"While overall demand for electricity and natural gas is growing
relatively slowly, the process of deregulation and Enron's ability to grab
increasing shares of the deregulated markets should sustain high growth
rates."
INTERVIEW-Enron sees further strong wholesale energy growth
By Andrew Kelly
HOUSTON, Jan 22 (Reuters) - You might hear more of a buzz about the company's
fledgling broadband telecommunications business, but Enron Corp.<ENE.N>
President Jeff Skilling says he is looking for further strong growth from
core wholesale energy operations to drive Enron's earnings growth for the
time being.
Enron vaulted past analysts' earnings projections on Monday, reporting that
operating earnings for the fourth quarter of 2000 rose to 41 cents per share
from 31 cents a year earlier. Wall Street analysts had expected earnings per
share of 35 cents.
At the heart of that performance was a 90 percent increase in physical sales
of natural gas and electricity by Enron, North America's biggest buyer and
seller of both commodities.
In an interview with Reuters following the company's earnings release on
Monday, Skilling noted that the volume increase in physical energy sales
amounted to 59 percent for the whole of last year compared with the preceding
year.
"I don't see why that would slow down in the future. In spite of what happens
to the economy, we compete in the non-regulated side of the business and the
non-regulated wholesale business is growing by leaps and bounds," he said.
While overall demand for electricity and natural gas was growing relatively
slowly, Skilling said, the process of deregulation and Enron's ability to
grab increasing shares of the deregulated markets would sustain high growth
rates.
"You're seeing the portion of the market that we compete in just explode," he
said.
"CALIFORNIA WON'T HURT EARNINGS"
Skilling said he expected the non-regulated portion of the North American
wholesale energy market to continue to grow at high rates for "quite some
time", even though the California power crisis might slow down the process of
deregulation in those states that had not already started to implement it.
Skilling said the California crisis would not have an adverse impact on
Enron's earnings, because the company was a merchant buyer and seller of
power and gas in California and did not own significant electricity
generation assets there.
Enron was well-placed, he said, to profit from moves underway to deregulate
natural gas and electricity markets in Europe.
"We have a huge head start in Europe over anybody else that's currently
operating in that market. And the market's as big as North America, so we've
got a much better competitive position over there than we ever had over here
in the old days," he said.
Skilling, who succeeds Ken Lay next month as Enron's Chief Executive Officer,
said he was also optimistic about the outlook for the company's fast-growing
Enron Energy Services unit which helps business customers save on their
energy bills and reduce their exposure to sharp swings in electricity and gas
prices.
Last year Enron Energy Services posted an increase in revenues of 155 percent
to $4.6 billion and an operating profit of $103 million, versus a loss of $68
million in 1999 when the business was still largely in startup mode.
"The momentum and trajectory there are excellent. It's just that it's
starting from a smaller base and will take a little longer to catch up," he
said.
For purposes of comparison, Enron's longer established wholesale energy
business posted a profit of $2.3 billion on revenues of $94.9 billion last
year.
Skilling said that in the long run, Enron Energy Services could benefit from
the power crisis in California.
"All of this volatility and uncertainty in the marketplace is encouraging
customers to think of this stuff for the first time," he said. "The phone's
ringing off the hook right now with people saying that they're interested in
talking to us".
Bush adviser opposes cap on Western power prices
WASHINGTON, Jan 19 (Reuters) - A proposal to cap prices for wholesale
electricity in the West in hopes of easing California's power crisis "would
start spreading the shortage around" to other states, an adviser to the
incoming Bush administration said on Friday.
"That is not even a short-term solution," said Ken Lay, head of Enron
Corp.<ENE.N> and an energy advisor to incoming President George W. Bush, a
former Texas oilman who takes the oath of office on Saturday.
Enron is the largest power marketer in the United States, and a cap would
limit the prices it and other wholesalers could charge to utilities.
Lay told reporters the federal government should limit itself to an advisory
role, letting California leaders resolve a "pretty much self-inflicted
problem." Wholesale power prices were deregulated under the landmark 1996 law
but retail rates were not.
A proposal by California officials to cap wholesale power prices in the West
as a way to help their state would merely "start spreading spreading the
shortage around to other states," Lay said.
California endured two days of rolling blackouts this week as two large
utilities struggled under huge debts incurred buying electricity at higher
wholesale prices than they can recoup under the retail rates they are allowed
to charge.
Outgoing U.S. Energy Secretary Bill Richardson said he would issue an
emergency order later on Friday to require out-of-state natural gas suppliers
to sell fuel to a cash-short California utility so it can continue to
generate electricity.
In the short term, Lay said, the state government will have to "buy the power
to fill the short positions of the utilities." The longer term solution will
probably include longer-running contracts to take advantage of electric
prices that are expected to fall later this year.
"The biggest problem in California is consumers are not going to see the
price signals. If they don't see the price signals, they are not changing
behavior so the problem is going to get worse," Lay said.
"Painful as it is, they need to see the price signals and start modifying
behavior to reduce demand until we get new supplies."
California Gov. Gray Davis was expected to sign a bill allowing the state to
spend $400 million to buy power on behalf of utilities. The two California
utilities, PG&E Corp's <PCG.N> Pacific Gas & Electric Co. and Edison
International's <EIX.N>Southern California Edison, have run up about $12
billion of debt and are teetering on the edge of bankruptcy. Their bankruptcy
would rank among the nation's biggest, hitting creditors ranging from
retirees invested in traditional safe havens to institutional corporations,
analysts said.
The Clinton administration has tried to help California by issuing week-long
orders that force out-of-state power generators to sell extra electricity to
the two largest California utilities.
Asked how long creditors could continue to show forbearance toward utilities
with mounting debt, Lay said Enron had moved to mitigate its exposure.
"The generators ought to speak for themselves. They're the ones that have
continued to operate plants and try to keep the lights on until the problem
is worked out," Lay said."But I'm sure it cannot be long. They have to look
out for their shareholders too."
As blackouts hit, San Francisco sues power producers
SAN FRANCISCO, Jan 18 (Reuters) - The City of San Francisco, hit by rolling
blackouts in California's escalating energy crisis, on Thursday sued 13
companies on charges of manipulating power supplies to keep prices high.
"The companies are playing with marked cards," San Francisco City Attorney
Louise Renne said in announcing the suit. "They have a very dim allegiance to
their customers. I think consumers know when they are being conned and this
is a clear instance of corporations taking advantage of a deregulated market
to make a quick buck."
San Francisco's suit comes as California officials led by Gov. Gray Davis lay
blame for the state's power problems in part on out-of-state generators who
are charging the state's two top utilities up to 10 times as much for
electricity as they were at this time last year.
The skyrocketing spot energy prices have left PG&E Corp. <PCG.N> unit Pacific
Gas & Electric and Southern California Edison, a division of Edison
International <EIX.N>, billions of dollars in debt and without sufficient
credit to buy the power California needs.
As a result, the state instituted mandatory rolling blackouts on Wednesday
and Thursday -- enforcing, for the first time ever, widespread power cuts in
an effort to keep the entire electricity grid from collapsing.
In November a $1 billion consumer class action suit was filed in San Diego
charging most of the same power generators with price manipulation, while
three San Diego water districts Wednesday launched their own suit against the
power producers.
Named in San Francisco's suit are Dynegy Power Marketing, Inc.; Enron Energy
Services; Enron Power Marketing, Inc.; PG&E Energy Trading; Reliant Energy
Services, Inc.; Sempra Energy Trading; Sempra Energy Resources; Southern
Company Energy Marketing; Williams Energy Marketing and Trading; Williams
Energy Services Company; Duke Energy Trading and Marketing, LLC.; NRG Energy;
and Morgan Stanley Capital Group, Inc.
The city suit, filed on Thursday in San Francisco Superior Court, charges the
companies with violating the California Unfair Competition Act by conspiring
to restrict supplies and drive up prices.
It seeks a court order halting anti-competitive behavior by the companies and
directing the an estimated $1 billion in what it called "illegal profits" to
consumers.
The suit alleges that the power companies unlawfully restrained the energy
available to California markets through the California Power Exchange (PX),
an auction house for trading electricity, and the California Independent
System Operator (ISO), which oversees the state's transmission grid.
"They conspired to obtain and trade information relating to energy supply,
pricing and demand; and they combined illegally to raise the bid price for
energy on the PX market," the suit charges.
Renne said that San Francisco, which purchases its energy on the wholesale
market, has been forced to pay artificially
inflated prices. "In a freely competitive market, prices would be
substantially lower. Consumers and taxpayers are rightfully outraged," Renne
said.
