The Seattle Times has one of the best “in-depth” articles covering the legal/regulatory battle that produced the tapes themselves.
At the most simplistic level, the dispute comes down to this: Did Enron’s gaming practices and other activities constitute a violation of the tariffs (federal regulations) that allowed them to charge a “free market” price for energy? Did, as Dr. Carl Pechman contends in his testimony on February 27th, 2004 (warning: 15 megabyte PDF), these practices not only affect short term prices, but long term prices (driving them up) – and thus require that the price Snohomish contracted to pay Enron be recalculated on a “fair market” basis… thus, presumably, wiping out the $122 million dollar premium Enron claims it is entitled to as a result of the contract being canceled (its anticipated profit over the life of the contract)?
I can’t quote specifics that I don’t know are in the public record yet, but it is absolutely clear to me, having heard numerous discussions between Enron and its customers, that the latter were extremely alarmed by the unprecedented level of volatility and potential exposure that the short-term fluctuations in pricing induced by Enron’s gaming practices created, and that their behavior changed dramatically as a result – specifically, many of them started considering signing contracts for much longer durations than they had ever considered before (as Snohomish did), and many of them started looking seriously at energy “products” offered by Enron and others that purported to allow them to “hedge” their risk against future volatility of this type. The volatility created a “market” for Enron and others that simply had not existed up to that point – and Enron’s employees were not at all hesitant to serve that market or encourage consideration of such “products” – especially considering that while such contracts were usually priced at a discount to the then current price of energy, said prices were also at significant premiums to long term historical prices for energy.
In other words, California ratepayers and taxpayers shouldn’t be left holding the bag for the high-priced contracts that Gray Davis was strong-armed into signing at the height of the energy crisis, because said prices were the product of artificial manipulations by Enron’s traders (and others… this isn’t just about Enron, a hell of a lot of other folks were playing the same games).
Side note: Dr. Pechman’s testimony, and the accompanying exhibits, consists of a 15 megabyte PDF file of graphic images of text – but, it is well worth reading, even absent the specifics the case, it is a fascinating overview of how the American power system works.