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 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 Thursday 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. Gonzalez was expected to sign the official order last Friday.

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 NGI, Jan. 29, 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. Other companies that have contracts with Enron include United Airlines. TXU Energy Services and Chase Bank.

When Enron filed for bankruptcy on Dec. 2, EES sent letters to its counterparties advising them to consider alternative arrangements to obtain energy services, according to Weil Gotschal & Manges, the law firm handing the case for EES and Energy Enron Marketing Corp., Enron’s retail operations. EES now is in the process of evaluating the contracts to determine “which are valuable to the estate and which are burdensome,” but has not scheduled additional filings yet on terminating additional contracts.

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 addition to the private sector and the state’s two massive university/college systems, a number of California’s more than two dozen municipal utilities are holding contracts with Enron Corp., which a bankruptcy judge has now ruled the company can terminate.

The City of Roseville, CA, north of the state capital, Sacramento, operates a 243-MW (peak load) municipal electric utility and it has a five-year, 50-MW contract with Enron running into 2005. Except for the first two weeks of December when the market price was cheaper than the contract price, Enron supplies are been flowing uninterrupted, according to a city utility official.

In Southern California, the City of Glendale municipal utility has lost a natural gas supply deal involving Enron, bringing an average of 41.7 million cf/day. Deliveries stopped with the early December bankruptcy filing, and the city has been buying supplies on the spot market at prices well below the contract price,an official with the Glendale Muni said.

The nearby City of Pasadena, CA, home to the Rose Parade and Rose Bowl football game each New Year, also participated in the natural gas supply deal that was aggregated nationally by a nonprofit, public power buying entity in Nebraska, the American Public Energy Group, which uses nontaxable bonds to finance the purchases. Glendale and Pasadena munis signed on with American Public Energy in July 1999 for four-year deals running into 2003, but all of the deliveries stopped shortly after the Enron bankruptcy filing.

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 Oats, a PepsiCo Inc. company also apparently affected by the contract cancellations, did not object to the cancellation.

Already, at least one power customer, New Haven, CT-based United Illuminating Co. (UI) has changed suppliers, announcing Thursday it has substituted Dominion for Enron North America as its supplier for “standard offer” generation service needs through 2003. 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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