California and the West THE CALIFORNIA ENERGY CRISIS Davis Approves $850
Million for Energy Conservation Plan Legislation: Governor says the spending
package is crucial to ease immediate pressures on the state.
Los Angeles Times, 04/12/01

PG&E Creditors' Committee Is Appointed Bankruptcy: Federal trustee picks
panel to represent thousands with unsecured claims against the utility.
Los Angeles Times, 04/12/01

Energy & Environment: Britain Follows the Winds of Change --- Offshore
Wind-Farm Projects Show Shift in Policy to Renewable Energy Sources
The Wall Street Journal Europe, 04/12/01

Developments in California's energy crisis
Associated Press Newswires, 04/12/01

Federal regulators may soon begin monitoring electricity market
Associated Press Newswires, 04/12/01

Cowboys and indians
The Daily Deal, 04/12/01

AES is frontrunner for Brazil telecom
The Daily Deal, 04/12/01

India: Leveraging marketing PR to build business and brands
Business Line (The Hindu), 04/12/01

India: Dabhol impasse
Business Line (The Hindu), 04/12/01

Turning investors away from India
The Hindu, 04/12/01

Hedging Their Bets
The Wall Street Journal, 04/12/01

World Watch
The Wall Street Journal, 04/12/01

Enron bid to quit selling power to California colleges blocked
Houston Chronicle, 04/12/01

Energy status 'critical,' panel says
Houston Chronicle, 04/12/01

Judge orders Enron to deliver electricity to universities
Sacramento Bee, April 12, 2001

Electricity notebook: U.S. relief plan kept under wraps
Orange County Register, 04/12/01

Enron deal change riles university officials
San Diego Union Tribune, 04/12/01

Enron Told It Can't Cut Electricity To Schools
San Francisco Chronicle, 04/12/01

Federal regulators may soon begin monitoring electricity market
Associated Press Newswires, 04/11/01

Metro Desk
California and the West THE CALIFORNIA ENERGY CRISIS Davis Approves $850
Million for Energy Conservation Plan Legislation: Governor says the spending
package is crucial to ease immediate pressures on the state.
ROBIN FIELDS; MIGUEL BUSTILLO
TIMES STAFF WRITERS

04/12/2001
Los Angeles Times
Home Edition
A-3
Copyright 2001 / The Times Mirror Company

Gov. Gray Davis approved $850 million for stepped-up energy conservation
efforts Wednesday after making good on threats to reduce the plan's size,
vetoing $250 million in items he said would not get results fast enough.
Calling the spending package "the most aggressive, most expensive
conservation effort in America," Davis depicted his signing of two
conservation bills Wednesday as crucial in easing the state's most immediate
power pressures.
" "These are programs that Californians can use right now," said
Assemblywoman Christine Kehoe (D-San Diego), whose AB 29 was one of the
measures.
The slimmed-down package provides $240 million to weatherize homes of
low-income residents, plus millions for rebates on energy-efficient
appliances, incentives for businesses that cut consumption, and public
information campaigns.
The governor's cuts included $25.2 million for efficiency programs at
community colleges, $50 million for California Energy Commission loans and
grants to small businesses to streamline refrigeration facilities, and $24
million to the Department of Corrections to retrofit generators.
Davis also axed a $15-million provision for a California Public Utilities
Commission study of "real-time" metering, but he left in $35 million for the
purchase and installation of meters that allow utilities to calculate bills
based on when power is used.
Severin Borenstein, director of the UC Energy Institute in Berkeley,
estimated that the funds would cover enough meters for businesses that
consume more than 250 kilowatt-hours a day. Such devices, coupled with a rate
plan, could encourage conservation by commercial customers during peak
periods when demand--and prices--are highest, he said.
"It is reasonable to estimate that we could take 2,000 to 3,000 megawatts off
peak usage this summer, which could save $1 billion," Borenstein said.
Davis' goal is to shave off at least 2,000 megawatts a day, enough to power 2
million homes. Experts estimate that the state faces an electricity shortfall
this summer of 3,000 to 7,000 megawatts daily, depending on summer
temperatures and hydroelectric supplies.
Conservation is only one prong of the state's efforts to resolve its power
crisis.
Davis and executives at San Diego Gas & Electric confirmed Wednesday that
negotiations have intensified this week over state purchase of the utility's
transmission lines.
Completed deals with Edison and San Diego Gas & Electric could persuade the
judge in PG&E's Chapter 11 bankruptcy case to order the Northern California
behemoth to accept similar terms for its system, Davis said. Edison concluded
a deal with the state Monday.
The governor performed a delicate balancing act at Wednesday's bill-signing
in response to a report, disclosed by The Times on Wednesday, that several
public utilities, including the Los Angeles Department of Water and Power,
joined private suppliers in helping to drive up wholesale energy prices in
California last summer.
He defended the California Independent System Operator, which is using the
report as evidence in its effort to persuade federal regulators to compel
suppliers--public and private--to refund $6.3 billion to the state.
But he also defended the DWP, although it ranked eighth on Cal-ISO's list of
offenders for the period between May and November last year, reaping $17.8
million in allegedly excessive profits.
"The DWP sold us power, which is more than I can say for the [private]
generators," Davis said. He even thanked DWP General Manager S. David
Freeman, who has acted as his chief negotiator in crafting long-term power
purchase agreements with private suppliers.
"Yes, they took their markup, but they came through," Davis said.
The chairman of a state Senate committee investigating alleged manipulation
in the state's power market said his panel will probe the activities of the
public agencies as well as private marketers.
Though the initial focus of the investigation has been on five large
out-of-state sellers, Sen. Joe Dunn (D-Santa Ana) said, "We always intended
to look at some of the publicly owned [suppliers], such as DWP." Dunn said
Wednesday's report "just reinforces" the need for the review.
Hearings will begin next week with an examination of recent studies,
including the Cal-ISO report, of alleged efforts to inflate prices in the
electricity market.
In other developments Wednesday, a U.S. District Court judge ruled that Enron
Energy Services Inc., a unit of Houston-based energy giant Enron Corp., must
continue to sell electricity to California universities under the terms of
its existing contract.
The UC and Cal State systems signed a four-year contract with Enron in 1998,
locking in discounted fixed rates. In February, Enron notified its commercial
and industrial customers in California, including the universities, that
their power would be supplied by Pacific Gas & Electric and Southern
California Edison.
Enron said it will appeal the ruling to the U.S. 9th Circuit Court of Appeals
in San Francisco.
Times staff writers Julie Tamaki in Sacramento and Rich Connell in Los
Angeles contributed to this report.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Metro Desk
PG&E Creditors' Committee Is Appointed Bankruptcy: Federal trustee picks
panel to represent thousands with unsecured claims against the utility.
TIM REITERMAN; VIRGINIA ELLIS
TIMES STAFF WRITERS

04/12/2001
Los Angeles Times
Home Edition
A-18
Copyright 2001 / The Times Mirror Company

SAN FRANCISCO -- A committee of Pacific Gas & Electric Co. creditors--ranging
from major banks and energy suppliers to the state of Tennessee and a
tree-trimming company--has been selected to represent thousands of creditors
in the utility's bankruptcy case.
Taking a key step in administering the bankruptcy case, U.S. Trustee Linda
Ekstrom Stanley on Tuesday selected 11 creditors who collectively will serve
as the eyes, ears and decision makers for those who have unsecured claims
against the utility.
In choosing companies that would represent various constituencies of
creditors, Stanley selected four financial concerns and four energy suppliers
with total claims of almost $5 billion.
She also named Davey Tree Expert Co., which trims trees for PG&E and has a
$9.6-million claim; the city of Palo Alto, which claims a $200-million debt;
and Tennessee, which says PG&E owes $76 million.
All are among the 100 largest unsecured creditors of PG&E, which filed for
Chapter 11 protection from creditors on Friday, declaring that the energy
crisis had thrown the company $9 billion in debt.
Working over the weekend, the trustee's staff sent faxes to the largest 100
creditors, asking if they wanted to serve on the creditors committee.
Seventy-five responded affirmatively.
Not only was the acceptance rate extremely high, Stanley said, she was
lobbied before the selection. "Today I am getting responses from the
disappointed," she said. "Usually people do not want to serve."
The number of committee members is discretionary, although it has to be an
odd number so there are no tie votes. Eleven is an unusually large number,
Stanley said, adding that "there is nothing typical about this case."
The company's creditors touch many sectors of the nation's economy, from Wall
Street to vendors providing goods and services to the utility.
The committee members include companies that provided power but were not paid
as PG&E's financial condition worsened--Enron Corp. ($580 million), Dynegy
Power Marketing ($255 million), KES Kingsburg L.P. ($182 million) and GWF
Power Systems ($62 million).
Also named to the committee were the Bank of New York ($2.2 billion), a group
of banks headed by Bank of America ($1.175 billion), U.S. Bank ($310 million)
and Merrill Lynch ($106 million).
The only trade creditor represented on the committee is employee-owned Davey
Tree Expert Co. of Kent, Ohio. Chief Financial Officer David Adante said the
company has trimmed brush and trees from around PG&E power lines for more
than 30 years and has 600 employees on the account.
"PG&E has always been a good client for us, and we believe firmly that at the
end of the day they are going to survive and continue to be a good client,"
Adante said.
Tom Milne, who represents the state of Tennessee on the committee, said,
"This has become a political issue here."
The Tennessee Consolidated Retirement Fund, Milne said, holds $25 million in
commercial paper from PG&E. But the more politically volatile holding is the
state general fund, which PG&E owes $50 million.
"The taxpayers of the state of Tennessee are asking why we should subsidize
the ratepayers of California," Milne said. "Our rates have doubled or tripled
here. Why should California be spared? We are hoping for a 100% return on our
investment."
Enron Corp. spokesman Mark Palmer said, "I think in being a part of the
solution for restructuring we offer a unique perspective, and I think that's
why we were chosen as one of the members of the committee."
He declined to discuss the company's claim. "We don't talk about specific
credit exposures, but we have told our investors, Wall Street analysts and
journalists that we have established adequate reserves," he said, "and
regardless of the situation in California, we will meet our earnings per
share estimates of $1.70 to $1.75 for 2001."
Stanley said the committee members must put aside their individual interests
while they act as a fiduciary for unsecured creditors. To represent it in
court, the panel will hire an attorney, to be paid for by PG&E.
The committee is expected to be an important player as bankruptcy Judge
Dennis Montali figures out who should be paid and how much as the utility
reorganizes its financial affairs. "The judge will pay lots of attention to
them," Stanley said. "There are many creditors and many large creditors."
Times staff writer Rone Tempest in Sacramento contributed to this story.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Energy & Environment: Britain Follows the Winds of Change --- Offshore
Wind-Farm Projects Show Shift in Policy to Renewable Energy Sources
By Geoffrey T. Smith
Dow Jones Newswires

04/12/2001
The Wall Street Journal Europe
23
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Ten years ago, Peter Edwards, a dairy farmer in Cornwall, sold his cattle to
raise money for the U.K.'s first wind farm intended to produce electricity.
It was uncompetitive and did nothing to lessen the country's dependence on
fossil fuels -- not the most convincing vision of the future. Today, many
farmers might willingly change places with him.
As livestock farming staggers from crisis to crisis, wind farming goes from
strength to strength. Last week, in a landmark move, the Crown Estates, which
holds the U.K. seabed in trust for the country, issued seabed leases for 13
offshore wind-farm projects to companies traditionally associated with
fossil-fuel energy. The projects, which could attract as much as GBP 1.6
billion (2.6 billion euros) in investment, according to the British Wind
Energy Association, will allow for the installation of 1,500 megawatts of
generation capacity around Britain's coast by 2004. That would meet the
electricity needs of 1.1 million households, according to BWEA estimates.
The projects -- seven in the Irish Sea and six in the North Sea -- are the
first concerted effort in the U.K. to raise the contribution of renewable
energy sources, other than hydropower, to the energy mix.
For the wind industry, going offshore is a test of technology and viability.
If the engineering is robust enough, it will revolutionize the economics of
the industry. Larger numbers of more powerful turbines, driven by higher wind
speeds, could yield huge economies of scale. Offshore winds are more constant
than those onshore, which could help offset wind power's major drawback, its
unpredictability.
Such projects are no longer the preserve of companies on the fringe of the
energy sector. Among those awarded leases were units of Innogy PLC, Powergen
PLC, Scottish Power PLC, Enron Corp. and TXU Europe.
Under terms of the government's Renewables Obligation, all public electricity
suppliers must get some of their power from renewable generation by 2003. The
amount will probably start at 5% or more, rising to 10% by 2010. Via a system
of tradable "green certificates," companies can trade surplus renewable power
on the open market with suppliers who can't meet the obligation by
themselves.
The emphasis of U.K. policy-makers for the last 10 years has been on bringing
prices down, rather than encouraging green energy to become competitive. As a
result, the role of wind in the U.K. has been restricted to blowing the
emissions of coal and gas-fired plants across the North Sea, forcing Norway
and Germany to cope with the environmental impact.
In countries with more government subsidies for the technology, more wind
farms have flourished. Germany and Denmark had installed capacity bases of
almost 5,500 megawatts and 2,280 megawatts, respectively, by the end of 2000,
according to estimates by Dresdner Kleinwort Wasserstein.
Crown Estates and the BWEA are currently in negotiations over a second round
of licenses for larger sites; there is no timetable for awarding these leases
yet.
Alison Hill, communications manager at the British Wind Energy Association,
says that the generation costs of existing onshore facilities have fallen to
between 1.9 pence and 3.5 pence a kilowatt-hour today from around 11 pence a
kilowatt-hour for first-generation technology. That makes some prices for
wind-generated electricity competitive in Britain, where the market is
deregulated.
A pilot project off Blyth in northeast England is currently generating at
between 5 pence and 6 pence per kilowatt-hour, she says. If offshore
technology can improve at the same rate as onshore technology has, subsidies
may not be needed for long. "If we can get capital grants to offset the
initial higher costs, they should be enough to bring these projects into a
competitive position," Ms. Hill says.
Subsidies for wind power in the U.K. stand at around a total of GBP 49
million to date. That's not much compared to the GBP 1.6 billion investment
expected from the first round of offshore farms.
But even if generating costs fall to a level where wind power can compete
with fossil fuels, the cost of electricity to consumers could increase.
Investment in electricity grids would be needed to ensure that they are
robust enough to deal with large and sudden surges in power supply, and such
investments are generally financed by fees levied on all grid users.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Developments in California's energy crisis
By The Associated Press

04/12/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

Here is a look at developments in California's energy crisis:
WEDNESDAY:
- Negotiations began in earnest with San Diego Gas & Electric Co.'s parent
company for a state buyout of its transmission lines. Once that deal is done,
Gov. Gray Davis said he hopes to persuade the bankruptcy judge in San
Francisco to force PG&E to accept a similar deal. The state already reached
an agreement to buy Southern California Edison's transmission lines.
- Curt Hebert, chairman of Federal Energy Regulatory Commission, told
congressmen meeting in San Jose that FERC hopes to begin "monitoring and
mitigating" the energy markets by May 1. This would allow FERC to influence
prices preemptively. Hebert, a strong free-market advocate, stopped short of
promising caps on soaring energy prices, stressing the need to build more
power plants and improve the transmission system to better manage the energy
flow.
- The 9th U.S. Circuit Court of Appeals said FERC is not required to order
immediate refunds to ratepayers as the city of San Diego demands. The city
asked FERC to order rebates to consumers who suffered "unjust and
unreasonable" electricity bills last year. "FERC's delay is not so
unreasonable," said the court, adding that it is confident FERC will review
the charges.
- A federal judge ordered Enron Energy Systems Inc. to abide by its agreement
to sell cheap power to California's public universities. Enron, which said it
would appeal, has tried to get out of delivering power for the final year of
the four-year deal. Enron - whose parent company is the nation's largest
energy trader - says honoring the contract would cost it $12 million a month
because of skyrocketing wholesale power prices, and that taxpayers should
pick up the tab. State Attorney General Bill Lockyer says Enron wants to play
a "marketing game" and sell the universities' promised power on the open
market for 10 times what it cost Enron.
-Lockyer says whistle blowers who help prove energy wholesalers illegally
profited from the state's power problems would be entitled to a percentage of
the state's recovery. Lockyer estimated could range from $50 million to
hundreds of millions of dollars. Lockyer's office is investigating whether
the market was illegally manipulated - a charge wholesalers deny.
- Bankruptcy experts say Pacific Gas and Electric's creditors will target
$4.63 billion the utility transferred to its parent company while receiving
no investments in return. Lawyers will likely exhume e-mail exchanges among
PG&E management, take depositions from top executives and pore over reams of
documents in search of evidence, said Bill Zewadski, co-chairman of the
American Bar Association's bankruptcy litigation subcommittee.
- Standard & Poor's said there is a "strong likelihood" that SoCal Edison's
credit rating will be raised if its $27.6 billion transmission lines deal
receives final approval. But the company's ratings, now at junk bond level,
won't return to where they stood before soaring wholesale electricity prices
buried the utility in debt. In any event, no action will be taken until the
transmission line sale is approved by state and federal regulators, as well
as the California legislature, S&P said.
- Davis signed two bills creating more than $500 million in conservation
initiatives and incentives. The money will reimburse homeowners and business
owners for money spent on energy-efficient appliances and more efficient
lighting. Lawmakers at the ceremony in Los Angeles blasted power generators
for putting profits first. "Generators from out of state have no sense of
patriotism or compassion for their fellow citizens," said Assemblyman Gil
Cedillo, D-Los Angeles.
-California Rep. George Radanovich announces his request for a General
Accounting Office study of the energy crisis has been granted. He requested
the investigation in March citing concerns about allegations of price gouging
and market manipulation in California's wholesale power market.
- Consumer activists proposed forming an energy buyers cartel among
California, Oregon and Washington to force suppliers to reduce electricity
rates. The united front could be the only way to avoid blackouts and steep
rate increases as demand peaks this summer, according to the Utility
Consumers' Action Network.
- No power alerts were called as reserves stayed above 7 percent.
- Shares of PG&E Corp. dipped 4 cents, or 0.5 percent, to close at $8.46.
Edison International stock closed at $12.02, up 64 cents, or 5.6 percent.
WHAT'S NEXT:
- The House Government Reform Committee plans energy hearings in San Diego on
Thursday.
- Edison and PG&E are expected to file their 2000 earnings reports April 17.
- The state Senate starts hearings April 18 in its inquiry into allegations
that electricity suppliers illegally withheld power to drive up California's
wholesale prices. Wholesalers deny such accusations.
- Also April 18, the Assembly plans to resume hearings in its inquiry into
California's highest-in-the-nation natural gas prices.
THE PROBLEM:
High demand, high wholesale energy costs, transmission glitches and a tight
supply worsened by scarce hydroelectric power in the Northwest and
maintenance at aging California power plants are all factors in California's
electricity crisis.
Edison and PG&E say they've lost nearly $14 billion since June to high
wholesale prices that the state's electricity deregulation law bars them from
passing onto ratepayers. PG&E, saying it hasn't received the help it needs
from regulators or state lawmakers, filed for federal bankruptcy protection
April 6.
Electricity and natural gas suppliers, scared off by the two companies' poor
credit ratings, are refusing to sell to them, leading the state in January to
start buying power for the utilities' nearly 9 million residential and
business customers. The state is also buying power for a third investor-owned
utility, San Diego Gas & Electric, which is in better financial shape than
much larger Edison and PG&E but also struggling with high wholesale power
costs.
The Public Utilities Commission has raised rates up to 46 percent to help
finance the state's multibillion-dollar power-buying.
Even before those increases, California residents paid some of the highest
prices in the nation for electricity. Federal statistics from October show
residential customers in California paid an average of 10.7 cents per
kilowatt hour, or 26 percent more than the nationwide average of 8.5 cents.
Only customers in New England, New York, Alaska and Hawaii paid more.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Federal regulators may soon begin monitoring electricity market
By KAREN GAUDETTE
Associated Press Writer

04/12/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

SAN JOSE, Calif. (AP) - Federal energy regulators would not promise caps on
soaring energy prices, but said they hope to begin "monitoring and
mitigating" the wholesale electricity market by May 1.
The Federal Energy Regulatory Commission will look at future prices to
determine if they are just and reasonable, commission chairman Curt Hebert
told members of the House Subcommittee on Energy Policy and Regulatory
Affairs on Wednesday.
The commission already has sought California power sale refunds of $124
million, and the new system of tracking market abuses could help keep markets
fair, Hebert said.
Hebert left didn't say whether FERC would begin looking at daily trading
activity in search of unfair pricing. Currently, FERC only reviews quarterly
reports from energy traders, and periodically does spot audits of the
markets.
Meanwhile, on the other end of the power spectrum, a federal trustee selected
a committee of Pacific Gas and Electric Co. creditors to represent more than
30,000 creditors in the utility's bankruptcy case, the Los Angeles Times
reported.
U.S. Trustee Linda Ekstrom Stanley selected 11 creditors Tuesday who
represent various groups of creditors and will play an important role as
federal Bankruptcy Judge Dennis Montali determines who should be paid and how
much during the company's financial reorganization.
"The judge will pay lots of attention to them," Stanley said. "There are many
creditors and many large creditors."
Stanly selected four financial concerns and four energy suppliers with total
claims of nearly $5 billion. She also picked a tree-trimming company that has
a $9.6 million claim; the city of Palo Alto, which claims a $200 million
debt; and Tennessee, which claims PG&E owes $76 million, the newspaper
reported.
The committee members are among PG&E's 100 largest unsecured creditors. The
utility filed for federal bankruptcy protection Friday, declaring the energy
crisis had thrown the company $9 billion in debt.
Cash-starved Southern California Edison Co. agreed Monday to sell its
transmission lines to the state. Gov. Gray Davis said negotiations to buy the
lines of San Diego Gas and Electric Co. began in earnest Wednesday, and once
that deal is done, he'll ask the bankruptcy judge to force PG&E to sell the
remaining grid to the state.
But that will not end California's power problems.
Hebert stressed the need to build more power plants to boost supply, to
improve transmission infrastructure throughout the West and to create a
"regional transmission organization" to better manage the flow of power.
Hebert has been the target of criticism from state officials, the utilities
and consumer watchdog groups for refusing to cap growing wholesale power
rates. Members of California's Democratic delegation and PG&E again asked for
the cap to avoid summer blackouts.
FERC only has regulatory control over roughly half California's electricity,
Hebert testified, since the rest is imported from Canada and municipal
utilities not under federal jurisdiction.
"How many studies must be done before you spend a dollar and start moving
power in the other direction?" Hebert said. "The conversation needs to stop.
Someone needs to start putting shovels in the ground."
Backed by U.S. Rep. Dan Burton, the Indiana Republican who chairs the
Government Reform Committee, which houses the energy subcommittee, Hebert
warned too many changes to the rules may drive away the very generators
needed to lower prices in the long term by providing more supply and
competition.
PUC President Loretta Lynch told the panel Tuesday in Sacramento the agency
allowed utilities to enter into such contracts last year, but the utilities
chose not to do so.
"What was done then was only half the job," said Stephen Pickett, vice
president and general counsel for SoCal Edison. He said the PUC retained the
right to review contracts after they were signed, which scared away
generators unsure if they would see the money.
Davis signed two bills Wednesday, creating more than $500 million in
conservation initiatives and incentives. The money will reimburse homeowners
and business owners for money spent on such items as energy-efficient
appliances and efficient lighting.
Also Wednesday, a federal judge intervened in another power price battle,
ordering Enron Energy Systems Inc. of Houston to abide by its agreement to
sell cheap power to the California State University and University of
California systems. Enron said it would appeal.
U.S. District Judge Phyllis Hamilton issued a temporary injunction against
Enron, forcing it to continue providing service, and said there is a
likelihood Enron will lose the suit.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Industry Insight
Cowboys and indians
by L.J. Davis

04/12/2001
The Daily Deal
Copyright (c) 2001 The Deal LLC

Enron, Bechtel and General Electric got the deal of the century in a
long-term contract to provide expensive electricity to India.
Today we tell a tale of cowboys and Indians.
The Indians are real Indians who live in India, the place Christopher
Columbus thought he'd gotten to. The cowboys are Enron Corp., the big Texas
energy firm, and Bechtel Group and the General Electric Co., who need no
introduction. And who, in the approved Hollywood tradition, are kicking the
stuffing out of the rightful owners of the land, even as we speak.
If the Indians don't pay them a king's ransom for a whole bunch of
electricity they don't want and can't afford, the contract says the cowboys
could end up owning a big hunk of India. Yep. Says so right there in the
treaty--er, contract. Sound familiar?
It all began with a great big gas strike in Qatar. Gas strikes are wonderful
things, because they give you a lot of gas to sell. The trick is to find a
client who will pay a bundle for it.
But by a happy chance, India beckoned. And India, by an even happier chance,
was about to resemble Wile E. Coyote when he runs off a cliff. India was
about to turn into a great big sucker.
I have no idea why K. Wade Kline, Enron's top executive in India, gets so
bemused in that fetching just-guys way when he ponders the fact that the
Indians don't want to pay him. Why on earth should K. Wade Kline cry woe?
Despite bickering and discord--and the temperature is heading higher as Enron
pushes for arbitration over a $22 million missed payment--Enron and its
partners have the deal of the century.
When Enron and compadres showed up with the Qatari gas (which, by the way, it
turned out they didn't really need) in the early 1990s, India resembled a
country designed by the London School of Economics in the days of British
socialist writer Harold Laski.
Due to profound humanitarian intentions, India was a quasi-socialism that
didn't work very well and sometimes not at all. And it didn't know squat
about capitalism. This might seem like a harsh judgment, but let's consider
what happened.
In the early 1990s, India was pondering the error of its ways, globalism was
the coming thing and India decided to try it. In the state of Maharastra,
this involved inviting in Enron and its pals, letting them build a whacking
big power plant without competitive bidding and fuelling it with all that
Qatari gas, which Enron didn't have to get rid of after all.
At this point things get interesting.
Nowhere in the contract was it suggested that the state of Maharastra knew
what Enron was, its size or the state of its balance sheet.
Maharastra agreed to buy the output of the new plant, much of which it could
not use, for three times the prevailing price of electrical power already
available to it.
Maharastra would, in fact, pay the Enron partnership a minimum of $220
million a year for 20 years, a sum it could not afford. And if it didn't, the
Enron partnership could seize state assets until it was happy. If the state
government decided it didn't like the deal, it could sue the American
partnership in England under British law.
I'm not making any of this up. And it gets better.
When the World Bank pointed out that the Enron contract was a little, well,
strange, the Indian central government took a hand. New Delhi decided the
contract was a swell one. In fact, New Delhi liked the contract so much that
it allowed the Enron partnership to seize assets of the national government
if things went wrong and it wasn't satisfied with the assets of Maharastra.
Understandably, there has been much trouble and turmoil over this remarkable
contract--so much trouble and turmoil, in fact, that Human Rights Watch has
concluded that Enron took the step of paying the soldiery and police to knock
the daylights out of some protesters and throw others in the cooler on
trumped-up charges.
Meanwhile, the Maharastra government decided to cut itself in by paying $137
million of the taxpayers' money for 30% of the power plant. For reasons known
but to God, it decided to cut itself in on a deal whose objective was its own
fleecing. Somehow, this stake has now been reduced to 16%.
How could such a state of affairs come to pass? Critics of the project
suggest that the $20 million Enron paid to somebody in the form of
"educational gifts" may have something to do with it.
Now the project is in its second phase, which consists of making the power
plant much larger. Maharastra keeps getting behind in its payments. And the
big cry babies in the state capital keep saying they don't need all that
power and anyway they can't pay for it, which was obvious from the start when
the national government stepped firmly in and put up the national railroad
(or whatever) as collateral.
Is there a lesson here? Yes, and it is not a pretty one.
When a baby falls to the ground at your feet and positively begs to have its
candy stolen, exercise good taste. Do not be brazen about it. As Voltaire
remarked when the British shot one of their own admirals, it only encourages
the others.
Funnily enough, though, not one of Enron's competitors has been able to get
into the market, and not for lack of trying. And liberal, openhanded Enron
keeps right on sending its bills to the state capital.
No, I'm really not making any of this up.
L.J. Davis is a writer in New York. He is the author of "The Billionaire
Shell Game: How Cable Baron John Malone and Assorted Corporate Titans
Invented a Future Nobody Wanted" (Doubleday 1998).

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

M and A
AES is frontrunner for Brazil telecom
by Leon Lazaroff

04/12/2001
The Daily Deal
Copyright (c) 2001 The Deal LLC

The U.S. power utility offered Bell Canada $300M for its 24% stake in Vespar.
U.S. power utility AES Corp. may have the upper hand in negotiations with
Bell Canada International in its effort to acquire the Canadian company's
stake in a Brazilian telecom venture called Vesper.
According to Brazilian media reports, AES offered BCI $300 million Wednesday
for its 34.4% stake in Vesper; BCI rejected the offer. Neither company would
comment on reports of negotiations.
Telecom analysts, though, say BCI has little leverage in negotiations with
AES and may be forced to accept the Arlington, Va. based electric company's
recent offer.
"BCI wants out because they're focused on mobile," said Carlos Sequeira, a
telecom analyst at the Sao Paulo investment bank BBA Icatu. "They want to
invest in other stuff, so they may not get the price they originally wanted."
That price was $875 million, a result of the much higher valuations telecom
assets received last year. In September, BCI signed a definitive agreement
with VeloCom Inc., a privately held Englewood, Colo. telecom group that holds
a 49.4% stake in Vesper. The deal, canceled in February, called for VeloCom
to buy BCI's 34.4% stake for $875 million.
But VeloCom, which did not return phone calls seeking comment, was unable to
obtain financing to complete the deal.
Since last summer, BCI has wanted to get out of its partnership with VeloCom
because the Colorado company has been expanding its own operations in
Argentina, where another BCI joint venture, Telecom Americas, also plans to
do business.
Last year, BCI joined with SBC Communications, of San Antonio, and the
Mexican wireless company America Movil, to form Telecom Americas. The group's
plan is to sell mobile and broadband communications services in Latin
America's largest markets.
"We realized we were going to run into conflicts sooner than later," said BCI
spokesman Peter Burn. "So selling out of Vesper was the best option."
AES, meanwhile, has stated it would like to acquire Vesper as a vehicle to
expand a broadband network it has been building in the country for the past
18 months with Electrobras, Brazil's largest power company. AES joined up
with Electrobras in August 1999 when it agreed to pay $155 million for a 51%
stake in Electronet, a broadband communications builder; Electrobras owns the
remaining 49% stake in Electronet.
Like U.S. energy companies Enron Corp. and Williams Companies, AES has
entered the telecom market by laying fiber optic lines alongside its power
lines. In Brazil, AES owns the electricity distribution company Sul as well
as power companies in Sao Paulo and the state of Belo Horizonte.
"We see the possibility of owning Vesper as an outgrowth of our distribution
business," said AES spokesman Kenneth Woodcock. "If it grows as we like it,
we'll talk more about telecommunications. Right now, we're not going to do
what Enron and Williams have done and create a telecom subsidiary."
On Wednesday, Telecom Americas, which holds a license to offer wireless
service in the states of Sao Paulo and Belo Horizonte, home to Rio de
Janeiro, offered BellSouth International a 50% stake in its Sao Paulo state
operations, known as Tess. BellSouth International, a subsidiary of Atlanta
based BellSouth Corp., owns a license to offer wireless service in the city
of Sao Paulo.
BCI is a subsidiary of BCE Inc. which operates Bell Canada.
Brazilian telecom stake available AES Corp. has the upper hand in
negotiations with Bell Canada International in its reported attempt to
acquire the Canadian company's stake in upstart Brazilian telecom venture
Vesper.
Company: VeloCom Inc. The AES Corp. Bell Canada International Inc.
CEO: David J. Leonard Dennis W. Bakke Louis A. Tanguay
Headquarters: Englewood, Colo. Arlington, Va. Montreal
Date Action
1/05/00 VeloCom
http://www.TheDeal.com/cgi-bin/gx.cgi/AppLogic%2BFTContentServer?pagename=Futu
 reTense/Apps/Xcelerate/Render&c=TDDArticle&cid=A12818-2000Jan5&preview=true
for a venture designed to provide wireless communications services in Brazil
5/12/00 VeloCom Inc.
http://www.TheDeal.com/cgi-bin/gx.cgi/AppLogic%2BFTContentServer?pagename=Futu

reTense/Apps/Xcelerate/Render&c=TDDArticle&cid=A22415-2000May12&preview=true.
Morgan Stanley Dean Witter & Co., Credit Suisse First Boston and Merrill
Lynch & Co. are the underwriters.
9/26/00 Bell Canada International Inc. has $875 million more to invest in a
new cable and telephone venture in Latin America after
http://www.TheDeal.com/cgi-bin/gx.cgi/AppLogic%2BFTContentServer?pagename=Futu
 reTense/Apps/Xcelerate/Render&c=TDDArticle&cid=A29235-2000Sep26&preview=true
to a development-stage company called VeloCom Inc
1/10/01 VeloCom
http://www.TheDeal.com/cgi-bin/gx.cgi/AppLogic%2BFTContentServer?pagename=Futu
 reTense/Apps/Xcelerate/Render&c=TDDArticle&cid=TDDRORVITHC&preview=true,
consisting of both equity and convertible debt from existing investors, led
by San Diego communications company Qualcomm Inc.
2/01/01 Bell Canada International terminates agreement with VeloCom to sell
Brazilian interests in the local exchange carriers, Vesper SA and Vesper Sao
Paulo SA
3/13/01 Brasil Telecom Participacoes is interested in acquiring part of its
rival, Vesper, but has made no offer yet. Bell Canada International and
VeloCom are the principal share holders of Vesper, which said in February it
would have to lay off workers and scale down operations
Source: The Deal

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

India: Leveraging marketing PR to build business and brands

04/12/2001
Business Line (The Hindu)
Copyright (C) 2001 Kasturi & Sons Ltd (KSL); Source: World Reporter (TM) -
Asia Intelligence Wire

IN 1995 Microsoft launched its Windows 95 software. No paid ads had appeared
for Windows 95 by August 24, 1995, the official launch day.
Yet Windows 95 was already well known to consumers. The Wall Street Journal
estimated that 3,000 headlines, 6,852 stories and over three million words
were dedicated to Windows 95 from July 1 to Aug 24, 1995. By the end of the
first week, US sales alone were $108 million, an outstanding achievement for
a $90 product. In effect, more than one million copies of Windows 95 were
sold before advertising began.
This landmark marketing PR activity even finds mention in Philip Kotler's
Marketing Management Millennium edition.
Starbucks Coffee net revenues grew more than 500 per cent in less than four
years and the brand became a household word through the use of PR before the
company ran its first advertising campaign.
The Sony Walkman is one of the most successful consumer electronics products,
which initially was supported by a global PR campaign and no consumer
advertising.
Such examples underline the importance that brand or marketing PR has assumed
today. As competition intensifies and marketers innovate to find new ways of
connecting with their consumers, new communication and consumer contact tools
are spawned to help build businesses and brands.
Marketing or brand PR can be defined as "A cost-effective, targeted
communication process that leverages news media and other communication
vehicles to enhance reputation and create "compelling interest and purchase
intent" amongst key stakeholders for a brand.
Comments Shailesh Jejurikar, Marketing Director, Procter & Gamble: "Marketing
PR is slowly coming into its own as a valuable marketing tool. It is being
used to build awareness, increase share of voice with consumers and drive
credibility of a product message to a focused target audience."
There are five drivers of marketing PR:
* Consumer awareness and trial are increasingly linked to marketplace
excitement about a product. So when the buzz is big about a product, it
enhances awareness and purchase intent amongst consumers. The Microsoft
example cited above was a result of attention grabbing publicity efforts by
Microsoft's PR team. Microsoft hung a 600 foot Windows 95 banner from
Toronto's CN tower. The Empire State Building in New York was bathed in the
red, yellow and green colors of Windows 95. Microsoft paid the The Times in
London to distribute free its entire daily run of 1.5 million copies. The
lesson to learn: Good advance PR can be much more effective than crores of
rupees of advertising.
* Consumers are increasingly looking for credible third party endorsement to
help them make the right purchase decisions. Influencing the influencers is
defining business success.
So when a columnist of a reputed beauty magazine recommends a particular
beauty care product it makes an impact on consumers. It should come as little
surprise to you that every title recommended by Oprah Winfrey's Book Club has
become an instant bestseller, selling more than one million copies.
* Business is built when an organisation or brand has a loyal consumer base.
It is far easier and costs far less to keep an old consumer than to get a new
one. This is essentially the reason why a host of companies embark on several
'relationship' or loyalty programmes.
In the US this concept even extends to companies working on campus to develop
student ambassadors for their brands.
* Awareness and trial are driven by a higher success rate of contact with the
target consumer. In this, marketing PR affords some outstanding advantages.
We can literally choose today an accurate vehicle to reach a particular
target consumer. So Nike can use PR intelligently to target the sports
enthusiast or Ariel can go the consumer magazine route to target the
housewife. Beyond news media a host of other marketing PR tools exist - the
use of exhibitions, events, seminars, contests and so on.
* Cost efficiency drives any marketing equation. Marketing PR ensures a lower
cost per thousand contacts than most other mediums with the added benefit of
credibility.
Comments Sunil Gautam, CEO, Hanmer & Partners, a Mumbai-based communications
consultancy: "Marketing PR is a highly cost-effective tool that can
facilitate sustained brand contact with target consumers. Body Shop for
example has been built to a very large extent by Marketing PR, which has
established it as one of the top five cosmetics names globally.
In fact, corporates are increasingly turning to us for PR programmes that are
linked to building awareness and driving trial for their brands. Today close
to 60 per cent of all our clients' PR spends are in marketing PR."
Several classical instances abound internationally of marketing PR, but I
would like to share two examples that stand out in the Indian context.
One of the ablest executions of marketing PR was perhaps the Coca-Cola 'Giant
Best-of-Luck-India Cricket Bat' PR campaign. In perhaps the first realisation
of cricket being the way to a consumers heart in India, Coca-Cola conceived
an ambitious marketing PR campaign that focused on wishing the Indian cricket
team the very best for the 1996 World Cup. As the cornerstone, Coca-Cola
created a 21-foot long cricket bat that toured across key cities in India
where celebrities and cricketing legends kicked off public signature
campaigns on the bat to cheer India on to victory. From an inauguration of
the giant bat by Sunil Gavaskar in Delhi to signatures on the bat in Mumbai
by none less than the esteemed Eknath Solkar, Polly Umrigar and the
victorious 1983 Indian cricket team, and M.L Jaisimha and P.R. Mansingh in
Hyderabad, the bat exploded across the countryside in a Coca-Cola wave as
thousands of consumers lined the streets to sign on the bat. From chief
ministers to housewives, aged and handicapped to kids, all wanted to sign on
the giant bat.
That was not all. The company also produced a special music cassette with a
'best of luck India' theme song sung by music legend Asha Bhosle and
Hariharan. The cassette was distributed free at the venues that the Coke bat
toured further creating marketplace excitement around the campaign. News
media, equally passionate about cricket gave the bat and Coke outstanding
editorial space in their publications. Multiple TV channels did special
features on Coca-Cola's giant Best-Of-Luck-India bat campaign. At every
single venue the bat was accompanied by sampling of Coke to thousands of
thirsty consumers.
In a massive culmination of consumer goodwill behind the bat, Coca-Cola
finally presented the giant bat, crammed with seven lakh signatures to the
captain of the Indian cricket team of 1996 in Calcutta at the Salt Lake
stadium.
Comments Jimmy Mogal, currently Regional Vice-President, Corporate
Communications, Enron India, and then Senior Manager, External Affairs,
Coca-Cola India: "The Coca-Cola giant Best-of-Luck-India bat campaign was a
marketing PR innovation that enabled us to connect with our consumers while
leveraging a groundswell of support for the country.
It was perhaps the critical first execution of Coke's sports activation
campaign which laid the foundation for Coca-Cola today becoming almost
synonymous with cricket."
Reminisces Hemant Kenkre, currently Director, Corporate Communications, MTV
India, and head of the consultancy team that managed the campaign in 1996:
"In India cricket is like religion. Through the Coke Best-of-Luck-India
cricket bat we struck a chord with consumers across the country. The campaign
provided the man on the streets a means of getting involved in India's quest
to win the World Cup and provided Coca-Cola with a great means of connecting
with thousands of consumers."
While India failed to keep the Cup home, Coca-Cola surely scored with
consumers, leveraging a tremendous wave of positive sentiment and consumer
involvement behind the bat for their brand Coke. That summer saw the
beginning of Coca-Cola's ongoing relationship with the Indian consumer
through cricket.
If the Coke Best-of-luck-India campaign could be recognized as one of the
earliest and largest marketing PR campaigns, then the Campaign that launched
P&G's Whisper Ultra sanitary napkin in early 2000 must rate among the most
focused. In end-1999, the company had decided to launch Whisper Ultra - P&G's
superior sanitary napkin globally.
However, at the time, P&G's competition was aggressively pushing low-priced
sanitary napkins and given the price premium of Whisper Ultra, the PR
campaign had the difficult task of highlighting the unique benefits of Ultra
with consumers sufficiently to help build a suction for the product.
P&G conceptualised an ambitious marketing PR campaign focused around two key
messages:
* Ultra is a revolutionary new product, thanks to its breakthrough technology
* Ultra is five times thinner than ordinary napkins yet affords better
performance
P&G knew that Whisper Ultra's core target audience was teen girls across the
top cities in India. But for a product at this cost, trade and news media
were equally critical to trial for the brand. News media in particular needed
to be fully convinced of its superiority, its benefits for them to support
Ultra's price premium. Armed with this insight P&G kicked off its "smaller
yet more powerful Ultra revolution"
campaign with a set of three teaser items being sent out to opinion leaders
and news media at 3-4 day intervals. The three teasers - a calculator v/s an
abacus; a CD-ROM compared to three MTNL telephone directories and last of all
an invitation to witness the revolution of "smaller but more powerful" at a
premier mass communications institute in Mumbai all aroused tremendous
curiosity in media.
In a tactical move to impact the core target audience for Whisper Ultra, P&G
involved the students of the institute to hold a press conference as a
learning exercise for them on the college campus.
This provided not just a valuable learning opportunity for budding
journalists and PR practitioners but ensured added newsworthiness through the
first-ever brand launch on campus. This created a tremendous buzz both with
the young girls and with news media who turned up (despite a transport strike
in Mumbai) to witness this unique event.
Says Nandini Sen of the class of 2000 that worked on the Ultra conference and
currently Account Manager, Abacus Integrated Communications: "The Whisper
Ultra revolution took over our lives for an entire week as we prepared for
the launch and ever since, the lady members of our class have never ever used
anything but Ultra. It gave me a personal insight into a direct to consumer
marketing PR campaign that really built equity for Whisper Ultra."
To impact trade and involve employees who needed to champion the benefits of
Ultra, P&G created the Whisper Ultra Employee Trade Convoy as the next leg of
the PR campaign. The concept was simple - involve every single employee in
P&G s Mumbai offices in a massive Ultra vehicle convoy and spread out in
Mumbai along different routes to cover 6,000 retail outlets and place 50,000
packs of Whisper Ultra in markets in under 12 hours!!! This had never been
done before.
Armed with special product knowledge training and in resplendent blue 'Ultra
Revolution' T-shirts and Ultra branded cars, enthusiastic employees took
Ultra into the market. News media rode on the Ultra convoy and captured this
unique moment of Ultra being rolled out by employees in retail outlets in a
barrage of media exposure over the next few weeks.
In the last phase of the campaign, P&G made contact with top women
celebrities in Mumbai and sampled Whisper Ultra with them. The response was
fantastic - positive feedback from a number of women celebrities sampled.
Comments Jejurikar, "The marketing PR campaign provided a kickstart to the
launch of Whisper Ultra. Trade also supported the programme enthusiastically
seeing the suction that the product was creating through the barrage of news.
It proved to us yet again that consumer awareness and trial are increasingly
being driven by marketplace excitement about a product."
In a year from launch Whisper Ultra already comprises over 20 per cent of the
Whisper franchise. Even today the launch of Whisper Ultra continues to be
referred to by media as one of the most outstanding activities that took
place in 2000. Concludes Enron's Mogal: "There are some unmistakable benefits
that marketing PR delivers that are just too difficult to ignore. The
credibility of media exposure, cost-effectiveness, consumer contact and
influencing ability all help build a brand. Net, we know now that marketing
PR impacts business. As long as it continues to do that, this tool can only
achieve increased importance." Sony, Microsoft, Coke and P&G all seem to be
proof of that.
The author is Senior Manager, Public Affairs, Procter & Gamble (India),
holding additional responsibility for brand PR and media relations, P&G
ASEAN-Australasia-India MDO.
- ANTHONY ROSE

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

India: Dabhol impasse

04/12/2001
Business Line (The Hindu)
Copyright (C) 2001 Kasturi & Sons Ltd (KSL); Source: World Reporter (TM) -
Asia Intelligence Wire

SINCE SECRECY HEAVILY shrouds the recommendations made by the Madhav Godbole
Committee - set up by the Maharashtra Government in early February to review
the Dabhol Power Company (DPC) project - the details of the report are not
yet known. However, the little that has come out strongly confirms the
assessment made earlier by many independent analysts that the entire project
has been flawed right from the beginning with the brunt of the resultant
burden being shouldered by the Maharashtra State Electricity Board (MSEB)
directly, and the State Government and the Centre indirectly. Among other
things, reports indicate that the five-member committee has unanimously
recommended that the power purchase agreement (PPA) be renegotiated
principally to bring down the tariff charged by DPC. Further, it has been
stressed that the tariff should not be linked to a fluctuating dollar and
that ways should be found to lower the cost of loans taken by DPC, which is
reflected in the high tariff.
Clearly, the Godbole Committee has said nothing that is not already known
which, in a sense, reduces the impact it can have on the exercise of finding
a way out of the impasse. And yet, considering the current state of the
controversy, the committee's report seems to be the only straw available
which can be clutched by the parties involved to find a solution, even if of
the patchwork variety. Admittedly, the dispute has formally reached the stage
of conciliation which, if attended by failure, will lead to arbitration
proceedings. But conciliation, by its very nature, involves intense
negotiations, and it is conceivable that the Godbole Committee report can
provide useful ideas which can serve as talking points. In fact, DPC should
not have any problems on this score because, in early March, the company's
chief executive officer and president, Mr Neil McGregor, made it clear (in an
interview) that, despite the fact that the Centre did not have a
"representative"
on the committee, his company would "still support" it and would "help" it to
"carry out its mandate".
Of interest is the DPC's stand on a revision of the PPA which, interestingly,
does not appear to be inflexible. In early February, Enron India's Managing
Director, Mr Kay Wade Cline, made it clear that DPC was agreeable to amending
the PPA with the MSEB so that "a change of buyer was possible". (In early
March, the Godbole Committee was reported to have discussed the feasibility
of lifting of DPC power by "licensees" such as TEC and BSES. In early
December, the Maharashtra Government had underscored the idea that DPC power
could be bought by National Thermal Power Corporation and the Power Trading
Corporation.) A second point reportedly made was that, as regards the second
phase of the DPC project, in return for the "change of buyer" concession, the
company would prefer "a waiver of the penalty clauses in the contract in the
event of non-functioning of its units for whatever reason".
The interesting point here is that the Rs 400-crore penalty slapped by the
MSEB on DPC on February 28 related to "technical problems in the supply of
power" with regard to the project's first phase.
Is there a hint here that the DPC's position is somewhat insecure in the
specific dispute featuring the Centre's refusal to honour its
counter-guarantee for MSEB payments for December and January on the ground
that the penalty payment be made first by the DPC?
Since it is widely recognised that renegotiating the PPA must be the central
focus of any effort to make the two phases of the DPC project contribute
effectively to the national power economy (unilateral scrapping of the
20-year PPA would entail a compensation of "beyond Rs 35,000 crore at the
present rate"), it stands to reason that, from New Delhi's point of view, it
is faced with Hobson's choice, namely, making alternative arrangements to
lift DPC power and sparing an ailing MSEB from repeated defaults in payments.
On its part, the least that DPC can do is to offer a reduction in tariff
which, among other things, will reduce the current (justified) opposition
from entities such as PTC and NTPC to lifting costly power. Everything,
however, hinges on the seriousness of Enron - the major shareholder in DPC -
to continue operations in India, which itself is now open to question in view
of the political force majeure clause invoked by DPC to protect its rights
and those of its shareholders.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Turning investors away from India
Prem Shankar Jha

04/12/2001
The Hindu
Copyright (C) 2001 Kasturi & Sons Ltd (KSL); Source: World Reporter (TM) -
Asia Intelligence Wire

The news that Enron's Dabhol power company has invoked the force majeure
(that is, circumstances beyond its control) clause in its contract with the
Maharashtra State Electricity Board, to justify a possible termination of
power supply to the MSEB, has provoked a yawn from the intelligentsia of the
country. The dispute has been going on for months and has therefore lost its
novelty.
Despite all threats and counter-threats, Dabhol continues to pump out power.
In any case, with Maharashtra awash with power because of the five-year
industrial recession, who cares a damn about the power supplied by Dabhol.
But has anyone spared a thought about the damage that Dabhol's action will do
to the Indian economy, and the even greater damage that will ensue if India
challenges Enron in an international court of arbitration and loses? The
answer is short but not sweet. It will turn India into a destination to be
avoided by foreign companies.
Enron is not invoking the force majeure clause because an earthquake has
damaged its power plant or a war has interrupted the supply of fuel. It is
doing so because the governments it has to deal with are using their
sovereign status to change, unilaterally, the terms of their contract with
the company. In support of its contention it has cited the statements and
actions of not only the Government of Maharashtra and the MSEB, but also the
Government of India.
These, it claims, have left it with no sovereign body within the country to
whom it can turn for the enforcement of contract. As a result it has been
left with no option but to invoke the force majeure clause.
Though it has advised against any attempt to cancel either phase of the DPC
project, the report of the Godbole committee has strengthened Enron's case,
because it has recommended yet another renegotiation of the contract between
MSEB and Dabhol. There are many in India who would regard an attempt to
defend Enron as an act of disloyalty. But the fact is that Enron's case is
well-nigh unassailable.
The MSEB first refused to pay its bill for November 2000 but relented when
Enron invoked the Central government's counterguarantee. But the MSEB again
refused to pay the bill for December. When Enron again invoked the
counterguarantee the MSEB responded by slapping Enron with a demand for Rs.
401 crores of 'penal rebate' because the Dabhol company was unable to supply
power for a few hours on January 28. Since then MSEB has refused to pay the
bill for January. When Enron went to the Central government for payment of
the December bill, New Delhi told it to settle the dispute over the penal
rebate first. This was the action that forced Enron to invoke the political
force majeure clause.
Were the case to go to court, it is difficult to see how any judge or
arbitrator would accept Maharashtra's penal rebate claim. By linking the
disputed issue of rebate with that of non- payment of a regular monthly bill,
the Centre too has in effect refused to honour its counterguarantee.
One can examine what lies behind the MSEB's unwillingness to pay. To put it
simply, the MSEB has been forced into bankruptcy by the populist electricity
pricing policies of a succession of governments.
Taking old plants with new, Maharashtra's generation cost is a little over
Rs. 2 per unit. But it is able to recover only a part of this cost because of
low tariffs on power sold to the rural sector, and a 33 per cent transmission
and distribution loss, of which more than two thirds is outright theft, to
which the State government has turned a blind eye.
Till 1996-97 Maharashtra raised its average tariffs by a few paise per unit
every year. But in 1997-98 and 1998-99, that is, in the two years before
Dabhol came on stream, the government did not do even that. As a result,
while the addition of a new plant pushed up the average cost of generation
the average tariff realisation remained static and power theft actually
increased. To top it off, the Vilasrao Deshmukh government has been condoning
payment defaults by the score, further reducing the MSEB's income.
India is not exactly the foreign investors' darling even now. A recent study
of foreign direct investment plans by the 1000 largest global companies,
carried out by the international consultants A. T. Kearney, showed that very
few companies that were not already in India had any intention of coming here
in the near future. The reason cited by a senior executive of the company was
the absence of a 'suitable investment environment'. Until this was changed
for the better, he said, India had little hope of meeting its target for FDI
inflows.
The Enron saga highlights what is keeping foreign investors away from India.
It is not simply that the sovereign state of India (Central government) is
tacitly abetting a renegotiation under duress of an already signed contract
for the second time, but that there is, in effect, no sovereign state in
India. The writ of the Centre does not run in the States; that of the State
government does not run with its parastatals; and that of none of these
organisations runs with the bureaucrats.
The time has come for Indian politicians to learn that nothing comes free.
For the past ten years each and every State government has looked more and
more frantically for ways of duping private investors into investing in power
generation without having the nerve to raise power rates to pay them their
dues. Instead, as in the Dabhol case, they have blamed predecessor
governments, corrupt Central politicians and rapacious foreign investors -
everyone, in short, except themselves.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

Executive Pay (A Special Report)
Hedging Their Bets
By Joann S. Lublin

04/12/2001
The Wall Street Journal
R1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

[The lush riches of the past few years have faded quickly in the souring
market. but some CEOs are starting to win pay deals that promise at least
partial protection against a longer downturn.]
The runaway executive-pay train has hit a formidable barrier: the
stock-market downturn.
And the jolt hurts. Take Steve Jobs, co-founder of Apple Computer Inc. In
July 1997, he returned to run the Cupertino, Calif., personal-computer maker
-- for $1 a year. In January 2000, grateful board members recognized his role
in Apple's recovery by awarding him 20 million stock options exercisable at
$43.59 a share (reflecting a subsequent stock split). Today, with Apple
shares depressed again, none of his options are worth a dime.
Mr. Jobs and countless other corporate titans have seen their chances of
reaching lush paydays shrink considerably. At the same time, the economic
slowdown is intensifying investors' and workers' clamor for greater pay
moderation in the corner suite.
Some big bosses have begun to fight back -- by snaring packages that better
hedge their bets against a protracted market slump and their increasingly
insecure posts. Among the risk-reduction approaches: a surge in grants of
restricted stock; larger signing bonuses; guaranteed future awards;
subsidiary options; and wider use of internal performance measures and cash
payouts for long-term plans. A handful of leaders even get to reprice options
that have lost their value, although doing so causes an earnings charge.
Wary chiefs clearly want "more of a sure thing," says Patrick McGurn,
director of corporate programs at Institutional Shareholder Services, a
proxy-advisory firm in Rockville, Md.
The bottom line: The heads of the nation's biggest businesses are still
pocketing larger pay packets, but they're getting richer at a slightly slower
pace. Chief executive officers with at least two years' tenure reaped a 10%
median increase in salaries and bonuses last year to $1,844,429, according to
a survey by New York pay consultants William M. Mercer Inc. Corporate profits
improved 8.9% in 2000, according to Mercer, which analyzed the latest proxy
statements of 350 major U.S. companies. Standard & Poor's 500-stock index,
including reinvested dividends, dropped 9.1% last year.
Sounds good for CEOs. But compare that with the 11% gain to a median of
$1,688,088 that Mercer found corporate chiefs garnered in 1999. (The
year-earlier figure comes from a slightly different sample.) The tempered
growth rate in executive pay may become more evident this year amid further
economic weakness and a renewal of shareholder activism.
The escalation in the No. 1 executives' cash compensation did exceed that of
white-collar employees. Paychecks of nonunion salaried workers climbed 4.2%
in 2000, the same proportion as in 1999. But workers generally don't get
bonuses, and the gap diminishes if bonuses are excluded. Base pay of surveyed
business commanders went up 5.3% in 2000, following a 5.4% increase during
the prior year. Overall U.S. wages and benefits advanced an estimated 4.5%
last year, the highest level in at least five years and above the 3.2% growth
in 1999.
Many CEO bonuses are on the wane. Of the leaders studied, 122 collected
smaller or zero bonuses last year, compared with 113 in 1999. Bonuses fell
for Kimberly-Clark Corp.'s Wayne R. Sanders, Knight Ridder Inc.'s Tony Ridder
and Schering-Plough Corp.'s Jay Kogan, among others. At Bank One Corp., which
had a $511 million loss last year, Chief Executive Jamie Dimon gave up his
$2.5 million guaranteed bonus. "The company cannot and will not pay the
senior people more when the company does worse," he wrote employees on Jan.
30.
Overall, total direct compensation for surveyed CEOs rose just 8.2% last year
to a median of $2,902,886, Mercer found. The latest figure compares with a
10.8% rise to $2,782,482 in 1999. (Total direct compensation covers salaries,
bonuses, the value of restricted stock at the time of the grant, gains from
option exercises and other long-term incentive payouts.)
Heads of companies with the highest shareholder returns were more richly
rewarded than their counterparts with the lowest returns. CEOs at the 10
best-performing companies saw a gain of 254.7% in total direct compensation
to a median of $10,893,557, according to Mercer. By contrast, chiefs of the
10 with the worst returns suffered a 3.2% slide to a median of $1,061,352
(though a few still enjoy hefty pay packages). Total shareholder return,
which equals the sum of stock-price appreciation plus reinvestment of
dividends, were a median of 5.3% among all 350 surveyed concerns last year.
The impact of the market downturn shows up most starkly among CEOs who
exercised options last year. Altogether, 151 cashed in a median of 98,333
options apiece, compared with the 143 exercising a median of 99,150 options
each in 1999, according to the Mercer study. The median realized gain was
$1,892,938, far below the prior year's record of $2,857,676.
"We could have a number of years of option meltdowns," predicts L. Dennis
Kozlowski, the longtime leader of Tyco International Ltd. "But I don't spend
a lot of time worrying about that."
No wonder. He scored a $99.9 million paper profit from exercising about 3.2
million options in the company's fiscal year ended Sept. 30. Mr. Kozlowski
also received $4.15 million in salary and bonus; $21.2 million in restricted
shares; and 5.1 million options initially valued at $68.6 million. (Tyco says
4.2 million of those options replaced exercised ones.)
The 54-year-old chairman and chief executive does worry about making sure the
acquisitive conglomerate achieves performance targets, however. A portion of
his latest options grant has exercise prices far above market levels and
vests early if Tyco's per-share earnings grow substantially. He also could
lose his restricted shares if the business misses tough earnings goals.
As the owner of more than 12 million Tyco shares, Mr. Kozlowski says, "my
whole net worth is tied up here. So I better not make a mistake."
On the other hand, critics point out that he holds 800,000 options in Tycom
Ltd., Tyco's fiber-optic unit. The Tycom stake diversifies his holdings and
lowers his risk. And that diversification requires little work, as Tycom has
separate full-time management. Mr. Kozlowski, who says he also bought 200,000
Tycom shares when it went public last August, spends about 10 hours a week as
the unit's executive chairman. "That's just an extra job where I only get
something if the stock goes up," he adds.
With many share prices in the doldrums, most big bosses no longer can
envision easy fortunes from their sizable stash of options. So, some held off
exercising options until the market recovers. Their median unrealized gains
from unexercised options totaled $5.84 million in 2000, up from 1999's $3.87
million. Overall unrealized gains for polled executives with in-the-money
options increased to $15.48 billion from $11.5 billion in 1999. The latest
figure includes $3.4 billion in unrealized option gains for Oracle Corp.'s
Lawrence J. Ellison.
Chief executives fearful of their battered wealth prospects are cutting pay
deals so "they stay whole through this" stock-market slide, says Nell Minow,
editor of the Corporate Library.com, a corporate watchdog Web site based in
Washington, D.C., that tracks employment contracts for about 560
public-company CEOs. "People are going for more restricted stock."
Restricted-share recipients enjoy plenty of upside and scant downside. The
shares typically cost the recipient little or nothing, and the restrictions
on sale of the stock usually lapse within five years. Even if a company's
stock price slumps, an executive can make plenty selling vested shares.
Increasingly, companies are handing out so-called megagrants of restricted
stock -- with a face value of at least two times cash pay. Last year, 17 of
the polled businesses delivered such mammoth helpings of restricted shares,
up from 15 in 1999, according to the Mercer study.
In October, Compaq Computer Corp. bestowed a megagrant of 970,000 restricted
shares valued at $24.4 million upon Chief Executive Michael D. Capellas when
the world's largest PC maker elevated him to chairman. Mr. Capellas must
forfeit 500,000 restricted shares if Compaq fails to reach certain earnings
and share-price targets. But in a highly unusual move, restrictions on
170,000 shares lapsed 30 days after he got them. (The new three-year contract
states he won't sell those shares for a year "except to defray associated
taxes.") The remainder vests over a longer period.
The 46-year-old executive's promotion to chairman also won him an $850,000
one-time bonus, base pay of at least $1.6 million a year and a potential
annual bonus of twice that amount. Separately, he got 850,000 options last
year.
Critics say the loose restrictions on some of Mr. Capellas's shares give him
less incentive to make good. Mr. Capellas won't "have to work as long or as
hard" as do most holders of restricted shares, says Judith Fischer, managing
director of consultants Executive Compensation Advisory Services in
Alexandria, Va.
Kenneth Roman, a Compaq outside director, strongly disagrees. "Whatever
Michael is getting, Michael is worth," Mr. Roman says. "We really needed
him."
And restricted stock, which Compaq never offered top executives until it
elevated Mr. Capellas to president and chief executive in July 1999, makes
sense, maintains Compaq spokesman Arch Currid. It "provides a greater equity
interest in the company sooner than do options," he says. Mr. Capellas was
unavailable to comment.
Under Mr. Capellas, the Houston company initially experienced an upturn.
Compaq's operating income last year more than tripled to $1.7 billion,
including a $1.8 billion charge for writedown of investments.
But now, Compaq has hit a rough patch again. In mid-March, the company
slashed its first-quarter profit projection and disclosed a broad
restructuring plan that will cut 7% of its full-time work force. Compaq's
share price has fallen below the $24.50 level it was at when Mr. Capellas
assumed the top job.
Certain businesses are sheltering their leaders' pay from the stormy market
by canceling worthless options and substituting retention grants of
restricted shares. Daniel H. Schulman, Priceline.com Inc.'s president and
chief executive, received 2.5 million restricted shares after he gave up his
seven million options last December. At the same time, the Norwalk, Conn.,
name-your-own-price online concern accelerated its planned forgiveness of
half of his $9 million in loans from the company.
In a Feb. 15 announcement of the tradeoff by Mr. Schulman and two high-level
colleagues, Priceline said they gave back their perks "to make options
available" for a new employee compensation and retention plan.
But the company's press release failed to mention an important fact: The
trio's options were deeply underwater, with exercise prices far in excess of
Priceline's share price. The company's stock had sunk to about $1.13 by late
last December from an April 1999 high of $162.
The Feb. 15 press release omitted another crucial detail: Mr. Schulman signed
a revised employment contract Dec. 20. The accord raised his base salary to
$400,000 from $300,000. It promised to grant him two million options in late
June; he can exercise half immediately. And starting May 20, he will be free
to sell 1.5 million of his recently awarded restricted shares. (Priceline
disclosed the renewed contract in a March 30 Securities and Exchange
Commission filing.)
Priceline directors believe the restricted-stock awards "are appropriate for
the current business conditions," says company spokesman Brian Ek. He says
Mr. Schulman declines to comment.
Institutional investors take a contrary view, arguing that substituting
restricted-stock awards for worthless options allows executives to largely
escape the consequences of a falling stock price. "It's `Heads, I win. Tails,
we'll flip again,'" says Peter Clapman, a senior vice president of New
York-based TIAA-CREF, a leading pension system for U.S. colleges and
universities.
Some CEOs left out of the renewed boom in restricted stock can take comfort
from their giant new dollops of options. Last year, 68 major companies
tracked by Mercer gave their leaders such megagrants, up from 50 in 1999. An
option megagrant has a face value of at least eight times an individual's
salary and bonus. The face value of these options is computed by multiplying
the number of options by the market price at the time of the grant.
Hefty signing bonuses and future guarantees help some newly hired chief
executives hedge their compensation bets. Look at Gary Wendt's deal. Last
June, the retired General Electric Co. executive received a $45 million
upfront bonus, 10 million options and 3.2 million restricted shares worth
$18.8 million for taking the helm of Conseco Inc., a beleaguered insurance
and finance company based in Carmel, Ind. He replaced Stephen C. Hilbert, the
founder and CEO, who was forced out after Conseco's earnings and market value
declined sharply.
Mr. Wendt's five-year employment pact provides him with another special cash
bonus of between $8 million and $50 million based on its average closing
share price for the 20 trading days preceding June 30, 2002. Conseco also
guarantees him an annual salary of at least $1 million, an annual bonus of up
to $2.8 million and 500,000 options a year during the last three years of his
deal.
"That was the single worst pay package for a CEO in 2000 -- and possibly
ever," says the Corporate Library's Ms. Minow. She especially dislikes Mr.
Wendt's big signing bonus. It "sends a very powerful signal to the market
that you are bringing on someone who isn't very hungry," she continues.
Mr. Wendt says he took a huge risk to run Conseco. "What guarantees did I
have?" the feisty 59-year-old chief asks. "This company was headed for
liquidation!"
He says that joining Conseco cost him money, too. Under a noncompete accord
with GE, Mr. Wendt previously has said he would have reaped more than $65
million for staying "in a hammock" another 21 months. (Conseco issued a
warrant for 10.5 million of its common shares to a GE finance unit to release
Mr. Wendt from his noncompete agreement.) He notes that he also receives no
salary until mid-2002.
"I left tens of millions of dollars of money on the table," says Mr. Wendt,
"to take the risk that these options will be worth something someday and that
the restricted stock will be worth something someday and that the company
will be in existence" long enough to earn a salary and the extra bonuses.
Conseco's share price has about tripled since he arrived. Mr. Wendt declares
that he soon "will be No. 1 on the sheet [comparing] value to shareholders
with compensation."
Highly protective CEO pay packages are provoking more shareholder activism.
As of late March, investors had submitted executive-pay stockholder
resolutions at 113 corporations -- up from the 91 proposed in all of 2000,
according to the Investor Responsibility Research Center in Washington, D.C.
Proxy Monitor, a New York investor-advisory firm, recently urged
institutional clients to vote against six companies' executive
restricted-stock plans submitted for investor approval this year. Restricted
stock does "little more than guarantee participants' right to make money,
whether or not long-term sustainable wealth is created for shareholders,"
says Mary-Ellen Robinson, a governance analyst at the firm.
Some businesses have started to heed such criticism. Baxter International
Inc. recently decided to stop granting senior management restricted shares
because they "basically have no risk," says Harry M. Jansen Kraemer Jr.,
chairman and CEO of the medical products and services company in Deerfield,
Ill. He personally swapped about 37,500 restricted shares for 187,500 options
in late November.
HealthSouth Corp., a Birmingham, Ala., operator of rehabilitation hospitals
and outpatient surgery and diagnostic centers, last month agreed that 25% of
the options it offers the top brass will contain performance triggers linked
to market measures. The move persuaded the state of Connecticut employees'
pension fund, which holds 448,000 HealthSouth shares, to kill a related
shareholder proposal.
"Companies do have to attract and retain top management," says Meredith
Miller, Connecticut's assistant treasurer for policy. But CEOs "should not be
totally insulated from the market fluctuations."
---
Ms. Lubin, the Careers News Editor in The Wall Street Journal's New York
bureau, served as contributing editor for this report.
--- Winners and Losers

The median total shareholder return of 350 major businesses was 5.3%
last year, while their chief executives' total direct compensation
advanced 8.2% to a median of $2,902,886. Leaders of the best
performers once again received more sizable rewards than the heads of
companies with the poorest returns for investors:

BEST RETURNS

Pct. Total Pct. Change
Change Direct In Total
Chief Executive In TSR Compensation Compensation

Lawrence J. Ellison, Oracle
479.4% $75,232,427 N.A

Paul B. Fireman, Reebok International
233.9 3,160,012 216.0%

Brian L. Halla, National Semiconductor
177.4 10,332,312 881.0

Tony L. White, Applera
176.4 16,352,462 254.7

William J. Schoen, Health Management Associates
168.5 11,454,801 64.4

WORST RETURNS

Pct. Total Pct. Change
Change Direct In Total
Chief Executive In TSR Compensation Compensation

Glen H. Hiner, Owens Corning
-95.8% $3,035,600 -51.7%

John Nils Hanson, Harnischfeger Industries
-93.9 1,285,704 N.A.

William H. Bricker, LTV
-91.3 116,667 N.A.

James C. Kempner, Imperial Sugar
-81.6 569,750 - 1.7

Duane R. Dunham, Bethlehem Steel
-79.1 837,000 N.A.

Note: N.A.=Valid comparison not available

Source: Analysis of 350 major corporations' latest proxy statements
by William M. Mercer Inc. To calculate total direct compensation, the
firm counts salary, bonus, the value of restricted stock at the time
of grant, gains from stock-option exercises and other long-term
incentive payouts. Total shareholder return, or TSR, equals the sum of
stock-price appreciation plus reinvestment of dividends.
---
Who Made The Biggest Bucks

Despite the wobbly stock market, some corporate titans hit the
jackpot when they cashed in stock options last year.
The lucky ones stood out in William M. Mercer Inc.'s annual
compensation survey for The Wall Street Journal. The study covers
chief executives' gains from exercising options and other long-term
incentive payouts as well as their salary, bonus and the value of
restricted-stock grants.
The median value of shares owned by CEOs at the end of their
companies' 2000 fiscal year was $9.7 million, down slightly from
1999's $9.85 million. The median total shareholder return, or TSR,
equaled 5.3%, compared with minus 3.9% in 1999. (The methodology used
to calculate TSR differs from that in The Wall Street Journal
Share-holder Scoreboard of Feb. 26.)
Here's who landed in the winner's circle for last year:

-- Sanford I. Weill, Citigroup Inc., with total direct compensation
of $224.4 million. That includes a $196.2 million gain from exercising
stock options and a restricted-stock grant initially valued at about
$2.2 million. Mr. Weill appeared on seven earlier scorecards. He owned
shares valued at $1.19 billion at the end of a year in which TSR was a
respectable 23.5%.

-- John T. Chambers, Cisco Systems Inc., with total direct
compensation of $157.3 million. The figure primarily reflects nearly
$156 million in option gains. He owned shares valued at $169.7 million
as of July 29, a fiscal year in which investors reaped a return of
102.3%, the best return among the highest-paid CEOs last year.

-- Kenneth L. Lay, Enron Corp., $140.4 million, with about $123.4
million in paper profit from option exercises, a restricted-stock
grant initially valued at $7.5 million and $1.2 million in long-term
incentive payouts. He held shares valued at $175.3 million during a
year in which TSR was an impressive 88.6%.

-- L. Dennis Kozlowski, Tyco International Ltd., $125.3 million,
including $99.9 million from exercising options and restricted shares
initially valued at $21.2 million. The head of the industrial
conglomerate, who led the year-earlier scorecard, owned an equity
stake valued at $162.4 million when fiscal 2000 ended Sept. 30. Tyco
investors didn't fare as well: TSR was almost flat at 0.6%.

-- John F. Welch Jr., General Electric Co., $122.5 million, with
$57.1 million in gains from exercised options and a restricted-stock
grant initially valued at $48.7 million. This marks Mr. Welch's sixth
straight year on the scorecard. His year-end stake was worth about
$141.7 million. But TSR was minus 6.1%.

-- Joseph P. Nacchio, Qwest Communications International Inc., $96.6
million, primarily the result of $93.45 million in option gains and
$1.1 million in long-term incentive payouts. Mr. Nacchio had shares
valued at $23.1 million at the end of a year in which TSR was minus
4.9%.

-- W.J. Sanders III, Advanced Micro Devices Inc., $92.4 million,
which mainly reflects $85.1 million from option exercises. He owned
shares valued at about $3.3 million at year's end. Shareholders
experienced a return of minus 4.5%.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

International
World Watch
Compiled by David I. Oyama

04/12/2001
The Wall Street Journal
A13
(Copyright (c) 2001, Dow Jones & Company, Inc.)

BRIEFLY:
-- Singapore canceled its auction for third-generation wireless licenses,
after only three bidders emerged for the four licenses on offer. As a result,
Singapore Telecommunications, MobileOne and StarHub Mobile will each pay the
minimum price of 100 million Singapore dollars (US$55.2 million) for licenses
under the Infocomm Development Authority's rules.
-- Sinar Mas Group, parent of ailing Asia Pulp & Paper, said it is seeking to
borrow an additional $200 million to ease a liquidity crunch and help boost
production of its Indonesian pulp and paper units. "We're looking for new
creditors," Sinar Mas's general manager for forestry said.
-- U.S. energy company Enron named Sir Laurence Street, former chief justice
for Australia's New South Wales state, to act as a conciliator in a dispute
with India's Maharashtra State Electricity Board over bills not paid to its
Dabhol Power unit.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.

April 12, 2001, 12:07AM
Houston Chronicle
Enron bid to quit selling power to California colleges blocked
By MICHAEL DAVIS
Copyright 2001 Houston Chronicle
A federal judge on Wednesday ordered Enron Corp. to keep supplying low-cost
power to California's state university systems after Enron tried to shift
responsibility for buying the school's power to the state's troubled
utilities.
The ruling is the first strong indicator that Enron will not be able to avoid
being dragged into the California power crisis. The company has maintained
that because it does not own plants there like its rivals, Reliant Energy and
Dynegy, the crisis would not harm its bottom line.
The power markets have change so drastically in recent months that if Enron
is forced to sell power to the systems under terms of the contract, it could
lose out on potential profits made in the open market.
The school systems argued that if Enron was allowed to dump them as "direct
access" customers who receive power bought and resold directly by the
company, they would lose the ability to manage their power most efficiently,
which could cost the taxpayers of California millions.
Enron said it would file an emergency appeal to the 9th U.S. Circuit Court of
Appeals in San Francisco to overturn U.S. District Judge Phyllis Hamilton's
ruling in the lawsuit brought by the California State University and
University of California systems.
Enron was attempting to get out of directly delivering power for the final
year of a four-year deal with the school systems.
If Enron had been allowed to get out of directly delivering power, the school
systems would no longer be "direct access" customers but would have to buy
power acquired by the state's utilities.
Such a shift in the school systems' power supply arrangements would have cost
the schools millions of dollars, said Ken Swisher, spokesman for the
California State University system in Long Beach, Calif.
"We are very happy with today's ruling," Swisher said. "Given the current
uncertainty, remaining a direct access customer is very important to us."
A statement issued by the systems said the ruling blocked Enron "unilaterally
jettisoning" the school systems back to the utilities.
Enron wanted to have the utilities buy the schools' power on the state's spot
markets and Enron would bill the schools for the power instead of Enron
buying the power and selling it directly to the systems, said Peggy Mahoney,
Enron spokeswoman in Houston.
Enron is honoring all terms of the contracts, she said, and the company
believes it has the legal right to shift the systems back into the hands of
the utilities, Mahoney said.
Pacific Gas & Electric Co., the state's largest utility, filed for Chapter 11
bankruptcy protection last week, saying it is owed $9 billion for power sales
it was forced to make that it could not pass on to its customers.
"It is chaotic now and uncertain how direct access is going to be handled,"
Mahoney said. "We are trying to get the California Public Utility Commission
to rule on direct access."
Enron's contract with the two school systems initially was valued at $500
million. Mahoney couldn't confirm reports that Enron would lose $12 million a
month for the rest of its current contract.
The University of California systems' annual electric bill is about $87
million and its natural gas bill is about $26 million. The California State
University system annually pays about $40 million for electricity and $20
million for natural gas.
In her ruling, the judge said Enron may be in breach of its contract with the
school systems and ordered the Houston company to abide by its agreement to
sell low-cost power directly to the state's public universities.
The judge issued a temporary injunction against Enron, forcing it to continue
providing service as the suit brought by the universities proceeds. She also
said there is a likelihood Enron will lose the lawsuit.
"I am persuaded, in the end, there is a very strong likelihood of success on
the breach of contract claim," the judge said.

April 12, 2001, 12:32AM
Houston Chronicle
Energy status 'critical,' panel says
Experts in field cite capacity problems
By DAVID IVANOVICH
Copyright 2001 Houston Chronicle Washington Bureau
WASHINGTON -- The United States must develop a comprehensive energy strategy
or face more crises like the rolling electricity blackouts in California, a
panel of energy experts has concluded.

"There could be more Californias in America's future," a task force organized
by Rice University's James A. Baker III Institute for Public Policy and the
Council on Foreign Relations warned in a report released today.
As the Bush administration weighs its energy options, the group of 51 energy
experts urged the policy-makers not to "muddle through" with short-term fixes
that do not address fundamental supply and transportation constraints.
"Taking the we-can-drill-our-way-out approach won't work," said Amy Myers
Jaffe, the task force's project director and co-author of the report,
Strategic Energy Policy Challenges of the 21st Century.
With gasoline prices on the rise, natural gas prices high and electricity
shortages all but a given this summer, the task force members characterized
the energy sector as being in "critical condition."
"There is no escaping the fact that we are reaching the beginning of an
extensive period of sporadic supply shortages and periodic price hikes in the
United States and other parts of the world," the report said.
Back in 1985, for example, the Organization of the Petroleum Exporting
Countries had an estimated 15 million barrels worth of spare production
capacity, comparable to about 25 percent of global oil demand. Last winter,
the cartel's spare capacity was a negligible 2 percent of global demand.
"America can no longer assume that oil-producing states will provide more
oil," the report said.
While stopping short of branding the current energy crunch a "crisis," the
report notes: "The situation is worse than the oil shocks of the past,
because ... the tight oil market condition is coupled with shortages of
natural gas ... heating fuels for the winter and electricity supplies in
certain localities."
Drafts of the report already have circulated around the White House, the
State Department and other parts of the administration.
An Energy Department spokesman said Wednesday he had not seen the report and
could not comment.
Bush has created a task force, headed by Vice President Dick Cheney, to
formulate the administration's energy strategy.
And while the report could provide the kind of intellectual underpinnings the
administration will need to push its energy strategy, the White House may not
find the report completely to its liking.
President Bush, for instance, favors drilling in a portion of the Arctic
National Wildlife Refuge, although he has largely backed off that push in the
face of strong opposition.
While generally supportive of the notion of drilling there, the report argued
that such proposals would not get adequate political support in the absence
of other measures aimed at curbing energy demand.
And with an estimated 300 trillion cubic feet of natural gas hidden away in a
geological formation in the Rocky Mountain region, the industry might be
better off targeting those resources rather than the "distant" reserves in
the arctic refuge.
The report also noted that if "light trucks," a category that includes sport
utility vehicles and minivans, were required to meet the same fuel efficiency
standards as cars, the United States would save 910,000 barrels of oil a day.
Energy Secretary Spencer Abraham, a former Republican senator from Michigan,
opposed stiffening fuel efficiency standards while serving on Capitol Hill.
Other recommendations included:
? Reducing the number of "boutique" gasoline blends required in markets
across the country to avoid potential supply shortages and price spikes. The
"balkanization" of the gasoline market has been blamed for the Midwest's
price spikes last summer.
? Expanding the Strategic Petroleum Reserve and reconstituting the makeup of
the International Energy Agency to include developing nations, which now are
large consumers of crude.
? Rethinking the sanctions policy toward Iraq, which has emerged as a
critical "swing" producer for the world oil markets.
? Prioritizing relations with Saudi Arabia, the United Arab Emirates and
Kuwait, some of the producers expected to have spare production capacity in
the foreseeable future.
The report did not assign blame for the energy crunch, saying both Democrats
and Republicans share the blame for failing to fashion a workable energy
policy.
The report did criticize former Energy Secretary Bill Richardson's very
public efforts to jawbone OPEC producers into boosting crude production and
push down oil prices.
"This fueled anti-American sentiment among certain sectors of the population
in the Middle East, lent support to the claims of Saddam Hussein and brought
pressures on some U.S.-friendly regimes in the region." Also: "Specific
discussions of price should be kept to private diplomatic discussion whenever
possible."
For his part, Richardson, in an op-ed piece published earlier this week in
the Washington Post, questioned whether the nation is actually experiencing
an energy crisis and blasted the Bush administration for concentrating too
heavily on boosting supplies.
Ed Morse, executive adviser at Hess Energy Trading Co. and former publisher
of the Petroleum Intelligence Weekly, headed the task force.
Other participants included Enron Corp. Chairman Ken Lay; Dynegy Chief
Executive Chuck Watson; former Deputy Energy Secretary Bill White; former
Deputy Energy Secretary Charles Curtis; Houston earth scientist and engineer
Michel Halbouty; Simmons & Co. President Matthew Simmons; ChevronTexaco Chief
Executive David O'Reilly; former Petroleos de Venezuela Chairman Luis Giusti;
and Cambridge Energy Research Associates Chairman Daniel Yergin.

Judge orders Enron to deliver electricity to universities
Sacramento Bee

Updated: April 12, 2001
SAN FRANCISCO -- Saying that Enron Energy Systems Inc. may be in breach of
contract, a federal judge Wednesday ordered the Houston company to abide by
its agreement to sell cheap power to the state's public universities.

Enron was attempting to get out of delivering power for the final year of a
four-year deal with the California State University and University of
California systems.

Enron, which buys power from producers and sells it on the market, said the
contract would cost the energy concern $12 million a month because of
skyrocketing wholesale power prices.

Enron said the state should free Enron from its obligation and taxpayers
should pick up the tab.

"It's our economic interest to provide a service with the least amount of
dollars we can provide it for," Enron attorney A. William Urquhart said. He
later described the case as being "all about money. It's all about money."

Enron said it would file an emergency appeal to the 9th U.S. Circuit Court of
Appeals in San Francisco to overturn U.S. District Judge Phyllis Hamilton's
ruling in the suit brought by the state's two university systems.

Appearing in federal court, state Attorney General Bill Lockyer argued that
Enron wants out of the contract so it can engage in a "marketing game" with
the universities' promised power and sell it on the open market for 10 times
more than what the electricity cost Enron.

He said lawmakers may have "left the keys in the car" when they approved
California's failed energy deregulation scheme that has prompted the energy
crisis, "But it is still theft to steal the car."

The judge issued a temporary injunction against Enron, forcing it to continue
providing service as the suit brought by the universities proceeds. When the
judge issued the order, she also said there is a likelihood Enron will lose
the suit.

"I am persuaded, in the end, there is a very strong likelihood of success on
the breach of contract claim," the judge said.

UC's annual electric bill is about $87 million and its natural gas bill is
about $26 million. CSU annually pays about $40 million for electricity and
$20 million for natural gas.

The case is UC Regents vs. Enron Energy Systems Inc., 01-1006.

Electricity notebook: U.S. relief plan kept under wraps
Orange County Register
April 12, 2001

Judge won't let Enron out of deal for cheap power
SAN FRANCISCO - Saying that Enron Energy Systems Inc. may be in breach of
contract, a federal judge Wednesday ordered the Houston company to abide by
its agreement to sell cheap power to the state's public universities.
Enron was attempting to get out of delivering power for the final year of a
four-year deal with the California State University and University of
California systems. Enron, which buys power from producers and sells it on
the market, said the contract would cost the energy concern $12 million a
month because of skyrocketing wholesale power prices.
Enron said the state should free Enron from its obligation and taxpayers
should pick up the tab.
Appearing in federal court, state Attorney General Bill Lockyer argued that
Enron wants out of the contract so it can engage in a "marketing game" with
the universities' promised power and sell it on the open market for 10 times
more than the electricity cost Enron.
The UC system's annual electric bill is about $87 million, and its
natural-gas bill is about $26 million. The CSU system annually pays about $40
million for electricity and $20 million for natural gas.
Bloomberg News and the Associated Press contributed to this report.

Enron deal change riles university officials

By Craig D. Rose?
UNION-TRIBUNE STAFF WRITER
March 12, 2001
With a contract in hand from the nation's largest electricity trader,
California's two big university systems thought they were mere spectators to
the power crisis roiling the state.
But now California State University and the University of California are
seeking a federal injunction to block Enron Energy Services from changing the
deal in a way that the university systems say would dump them into the
turmoil of deregulation.
They say Enron is seeking to return the campuses to receiving power from
utility companies so it can boost its profits.

"It's a unilateral abrogation of the contract in order to make more money,"
said Charles McFadden, a spokesman for UC.
On Friday, CSU and UC asked the federal court in Oakland for an expedited
review of their injunction request.
Enron insists that it is changing only the source of electricity to the
campuses, while keeping other provisions of its contract in place, including
a guaranteed discount on electricity.
"I have not tossed my contract out the window," said Marty Sunde, vice
chairman of Enron Energy Services.
"I am simply getting my electrons from a different source."
Under terms of the four-year agreement signed in 1998, Enron agreed to sell
power to the university systems for 5 percent less than the cost offered by
utility companies. Enron also agreed to provide an array of products and
services intended to conserve and monitor electricity consumption.
Enron insists it always lost money by discounting the power sales to the
universities but that the breakdown of deregulation caused the losses to
grow. Now the Houston-based company said it can reduce its losses on the deal
by having PG&E and Southern California Edison supply power to campuses in
their service areas. Enron intends to continue supplying power to campuses in
the SDG&E area.
But Enron says it will continue to provide the power discount, so the
universities' cost of power will not change.
The universities say Enron's action in returning them to local utility
service, however, will force a revamping of expensive new billing systems
created under the Enron contract, could cause the removal of the advanced
meters and could make the college systems liable for a share of the rescue
plan that may be forthcoming for the troubled utilities.
The spokesman for UC said the proposed change would be costly to the
university and profitable for Enron.
"They discovered they can resell the power they earmarked for us at vastly
inflated prices," McFadden said.
The university systems also argue that Enron has no right to make the changes
under their agreement.
Sunde denied that Enron is reselling the power and insists the contract
allows the company to change the source of power supply. He said the
universities face no liability he can think of by being returned to the local
utilities.
Oakland-based Clorox Co., another Enron customer returned to local utilities,
said the change has had no impact on its business.
?

		Enron Told It Can't Cut Electricity To Schools

Bob Egelko, Chronicle Staff Writer
		?
		Thursday, April 12, 2001

		A federal judge ordered energy giant Enron to restore direct electric service
to the University of California and the California State University system
yesterday. Enron had wanted to abandon its agreements with the universities
so it could sell the power for more money elsewhere.
		U.S. District Judge Phyllis Hamilton issued the injunction after a hearing in
which an Enron lawyer said the company was entitled to act in its own
economic interest, and state Attorney General Bill Lockyer accused Enron of
gouging Californians.
		Enron Energy Systems signed four-year contracts with the two university
systems in 1998, agreeing to supply power for 5 percent less than the price
cap set by the state's 1996 deregulation law. All the campuses were covered
except UCLA and UC-Riverside, which buy electricity from municipal suppliers.
		The contracts were due to run through next March, but Enron dropped direct
service to the universities Feb. 1 and left them to rely on power supplies
from Pacific Gas & Electric and Southern California Edison Co. Enron,
meanwhile, brokered sales of the same electricity at much higher prices on
the spot market.
		Enron promised to keep its promise of low rates for the rest of the contract,
but the universities said the change to utility service would hurt their
conservation efforts and expose them to the risk of blackouts. They also said
losing their status as direct-power purchasers could exclude them from future
long-term purchases, costing them as much as $297 million over 10 years.
		Shifting two of the state's biggest energy consumers to utility service also
increased the need for power purchases by the state, which took over that
role in January after PG&E and Edison defaulted on payments to power plants.
		Lockyer, the state's top lawyer, said yesterday that Enron was costing the
state $12 million a month by refusing to honor contracts with the university
and other customers who had signed long-term, fixed-price agreements.
		In issuing an injunction restoring the universities to direct service,
Hamilton said the language of the contracts indicates that "Enron did not
have the right to return the university systems to the utilities." She cited
the "precarious position of PG&E," which filed for bankruptcy last Friday,
and said the universities had bought some protection from the risks of
utility service when they signed the contracts.
		Enron attorney A. William Urquhart said the company would seek an emergency
stay from the U.S. Court of Appeals in San Francisco.
		"It is unreasonable that a publicly traded company like Enron would not try
to manage its risk by returning the universities to utility service,"
Urquhart said.

		?

?

Federal regulators may soon begin monitoring electricity market
By KAREN GAUDETTE
Associated Press Writer

04/11/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

SAN JOSE, Calif. (AP) - Federal energy regulators plan to monitor the
wholesale electricity market and potentially lower "unreasonable" prices
preemptively, the head regulator said Wednesday, although he stopped short of
promising caps on soaring energy prices.
Curt Hebert, chairman of Federal Energy Regulatory Commission, told members
of the House Subcommittee on Energy Policy and Regulatory Affairs that the
commission hopes to begin "monitoring and mitigating" the markets by May 1.
FERC would look at future prices to determine if they are just and
reasonable, Hebert said. The commission already has sought California power
sale refunds of $124 million, and the new system of tracking market abuses
could help keep markets fair, Hebert said.
Hebert left without taking questions from reporters, and gave few details
about this new system for tracking market abuses, which he also mentioned at
FERC's meeting in Boise on Tuesday. For example, he didn't say whether FERC
would begin looking at daily trading activity in search of unfair pricing.
Currently, FERC just reviews quarterly reports from energy traders, and
periodically does spot audits of the markets.
Hebert also stressed the need to build more power plants to boost supply, to
improve transmission infrastructure throughout the West and to create a
"regional transmission organization" to better manage the flow of power.
But other panelists said FERC still wasn't doing enough to help fix
California's broken market.
"We don't have a functioning market right now," said U.S. Rep. Zoe Lofgren,
D.-Calif. "Along with supply and demand, getting control of price gouging is
just as important."
Hebert has been the target of criticism from state officials, the utilities
and consumer watchdog groups for refusing to cap growing wholesale power
rates. Members of California's Democratic delegation and Pacific Gas and
Electric Co. again asked for the cap to avoid summer blackouts.
FERC only has regulatory control over roughly half of California's
electricity, Hebert testified, since the rest is imported from Canada and
municipal utilities not under federal jurisdiction, such as the Los Angeles
Department of Water and Power.
FERC's general counsel, Kevin Madden, said those energy sellers not regulated
by FERC, "if they want, can lower their prices for consumers."
Hebert sat tall in his chair as guards dragged away a handful of protesters
clamoring for the chance to question his handling of the energy crisis.
Instead, he questioned the actions of the state Public Utilities Commission.
He referred to the PUC's recent authorization of a study of Path 15, a
transmission bottleneck in moving power from Southern to Northern California.
"How many studies must be done before you spend a dollar and start moving
power in the other direction?" Hebert said. "The conversation needs to stop.
Someone needs to start putting shovels in the ground," he said on the second
of three days of hearings scheduled by the House subcommittee.
Backed by U.S. Rep. Dan Burton, the Indiana Republican who chairs the
Government Reform Committee which houses the energy subcommittee, Hebert
warned that too many more changes to the rules may drive away the very
generators needed to lower prices in the long term by providing more supply
and competition.
But changes seem inevitable after PG&E filed for federal bankruptcy
protection Friday, and cash-starved Southern California Edison Co. agreed
Monday to sell its transmission lines to the state. Gov. Gray Davis said
negotiations to buy the lines of San Diego Gas and Electric Co. began in
earnest Wednesday, and once that deal is done, he'll ask the bankruptcy judge
to force PG&E to sell the remaining grid to the state.
Lofgren said Hebert's comments gave her some hope for eventual consumer
refunds.
"Whether we want to call it a price cap or market mitigation, I think it
shows the move to do something," she said.
Representatives from PG&E and SoCal Edison also testified that confusing PUC
rules prevented them from signing long-term contracts, which energy experts
now say could have saved the utilities billions.
PUC President Loretta Lynch told the panel Tuesday in Sacramento the agency
allowed utilities to enter into such contracts last year, but the utilities
chose not to do so.
"What was done then was only half the job," said Stephen Pickett, vice
president and general counsel for SoCal Edison. Pickett said the PUC retained
the right to review contracts after they were signed, which scared away
generators unsure if they would see the money.
Davis also signed two bills Wednesday, creating more than $500 million in
conservation initiatives and incentives. The money will reimburse homeowners
and business owners for money spent on such items as energy-efficient
appliances and efficient lighting.
Other lawmakers seized the forum to blast power generators.
"We are under attack," Assemblyman Gil Cedillo, D-Los Angeles, said under a
canopy of solar collectors at the headquarters of the Los Angeles Department
of Water and Power. "Generators from out of state have no sense of patriotism
or compassion for their fellow citizens."
Also Wednesday, a federal judge intervened in another power price battle,
ordering Enron Energy Systems Inc. of Houston to abide by its agreement to
sell cheap power to the California State University and University of
California systems. Enron said it would appeal.
A subsidiary of the nation's largest power broker, the company said honoring
the final year of the four-year contract would cost it $12 million a month
because of skyrocketing wholesale power prices, and argued that taxpayers
should pick up the tab.
U.S. District Judge Phyllis Hamilton issued a temporary injunction against
Enron, forcing it to continue providing service, and said there is a
likelihood Enron will lose the suit.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.