SAN FRANCISCO (AP) – The city of Santa Clara agreed to pay Enron Corp. creditors $36.5 million to settle a lawsuit over terminated electricity contracts with the city’s municipal utility, the two parties said Friday.

Enron, the scandal-plagued power supplier that collapsed into bankruptcy proceedings in 2001, sued Santa Clara the following year, claiming officials owed it $147 million for terminating two electricity contracts ahead of schedule.

Santa Clara stopped paying Enron in December 2001 after the company ceased delivering promised electricity, said Junona Jonas, utility director for Silicon Valley Power, the city-owned electricity utility.

While Silicon Valley Power contended it was Enron that ended the contracts when it couldn’t deliver electricity, the utility settled to avoid further legal costs.

“We aren’t happy we had to pay,” said Jonas. “We feel we had a strong case. We had to weigh it against the cost of continuing litigation.”

The settlement also calls for Santa Clara to get an unsecured bankruptcy claim of $4 million against Enron assets. In bankruptcy, unsecured claims are typically among the last in line for payment – after banks, but before shareholders.

Santa Clara spent $5 million fighting the suit, which was filed in bankruptcy court in New York, Jonas said.

Santa Clara ratepayers aren’t the first to pay Enron. In May, Palo Alto agreed to pay Enron $21.5 million as compensation for canceling two electricity and gas contracts.

The settlement comes as 16 Enron executives have pleaded guilty to fraud-related charges and former chief executive Jeffrey Skilling and founder Kenneth Lay are on trial in federal court in Houston for fraud and conspiracy.

Outside observers said Santa Clara officials had little choice but to agree to the settlement.

“There are so many outrageous things that have gone on in the context of the Enron debacle that the ordinary rules of logic don’t seem to apply,” said Mike Florio, senior attorney at the Utility Reform Network.

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