based on Cantwell's ENRON Act (S. 33) legislation. In addition, the Senate energy bill would extend this market manipulation ban to natural gas markets (Sec. 385), which were also manipulated during the Western energy crisis of 2000-2001. Cantwell first offered her ENRON Act provisions as amendments to energy and agriculture appropriations bills during the last Congress. By comparison, this year's House-passed energy bill would ban just one of the now-infamous market manipulation schemes—round-trip trading—used by Enron and others to gouge Western consumers. In addition, the House bill would essentially lock-in profits for market manipulators, under the guise of “contract sanctity.”

Banning Rogue Energy Traders & Executives: Sections 1269 and 389 of the Senate bill would give federal authorities the ability to ban traders and executives implicated in energy market manipulation schemes from participating in the utility industry. The Securities Exchange Commission has had this authority for decades and used it in some high-profile instances of individuals engaged in securities fraud. However, this authority does not currently exist in federal energy law. Added unanimously as amendments during the Senate Energy Committee's mark-up of the bill, these provisions were inspired by recent court cases in which it is alleged that some of the same energy traders overheard on the now-infamous Enron audiotapes have been implicated in subsequent market manipulation schemes in other regions of the country. No similar provisions exist in the House-passed energy bill.

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