Shakeout unclear in Enron saga Rivals have chance to gain; shares are virtually worthless

NEW YORK--While Enron Corp.'s rivals are poised to gain from itsunraveling, stockholders are left holding virtually worthless sharesand business partners risk losing hundreds of millions of dollars.

An understanding of the fallout from Enron's spectacular demise isonly beginning to take shape, and executives and analysts cautionedthere is still plenty of uncertainty over who will emerge as winnersand who will be losers.

"We are one of the companies that will pick up the slack if Enronceases to exist," said Eric van der Walde, executive vice presidentof trading and marketing at American Electric Power Inc. of Columbus,Ohio. "But there are a lot of people who are going to be hurt verybadly by this."

Homeowners aren't expected to notice any difference in the cost ordelivery of natural gas or electricity, the two main commodities inwhich Enron led the trading on wholesale markets.

But with Enron's collapse--analysts believe it is a matter of timebefore the company files for bankruptcy--huge industrial andcommercial contracts will likely be up for grabs.

In the third quarter, for example, Enron traded 26.7 billion cubicfeet of natural gas and 289.8 million megawatt hours of electricityeach day, or roughly a quarter of all trading volume, analysts said.The company reported quarterly revenue of nearly $47 billion.

Top competitors now licking their chops include AEP, ReliantResources Inc. and Dynegy Inc., which abandoned its offer to buy andpossibly save Enron after two rating agencies dropped Enron's creditrating to junk status Wednesday.

Much of Enron's trading activity took place on EnronOnline, anInternet-based bazaar that just weeks ago was the world's mostpopular platform for unregulated energy trading. After Enron admittedin October that it overstated profits for four years, energy buyersand sellers lost faith in its creditworthiness and began moving toother marketplaces.

Traders said volumes have already increased on the New YorkMercantile Exchange, DynegyDirect and the Atlanta-basedIntercontinental Exchange, which was launched in March 2000 by BPAmoco and Goldman Sachs Group Inc., among others.

As investors grew jittery that Enron might disappear from thescene altogether, they quickly dumped shares, causing tens ofbillions of dollars in shareholder value to evaporate.

For example, California's Public Employees' Retirement System, thelargest public pension fund in the country, holds roughly 2.8 millionEnron shares, worth $197 million a year ago. Their value now: about$1.2 million.

The three financial firms with the most Enron shares at the end ofthe third quarter were Alliance Capital Management Inc., with 43million, Janus Capital Corp., with 41 million, and Putnam InvestmentManagement Inc. with 23 million.

Two people who profited from sales of Enron stock many monthsbefore the company imploded were its chairman, Kenneth Lay, and itsformer chief executive, Jeffrey Skilling. Combined, Lay and Skillingcashed out roughly $33.5 million worth of Enron shares in 2001,according to Thomson Financial/First Call.

Enron has not announced any reduction to its work force of 20,000,although the company said in a statement it would "work to retain theemployees necessary to the continuing operations of our trading andother core energy businesses."

A group of Enron employees sued the company last week, allegingthat mismanagement by executives running the company's 401(k) planresulted in huge losses in their retirement funds. The lawsuit saysemployees were encouraged to invest more heavily in Enron stock justbefore it tanked.

In the category of likely big losers are bankers such as J.P.Morgan Chase and Co. and Citigroup Inc., which lent hundreds ofmillions of dollars to the Houston-based company, hoping to keep itgoing so previous loans would be repaid. J.P. Morgan and Citigroupare each said to be owed about $800 million, enough to send theirstock prices down several percentage points.

Which creditors ultimately get paid will be one of the mostcontentious issues if Enron files for bankruptcy. Dozens of Enron'sbusiness partners have already divulged their credit risk: Dynegy,$70 million; Mirant, $50 million; El Paso, $50 million; the list goeson and on.

"Absent any bankruptcy filings, it's pretty much a free for all,"said Fred Cohen, a consultant for PricewaterhouseCoopers' energy riskmanagement division.

Others potentially left out in the cold include dozens of hotels,manufacturers, retailers and technology firms that signed long-termsupply contracts with Enron to receive various commodities at fixedprices as a way of hedging their exposure to volatility.

Simon Property Group, the nation's largest retail real estateinvestment trust, signed in October 1999 a 10-year agreement withEnron worth $1.5 billion.

Under the deal, Enron is responsible for helping Simon manage its$150 million annual energy budget. At least for now, any attempt tomap out the future of that relationship is futile.

"There's no saying how the process will proceed," said BillieScott, a Simon spokeswoman.

AP