Friday, Sept. 12, 2003 | 11 a.m.
The bill for two Nevada electric companies in the Enron Corp. bankruptcy case in New York could grow by at least $49 million.
Enron Corp. has asked a U.S. Bankruptcy Court judge in New York to add more than $49 million in interest charges to a $312 million decision handed down last month against Nevada Power Co. and its sister company, Sierra Pacific Power Co. in Reno.
Enron's filing amounts to recommendations to the court for use in crafting a final order.
Enron also asked the judge to include in the final order $112,000 a day in interest that will accrue during any appeals by the utilities and their parent company, Sierra Pacific Resources.
Jack Leone, a spokesman for the utilities, said on Thursday that the company would not comment until Judge Arthur Gonzalez issues his final order in the case. In previous statements, Sierra Pacific Resources promised to pursue all legal remedies in the case.
Nevada Consumer Advocate Tim Hay said Enron is legally entitled to ask for interest.
"In my quick look at the filing it seemed like the interest had been correctly calculated," he said.
The court ruled that the utilities must pay Enron Power Marketing for power contracts cancelled in 2002.
Nevada Power is responsible for about $200 million of those contracts. Sierra Pacific Power owes about $87 million. The totals represent power that was never delivered. In December an additional $25 million was placed in an escrow account by the utilities to cover what power was delivered under the contracts in April.
In May 2002, Enron exercised a clause in the contracts allowing it to terminate the deals if the companies lost credit worthiness. That happened after the state Public Utilities Commission disallowed $437 million of a proposed $922 million rate increase Nevada Power sought in 2002 to cover the cost of buying power during the Western energy crisis.
Credit agencies cut the rating of Nevada Power and Sierra Pacific shortly after the PUC's March 2002 ruling. That rate cut triggered the clause that allowed the contracts to be terminated, Enron and other traders with similar deals have claimed.
The Aug. 28 bankruptcy court ruling has cast new doubt on the parent company's already shaky credit situation. Moody's Investment Services reduced the credit outlook for Sierra Pacific from stable to negative, following the ruling. The rating agency also left the utility's credit rating at junk levels.
The move came just two hours after Standard & Poor's issued a similar statement, placing Sierra Pacific and its subsidiaries on credit watch.
"Making termination payments or posting cash collateral would mean an added debt service burden to Sierra Pacific Resources and its subsidiaries and would weaken financial measures," said Swami Venkataraman, a utilities analyst with Standard & Poor's.
Following last month's ruling, Sierra Pacific Resources notified the U.S. Securities and Exchange Commission that it would issue debt to cover the liabilities from the ruling in the event that it is upheld or collateral is demanded during the appeal process.
Based on property owned by the utilities, the company could issue as much as $1.14 billion in mortgage-secured debt, the filing said. The filing added, however, that any debt issuance would require the approval of state regulators. The company also made no assurances of its financial health in the event that payment or collateral is ordered by the court.
"Any requirement to pay or provide security for (Enron's) claims for termination payments could adversely affect Sierra Pacific Resources', Nevada Power Co.'s and Sierra Pacific Power Co.'s cash flow, financial condition and liquidity, and could make it difficult for one or more ... to continue to operate outside of bankruptcy," the filing said.
In issuing its decision the bankruptcy court judge did not make an affirmative ruling upholding the disputed contracts. Instead he deferred to a previous ruling by the Federal Energy Regulatory Commission that found that preserving the sanctity of the contracts better served the public interest than setting aside deals that were tainted by market manipulation.
That ruling came weeks after FERC staff released an extensive report confirming that manipulation by "rogue" energy traders, including Enron, had driven up the energy prices and inflated contracts.
FERC has indicated that it may grant the Nevada utilities' request for a rehearing on the matter.
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