Enron Corp.’s interim CEO Stephen Cooper presented a formal draft to move the company’s core energy assets out from under the Chapter 11 reorganization and instead spin-off a business unit with three segments: transportation services, power distribution, and generation and production in North, Central and South America. The proposal, which would separate the core asset portfolio from the bankruptcy estate, could be completed this year, Cooper said, if the unsecured creditors’ committee and the judge overseeing the case approve.

The 42-page draft, titled “OpCo Energy Company,” envisions using part of Enron’s existing asset base in both regulated and unregulated businesses to build on developed and emerging markets. The assets to be pulled into the new company, worth a total of about $10.3 billion, would include 15,000 miles of pipeline assets, 75,000 miles of distribution assets, 6,700 MW of generation and 12,000 employees. It also expects to make money beginning in 2003.

“We envision OpCo or OpCos to be multiple configurations of core energy assets,” Cooper said. However, many of the assets Enron now holds would be sold. “In the main, most of our assets that are outside of North, Central and South America, including the Caribbean basin, will be disposed of. Most of our non-Americas assets will be disposed of.” That would include its substantial business in Europe, and its growing markets in Asia.

By shrinking the assets, OpCo — which stands for “options,” — could concentrate its efforts on making money for the unsecured creditors, who will be faced with years of extensive litigation if the current process continues through the regular bankruptcy court, Cooper said. The spin-off could instead offer the creditors options, who could either accept the plan as drafted or make changes, and then once completed, could either sell the company or companies — however the final plan is completed — to allow them to recoup their losses. They also would have the option to take stock in the new companies, he said.

Within the transportation services segment, the new company would house the Transwestern Pipeline, which delivers 1.9 Bcf/d on 2,600 miles; Enron’s 50% of Florida Gas Transmission, a 4,800 mile line that delivers 1.8 Bcf/d; Enron’s share of Northern Border Partners, which delivers 3 Bcf/d over 1,750 miles of pipe; and South/Central American pipelines that would run 6,400 miles delivering 1.5 Bcf/d.

Enron’s Northern Natural Gas. Co. pipeline was acquired by Dynegy Inc. last January in exchange for a $1.5 billion investment before their merger collapsed late last year. Enron has an option to buy back the 16,500-mile system, which runs from West Texas to the Great Lakes, through June 30 for $1.5 billion plus interest. Cooper, answering questions about whether Enron would sell the pipe outright, said, “We are committed not to give up anything that we believe will, at the end of the day, enhance the recovery to our creditors.”

The power distribution segment would include Portland General Electric, which is now in the process of being sold to Northwest Natural Gas Co. However, it would become the core of this segment, with more than 24,300 distribution miles and more than 730,000 customers. Also included in this unit would be Elektro, the eighth largest power distributor in Brazil, which has more than 52,000 distribution miles and more than 1.7 million customers.

Despite Enron’s announced plan, Portland, OR-based Northwest Natural Gas Corp. said Friday it would like to still buy its neighboring electric utility. While acknowledging that under federal bankruptcy law, the Northwest agreement to buy PGE can be rejected, Northwest Natural said it hasn’t received any notification that its sales agreement has been dropped. The natural gas utility indicated that it will “work with Enron over the next two weeks” to clarify its longer term intentions.

Under a previously set schedule when Oregon’s Public Utilities Commission suspended the utility merger case for 60 days in deference to Enron’s bankruptcy proceedings, Northwest Natural is scheduled later this month (May 17) to give the PUC an update on the status of the proposed purchase in relation to the Chapter 11 bankruptcy. In fact, the Oregon regulators asked Northwest to also arrange for representatives from Enron’s caretaker management to also appear at that time.

The third segment under the Enron plan would house OpCo’s generation and production assets, which would include 4,800 MW generation, as well as a generation site bank that has more than 30 development sites and more than 20,000 MW of potential capacity. It also would produce 100 MMcfe/d, and have 2 Bcf/d in gathering and transport. This unit also would include liquefied natural gas receiving and storage, as well as using its synergies with “key regulated assets” within OpCo.

The units also were segmented in a way that could be separated into single businesses, Cooper said.

“Taking into consideration Enron’s core competencies, the market’s post-petition dynamics, and the nature of the individual assets comprising the Enron Estate, Enron believes there is significantly more value in a combined company comprised of certain key assets that regionally form an integrated asset portfolio, versus separate discrete asset sales,” the draft states. Using Section 363 of the U.S. Bankruptcy Code, the new company would basically be spun off from the bankruptcy and be separate from the Chapter 11 case. Once separate, the company, or companies could be bid for sale to allow creditors to recoup their losses, or the creditors could obtain common stock or bonds in the new entities.

“We believe this process will lead to a maximization of value of Enron’s core energy assets and the mitigation of risk by removing viable operations out from under Chapter 11,” Cooper said. “This enables Enron’s creditors to realize value from the company’s power and pipeline roots through an expedited process.” However, he said, this was just one of the “options” that the company would “openly explore with our creditors.”

While reorganization is usually the preferred alternative in Chapter 11 reorganization, Enron management said that in the case of the Enron Estate, reorganization would not be the “most economically viable path.” The Chapter 11 operations are destroying the value of the company, the draft states, because “regulators are distracted, customers are concerned, joint ventures partners are distressed, company personnel are each adversely impacted by a Chapter 11 reorganization”

The draft also notes that “claims reconciliation is years away” because of the complexities involved in Enron’s business, capital structure and related financings. Litigation also is expected to continue, and “investigations are a major distraction.” It states that the “investigations by regulatory, governmental and law enforcement agencies distract management from operations and further concern partners, customers and employees.” Regardless of the outcome of using Section 363 in the Bankruptcy Code, Enron management said that “value to the Estate is maximized through prompt separation of OpCo or its businesses from…Chapter 11 burdens.”

In a conference call Friday, Cooper said OpCo would immediately have “good assets and a good management team” that would offer a “tremendous combination for delivering value.” The plan was presented to the unsecured creditors committee in New York City on Friday morning. When asked about what would be put up for sale in the near term, Cooper said, “we have shared with our creditors what is up, what is on deck, and what’s still in the dugout.” However, he said he could not disclose the “relatively detailed schedule” of assets to be sold and when they will be sold.

If the creditors approve the plan or some version of it, the final plan would be reviewed and “blessed” by both them and the U.S. Bankruptcy Court for the Southern District of New York, said Cooper. With quick action, he believes it could be completed by the end of this year.

Cooper said that the assets forming the core of the new company “have not, to the best of my knowledge in any way shape or form, have not been tainted by the unsettling issues of the Enron bankruptcy.” He said, “our employees, joint venture partners, suppliers and others continue to have a tremendous amount of faith and confidence” in the core assets, “and I believe as time goes by, we will be able to show the investing public that through the transparency of this process that we are a good candidate by way of investment dollars.”

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