Enron in Pact to Help Utility Brace for State Deregulation

Bracing for the rigors of a soon-to-be deregulated electric marketplace, a Northern California utility will form a “strategic alliance” with Houston-based Enron Corp. in an effort to cut prices and offer new services to nearly 700,000 homes and businesses.

The Northern California Power Agency, a nonprofit utility that sells electricity to 15 cities and utility districts, and Enron Capital & Trade Resources described their alliance as the first of its kind in the nation.

Enron, one the world’s largest marketers of natural gas and electricity, will help the NCPA manage its power supply and energy sales, and look for ways to operate more efficiently. The two firms also agreed to sell surplus power to each other.

The new age of electric power deregulation dawns in California next Jan. 1, and utilities on the brink of losing their monopolies are frantically seeking ways to better compete.

Municipal utilities like Roseville-based Northern California Power Agency face the prospect of going up against bigger and more monied companies that are eager to poach in new territory. California’s electric rates are 50% higher than the national average, making the state’s electric market an attractive target.

The coming of deregulation already has pushed together the parents of Southern California Gas and San Diego Gas & Electric in a proposed $4.3 billion merger that would create the nation’s largest utility.

The Los Angeles Department of Water and Power last October said it also is seeking an alliance much like the one the NCPA and Enron unveiled on Wednesday. DWP officials have been talking to Enron as well as two other companies.

Analyst Curt Launer, who follows Enron for Donaldson Lufkin & Jenrette in New York, said the agreement puts NPCA and Enron ahead of others in the industry.

“It is meant to be a leadership position by a leadership company in a state that, in many measures, is leading the way for these things to happen,” Launer said.

The NCPA sought the agreement with Enron because “it became very clear to us that we would need to be in a position to offer our customers products and services and capabilities that we don’t currently have,” said NCPA General Manager Michael W. McDonald.

Under the preliminary agreement, Enron is expected to provide a variety of products and services to the NCPA, including the sale of natural gas, and financial and risk-management products.

The retail customers who are supplied power by the NCPA will benefit through lower energy bills, as well as new services such as level billing plans and a single billing source for electricity and natural gas, the two firms say.

In addition, the NCPA, which generates its own electricity, will buy electricity from Enron as needed, and Enron will buy excess power from the NCPA when available, McDonald said.

The NCPA is hoping that Enron’s marketing power will allow it to pay less for the energy it buys and to receive more for the energy it sells, he said.

Enron also will develop new customer billing and metering systems for the NCPA’s members. Together, the NCPA and Enron will look for new customers for their services, McDonald said.

Enron President Jeffrey K. Skilling said he believes the agreement is the first in the country and “introduces a new era in energy management to the state of California.”

“Our studies have shown that municipal utilities have strong relationships with their customers,” Skilling said. “For the customers, it’s the best of both worlds. They get new services as they become available under deregulation and they maintain the strong service link with their municipal utility.”