by Dr. Mark H. Shapiro
Commentary of the Day - April 14, 2001: Texas "Energy Bandits" Lose a Round:
The Irascible Professor is pleased to note that the Texas "energy bandits" who have been gouging Californians for the past several months have finally lost a round. On Wednesday, April 11th, federal district judge Phyllis Hamilton ordered Enron to honor the contract it made a few years ago with the California State University and University of California systems.
Under the contract, which Enron Energy Systems signed in 1998, the company agreed to sell electricity for four years to all but two of the campuses in the CSU and UC systems at a rate that was 5% below the price cap set by California's flawed 1996 deregulation law. In a key provision of the contract Enron agreed to supply electricity directly to the campuses covered in the contract. This contract does not expire until March of 2002.
When the price of electricity on the spot market began to skyrocket early this year, it became more profitable for Enron to sell the power on the open market instead. On February 1 the company transferred the CSU and UC campuses it was supplying power to back to Pacific Gas and Electric and Southern California Edison. Enron has been paying the campuses the difference between their power costs from PG&E and Southern California Edison and what they would have paid to Enron. However, with rolling blackouts a reality in California the campuses lost the certainty of supply that they had bargained for when they signed the four-year contract. The campuses sued, and the judge has found in their favor. It appears that here in California a contract is still a contract (at least until a higher court rules otherwise), and a company can't weasel out just because a better deal can be had elsewhere.
California is expecting at least 34 days of rolling blackouts this summer. The effects of these blackouts on university summer sessions up and down the state promise to be severe. However, if the judge's ruling holds, there is a chance that most of the CSU and UC campuses could escape this disruption.
Enron has argued that they have to look out for the best interests of their shareholders. That may be true, but there is no evidence that Enron is hurting financially, To the contrary, the company has just had the most profitable year in its history. In the opinion of the IP, it would suffer no hardship to honor its contracts.
© 2001 Dr. Mark H. Shapiro - All rights reserved.