The University of California and California State University systems filed legal action against Enron Energy Services in the U.S. District Court in Oakland Monday, asking for a preliminary injunction to prevent Enron from what the University of California alleges “”unilaterally alters the contract under which Enron delivers electrical power and other services to the two university systems.””
Enron denies these allegations, maintaining that it “”continues to honor the financial and other terms of its agreement with UC/CSU.””
The dispute stems from a 1998 contract that specified that UC and CSU would become “”direct access customers”” of Houston-based Enron. Under the contract, Enron provides electricity to the two university systems at discounted costs and helps to install special metering systems and conservation programs on the individual campuses, bypassing utilities such as Pacific Gas and Electric, Southern California Edison and San Diego Gas and Electric. The long-term, low-cost power contract was allowed by the implementation of deregulation laws at the time.
At the height of the power crisis in February, Enron asked the UC and CSU systems to switch their meters from the high-tech meters linked to Enron’s system back to meters that would make the individual campuses customers of their respective local utilities.
“”This move by Enron to escape the requirements of the UC-CSU contract would mean higher profits for Enron, but it has the potential for costing California students, parents and taxpayers hundreds of millions of dollars in additional expenses,”” said Joe Mullinix, UC senior vice president of business and finance.
UC alleges that the motive behind what it deems “”a breach of contract”” is the pursuit of profit by Enron, which, if successful, could sell on the California “”spot market”” the electricity that was previously reserved for the UC campuses. This day-by-day market could garner much higher prices for electricity due to California’s recent critical power shortages and high demand.
“”Enron is not seeing any windfall gain from this action,”” said Enron Energy Services spokeswoman Peggy Mahoney.
She also claims that since the utilities did not compensate Enron for power during the power crisis, the company had to purchase power at market prices to supply its customers.
While Enron guaranteed that prices would not fluctuate as a result of this move, UC calculates the total cost of the move could be anywhere between $132 million and $297 million. Some of the costs would stem from the procedural changes: UC maintains all the meters, and the billing system set up with Enron would have to be revamped at each campus.
However, UC and CSU say they would be liable to help pay off the debts incurred by PG&E and SCE over the near-bankrupting power crisis earlier this year. UC would be at risk to cover higher energy costs, should Enron not be able to procure cheap power on the spot market in the remaining 13 months of the contract, which runs through March of 2002.
According to UC, this is because the energy earmarked for the UC and CSU systems would already be sold on the spot market by Enron, and Enron would have to procure energy for the university systems elsewhere.
“”Enron does not have and is therefore not reselling power previously purchase to serve UC/CSU,”” Mahoney said in response to UC’s allegations.
UCSD alone saved $12.3 million as a result of the contract in the eight months between April and November of last year. While San Diego energy prices skyrocketed last summer before the rest of the state’s prices, savings across all the campuses during the energy crisis were a likely result of the contract with Enron.
Enron denies that shifting campuses back over to utilities is its goal. Instead, Mahoney blames the California state Legislature for suspending direct access, a critical part of deregulation, as an option for customers during the latest power crisis.
