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American industry radically reshaped

In a series of seismic shifts in America's wind industry, Zond is not only being bought by power industry giant Enron, but is behind the million dollar purchase of the largest technology asset of bankrupt rival Kenetech Windpower. The purchase was one of two sales of Kenetech assets approved by bankruptcy court last month -- the company's much touted power electronics technology and a wind farm project in Wyoming -- for which $3.35 million will be paid in up front cash. The deals indicate there was indeed significant value in the bankrupt wind company despite its difficulties with manufacturing and with closing projects.

In particular, the agreed selling price of the Wyoming asset after an open court fight on December 16, in which a third US wind company, SeaWest, out-bid Zond with an offer of $3.5 million total for the project, startled industry observers. Of that total, $1.8 million is to be up front cash while $1.3 million will be paid once project approval comes from the US Bureau of Land Management (BLM). Another $400,000 will be paid if the project exceeds 68 MW in installed capacity.

Also surprising was the revelation in early December that Zond is a financial backer of Trace Technologies Inc (TTI), whose purchase of Kenetech's controversial power-electronics business for $1.55 million -- plus possibly the payment of another $1 million or so in various additional costs down the road -- had been approved by US bankruptcy judge Leslie Tchaikovsky on December 5. Zond is apparently approximately a 40% financial backer of TTI, but is unwilling to disclose details of its link to the company.

Giving most cause for wonder was the promise by TTI, a subsidiary of Trace Industries, to indemnify liabilities connected with the debtor's power electronics business beyond a meagre $25,000 in legal costs. The indemnification is for not only Kenetech Windpower but also the company's parent Kenetech Corp as well as various individuals named in the latest lawsuit filed by German wind turbine manufacturer Enercon (Windpower Monthly, December 1996), which Kenetech has accused of infringing its power electronics patent.

But Zond's aggressive stance became more comprehensible when it emerged that Zond is being bought -- in whole or partially -- by Enron, one of the world's largest independent power developers and a major natural gas supplier within the United States. Enron's move is being characterised as smart in terms of marketing the option of green pricing, meeting requirements for mandatory purchase of renewables, or in the unlikely event there is a carbon tax. The Zond-Enron deal was to be formally announced on January 3, according to well-informed sources. In mid December, it was not clear whether Zond would become a wholly-owned subsidiary or whether Enron is buying only the development portion of Zond. Regardless, Zond head Ken Karas will apparently be in charge of the new unit.

Merger mania

Enron Corp of Houston, Texas, known in the power business most recently for agreeing to buy Portland General Corp, whose major subsidiary is utility Portland General Electric (PGE), for $2.1 billion, is one of the companies at the cutting edge of the Amerocan power industry's new "merger mania" in response to deregulation.

Zond officials attending Kenetech's December 16 bankruptcy hearing at the US Bankruptcy Court in Oakland, California, would not comment on the deal. Neither is Zond talking about its involvement in Trace Technologies, headed by former Kenetech officer William Erdman. Trace Industries, based in the Pacific Northwest, is known for making inverters and has some 130 employees and an annual revenue of between $20-30 million.

A last minute attempt to block the motion to sell Kenetech's power electronics to Trace Technologies, at the earlier bankruptcy hearing on December 5, came from the Electric Power Research Institute, Pacific Gas & Electric and Niagara Mohawk. The parties, all part of a consortium with Kenetech to develop the company's 33M-VS model and the power electronics, argued unsuccessfully that the debtor Kenetech did not own the technology exclusively. After court testimony and last minute "hallway negotiations" outside the court room, an agreement was hammered out whereby the buyer, Trace, agreed to make the technology available at a "fair market price" to any licensee of the KVS-33 and KVS-45 technology.

The December 16 hearing was even more lively. The small courtroom was packed with representatives and interested parties. Firstly, the court quickly approved sale of Kenetech's 50% stake in its Ukrainian interest East Wind Ltd for $400,000 plus royalties on future turbines sold to PHB Ukraine Ltd, or Putnam Hayes & Bartlett Ukraine Ltd. The matter of Kenetech's interest in an Arbutus property in Tehachapi in California, for which Windland Inc had bid $1.1 million, was continued until another hearing on January 6 so that other companies could finalise their bids.

Bidding battle

Most contentious was the sale of the Wyoming project. A bid by SeaWest, for $2.9 million total, was backed by both the debtor Kenetech and the creditors' committee. Of that, $1.5 million would be up front and payable upon closure of the deal, $1 million due either upon Bureau of Land Management (BLM) approval or commencement of construction, and another $400,000 payable if the project ever were to be built out above 68 MW. Alan Pedlar, the attorney for Kenetech, told the court that SeaWest would be taking on 100% of the risk that the project is never developed, either because agreements cannot be finalised with the utility owners, or if the utilities-owners cannot agree upon a suitable wind turbine.

Zond unsuccessfully attempted to have the hearing delayed by a fortnight so that it could talk with the utilities involved and offer a similarly apparently solid deal to Kenetech. After a brief recess and more "hallway negotiations," Zond then offered a deal worth $1 million or $500,000 higher than SeaWest's total bid, depending upon whether or not it were allowed time to negotiate in more detail with the utilities.

Kenetech and the creditors declined the offer as not in their best "business interests." Pedlar said he believed SeaWest had a better chance of securing a permit from the BLM as the San Diego based developer had done so much ground work for the Wyoming project. Zond then upped its offer to $3.5 million total (not including the $400,000 cap fee), of which $1.75 million would have been cash payable on closure of the deal. Then SeaWest made a final offer: $3.5 million deal, of which $1.8 million would be cash up front, $1.3 million upon BLM permitting, plus the $400,000 if the cap were exceeded. "Zond would have to be $1 million higher up front for the debtor to be interestedÉ" said Pedlar. And when Zond declined to offer a deal including $2.8 million up front, the sale to SeaWest was approved. It appears that, among other things, SeaWest may have an advantage in not being tied to one particular wind turbine as it is not also a manufacturer, as is Zond and as was Kenetech.

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