Enron Pondering Portland General's Future
Only two-years after winning its hard-fought battle to acquire Portland
General Electric, Enron Corp. President Jeffrey K. Skilling last week said
the company is considering "alternatives" for the electric utility.
"We have gotten significant strategic benefit from Portland, from
the wholesale operations that we acquired with Portland and from the telecommunications
that was actually acquired as part of the Portland acquisition, so we feel
very good about it," Skilling told analysts during a 3Q earnings conference
call last week. "We're constantly looking at alternatives. We, I think
in general, would say that Portland is probably not as strategic as it
was before when it had a strong wholesale business that we could integrate
with our nationwide wholesale business. So we are looking at alternatives."
Enron last week announced a 33% increase in 3Q net income. While Enron
Energy Services signed its largest contract ever in the third quarter,
the unit has yet to show a profit. However, the company said strong performance
to date all but ensures a profit in the fourth quarter.
Enron Energy Services (EES) offers energy outsourcing products to business
customers throughout the U.S. During the third quarter, EES entered into
contracts representing $2.5 billion of customers' future expenditures for
energy services, or three times the $850 million contracted in the third
quarter a year ago. The current quarter's results include the largest contract
signed to date - a more than $1 billion 10-year outsourcing agreement with
Owens Corning (see NGI Sept. 27).
EES is expected to meet or exceed its target of signing $8 billion of
contracts in 1999 for future energy needs of its customers, more than double
the value of contracts signed during 1998. EES third quarter results improved
over all prior quarters, with a loss before interest and taxes of $18 million
compared to a $23 million loss for the same period in 1998. EES is on track
to make a positive contribution to earnings during the fourth quarter,
the company said.
Just last week, EES announced another deal. This one is a $1.5 billion
energy management agreement with Simon Brand Ventures, an initiative of
Simon Property Group, the country's largest retail real estate investment
trust (REIT). Enron will supply or manage all of the energy commodity requirements
of Indianapolis, IN-based Simon Property Group's portfolio for 10 years.
"Given management's optimistic comments regarding the ability to
exceed $8 billion in contracting this year (with nine-month results currently
at the $5.9 billion level), there will likely be large contracts announced
in the near-term - possibly as early as this week," PaineWebber said
in a research note on the earnings announcement. "Looking toward 2000,
though no dollar amount was released, management noted that contracting
levels could substantially exceed that of the $8 billion (or greater) level
projected in 1999.
"With regard to margins, the company noted that contracting activity
continues to show a high margin component, ahead of original expectations.
Management also mentioned that it is currently working on expanding EES
into the international markets and that it continues to see little threat
The EES results were just part of overall earnings reported last week
by Enron. The company realized a 33% increase in net income to $223 million
for the third quarter of 1999, compared to $168 million in the third quarter
of 1998. Results exclude the net benefit of nonrecurring items in the third
quarter of 1999. Revenues increased to about $12 billion for the third
quarter of 1999.
"The scale and scope of Enron's wholesale businesses provide tremendous
competitive advantages in the rapidly growing, deregulating energy markets,
enabling Enron to consistently achieve strong earnings growth," said
Kenneth L. Lay, CEO. "Our new retail energy network has similar operating
advantages and continues to exceed our own expectations both for signing
long-term outsourcing contracts and for profitability. We are extending
our network skills to the high bandwidth communications market and are
pursuing a market-oriented, low-asset approach, patterned after our very
successful global energy business."
Enron's wholesale group consists of two primary lines of business: Commodity
Sales and Services and Energy Assets and Investments. Income before interest,
minority interest and taxes (IBIT) in the wholesale business increased
36% in the third quarter of 1999 to $378 million from $277 million a year
Total gas volumes increased almost 19% in the third quarter, including
increases in every area of Enron's wholesale operations. Total power volumes
for the third quarter of 1999 exceeded both first and second quarter levels
but were down from the unusually high third quarter level last year.
Enron's Energy Assets and Investments business reported $240 million
of IBIT in the third quarter of 1999 compared to $160 million in the third
quarter of 1998.
Transportation and Distribution, which includes Enron's Gas Pipeline
Group and Portland General Electric, generated $137 million of IBIT in
the third quarter, compared to $130 million last year.
Including nonrecurring items, Enron had a 73% increase in third quarter
net income to $290 million, compared to $168 million in the third quarter
of 1998. Third quarter 1999 results included a nonrecurring after-tax gain
of $345 million for the sale of Enron's share in Enron Oil & Gas Co.
Enron has integrated the remaining exploration and production operations
in India and China into its wholesale businesses in those regions. Also
included in the reported results is a nonrecurring, after-tax charge of
$278 million related to adjust Enron's MTBE gasoline additive asset to
its estimated fair value.
Joe Fisher, Houston