Enron's Army contract examined

Bid requirement changes helped energy giant win

March 10, 2002|By NEW YORK TIMES NEWS SERVICE

NEW YORK - Defense Department inspectors are examining changes in bid requirements that helped Enron Corp. win a $25 million Army contract to run utility systems at Fort Hamilton in Brooklyn, said federal investigators.

Enron won the contract in 1999, but the energy company's collapse in December has created maintenance and repair problems at the base and led to congressional and Pentagon investigations into possible ethical conflicts.

Enron was the sole bidder for the Fort Hamilton contract, although executives at other large utilities, including two that supplied energy there before, Consolidated Edison and Keyspan Energy, said they also might have placed bids if they had received the same terms as Enron.

Officials said Houston-based Enron gained an advantage just before the bids were due when the New York State Public Service Commission decided that Enron was exempt from state safety and environmental regulations, unlike other potential bidders. The Army supported that exemption to lower its costs.

Executives at Con Edison said the commission indicated that their company was unlikely to get the same exemption at Fort Hamilton.

Federal investigators said Congress and the Army's inspector general were also focusing on the contract because the Army secretary, Thomas E. White Jr., was a top Enron executive in 1999 and led Enron's side of negotiations.

White, who left Enron and became secretary of the Army last spring, has said he did nothing improper. He was criticized last week by the Senate Armed Services Committee when he disclosed that he had retained a large financial interest in Enron.

In January 1999, the Army sent bid solicitations to 11 companies, offering to transfer ownership of the power plants to a contractor who would also operate and maintain them.

Executives at Con Edison and Keyspan said they had had two important concerns. One was whether the operations at the fort would be exempt from state regulation because it is a self-contained federal facility.

Three months before bids were due, Enron sought and received the waiver from state rules.

A second major concern, shared by Enron and the other potential bidders, was that the Army wanted its contractor to take ownership of the generating plants. Executives at several utilities said doing that would have created a large tax liability, but in negotiating the final contract, the Army agreed to lease the facilities to Enron.

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