Enron's Skilling Calls Rumors Only "Noise"
Prefacing an hour-long discussion with investors on Friday, Enron Corp. COO Jeffrey Skilling said the rumors about the Houston-based energy giant, which have sent the company's stock spiraling to a 52-week low, are mostly "noise," with no basis in fact. Skilling, who said his comments would be "short and sweet," reiterated more than once that business from all four sectors is in "great shape."
"I wish we didn't have to have this call, but with what's going on in the stock market, we thought we better have this call," said Skilling. He went through each of Enron's four business segments, offering an update, and addressing what he called the "four areas of noise" within the core businesses.
About the only "problem" Enron has had has been completing its divestiture of Portland General Electric, said Skilling, and even if that is not approved, it would not be a bust for Enron, he said. Portland General was first put on the block in 1999, and Sierra Pacific Resources announced plans to pick it up (see NGI, Nov. 15, 1999).
The Oregon Public Utility Commission approved the merger last November (see NGI, Nov. 6, 2000), but it still has not received approval from the Federal Energy Regulatory Commission or the Securities and Exchange Commission. If the final approvals don't come, Skilling said Enron has come full circle on the deal, and because "pipelines are doing great," it would actually be a "positive" if the sale did not go through.
"If it (the sale) does not happen, it is credit positive to Enron," Skilling said. "We're not in a particular rush to get it done. There would be no impact in fact (if it didn't occur). In fact, it would be somewhat positive if it did not occur."
The second business sector he focused on, wholesale, is "having an outstanding quarter," Skilling said. "We are seeing the impact now of enormous growth. Volumes are up, even though they are slightly below the fourth quarter, but (that quarter) was unusual. Financial volumes are double what they were a year ago." Skilling said EnronOnline now has about 5,000 transactions a day and he expected it to grow.
In the retail segment, Skilling said Enron was actually "seeing a positive effect out of the chaos of California," because of the "tremendous interest" in retail business. Its outsourcing unit, which maximizes energy costs for businesses, has drawn a lot of interest from utilities, he said, that want to "move out of the merchant function." For that, "Enron is in a perfect position."
Regarding its broadband unit, Skilling was blunt and to the point. "There have been broadband rumors out there that we have terminated our intermediation business. That's absolutely not true." He said, "I want to remind you that we have an enormous lead" in this business. He cited some competitors in the business, including Williams, but said, basically, that Enron was ahead of the pack in every area. He predicted broadband would have between 400 and 500 transactions this year, which would be "ahead of the plan. We expect it to do good business for us."
Pointing out that the failure of Enron to maintain its long-term contract with Blockbuster for video-on-demand was real, Skilling said the contract "was not providing us the content that we wanted," but he said it was an area the unit was working on and that he was "very confident we'll have specific contracts to show you" before the end of the year.
Responding to rumors that Enron is laying off people or shuffling management, Skilling did not admit to any layoffs, but said that the bandwidth market did not require the company to "make as large an investment in network because we'll have access to third party networks. We have a very positive outlook in this, and we expect the capital budget to be lower than anticipated "if we can get contract access." With that, Enron can do what it needs to do with "less capital employment. It's important for us; we're committed to it. Our strategy was predicated on a surplus in supply."
Skilling said Enron also was going forward to grow its liquefied natural gas market. He said Enron had "made a lot of progress" on LNG, with 15 spot cargoes already this year, "up from virtually nothing last year. We are very interested in this for our future," he said, pointing out that Enron had options on three LNG ships, and was moving ahead with its gasification facility in Venezuela, and its plans to build an LNG facility in the Bahamas to transport LNG to the Florida market.
LNG is going so well, in fact, that Skilling said EnronOnline, its wholesale trader, would begin listing LNG "later this year."
There also have been rumors swirling that the executive team at Enron is shaking out. On that, Skilling said there have been some major shifts, but all of them are positive. The most prominent is a promotion for Lou Pai, CEO of Enron Energy Services LLC. Pai has been tapped to head up Enron's newest unit, Enron Accelerator, Skilling said, which will "take the six best ideas at Enron and create businesses out of them." He said the new unit had a "very good upside," but declined to offer other details.
Other moves also are planned within Enron's executive team, but Skilling said they were strategic moves, with no layoffs. In fact, in a minute of humor, Skilling said the only thing that worried him about the promotions was knowing that there were talented people lined up to replace him. "That's what scares me," he said.