One of the reasons I asked about traders' reluctance to deal with Enron is the article below questions our ability to deliver on winter gas.  I would like to prepare an answer in case anyone asks.  


POWER POINTS: Time For A Bronx Miracle In Houston
By Mark Golden

11/02/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
A Dow Jones Newswires Column 

NEW YORK -(Dow Jones)- With two outs in the bottom of the ninth and down by two runs with one man on, Enron Corp. (ENE) needs nothing less than a home run just to stay in the game.
This is the home run Enron must come up with: Full disclosure of the assets and liabilities of those troubled partnerships that have been kept off their balance sheet, and proof the corporation can cover the difference. It's what stockholders, bondholders and trading partners have been demanding, but time is running out, and Enron hasn't produced. 
"We're going to get to that number soon and tell people. We have to do that," said a source at Enron, who didn't know how quickly the disclosure would come or whether it would be independently audited. "In this environment, we are going to be absolutely sure that it's accurate." 
Enron has about $3.3 billion in debt on the two key partnerships payable in 2003. The company will sell the assets in those partnerships and, in a worse case scenario, will face a $1 billion shortfall that could be covered by selling stock and other company assets, Enron has said. The company hopes that when the time comes to issue new stock, shares will be trading closer to $20 than their current $11. 
Investors, however, aren't acting as if they're reassured. Part of the trouble, analysts with credit-rating firm Standard & Poor's said Friday morning, is that until Enron sells the assets, nobody knows for sure what they're worth or how deep the partnerships are in the hole. 
S&P is confident that Enron can raise enough capital to fill that hole, provided its trading partners in key energy markets continue to business with the company. 
Credit Derivative Fizzle 

To see the pickle the world's premier energy franchise is in, one needs to look no further than its credit derivatives trading desk. That relatively new and innovative operation was getting off the ground nicely, but the desk hasn't been able to transact for three weeks, since the value of Enron's stock and bonds began to plummet, according to another Enron employee. 
Enron didn't respond to a request for comment, but the Enron Credit division in Europe said in a release that lines are "constrained" as the market continues to evaluate the company's credit position. 
Until recently, customers would buy a credit derivative from Enron to cover its exposure to bankruptcy by a third company. A big supplier to a financially troubled company like Xerox Corp. (XRX) or Lucent Technologies (LU), for example, might pay Enron $1 million a year for a payout of, say, $10 million in the event of a bankruptcy. 
But you wouldn't pay the premium on your insurance unless you were sure that the insurance company could pay your claims. Likewise, with Enron's creditworthiness in doubt, there's no reason to pay a lot of money just to exchange Lucent risk for Enron risk. 
The same holds true, though less obviously, for Enron's core business of energy trading. Some utilities, large industrial companies and other energy trading companies could see their profits ruined if natural gas prices - already on the rise at $3 per million British thermal units - shoot to $10 this winter as they did last winter. 
To guard against that risk, companies buy contracts now for delivery this winter at set prices. If a company wants to lock in winter gas at $3, should it turn to Enron? If gas were to rise to $10 in January and Enron couldn't deliver, Enron's counterparty paid a good price for no protection. And if Enron failed in a $10 gas market, that would send hundreds of companies scrambling for supplies. Gas could go to $20 in a heartbeat. 
Leading Role An Asset 

Enron does have a man on base. The company is so important to energy market participants that they desperately want Enron to survive. And any company that moves to lock Enron out of the market now could regret doing so if Enron survives as the big dog. 
Enron's trading partners have a pretty consistent position at this point: They are continuing to trade with Enron, but are avoiding long-term deals that increase their exposure to the company. The only acceptable long-term deals are those that offset deals done earlier. Unless and until a bill goes unpaid, they'll keep delivering. 
Enron, like the rest of the U.S. energy industry, paid its bills for September gas deliveries on Oct. 20 and for its September electricity deliveries on Oct. 25. Its next power and gas bills come due in the third week of November. 
That means trading companies generally have just seven weeks of receivables at risk before Enron's creditworthiness faces another test. In exchange for taking on that small risk, they keep the great market maker in business. 
Lenders Show Concerns 

Lenders, whether through holding Enron bonds or providing loans, don't have the same luxury as energy trading companies that are keeping deals on a short leash. Lenders supply cash up front and for longer periods of time, usually years. 
Outside of long-term commitments, what worries the banks, which presumably got a good look at Enron's books? If Enron is now unable to make the big bets with long-term energy deals that have kept it profitable for years, can it service all of its liabilities, known and unknown? If it has to sell profitable assets like pipelines and power plants, or otherwise put those assets at risk, will lower earnings be enough to pay rising credit costs? What happens if its greatest asset - its traders - leave in droves to work elsewhere? 
If Enron is to have a chance, it needs energy trading profits to keep rolling in so that it can continue to service its debt. So far this year, trading and other wholesale operations have accounted for $2.2 billion out of $2.4 billion in net recurring income before interest and taxes. By comparison, Enron has made $617 million in interest payments so far this year. 
J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C) unit Salomon Smith Barney, at least, don't show much confidence Enron can do it. When they agreed to provide Enron with a $1 billion line of credit, they did so only after Enron posted valuable gas pipelines as collateral. 
Bond traders - the most sophisticated investors in the world - make their money by understanding the probabilities. They're trading Enron debt at levels typically associated with distressed companies. 
The lenders have chalked up their runs. Shareholders have ratcheted up the pressure. 
Enron, now, must step up to the plate. 
-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com