By the OGJ Online Staff
HOUSTON, Apr. 17�Energy marketer and trader Enron Corp. Tuesday reported better-than-expected 2001 first quarter earnings on big increases in retail energy services and higher wholesale trading volume.
The Houston company also boosted its earnings target to $1.75-1.80/share for the year, up 5�/share. CEO Jeffrey Skilling said on a conference call wholesale and retail services volumes are still expanding rapidly.
Enron reported first quarter earnings of 47�/share on net income of $406 million, up from 40�/share on net income of $338 million in the comparable 2000 period. The results exclude a nonrecurring aftertax gain of 2�/share from accounting changes. Revenue for the quarter rose 281% to $50.1 billion. Wall Street analysts were expecting earnings of 45�/share.
For the quarter, the company reported a 65% increase in energy volumes to 69 trillion btu equivalents/day (tbtue/d), a 59% increase in new retail energy services contracts to $5.9 billion, and a seven-fold increase in broadband network services delivered.
Skilling said all regions and products contributed to the record results, with Enron's North American natural gas and power businesses leading the increase in profitability. European wholesale earnings also increased, as liquidity and market access on the continent continued to advance.
He said the company has identified about 50 sites that can be used to develop power plants in Florida, California, Canada, and New England�regions where there a potential "grid dislocations." Enron will initiate the projects and sell them as quickly as possible, Skilling said.
"I'm not a big bull on generation investments," he said. The company will continue to avoid "big exposure to steel and concrete in the ground." While the industry is in a seller's market, Skilling said, 250,000 Mw of new projects announced in a market with total capacity of 640,000 Mw suggests it will be only 1-2 years before there is a power surplus.
Electricity is one of the most "undifferentiated" products in the world, he said, exceeding even commodity chemicals. A couple of years from now electricity will be a prototypical commodity business, Skilling said. Meanwhile, the company will attempt to get projects under way and "as quickly as possible sell into this sellers market," he said.
Wholesale physical volumes experienced growth across all regions in the first quarter, the company said. The results included a 65% increase in total wholesale volumes to 69 tbtue/d, a 55% increase in natural gas volumes to 36.5 tbtu/d, and a 109% increase in power volumes to 232 million Mw-hr.
In North America, the company reported a 32% rise in natural gas volumes to 27.8 tbtu/d, and a 90% increase in power volumes to 195 million Mw-hr.
UK electricity change favorable
Skilling called the change from a financially oriented market in the UK to one based on a physical market "very favorable" to Enron. "This plays to our strengths," he said. In addition, Enron's new wholesale commodity businesses, including coal, steel and forest products, contributed to the quarter's strong results. "We are getting a lot of traction in these new markets," Skilling said, faster than expected.
He said more than $525 billion of total gross value has been transacted on Enron Online since inception in late 1999. More than 275,000 transactions totaling $162 billion were conducted in the 2001 first quarter.
Enron's retail energy services reported first quarter earnings before interest and taxes (IBIT) of $40 million.
Skilling said contracting in the first quarter increased almost 60% to $5.9 billion and the company now manages over 31,000 facilities representing 3.1 billion sq ft. Beginning in 2001, risk management activities associated with Enron's retail customer contracts are managed by wholesale services, consolidating all energy commodity risk management activities within one business unit.
Transportation services reported $133 million of IBIT in the first quarter, compared to $128 million in the comparable 2000 quarter. Skilling said several pipeline expansion projects are underway, including 625 MMcf/d of new capacity to Florida, to be completed in two phases beginning the second quarter of 2001, and a 150 MMcf/d addition to California to be completed in 2002.
Primarily due to higher unallocated corporatewide expenses and operating losses from noncore businesses, the corporate group reported an IBIT loss of $158 million for the quarter
Analysts on the conference call repeatedly sought more of an explanation for Enron's reserves against potential losses in the California electricity markets than Skilling was willing to divulge. The company disclosed in connection with Pacific Gas & Electric Co.'s filing for bankruptcy protection it has about $580 million in exposure to the utility, the now defunct California Power Exchange, and the California Independent System Operator.
Skilling said Enron's reserves are "adequate" to cover any potential losses. But, "I'm not giving specific numbers," he said, explaining the company has a proprietary system for assigning credit risks and daily totes up its exposure. He said the system has worked successfully for a decade.