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updated 7/15/2005 10:37:45 PM ET 2005-07-16T02:37:45

The Associated Press and Reuters contributed to this report.

Bankrupt energy company Enron Corp. has agreed to pay $47.5 million in a settlement that could reach $1.5 billion to resolve claims that it gouged California and other western states during the 2000-2001 energy crisis.

The settlement will end market manipulation and price gouging claims against the once high-flying Houston-based company, California Attorney General Bill Lockyer said Friday, but the exact amount could be considerably less than the settlement’s face value.

The agreement requires approval by the bankruptcy court and the Federal Energy Regulatory Commission. The final payment amounts will depend on what is left after Enron’s secured creditors are repaid as part of bankruptcy proceedings.

Besides the cash payment, Enron will provide California with an unsecured claim for $875 million. Oregon and Washington would be entitled to $22.5 million each from that unsecured settlement.

Unsecured claims are currently valued between 22 cents and 25 cents on the dollar, Lockyer said.

“We’ll get some of it, we just don’t know yet how far the assets of Enron will stretch to these multiple claims,” Lockyer said in an interview Friday. “We hope to recover as much as possible.”

The settlement also calls for the company to pay a $600 million penalty to the three states. A penalty claim is one of the last to be paid under bankruptcy law, said Enron spokeswoman Jennifer Lowney, and may not be paid.

Death Star saga
The dispute centered on claims that Enron — using schemes it dubbed "Death Star," "Fat Boy" and "Get Shorty" — manipulated the markets during the Western states' power crisis in 2000 and 2001, when energy prices there skyrocketed. The state of California and other parties claimed the energy companies withheld power illegally to drive up prices.

In conversations recorded during the power crisis that were released last year, Enron traders bragged about manipulating the California market and inflicting pain on "Grandma Millie" in the state.

"With this settlement, Grandma Millie and the rest of California will squeeze justice from this corporate turnip. All things considered, this is a good resolution for the state's ratepayers," Lockyer said in a statement.

Manufactured crisis
Lockyer has painted Enron as the mastermind of California’s energy crisis, which was marked by blackouts and soaring consumer energy prices. He accused the company of using trading schemes to drive up the cost of electricity in the state’s newly deregulated market.

“They were certainly the leader of the pack,” he said. “They were the company that invented a lot of the market manipulation games that allowed this to happen.”

Enron’s interim CEO Stephen Cooper said in a statement that the settlement helps Enron move forward to resolve its bankruptcy “so that we can accelerate distributions to all other creditors.”

About $65 billion in claims are awaiting settlement in Enron’s bankruptcy case, company officials said. California’s claims will be joining that long line.

Once the settlement amount is set, California’s three investor-owned utilities — Pacific Gas and Electric Co., Southern California Edison and San Diego Gas and Electric — will calculate how much each will receive in refunds.

How the utilities will use the refund is up to the California Public Utilities Commission, said Edison spokesman Gil Alexander. The PUC has directed utilities to use previous refunds to offset future rate increases, he said.

Billions in refunds sought
California had sought nearly $9 billion in refunds for overcharges by dozens of energy companies. Wholesale energy prices hit all-time highs during the crisis. Utilities rang up billions in debt because they couldn’t pass those higher costs on to retail customers.

The state has been negotiating settlements with many of the energy companies through the FERC. The Enron deal announced Friday is the second-largest of the state’s energy settlements, behind a deal valued at greater than $1.6 billion with Houston-based El Paso Corp.

FERC Chairman Joseph T. Kelliher said the settlement with Enron would bring to nearly $6 billion the amount of refunds related to the energy crisis negotiated through the commission.

“The dark cloud of litigation and regulatory uncertainty has been hanging over California for five years now,” Kelliher said in a statement Friday. “That’s too long. It’s time for all of us to step up to the plate and resolve these remaining issues.”

Enron emerged from bankruptcy last year. Thousands of workers lost their jobs and investors lost billions when Enron declared bankruptcy in 2001 and its stock became worthless.

Since then, 33 people have been charged as a result of the Justice Department investigation. Of those, 16 have pleaded guilty, five were convicted and one was acquitted on charges of conspiracy and fraud at trial last year.

Five others are awaiting a verdict after a three-month trial centering on Enron’s defunct broadband unit; three are fighting extradition from Britain; and three — Enron founder Kenneth Lay, former CEO Jeffrey Skilling, and former top accountant Richard Causey — are bound for trial on charges including conspiracy and fraud in January next year.

© 2013


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