While Enron Energy Services signed its largest contract ever inthe third quarter, the business has yet to show a profit. However,the company said strong performance to date all but ensure a profitin the fourth quarter.

Enron Energy Services (EES) offers energy outsourcing products tobusiness customers throughout the U.S. During the third quarter, EESentered into contracts representing $2.5 billion of customers’ futureexpenditures for energy services, or three times the $850 millioncontracted in the third quarter a year ago. The current quarter’sresults include the largest contract signed to date-a more than $1billion 10-year outsourcing agreement with Owens Corning (see DailyGPI, Sept. 23).

EES is expected to meet or exceed its target of signing $8billion of contracts in 1999 for future energy needs of itscustomers, more than double the value of contracts signed during1998. 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 tomake a positive contribution to earnings during the fourth quarter,the company said.

“Given management’s optimistic comments regarding the ability toexceed $8 billion in contracting this year (with nine-month resultscurrently at the $5.9 billion level), there will likely be largecontracts announced in the near-term — possibly as early as thisweek,” PaineWebber said in a research note on the earningsannouncement. “Looking toward 2000, though no dollar amount wasreleased, management noted that contracting levels couldsubstantially exceed that of the $8 billion (or greater) levelprojected in 1999.

“With regard to margins, the company noted that contractingactivity continues to show a high margin component, ahead oforiginal expectations. Management also mentioned that it iscurrently working on expanding EES into the international marketsand that it continues to see little threat from competition.”

The EES results were just part of overall earnings reportedyesterday by Enron. The company realized a 33% increase in netincome to $223 million for the third quarter of 1999, compared to$168 million in the third quarter of 1998. Results exclude the netbenefit of nonrecurring items in the third quarter of 1999.Revenues increased to about $12 billion for the third quarter of1999.

“The scale and scope of Enron’s wholesale businesses providetremendous competitive advantages in the rapidly growing,deregulating energy markets, enabling Enron to consistently achievestrong earnings growth,” said Kenneth L. Lay, CEO. “Our new retailenergy network has similar operating advantages and continues toexceed our own expectations both for signing long-term outsourcingcontracts and for profitability. We are extending our networkskills to the high bandwidth communications market and are pursuinga market-oriented, low-asset approach, patterned after our verysuccessful global energy business.”

Enron’s wholesale group consists of two primary lines ofbusiness: Commodity Sales and Services and Energy Assets andInvestments. Income before interest, minority interest and taxes(IBIT) in the wholesale business increased 36% in the third quarterof 1999 to $378 million from $277 million a year ago.

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 bothfirst and second quarter levels but were down from the unusuallyhigh third quarter level last year.

Enron’s Energy Assets and Investments business reported $240million of IBIT in the third quarter of 1999 compared to $160million in the third quarter of 1998.

Transportation and Distribution, which includes Enron’s GasPipeline Group and Portland General Electric, generated $137million of IBIT in the third quarter, compared to $130 million lastyear.

Including nonrecurring items, Enron had a 73% increase in thirdquarter net income to $290 million, compared to $168 million in thethird quarter of 1998. Third quarter 1999 results included anonrecurring after-tax gain of $345 million for the sale of Enron’sshare in Enron Oil & Gas Co. Enron has integrated the remainingexploration and production operations in India and China into itswholesale businesses in those regions. Also included in thereported results is a nonrecurring, after-tax charge of $278million related to adjust Enron’s MTBE gasoline additive asset toits estimated fair value.

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