Enron to switch Calif. power customers amid crisis Thursday February 1, 7:21 PM EST By Vibeke Laroi

SAN FRANCISCO, Feb 1 (Reuters) - A unit of Enron Corp. said on Thursday it will stop supplying power to its industrial and commercial customers in California, and will instead hand over the task to the state's two financially troubled utilities.

Uncertainty over how California will solve its worst-ever energy crisis, soaring wholesale power prices, the financial mess facing the state's utilities and the winding down of business at the state-sanctioned California Power Exchange are all factors behind the move by Enron Energy Services (EES).

"In California right now, because of the legislative and regulatory uncertainty and because of the financial situation of the utilities, it makes more sense for us, and for our customers, for them to be sourced by the utilities," said Peggy Mahoney, a spokeswoman for EES, a provider of energy management services and a unit of energy giant Enron Corp. (ENE).

"We're risk management experts. The uncertainty...makes it very difficult to manage the risks because every day is a new story," she said.

Mahoney stressed that Enron was not abandoning the market and would continue to sell power to its California customers.

"It doesn't mean anything other than (our customers) will just have a different supplier. They are still our customers. They will still receive a bill from us, we will pay that bill and they'll still pay the same rate. In the eyes of the customers, they won't see the difference," she said.

She said they will be switched to Pacific Gas and Electric Co., a unit of PG&E Corp. (PCG), and Southern California Edison (EIX), a unit of Edison International, both of whom are threatened by bankruptcy as a result of huge debts run up buying electricity in California's chaotic energy market.

The state's top two utilities have been unable to recover sky-high wholesale power prices from their customers due to a freeze on electricity rates, a feature of California's badly flawed 1996 deregulation law.

It was not clear where the utilities would secure the power since their credit ratings have been slashed to "junk" status and they have nearly depleted their cash reserves. No one at PG&E was immediately available for comment.

Earlier on Thursday PG&E defaulted on a combined $726 million of commercial paper and said it would only make partial payments to its power suppliers.

UNCERTAINTIES REMAIN

Mahoney said no one at EES could comment on details of how the new arrangement for supplying electricity would work.

Meanwhile, a major California client was trying to clear up uncertainties. "We are still doing some research," said Rich Seguin, senior energy manager at Kaiser Permanente, the Oakland, Calif.-based managed care organization.

As far as Kaiser understands, an amendment to its contract would give Enron sourcing options, but Seguin was not sure that meant Kaiser's new electricity supplier would be PG&E.

Kaiser, with annual power costs in California of around $65 million, signed a long-term, multiyear contract with EES in 1998. Rates on the contract, like others signed at the time, are much lower than current wholesale prices which are about 10 times as high as last year. Seguin declined to comment on what rate they are paying or any other details of the contract.

Other EES customers were unconcerned with the switch.

Cisco Systems Inc. (CSCO), the biggest networking equipment maker, said Enron will honor its contract.

"If we receive the electricity and the price is the same it is fairly inconsequential," said a company spokesman. He could not comment on the terms of Cisco's contract with Enron.

Household-products maker Clorox Co. (CLX) also said it understands that Enron will continue to provide electricity and energy services to the company's headquarters in Oakland, Calif., and other Clorox buildings in the state.

"Enron will get their energy elsewhere, but any changes will be transparent to Clorox and will not have any financial impact," a Clorox spokeswoman said.

Clorox formerly had a five-year energy-services contract with PG&E Energy Services, she said, but that company went out of business and sold the contract to Enron.

OTHER ENERGY SERVICES

Besides supplying customers with electricity, EES also helps upgrade a company's infrastructure and reduce its energy consumption. It has more than 30,000 customer sites.

Mahoney said only a "few dozen" industrial and commercial clients in California, a "very small part" of its overall energy portfolio, would be affected by the latest move, although she declined to name them.

"We're talking to our customers now and letting them know what's happening," she said, adding that the change will be implemented over the next couple of weeks.

Mahoney said EES analyzed the California power situation for many months before making its decision.

Enron began signing contracts of up to 10 years with customers when it first started providing energy management services in 1997.

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-- Martin Thompson (mthom1927@aol.com), February 02, 2001