An Enron footnote

OK, so now the three crooks in Enron have been convicted. The decisions seem about right to me. The next step is to try to get back some of the dough from them - even though that will be tough.

But, there is a footnote which I had with the company. In the middle of the power crisis in California (we have not built enough power plants and the main switches in the state are outdated) we convened a working group to look at joint purchase of electricity. That is complicated because the independent colleges are disbursed among all of the MOU (municipally owned utilities) and IOU (Investor Owned Utilities) operaters in the state. The rise in prices, especially in the Southern California Edison service region were going through the roof. One AICCU member saw a $400,000 rise in the last quarter of the year because of high demand rates. Our purchase agreements were not serving our institutions well. Demand pricing had a special penalty for institutions that was especially tough on institutions whose students went into their finals modes (and electricity spiked at odd times in the night).

As a result of the discussions I began to have talks with the companies who might be able to develop a joint agreement. I went to San Ramon where Enron was located. We went out to a lunch and the two young VPs. I work with a lot of financial types and they seem to fall into at least two varieties. Some are thoughtful and others are impressed with their status. The second group are generally young and brash. You can work with those folks but you need to be a bit wary.

We started to talk about the current situation and a waitress came up to take our drink orders. VP #1 said he wanted a special kind of carbonated water. The waitress had three different kinds fizzy waters but not the kind this guy wanted. He threw a hissy fit about not having his kind of water. He must have gone on for 5 minutes about how terrible it was that they did not have his special brand.

We went through the UC and CSU contracts, and I raised some questions about the upside and downside protections in the agreement (Enron basically wrote hedge contracts on prices). It seemed to me that their deal was not what we were looking for. The contract had minimal upside protections (in other words you saved money for only some of a rise in prices) and serious downside benefits (if prices went down they only got minimal benefits). So in the end, as I analyzed the deal they were offering it was not a very good one for them - it was a good deal for Enron and not the universities.

But what really got me was the hissy fit. As I was going home I called my wife and said, "I can't do a deal with these guys if their head guy concentrates on the type of water with CO2." In the end, we worked hard with the MOUs and got some mitigation of our cost increases and the crisis passed. But we avoided getting involved with the company because of fizzy water.