Enron's ruin drags down Bothell firm
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A collapsing Enron recently swept the cash from a 64-year-old Bothell company that employs 3,700 people worldwide, leaving it without money to pay bills.
The company, known as NEPCO, Enron's chief power-plant-construction arm, subsequently bounced checks to suppliers and asked customers to pay again to cover those expenses.
Enron's turmoil has cost NEPCO a multimillion-dollar construction contract in Washington state and is prompting it to seek a buyer or a bailout from investors, even as its parent implodes.
It also has drawn a lawsuit from a German bank that says the company had "no bank accounts or economic existence independent from Enron" and that NEPCO officials knew last summer they would soon be in financial trouble but failed to disclose it in obtaining a loan.
The power-plant contractor, which has orders to build 14 natural-gas-fired generators through 2003, according to its Web site, is the first local company to be hit directly by Enron's spectacular downfall, which has shattered confidence in subsidiaries, wiped out investors and tied up millions of dollars in court.
NEPCO's ability to pay project bills essentially disappeared last month when Enron "swept" the company's cash into its centralized cash-management system, which handles money for subsidiaries much like a bank.
Such systems aren't unusual at big companies. But shortly after taking the cash, Enron filed for bankruptcy protection. While NEPCO isn't bankrupt or part of Enron's filing, those funds are now frozen in court.
"Enron swept NEPCO's cash before it was applied to pay project costs," said Laura Plumb, a spokeswoman for Tampa Electric Co., or Teco, which had hired the company to build four power plants around the U.S.
In response, NEPCO has asked customers, which include power utilities in the U.S. and abroad, to amend their contracts and provide cash so it can carry on with construction, President John Gillis said in an internal memo last month.
In some instances, customers are being asked to pay for work a second time because the original funds to pay subcontractors and local vendors have been swept into Enron.
"NEPCO has had to go back to the client and say, 'Can you give us that money again?' " said Richard Korman, a senior editor at Engineering News-Record, a trade journal, who obtained the Gillis memo and reported on NEPCO's troubles.
"Some checks that had been used for payment actually came back," said Jef Freeman, a spokesman for Cogentrix Energy, based in Charlotte, N.C.
NEPCO was expected to eventually make up those payments by forgoing profit and markup on the projects. "They expect us to be made whole," said Teco's Plumb.
The financial crunch is prompting NEPCO to look for buyers, a process that could be helped by NEPCO's exclusion from Enron's bankruptcy.
"The executive team is working with organizations that are interested in a possible cash infusion/ownership of NEPCO going forward," Gillis wrote in the memo, dated Dec. 2, the same day Enron filed for bankruptcy protection.
Gillis declined to be interviewed.
Even before its bankruptcy, Enron's turmoil had been hurting the Bothell company. Uncertainty about Enron's future prompted Calpine, an independent power producer whose own accounting has been questioned by regulators, to terminate NEPCO's contract to build a power plant in Goldendale, Klickitat County. Calpine hired another contractor to finish the $125 million plant, which is due to be finished next summer.
"We are moving quickly to bring the plant online, and we wanted to be assured that we had the right team to do it," said Kent Robertson, a Calpine spokesman.
NEPCO's problems also are ratcheting up costs for customers. Teco, the power utility based in Florida, said it anticipates $81 million in cost overruns to complete two NEPCO plants in Arkansas and Arizona. The amount is within cost contingencies for the plants, worth about $2.2 billion. However, Teco has been forced to work out new terms with lenders to proceed with construction.
Mark Kane, Teco's director of investor relations, said NEPCO officials told him the company had renegotiated contracts on all of its current projects, allowing them to go ahead.
"They have told us they have no intention of filing for bankruptcy," Kane said.
Meanwhile, Westdeutsche Landesbank Girozentral, a German bank, last week sued NEPCO for borrowing $24 million that ended up in Enron's coffers before Enron filed for bankruptcy. The suit, filed in U.S. District Court in Manhattan, alleges NEPCO knew but didn't disclose it would soon be in default on obligations as a result of Enron's predicament. It also says NEPCO immediately transferred all the money to Enron, "which was not paying (NEPCO's) debts when due."
NEPCO has long roots in Puget Sound and employs 600 people at its Bothell headquarters. Founded in 1938 by Dale Bumstead and O.H. Woolford, the company originally helped boilermakers sell equipment to plants and pulp mills in the Northwest.
It began installing boilers during World War II and in the 1970s entered the forest-products industry, eventually establishing a holding company called National Energy Production and moving into general contracting for power-plant construction. Annual sales had grown to $30 million when Zurn Industries of Pennsylvania bought it in 1982.
Enron bought NEPCO in 1997. It recently listed annual sales of $1.5 billion. Enron, which posted revenue of $100 billion in 2000, did not mention NEPCO in its annual reports for the past three years.
Alwyn Scott can be reached at 206- 464-3329 or ascott@seattletimes.com.