Snohomish PUD case goes to Supreme Court

The U.S. Supreme Court will hear arguments related to whether the Snohomish County PUD should still be paying on a long-term contract signed at the height of the West Coast energy crisis.

The PUD has been paying nearly $2 million a month since April 2001 for 25 megawatts of energy from the Morgan Stanley Capital Group. At the time the contract was signed, that price was about four times the historic cost of electricity, PUD officials say.

Because of that, the PUD has charged that Morgan Stanley inflated its prices while riding the coattails of Enron, which at the time was gouging West Coast utilities by manipulating energy prices to record highs.

"There's very strong evidence that prices were inflated by Morgan Stanley," said PUD attorney Eric Christensen. "We believe they [the Supreme Court] will uphold our case."

Morgan Stanley maintains the contract was created in good faith.

"We are very gratified that the Supreme Court has decided to rule on these cases. We believe that upholding these types of contracts is essential to the predictability of wholesale energy markets and to the long-term interest of energy supply," the company said in a written statement.

Specifically, the Supreme Court will review a decision of the 9th U.S. Circuit Court of Appeals, which ordered the Federal Energy Regulatory Commission (FERC) to rehear the PUD case against Morgan Stanley. The court of appeals ruled last December — about two years after it first heard the case — that FERC failed to use its authority to give the PUD relief from the contract.

The fact the Supreme Court wants to review the appeals-court ruling brings new risk to the PUD, which has been waiting for a new FERC review. Basically, the PUD had assumed that FERC would eventually reverse its earlier decision and order Morgan Stanley to pay a refund for part of the contract.

The Supreme Court does not say why it takes one case over another, but the assumption is because FERC has based its decisions on other Supreme Court rulings regarding energy regulations that are about 50 years old.

"Sometimes people make the assumption that to review a case means they'll overturn it," Christensen said. "But recent [FERC] decisions have been based on court rulings from a long way back, and the markets have changed drastically during those times."

Because the case is still undecided, FERC officials would not comment Tuesday.

The PUD contracted with Morgan Stanley beginning April 1, 2001, agreeing to pay $105 per megawatt hour for 25 megawatts of continuous electricity through 2009.

As evidence of Enron's market manipulation unfolded, so too did evidence that other companies also inflated prices. The PUD contends Morgan Stanley is one of those companies and asked FERC to cancel its contract with the company in February 2002.

Because the local utility has been unable to get a favorable ruling from FERC, the PUD has continued receiving and paying for electricity from Morgan Stanley, having now paid Morgan Stanley about $130 million on a contract worth $200 million.

The PUD is not alone in requesting an out from long-term contracts signed during the West Coast energy crisis of 2000-01. Utilities in Nevada and California also have been fighting similar contracts and seeking refunds.

Because of this, the Supreme Court has combined the PUD case with an appeal by Calpine Energy Services, and is expected to hear arguments some time in January.

The Supreme Court most likely won't issue a decision before April.

Christopher Schwarzen: 425-745-7813 or cschwarzen@seattletimes.com