Enron Customers Fear Return to High Energy Bills

Staff Reporter

Customers of Enron Corp. in L.A. County and throughout the state could see their power costs double if the now-bankrupt company terminates their contracts and forces them back into the arms of the state's investor-owned utilities.

In a bid to avoid this, these customers, including the Los Angeles Unified School District, Pacific Bell, Kaiser Permanente, all nine University of California campuses and all 27 California State University campuses, are lobbying state regulators to exempt them from a recently-enacted ban on choosing other power providers.

"If we are forced to go back to Edison, we would see our power costs double for the 120 sites we now have contracted with Enron," said Andrew Cheung, assistant general counsel for the L.A. Unified School District. "As we are already facing budget shortfalls, this would exacerbate an already bad situation."

The Public Utilities Commission, which imposed the ban on choosing providers, will consider exempting all of Enron's customers from that ban in a special meeting next month. PUC officials said that figures they received from Enron as of Oct. 31 indicated that the energy firm had 58,000 residential customers throughout the state, 14,000 small business owners and 9,500 large commercial and industrial customers.

All of these entities had hoped to save money by signing long-term power contracts with Enron. And, during the height of the power crisis a year ago, their strategy seemed to be working: their prices remained stable while rates for customers of Southern California Edison and Pacific Gas & Electric nearly doubled.

Indeed, many of them breathed a sigh of relief last summer when the PUC decided not to make a ban on choosing power providers retroactive.

Then came the spectacular collapse of Enron as word of irregular accounting practices and overstating of earnings drove customers away and the stock price plummeted. On Dec. 2, Enron filed for Chapter 11 bankruptcy protection, the largest corporate bankruptcy in U.S. history.

Now, if Enron decides to terminate its California contracts, these entities would be forced to return to Edison or PG & E; at current rates.

Contract termination cleared

So far, Enron has not canceled any contracts in California, said company spokeswoman Peggy Mahony. But three weeks ago, U.S. Bankruptcy Court Judge Arthur Gonzales, who is overseeing the case, ruled that Enron could terminate some 600 to 700 contracts that were deemed "burdensome" to the company's reorganization efforts. There is widespread expectation that other Enron contracts may be canceled as the reorganization process moves forward.

In late December, the LAUSD, the UC and CSU systems and the Bay Area Building Owners and Managers Association all filed motions with the PUC to exempt them from the ban on choosing providers, a process called direct access.

"It would be fundamentally unfair not to allow customers with Enron (Energy Services) contracts to have their contract assigned to a new, creditworthy energy service provider," the UC/CSU filing said. "These customers are innocent victims of Enron's financial collapse and therefore require as much protection as allowed by law."

The filing also said that returning the campuses to their respective utilities would cost a cumulative $56 million over two years in higher operating costs.

Similarly, the LAUSD argued in its filing that it could face $5 million or more in additional operating costs per year at the 120 sites in Edison territory if those campuses had to revert back to Edison. (The district's remaining 700 sites are under the jurisdiction of the Los Angeles Department of Water & Power.)

"Due to the severe classroom shortage that confronts LAUSD, most of the affected facilities are in operation year-round, with no opportunity for shifting their energy consumption to lower costs hours of operation," the filing said.

Not every entity that signed a contract with Enron faces this predicament. The city of Burbank's utility had signed contracts for natural gas and power deliveries. But, as a utility, Burbank Water & Power was not banned from choosing other providers and had plenty of its own power supplies.

As a result, on Dec. 31, Burbank Water & Power exercised opt-out clauses in its Enron contracts.

"When all the contracts we had supplying them with power and all the contracts where they supplied us with power were netted out, we ended up sending them a check for $1 million. So we're now free and clear of Enron," said Fred Fletcher, Burbank Water & Power assistant general manager.

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