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United States

Wind reaps fruit of green politics

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The entry into wind energy of a huge and rapidly growing natural gas and power marketer is at least partly being driven by political necessity. Just two days after Enron Corporation bought Zond Corp, the largest wind company in the United States, it emerged that Enron had agreed to develop renewables with Portland General Electric (PGE). The agreement was in return for the support of 13 renewables, environmental and consumer groups for Enron's high profile merger with PGE, a major Pacific Northwest utility.

The Zond-Enron deal closed on January 3 and was formally announced on January 6 having been rumoured for several weeks (Windpower Monthly, January 1997). The announcement did not include how much Enron paid for Zond. Based in Houston, Texas, Enron is America's largest single non-regulated power marketer.

Specifically, Zond Corp, of Tehachapi, California, will become part of a new unit, Enron Renewable Energy Corp, to be headed by Robert Kelly, who formerly led Amoco-Enron, the largest US owned producer of solar PV cells. Zond's chief executive, Ken Karas, will be chairman of Zond and vice chairman of Enron Renewable Energy. Karas's new position as chairman of Zond is significant as the position was previously held by company co-founder Jim Dehlsen. In the shuffle, Dehlsen reportedly walked away with $40 million.

Enron's greening

For Enron, the acquisition allows the expanding company to position itself as being increasingly "green" or renewables friendly. Enron-PGE's commitment to renewables in the Pacific Northwest includes a promise to build about 30 average MW of wind and geothermal. The wind portion will be a 24.9 MW Vansycle Ridge project in Oregon, for which PGE has recently signed a power purchase agreement with Zond. It will now be built by Enron Renewable Energy Corp. Enron and PGE also pledged to file a plan to separate transmission from generation and to monitor residential customers' rates. Several of the consumer and environmental groups had previously opposed the merger of the two companies.

PGE also promised to file support with Oregon regulators for a 3% charge on its revenues for ten years to fund renewables, conservation and insulation for low income homes. Enron and PGE also pledged to spend $10 million over ten years on fish habitats, which conservationists believe have been damaged by hydro power.

The Enron and PGE merger proposal was announced in July 1996. The companies intend to merge via a tax-free stock-for-stock deal estimated to be worth nearly $3.2 billion. The merger -- which in past months has made headlines in the power and financial press across the world -- is seen as part of Enron's aggressive growth. It is also a move that has become increasingly common in today's deregulating power market. In addition, Enron is not a household name for ordinary people and merging with PGE is merging with a known brand-name in a fast growing region of the United States.

One of the world's largest integrated natural gas and power companies, Enron has about $15 billion in assets, 7000 employees and operates the largest natural gas transmission system in the western hemisphere. It reported net income of $584 million for 1996 compared with $520 million for the previous year. Its 1996 revenues, also reported on January 21, were $13.3 billion, up from $9.2 billion the year before. The company's earnings per share for 1996 were 12% higher at $2.31 after preferred dividends compared with $2.07 in 1995. In fact, Enron is so large that its acquisition of Zond -- which is small in national corporate terms -- was cleared of "anti-trust concerns" by the US Federal Trade Commission just a few days before the announcement was formally issued.

AWEA tribute

The American Wind Energy Association (AWEA) immediately lauded Enron's acquisition of Zond as a tribute to the foresight of Enron. "Enron is one of the most aggressive and strategic minded players in the energy market," said AWEA's executive director, Randy Swisher. "Clearly, Enron sees renewable energy as a necessary component of their operations -- a component which will give them a competitive edge in tomorrow's electricity market where consumers will be able to choose their own power suppliers," he added.

The purchase, he said, will provide much needed capital for Zond as companies in the wind industry are small and typically under financed. Zond has in the past indicated an intention to go public, but was never able to do so. Since the demise of Kenetech, Zond has become the most active company in the US wind industry.

Some observers had also attributed Enron's decision to move into the wind industry as linked to California's restructuring law. They suggested Enron had its eye on the competitive market that will allow major users of electricity to chose their own supplier at the start of 1998 if they are buying up to half their load from renewable sources, rather than waiting for the full phase-in of open access. Enron's Carol Hensley disputes that explanation. She told Reuters that "all of the existing capacity that Zond has is fully contracted for."

The "green company" motivation also seems more plausible, as AWEA president Norm Terreri implies. "We believe that utility restructuring holds tremendous promise for companies with "green" energy sources, like renewables, as part of their generation mix because environmentally conscious customers will prefer to buy their power from a clean source," he says. Terreri is also senior vice president of Green Mountain Power of Vermont, already a wind plant developer and owner (Windpower Monthly, November 1996).

Sceptical regulators

Even so, federal regulators -- who have still to finally approve the merger -- may still be sceptical. Previous mergers have not always led to lower costs and analysts say the Enron-PGE deal may be opposed. Shareholders of both companies have approved the merger, but other utilities in the region are opposing it, saying it may be anti-competitive. The Oregon Public Utilities Commission must make a final decision by March 17, although its staff was due to have issued a recommendation by January 16. The Federal Energy Regulatory Commission is not expected to review the matter until the state commission's decision next month.

Be that as it may, there is little doubt that Enron is likely to continue its militant growth. The Wall Street Journal reported on January 15 that the company was to announce a first-of-its-kind alliance to manage the energy affairs of 11 cities in northern California. Enron is teaming up with Northern California Power Agency (NCPA), which has 700,000 customers, to manage its energy supply and sales. NCPA is a non-profit utility agency that generates, transmits and distributes power to 11 municipalities including Palo Alto and Santa Clara, both in the heart of burgeoning Silicon Valley.

This Enron initiative is being described as brilliant. About 25% of America's electricity is provided by municipal agencies like NCPA. Because of their customer base, municipalities are considered the belles of the country's deregulation dance. Enron's moving in as dance master is expected to give it higher natural gas sales, once it can compete directly in a deregulated market with large utilities such as Pacific Gas & Electric, which currently supplies gas to NCPA. And it gives Enron a crucial marketing tool -- name recognition.

In the same article the Wall Street Journal also notes that Enron had unveiled, the day before, its first major advertising campaign to familiarise the public with its name. Over five years, it will spend $200 million promoting its name linked with the concept of cheaper electricity. Perhaps some of the promotional literature will also push "green" power and be illustrated with Zond wind plants.

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