Connecticut Feels Fallout From Enron
The New York Times
February 22, 2002
By PAUL ZIELBAUER with MICHAEL BRICK
rying to make up for $220
million lost in a murky deal
with the Enron Corporation
(news/quote), the Connecticut
state trash authority voted
yesterday to raise its rates,
effectively increasing household
garbage fees in 70 towns -
representing more than a third of
the state - by nearly $50 a year.
Though the State Legislature may
challenge the fees, they
represent perhaps the most
concrete example of how Enron's
collapse has jolted the finances of
people who never worked for,
held shares in, or knew the first
thing about the company. The
deal with Enron, meanwhile, has
set off an election-year political
fight in Connecticut.
At a meeting in Hartford, the
Connecticut Resources Recovery
Authority, a quasi-independent
public agency, voted to increase
its trash-dumping fees by 31
percent and to impose a $20 fee
for collecting recyclable waste.
Last March, the authority paid
Enron $220 million, ostensibly to
take over a contract from a local
utility to buy the authority's
trash-generated steam electricity.
In exchange, Enron - though it
never actually transported or sold
the electricity - agreed to pay
the authority nearly $2.4 million
a month, through the contract's
expiration in 2012.
With Enron's collapse, the
authority became one more
unsecured creditor, and officials
acknowledged earlier this month
that they would probably never recover the $220 million
they advanced to Enron.
The deal has been criticized by the state attorney general,
Richard Blumenthal, a Democrat, and by Democratic
candidates for governor. The Democrats have been eager
to blame the $220 million loss on Gov. John G. Rowland,
a Republican whose co- chief of staff, Peter Ellef, is the
chairman of the trash authority.
In a preliminary report released Wednesday, Mr.
Blumenthal denounced the deal as an unsecured loan
"disguised and camouflaged" as an energy transaction. He
said the authority, which state law prohibits from making
loans, hoped to reap a 7 percent profit over the contract's
11- year span. The terms of the contract would have
obligated Enron to pay the agency $21.3 million from
April 2001, when it took effect, to December, when the
company filed for bankruptcy protection.
As for Enron, Mr. Blumenthal said in an interview
yesterday that its "motive was to have a quick $220
million, which it certainly did not book as a liability." He
added that the deal "fits the pattern" of many other
transactions that Enron made in the months before it
collapsed, borrowing money in deals that made little
long-term financial sense.
Enron, he said, was required to make its monthly
payment to the state agency regardless of whether it
produced any electricity. Under the deal, Enron gained
title to the authority's energy only for an instant before it
was transferred back to the agency, Mr. Blumenthal said.
In essence, his report concluded, Enron did nothing in
return for the money it received from the Connecticut
agency except promise to pay it back, with interest. "This
$220 million was an infusion of cash when Enron needed
it," he said.
An Enron spokesman declined to comment on the matter,
saying he was unfamiliar with the transaction.
Mr. Ellef, the trash authority chairman, defended the deal
as a good arrangement for the state that simply got caught
up in a financial debacle that humbled dozens of other
institutions, as well. "We were the victim, like everyone
else was," Mr. Ellef told reporters yesterday.
Mr. Blumenthal's report criticized the trash authority for
employing as its lawyers on the the deal the same law firm
that worked as Enron's chief lobbyist in Connecticut.
The Hartford-based firm, Murtha, Cullina, Richter &
Pinney, said earlier this month that it had disclosed its
dual role to both sides in writing. A spokesman for the
firm declined to comment on the matter yesterday.
Robert E. Wright, the president of the trash authority,
whose board members are appointed by the governor and
legislature, said last week that the deal with Enron
evolved from meetings in 2000 about a fuel cell venture.
As the talks proceeded, he said, Enron became
increasingly interested in taking over the authority's
contract with the Connecticut Light and Power Company
(news/quote), a local utility, to buy power that the
authority generated from a Hartford-area trash-to-
electricity operation.
Exactly why Enron wanted to assume the contract under
terms that obligated it to pay money back with interest is
unclear.
Mr. Blumenthal said yesterday that, according to
documents and other evidence his office has examined,
Enron appeared to have discovered during the fuel cell
talks that Connecticut Light and Power planned to pay
the authority $280 million to back out of its contract.
"Enron found that C.R.R.A. was on the verge of receiving
this very large amount of money," he said. "The
discussions went from there."
Separately, the judge presiding over Enron's bankruptcy
case turned back a request from creditors to put a trustee
in control of the company's finances. But the judge,
Arthur J. Gonzalez of the Federal Bankruptcy Court in
Manhattan, ordered the appointment of an examiner to
monitor the finances of Enron's main operating unit,
Enron North America. Judge Gonzalez ordered the
examiner to prepare a report on transfers of money from
the unit, which includes Enron's pipelines and formerly
included its trading operation, to the parent company.
Creditors had asserted that Enron could be moving funds
generated from energy trading contracts to other units,
including some that are not in bankruptcy. They argued
that Enron North America could have generated billions of
dollars while extracting itself from contracts as it prepared
to transfer Enron's trading unit to UBS Warburg last
month.
Enron responded in court filings that it was not draining
away money and pledged that its bankrupt units would
work with the creditors to ensure that money borrowed by
other parts of the company was repaid.
An Enron spokesman, Vance Meyer, said that the
company had no objection to the judge's action. "At the
end of the day, our goal is to emerge from bankruptcy," he
said. "To do that, the creditors have to be comfortable with
the operation. We hope today's decision gives them an
added sense of confidence so we can continue moving
forward together."
Judge Gonzalez had given a group of Enron's creditors -
participants in the company's 401(k) plan - a small
victory on Wednesday. He partly lifted a stay on lawsuits
by the plan participants, allowing them to begin
demanding information from Enron as they pursue
litigation in a federal court in Houston.
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