Enron's Former Customers Try to Find a Replacement

Flynn McRoberts , Chicago Tribune

Knight Ridder/Tribune Business News ( February 08, 2002 )

Feb. 8--At its peak, Enron Energy Services was a $50 billion business with contracts scattered across the nation. But it all started several years ago inside the headquarters of the archdiocese of Chicago just off North Michigan Avenue.

That's where Angela Schwartz, a senior director of solutions sales at Enron, successfully pitched the church on the first contract of its kind for EES: a middleman who would offer discounts on power bills and teach companies how to make themselves more energy efficient.

The contract was no leap of faith for the archdiocese and companies across the country. It was a way to secure that commodity most precious to big organizations of all kinds--stability.

But the guaranteed prices and energy-bill predictability that Enron offered have evaporated along with the energy-trading giant's profits.

Amid the rubble of Enron's bankruptcy, some of Chicago's most prominent corporate and civic names are now moving to find a replacement for Enron, who had sold them contracts worth hundreds of millions of dollars stretching over several years or more.

The bad news is that Enron's former customers don't know if they will have to pay more for their natural gas and electricity now that their Enron middleman is no more. Last month, Dean Foods said its energy cost would jump and its earnings would fall this year because its Enron contract was voided after the Houston company's bankruptcy.

For others, though, the good news is that wholesale energy prices have tumbled by as much as 40 percent in the last nine months, so commercial and industrial power users such as the archdiocese have fresh leverage to dicker for better prices.

"All these clients that have these Enron deals were being very smart in trying to manage future price increases," said Craig Sieben, chief executive of Sieben Energy Associates, a Chicago-based energy management consulting firm that helped arrange a number of these contracts.

"This was not a fool's process. These were smart companies and organizations who were unceremoniously dumped back on the market and who now have to put together a new strategy to deal with a new energy environment."

The nightmare scenario occurred in Connecticut, where a state agency stands to eat as much as $220 million from a deal in which Enron had committed to buying power from a Hartford trash-to-energy plant.

But so far, such losses from paying Enron upfront, only to be left holding bad I.O.U.'s, appear to be the exception, energy experts say. Most of Enron's customers were on a pay-as-you-use power system; for them, the damage is limited mostly to the lost opportunity for savings.

The City of Chicago, for instance, had signed a multi-year contract with Enron last summer in which several city departments, the Park District, CTA and other city agencies were to get $4 million a year in savings.

About $2.5 million of that savings still will occur because Enron showed the city how it could more efficiently select rate structures--a benefit that it can book regardless of Enron's continued existence.

But the city will lose out on the other $1.5 million a year in savings that was to come from discounts Enron offered as the energy billing agent for the city, according to Jessica Rio, spokeswoman for city's Department of Environment.

Rio also noted, however, that the city hopes to save as much as $6 million annually within a few years once it has completed a plan announced last fall by Mayor Richard M. Daley to retrofit 15 million square feet of public facilities with energy-efficient lighting and equipment.

Like many commercial power users, the archdiocese of Chicago still isn't sure how much more it may pay without Enron as its billing agent. The archdiocese signed a seven-year contract for nearly $250 million that took effect in early 1998.

"We're still negotiating the final prices of our new contracts with our suppliers," said Jim Dwyer, spokesman for the archdiocese. "So we don't know right now whether we're going to be paying more or less."

Under the old contract, individual parishes would write monthly checks to Enron, which would pass those payments along to the actual utilities. It was a good deal for the church because Enron offered price discounts and suggestions on how the archdiocese's 378 parishes, 261 elementary schools and seven high schools could be more energy efficient.

"We're not ashamed of working out a contract that saved us money, because we have to be very careful stewards of our money," Dwyer said.

The archdiocese still is reconciling the bills that parishes paid to Enron and the invoices showing how much power those parishes used--a process that could take several months.

Some parishes may end up owing Enron money; others may be owed money by the bankrupt company. But Dwyer said no single parish will be left holding the bag.

"If some parishes owe Enron more and other parishes deserve a credit, we can work that out internally," he said. "So no parish should really feel like they're going to be out any money."

Several private companies declined to specify if they expect to lose money in the transition to the post-Enron world of power supply. But they, too, are looking to adjust.

"We have secured alternative resources to manage our energy services and needs for our manufacturing in North America," said Mark Dollins, spokesman for Chicago-based Quaker Oats.

Asked how much Quaker might lose in energy-cost savings without the 10-year contract with Enron it announced a year ago, Dollins replied: "I'm not at liberty to comment on that. We'll simply seek alternative ways to save our energy dollars."