Attorney General Lockyer Announces $15.5 Million Settlement with El Paso Electric to Resolve Energy Market Manipulation Case

(SACRAMENTO) – Attorney General Bill Lockyer today announced a $15.5 million settlement with El Paso Electric Company (EPE) that resolves allegations EPE colluded with Enron during California's energy crisis to manipulate the wholesale market and artificially inflate prices.

The $15.5 million payment will be directed to the state's Electric Power Fund, which is used to pay off bonds sold by the state to finance the Department of Water Resources' wholesale energy purchases. The result will be a $15.5 million benefit to ratepayers, because the settlement reduces by an equal amount the revenue ratepayers ultimately must generate to retire the bonds.

"This settlement not only holds EPE accountable for profiteering during California's energy crisis, it will also ease the burden on ratepayers who, in the end, bear the lion's share of the economic harm inflicted on California by the energy gougers who pillaged our state," said Lockyer. "But we're not done yet. We have dozens of active lawsuits and I will continue to work to get back the money that was picked from our pockets during the energy crisis."

Lockyer said EPE has been forthcoming in providing information. He added the company, as part of the settlement, will continue cooperating with the state's investigation of wholesale energy market manipulation. Under the settlement, EPE also will not be allowed to make energy sales under its market-based rate authority through 2004, thus protecting ratepayers from future market fluctuations.

The settlement resolves allegations that EPE aided Enron in specific transactions designed to reap inflated wholesale prices for Enron. These transactions included "ricochet" deals in which Enron evaded price caps on energy sold within California. In such transactions, Enron transferred energy across the California border, where it was held by EPE, then sold back into the state at uncapped prices.

The Attorney General's Office, representing the people of California, spearheaded the settlement negotiations with EPE. The settlement would supplement an agreement reached last December between staff of the Federal Energy Regulatory Commission (FERC) and EPE by increasing the company's payment from $14 million to $15.5 million, and by directing the money to California to benefit ratepayers.

The signatories to the settlement include the Attorney General's Office, the state Electricity Oversight Board and EPE. In addition, the California Public Utilities Commission and Pacific Gas & Electric have agreed to support the settlement. The settlement now will be filed with FERC, which must approve the agreement.

El Paso Electric is a regional electric utility that provides generation, transmission, and distribution service to about 314,000 retail customers in a 10,000 square mile area of the Rio Grande valley in west Texas and southern New Mexico. El Paso Electric is not affiliated with El Paso Corporation or any of its subsidiaries.