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Subsidiary sees a bright silver lining -- Enron Wind treats collapse of parent as blessing in disguise

As dramatic and painful as Enron Corporation's pending bankruptcy may be for many of its employees and subsidiaries, it could put the faltering energy trading giant's wind subsidiary on the trail to a better future. Instead of placing Enron Wind under the thumb of the courts after its parent company filed for bankruptcy protection on December 2, the filing has actually accelerated a process that had already been in the works for nearly a year, says Adam Umanoff, Enron Wind's chief executive officer.

"There are no guarantees and we'll have to see how this plays out, but the likely outcome is an accelerated sale of the wind business," Umanoff says. "There is a lot of discussion and we're moving as quickly as we can." He predicts an announcement early in the first quarter of the year, but will not name any buyer. Speculation over companies potentially interested in Enron Wind range from power station and component manufacturers like Siemens, ABB and Alstom to energy giants in Germany like E.on and RWE and a number of finance institutions, among them the private equity arm of Switzerland's UBS Warburg.

"The key is that we're a healthy company," Umanoff says. "We've got to get through this parent difficulty, get the business sold and be patient. While this is a difficult chapter for the Enron Corporation, it presages a new state for Enron Wind."

Downfall of a giant

Before its crash Enron Corp controlled nearly one-fourth of the US energy trading market. It reported revenues of over $100 billion in 2000. But it had also hidden millions in losses from investors in a considerable web of partnerships. When that came to light, confidence in the company disappeared and Enron stock plummeted to a low of $0.25 a share on November 30. The stock opened 2001 at $84.

A bailout by cross-town rival Dynegy Inc failed when Enron stock dropped below the price agreed to in the buyout. By early December, the company that once employed 21,000 people worldwide had laid off 7500 workers at its Houston headquarters in Texas and 1100 in the UK. While the Dynegy buyout was in the works, Enron paid 75 energy traders $50 million in bonuses to keep them at work -- and prior to filing its bankruptcy petition in a New York court, gave another $55 million in bonuses to 500 more employees. Meantime, departing employees received a flat $4500 severance package regardless of how many years they had spent with the company.

To add to its woes, Enron employees are suing the company for having locked in their retirement funds, largely made up of failed Enron stock, while 29 Enron current and former officers are being sued for selling off more than $1 billion in stock and stock options over the past two years. The suit alleges the officers knew about the losses when they began the sell off.

In early December, Enron arranged for an infusion of $1.5 billion in cash by putting up many of its holdings as collateral. Umanoff says that as far as he knows, no wind assets have been included in that collateral package. He says the wind company will continue to operate relatively independently, as it has since Enron Corp brought Zond into the fold as a wholly owned subsidiary in 1997, changing its name to Enron Wind. Enron Corp also acquired the former Tacke Windtechnik, a German wind turbine manufacturer, in October 1997, rescuing it from bankruptcy and bringing it under the Enron Wind umbrella.

Wind independence

"Unlike other businesses Enron owns, we have operated fairly independently," Umanoff says. "We are certainly not a core business. Enron is primarily a trader, not an asset owning business. We are one of the few companies it owns that actually makes a physical, tangible product." Another reason Enron and its creditors have so far left Enron Wind out of the collateral package is that the company may be more valuable when sold if it is unencumbered by liens placed on it by the bankruptcy proceeding. Even so, several of Enron Wind's suppliers, particularly in Europe, are concerned that the troubles of the mother company will reverberate down to its wind subsidiary.

customer view

"If a parent company collapses, this can create difficulties for subsidiaries," comments Dietrich Meyer of German wind project developer Red Project Management in Frankfurt. "The parent may have provided guarantees or letters of comfort, making it easier for the subsidiary to obtain credit," he explains. "Until customers know how the subsidiary is financially secured they are likely to be reserved."

"It's not yet clear what will happen," says Bernd Neddermann of Oldenburg-based wind developer EBV. "For the moment we can only assume that contracts with Enron Wind will be honoured." Enron Wind is "acting successfully in a booming market, and whatever happens it's in the company's own interests to keep customers happy," he adds.

Umanoff agrees that Enron Wind is "being tarred with some unfortunate feathers." The company has been busy assuring its commercial partners that it is "business as usual" and that Enron Wind is an autonomous unit. One of the company's main clients in Spain, renewables developer Sinae, says it remains wary but composed after receiving assurances from Enron Wind Ibérica. It is expecting to build nearly 500 MW of wind plant in Valencia using Enron Wind technology, but says it is in a position to legally be able to select another supplier if necessary.

A banner year

Last year was a good one for Enron Wind. In fact, Umanoff says, it was "undoubtedly, one of the best years ever" for the company, especially in its major markets of Germany, Spain and the US. It sold about 280 of its 1.5 MW turbines to the US market; over 200 of the 1.5 MW unit and a series of smaller turbines in Germany -- up a little from last year; and several of the 1.5 MW and 750 kW turbines in Spain, where Umanoff calls Enron a "new kid on the block." Indeed, Spain's major wind plant developer, Energía Hidroeléctrica de Navarra (EHN) is currently putting up 79, Enron Wind 1.5 MW turbines in Navarra. EHN has already installed 99 of the 750 kW model in Castile La Mancha.

Compared with 2000, however, when Enron Wind installed 248 MW in Germany, winning a 15% market share, its share of the German market dropped to 9.3% in the first half of 2001, putting it behind Enercon, Vestas Deutschland and NEG Micon. Its main rival in Germany, Enercon, sits on 27% of the market

Enron Wind GmbH and its sister company Enron Wind Service GmbH, both based in Salzbergen, are each owned 100% by Enron Wind Holding, also based in Salzbergen. It and the American wind division, Enron Wind Corp of Tehachapi, California, are each fully owned by Enron Renewable Energy Corp in Houston, which is a 100% subsidiary of Enron Corp. Enron wind also owns Tacke Wind Energy India, a marketing and development arm.

Enron Wind designs and builds wind turbines and offers project development as well as financing, operation and maintenance services. It has production facilities in Tehachapi, California and in Salzbergen -- and since mid 2000 near Toledo in Spain. The European end of Enron Wind was strengthened with a capital increase in autumn 1999 and its product line integrated with the American Zond technology. The company says it has sold more than 4900 turbines worldwide and expects its 2001 business result to be an improvement on 2000. It anticipates further positive company development in 2002.

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