Although thousands of Enron Corp. customers are expected to retain energy-services contracts set up by the company — at least for the short term — the New York City bankruptcy judge overseeing Enron’s Chapter 11 reorganization granted the company permission Thursday to terminate several hundred contracts. Enron Energy Services (EES) had been one of Enron’s fastest growing divisions, and before it declared bankruptcy, had secured contracts at more than 31,000 sites in all 50 states and in five countries. The contracts were estimated to be worth more than $16 billion in 2000 alone and last year, Enron scored several other billion dollar deals.

U.S. Bankruptcy Judge Arthur Gonzalez ruled that Enron may cancel up to 700 of the contracts that Enron claims are hindering its Chapter 11 reorganization efforts, with Enron noting they were “burdensome to the estate.” With Thursday’s ruling, Enron is also expected to ask for more contracts to be terminated in the future.

Included in the termination is a $2.2 billion deal signed in January 2001 with Owens-Illinois Inc., which covered power and natural gas supply management in 53 plants located in 20 states over a 10-year period (see Daily GPI, Jan. 23, 2001). Not all of the terminations were listed, but in 2001 alone, the EES division secured long-term contracts with Harrah’s Entertainment, J.C. Penney, Saks Inc., Quaker Oats Inc. and a $1.3 billion energy contract with Eli Lilly.

While many companies may scramble to secure new energy contracts, most that set up contracts during a period of volatile gas and power prices, may find better deals now that prices have fallen, experts maintain. An Enron spokeswoman said the company had notified customers if their contracts would be cancelled, but there was no indication when the contracts would actually be nullified. If Enron was a direct supplier of energy, those customers would have to obtain a new supplier.

In court documents, several companies objected to the termination. Freemall Associates, a Rochester, NY-based company that operates the Freehold Raceway Mall in Freehold, NJ, apparently is affected by the cancellation, and it had asked the court to delay the decision for 30 days until it could obtain services from another company. That request was denied by Gonzalez. Quaker Oaks, a PepsiCo Inc. company also apparently affected by the contract cancellations, did not object to the cancellation.

One power customer, New Haven, CT-based United Illuminating Co. (UI) announced Thursday it has substituted Dominion for Enron North America as its supplier for “standard offer” generation service needs through 2003 (see Power Market Today, Jan.3). The company said the “change was necessary to ensure the continued delivery of energy at stable prices for UI customers, in light of Enron’s recent bankruptcy announcement.” UI spokesman Kevin Moore said the contract with Enron provided an out in the event of bankruptcy, although Enron was continuing to deliver. “The transition was seamless for our customers. Enron’s deliveries ended Dec. 31, and Dominion picked up Jan. 1.” He said the company had started to explore for new suppliers when Enron’s financial troubles reached the critical stage.

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