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The return of a cororate giant -- General Electric rescues Enron Wind from failings of parent

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American corporate giant General Electric (GE) Company is re-entering the wind power business with the purchase of most of Enron Wind Corp's worldwide assets -- but only after Enron Wind completes a voluntary filing for Chapter 11 bankruptcy protection, separate from the bankruptcy declared by its parent corporation. The return of GE to wind power -- two decades after its spectacular failure in the business in the early 1980s -- has the potential to profoundly impact the wind industry worldwide.

"The acquisition of the largest wind turbine manufacturer in the US by GE Power Systems is yet one more indication that wind energy technology has now come of age and will be one of the fastest growing elements of the electric power industry in the 21st century," says the American Wind Energy Association's Randall Swisher. Enron Wind CEO Adam Umanoff says he is "thrilled" with the prospect of becoming a GE company. "It not only assists in mitigating the uncertainties associated with the recent Enron Corp situation, but also demonstrates GE's confidence through its commitment to invest in our company and the wind power industry," Umanoff says. "GE is a very different type of company. It can bring to wind an emphasis on technological development, marketing and manufacturing that Enron did not have. GE makes things," he says, differentiating GE from Enron Wind's parent, Enron Corp, and its monumental financial failings.

Others are more cautious, pointing out that GE's history in wind power is of a company eager to avail itself of government subsidies, but quick to abandon the field once the going gets tough. As part of the US government's wind energy research and development (R&D) program in the late 1970s, GE designed and built the Mod-1 experimental 2 MW wind turbine, which it installed on Howard's Knob overlooking Boone, North Carolina. The two blade downwind machine, one of a whole series of Mod R&D machines built by the US aerospace industry, failed to perform as it should have done and was ignominiously dismantled in 1983.


"This has, to this day, been a black mark in wind energy," comments industry veteran Paul Gipe. "The turbine created a terrible community problem with noise for some of the residents in this mountain valley. Some of the effects could have been predicted," he says. "It was just a disaster from the get-go." Indeed, the history of wind energy is littered with huge corporations who, like GE, have entered wind turbine manufacture and design, only to leave with egg on their faces, among them Westinghouse and Boeing in America, Germany's MBB and MAN, Aeritalia of Italy, Britain's GEC, and most recently ABB (page 26).

Gipe is also concerned about GE's insistence that Enron Wind file for bankruptcy for its US holdings -- a filing registered on February 20 in the Bankruptcy Court for the Southern District of New York, the same day as the announcement of the intended purchase. "They have not started on a good foot, and the biggest evidence of that is that Enron Wind declared bankruptcy. Here, after issuing press releases and assuring the community of Tehachapi, and their clients and their vendors that they were financially sound, they declared bankruptcy. Whatever spin they want to put on it, it doesn't change the fact that they declared bankruptcy," says Gipe.

History ignored

With GE Power's entrance into the commercial wind power market, the company is ignoring GE's early involvement in the industry. "The acquisition of Enron Wind represents GE Power Systems' initial investment into renewable wind power, one of the fastest growing energy sectors," says John Rice, president and CEO of GE Power Systems. "This acquisition will broaden the environmentally friendly, power generation options available to our customers." GE Power manufactures turbines for hydro, nuclear and natural gas power plants.

GE Power Systems expects to complete the purchase of Enron Wind, largely comprising its manufacturing facilities in California, Germany and Spain and its wind project development division, by the second quarter of this year. The bankruptcy filing does not apply to the company's European holdings. Umanoff does not know at this point how GE Power plans to structure the new wind business or what the business will be named, but says nearly all of the company's 1600 employees worldwide will go to GE Power.

Bankruptcy condition

GE Power's condition on the deal that Enron Wind file for bankruptcy is aimed at saving the transaction from any financial problems that could arise later as Enron Corp moves through its own contentious bankruptcy proceedings. Umanoff says the filing will allow the deal to be structured as an asset sale, something that is more efficient if done under the protection of the bankruptcy process. "It's done for the express purpose of implementing the sale to GE," and is a common vehicle for this type of transaction, he says.

One of the drawbacks to a bankruptcy filing, however, is that creditors are put on hold. According to Umanoff, the filing will slow Enron Wind's payments to creditors. But GE will assume the debt and creditors of the assets it buys will eventually receive payment, a process that could take 60 days or longer after the February 20 filing.

GE says it will bid for most of Enron Wind's US assets out of the bankruptcy court, but will leave on the table any wind farms the company still owns. These include about 20 MW in Europe, in Ireland and Greece. GE will, nonetheless, honour the operational support commitment for those wind farms -- and for others operated, but not owned, by Enron.

The wind farms GE does not buy will continue to be owned by Enron Wind, although Umanoff says they will be sold as soon as possible. Those include several in California and Europe, as well as earlier projects developed by the former California wind turbine maker Zond, before its purchase by Enron.

GE expects to pay more than $250 million for the assets and, with debt, the transaction's value could reach $400 million. While some creditors may be wondering how much of the sale income will trickle down to them, Stanley Horton, CEO of Enron Global Services, which includes Enron Wind, insists some portion of the proceeds will.

Truly huge

As one of the largest of the world's corporations, General Electric Corp had revenues of $129.853 billion and earnings of $12.735 billion in 2000. GE Power Systems, which designs and builds power generation equipment, expects 2001 revenues of $20.21 billion, up 84%, and earnings of $5.18 billion. Most of the increase was due to an increase in demand for small gas peaking turbines. However, GE is expecting GE Power's growth to slow within the next couple of years and says it is looking for acquisitions to make up for the expected lag in growth.

The Enron Wind deal could significantly add to GE Power's coffers. According to the Wall Street Journal, the company had revenues of $750 million last year, up from $50 million when Enron Corp bought Zond in 1997 and formed the wind company.

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