Enron rebirth focuses on roots

By Melita Marie Garza
Chicago Tribune

Enron Corp., the once high-flying energy firm whose demise spawned a renewed emphasis on corporate governance, plans to emerge from bankruptcy as two pipeline and utility companies, according to its reorganization plan filed yesterday.

Enron Corp.'s creditors would get a fraction of what they are owed if the company, driven into bankruptcy by an accounting scandal, emerges from Chapter 11 as two companies with new names. According to the energy company's reorganization plan, most creditors will receive 14.4 cents to 18.3 cents on every dollar owed. Associated Press

Jeffrey Skilling, Enron's former chief executive, once touted Enron's "asset-lite" strategy, but the notion of running an energy trading business without physical assets has all but been discredited.

More than a reversal of fortune for a company that two years ago had the seventh-largest market capitalization in the country, the implosion of Enron has sharply curtailed unregulated wholesale energy trading, stalled a national movement toward electricity deregulation and unleashed a new era of federal regulation.

"Enron is synonymous in the energy industry with everything that is wrong with deregulation or energy restructuring," said Craig Sieben, chief executive of Sieben Energy Associates, a Chicago-based energy company that advises businesses on managing energy risk.

Just last week, a client contemplating signing a contract with an unregulated electricity supplier asked if his agency would "get Enroned" if they did the deal, Sieben said.

In its new configuration, Enron would have a domestic unit, CrossCountry Energy Corp., which would have Enron's full or partial interest in three North American natural gas pipelines. The second company, with the working name of InternationalCo., would include pipelines as well as electric and gas utilities abroad.

Some 20,000 Enron creditors — owed a collective $67 billion — would receive just cents on the dollar under the plan, which has yet to be approved by a federal bankruptcy judge in New York. The creditors also would receive stock in the two new companies, and possibly also in Portland General Electric, Oregon's largest utility. Previously, Enron said it might sell the Oregon utility.

The company's accounting scandal, which centered on billions of dollars in debt hidden in offshore entities, led to the loss of thousands of jobs at the energy firm, and shut down Enron's accountant, Chicago-based Andersen.

Still, it is the Enron scandal, which has resulted in a dozen federal indictments since Enron filed for bankruptcy two years ago, that many observers believe has left a stain on the power business.

Those charged include Andrew Fastow, Enron's former chief financial officer, who faces conspiracy charges, and Kenneth Rice, who headed Enron's broadband operations, and is accused of fraud and money laundering, among other things.

Enron's success in energy trading bred a slew of imitators, requiring Enron to increase the volume of its trades in order to make money, and allowing the company's traders to reap millions of dollars in bonuses. The need to do more trades required greater amounts of capital to back up those trades, a strategy that ultimately was far from "asset-lite," analysts said.

Some analysts believe that increased competition in energy trading pushed Enron to find new things to trade — including weather futures and newsprint futures.

"Enron got into energy trading when the only capital you invested was a Rolodex file, a computer and a telephone," said Tom Woods, senior natural gas consultant at Platts Research & Consulting.

"Then everybody saw how profitable it was and jumped in. It's like being the only McDonald's in Chicago — it's pretty profitable. But suddenly if 10 McDonald's showed up in a two-block radius — suddenly you have problems. Suddenly, you have to have more capital to cover your trades."