Headed For A Fall ; Companies issued special zero-coupon bonds, assuming they'd never have to pay them off. Now shareholders could be on the hook for a $65 billion tab.
Fortune Magazine, 11/26/01
Manager's Journal: What Enron Did Right
The Wall Street Journal, 11/19/01
J.P. Morgan Wins (by Not Losing as Much)
The Wall Street Journal, 11/19/01
German Bank Is in Talks With Enron To Buy a Unit
The New York Times, 11/19/01
Bond Boom Isn't Likely to Lift Economy As Corporations Swap Old Debt for New
The Wall Street Journal, 11/19/01
Preview / WEEK OF NOV. 19-25 Investors Looking for Answers in Enron Filing
Los Angeles Times, 11/19/01
COMPANIES & FINANCE INTERNATIONAL - Dynegy bid faces long wait.
Financial Times, 11/19/01
Russia Fund Surges Amid Global Woes
The Wall Street Journal, 11/19/01
Wessex Water
The Financial News, 11/19/01
India BSES:Dabhol Pwr Proj Due Diligence Done Jan -Report
Emerging Markets Report, 11/19/01
India Dabhol Pwr: No Termination Notice Until Crt Verdict
Dow Jones International News, 11/19/01
Fears raised on Enron deal: $15.6-billion rescue bid
National Post, 11/19/01
Blackout in the power sector
Business Standard, 11/19/01

Features/Toxic Bonds
Headed For A Fall ; Companies issued special zero-coupon bonds, assuming they'd never have to pay them off. Now shareholders could be on the hook for a $65 billion tab.
Janice Revell

11/26/2001
Fortune Magazine
Time Inc.
131
(Copyright 2001)

It was an irresistible proposition: Borrow billions of dollars, pay no interest, reap millions in tax breaks, and then wait for the debt to simply disappear. That was the promise of zero-coupon convertible bonds, and companies from Enron to Merrill Lynch binged on what seemed like free money.
But, of course, there was a catch: For this scenario to play out, a company's stock price had to rise sharply--and quickly. That's because investors bought the bonds in the hope of converting them into equity--if the stock tanked, the bonds would no longer be worth converting. So to make them more attractive to buyers, companies had to build in an escape hatch: If the stock price failed to rise sufficiently, investors could "put" (that is, sell) the bonds back to the company--in many cases, after just one year.
And that's exactly what's about to happen--to the tune of some $65 billion over the next three years. Stock prices have fallen so far that for at least half of these special hybrids, the prospect of conversion is now absurd. It simply won't happen. So bondholders are looking to get their money back the first chance they can. And because of the put feature, that is possible. Suddenly companies like Tyco, Comcast, and dozens more are on the hook for billions of dollars in debt and interest they thought they'd never have to pay.
That could be very bad news for shareholders of these companies. After all, they're the ones who are going to be picking up the tab when all that debt comes due. Huge chunks of cash will disappear from balance sheets to repay bondholders. Companies without enough cash-- and the majority fall into this camp--are likely to face skyrocketing interest charges when they borrow money anew. That means sharply reduced earnings. Especially at risk are investors in companies with poor credit ratings--prime candidates for killer refinancing costs. Some companies may even be forced to issue stock to pay off the debt, creating significant shareholder dilution, especially at current depressed prices. To make matters worse, this is happening at a time when the economy is barreling downhill and corporate profits are already shrinking. "This is a ticking time bomb," warns Margaret Patel, manager of the Pioneer High Yield Bond fund, a top-performing junk fund.
The seeds of this mess were sown in mid-2000, when the stock market started to falter. Companies in search of capital balked at the thought of selling stock while their share prices were struggling. Zero-coupon convertible bonds presented an attractive alternative because companies didn't have to make cash interest payments on the bonds (hence the name "zero"). Instead issuers offered an up-front discount--for instance, investors would buy a bond for $700 and collect $1,000 when it matured.
Companies also gave investors the right to convert the bonds into a fixed number of common shares. But the bonds were structured so that conversion would make sense only if the stock price rose significantly--in many cases, by more than 50%. With that protective feature (called the conversion premium), zeros took off. Corporate issuers would pay no interest, and once their stock prices had climbed back to acceptable levels, the debt would be swept away into equity. "If the bonds are converted, it's a home run for everybody," says Jonathan Cohen, vice president of convertible-bond analysis at Deutsche Bank.
That four-bagger, of course, depends entirely on the stock price rising. If it doesn't, the bondholders, armed with that handy put feature, can simply sell the bonds back to the company. Great for bondholders, but not so hot for the company or its shareholders. But, hey, what are the odds of that happening? "CFOs and CEOs believe that their stock will just continue to go up," says Cohen. "They don't worry about the bond getting put."
If all this seems a little complicated, that's because it is. A real-life example should help. California-based electric utility Calpine issued $1 billion in zeros in April to refinance existing debt. At the time, the company's stock was trading at about $55 a share--severely undervalued in the opinion of company management. "We really didn't want to sell equity at that point," says Bob Kelly, Calpine's senior vice president of finance. So the company instead opted to sell zeros, setting the conversion premium at a hefty 37%.
Still, with no cash interest payments and a stock price that had to rise significantly to make conversion worthwhile, the bonds weren't exactly a screaming buy for investors. So Calpine added the put feature: Investors could sell the bonds back to the company after one year at the full purchase price, eliminating any downside risk.
Things haven't exactly worked out as management had hoped. The stock has since plummeted to $25, and it now has to triple before conversion makes sense. So it's looking as though Calpine will be liable for the $1 billion in borrowed money when investors get the chance to put the bonds this April. There's also the refinancing cost. According to Kelly, Calpine's borrowing rate could run in the neighborhood of 8.5%--an extra $85 million per year in cash. "Obviously, nobody plans for their stock to go down," Kelly says. "I don't think there was one person around who thought the bond would be put."
Calpine's potential costs are particularly high because its credit rating is straddling junk. "If you are a borderline investment-grade company, a financing of this nature is not necessarily the most appropriate thing in the world," notes Anand Iyer, head of global convertible research at Morgan Stanley. The problem is, there are a slew of companies with far worse credit ratings out there: Jeff Seidel, Credit Suisse First Boston's head of convertible-bond research, estimates that about half of all zeros outstanding fall into the junk category. And others are at risk of having their ratings downgraded before the put date. Today, with junk yielding as much as 5 1/2 percentage points above bonds rated investment grade, refinancing can be a pricey proposition.
Contract manufacturer Solectron is one that could well get hit by the high price of junk. It has $845 million in zeros that it will probably have to buy back this January, and another $4.2 billion coming down the pike over the next couple of years. Because of slower- than-expected sales, the company was recently put on negative credit watch by three rating agencies. And if Solectron's credit is downgraded, the zeros would slide into junk status, a situation that could cost the company--and its shareholders--tens of millions of dollars in refinancing charges.
Refinancing isn't the only worrisome cost associated with these zeros. Companies pay hefty investment banking fees to sell their bonds--up to 3% of the amount raised. If the debt is sold back, many will have spent millions for what essentially amounted to a one-year loan. "They're getting bad advice," claims one banker who didn't want to be named. "Look at the fee the banker earned and look at the kind of financing risk the company got into."
As if those potential consequences were not scary enough, shareholders can also get whacked when the bonds are first issued. That's because some 40% are bought by hedge funds, which short the company's stock (sell borrowed shares with the intention of buying them back at a lower price) at the same time that they buy the bonds. If the stock goes down, the shorts make money from their position. If it goes up, they profit by converting the bond to stock. This hedging strategy almost always causes the stock to plummet, at least for a while. Grocery chain Supervalu, for example, recently lost 10% of its market cap the day it announced it was issuing $185 million in zeros.
Despite all the pitfalls, the love affair with such Pollyanna bonds continues, thanks in large part to the slick tax and accounting loopholes they provide. In fact, the hit on earnings per share can be the lowest of any form of financing. Even better, thanks to a wrinkle in the tax code, companies can rake in huge tax savings by deducting far more interest than they're actually paying. All they have to do is agree to pay small amounts of interest if certain conditions prevail. Verizon Communications, for instance, would pay 0.25% annual interest on its $3 billion in zero bonds if its stock price falls below 60% of the issue's conversion price. In the eyes of the IRS, oddly, that clause enables the company to take a yearly interest deduction, for tax purposes, of 7.5%--the same rate it pays on its regular debt. (Why? Trust us, you don't want to know.) That adds up to an annual deduction of more than $200 million, even if Verizon never shells out a dime in interest. Not surprisingly, more than half of the zeros issued in 2001 contain similar clauses. "It's an incredible deal for them," says Vadim Iosilevich, who runs a hedge fund at Alexandra Investment Management. "Not only are they raising cheap money, they're also doing tax arbitrage."
So despite the enormous risks to shareholders, companies continue to issue zeros at a steady clip: According to ConvertBond.com, seven new issues, totaling $3.5 billion, have been sold since Oct. 1 alone. "I think the power of the tax advantage is going to keep them around," says CSFB's Seidel. Call it greed or just blind optimism that the markets will recover quickly--it doesn't really matter. Either way, it's the shareholders who'll be left paying the bill.
FEEDBACK: jrevell@fortunemail.com
The bill comes due
Companies issued convertible zeros, with put features, when the stock market soured. Now repayment looms.
1999 2000 2001 2002 2003 2004
Amount issued, $5.2 $19.6 $37.5 in billions
Amount puttable, $2.4 $2.6 $4.8 $22.0 $19.1 $24.0 in billions
SOURCE: CONVERTBOND.COM
When zero is a negative number
The danger posed by convertible zero bonds depends on a number of factors, according to Morgan Stanley's ConvertBond.com: the size of the bond, the put date, the company's credit rating and cash on hand, and how far the stock must rise for the bond to convert to equity.
[A]Date of put [B]Amount owed (millions) [C]Cash on hand[2](millions) [D]Stock price as of 11/09/01 [E]% below conversion price
Company Bond rating[1] Our risk assessment [A] [B] [C] [D] [E] Tyco 11/17/01 $3,500 $2,600 $54.00 49% Investment grade Not a problem--for now. The conglomerate has cash to pay for bonds put this November. Another $2.3 billion is puttable in 2003.
Solectron 1/27/02 $845 $2,800 $13.25 155% Investment grade In the danger zone. May be downgraded to junk if results don't improve. Has additional $4.2 billion at risk in 2003 and 2004.
Calpine 4/30/02 $1,000 $1,242 $25.50 180% Inv. grade/Junk Possibly a pricey tab. On the border between investment grade and junk, the energy company faces high refinancing charges.
Pride International 1/16/03 $276 $176 $12.50 148% Junk May need to drill for cash. The oil services company already has a heavy debt load in addition to its zeros.
Western Digital 2/18/03 $126 $201 $4.25 547% Junk Hard drive ahead. The tech outfit has already paid down some of its zeros by issuing stock. More dilution possible.
Brightpoint 3/11/03 $138 $67 $3.25 609% Junk Watch out. This mobile-phone distributor plans to repurchase the bonds and is likely to incur high refinancing charges.
Aspect Commun. 8/10/03 $202 $134 $2.00 1,016% Junk The credit rating of this unprofitable call center company is near the lowest grade of junk. High alert!
Enron[3] 2/7/04 $1,331 $1,000 $8.50 1,413% Investment grade Very risky. Among Enron's myriad woes, its debt is on the verge of being downgraded yet again. It's already behaving like junk.
Verizon 5/15/04 $3,270 $3,000 $50.00 70% Investment grade Verizon faces little risk because of its strong credit rating and the long lead time on its put dates.
Merrill Lynch 5/23/04 $2,541 $20,000 $49.00 124% Investment grade Also not yet a problem. This underwriting leader made sure its own zeros could not be put for three years.
[1]Based on ratings from Moody's and Standard & Poor's; Calpine had a split rating at press time. [2]As of most recently reported financial results. [3]Now expected to merge with Dynegy.
Quote: Contract manufacturer Solectron is one zero-bond issuer that could well get hit hard. Stocks have fallen so far that for at least half of all bonds out there, the prospect of conversion is absurd.

B/W ILLUSTRATION: ILLUSTRATION BY DAVID SUTER
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Manager's Journal: What Enron Did Right
By Samuel Bodily and Robert Bruner

11/19/2001
The Wall Street Journal
A20
(Copyright (c) 2001, Dow Jones & Company, Inc.)

This is a rough era for American business icons. Subject to the vagaries of age (Jack Welch), product failure (Ford/Firestone tires), competition (Lucent, AT&T), technology (Hewlett-Packard and Compaq), and dot-bomb bubbles (CMGI), managers and their firms remind us that being an icon is risky business. The latest example is Enron, whose fall from grace has resulted in a proposed fire sale to Dynegy.
Once considered one of the country's most innovative companies, Enron became a pariah due to lack of transparency about its deals and the odor of conflicts of interest. The journalistic accounts of Enron's struggles drip with schadenfreude, hinting that its innovations and achievements were all a mirage.
We hold no brief regarding the legal or ethical issues under investigation. We agree that more transparency about potential conflicts of interest is needed. High profitability does not justify breaking the law or ethical norms. But no matter how the current issues resolve themselves or what fresh revelations emerge, Enron has created an enormous legacy of good ideas that have enduring value.
-- Deregulation and market competition. Enron envisioned gas and electric power industries in the U.S. where prices are set in an open market of bidding by customers, and where suppliers can freely choose to enter or exit. Enron was the leader in pioneering this business.
Market competition in energy is now the dominant model in the U.S., and is spreading to Europe, Latin America, and Asia. The winners have been consumers, who have paid lower prices, and investors, who have seen competition force the power suppliers to become much more efficient. The contrary experience of California, the poster child of those who would re-regulate the power industry, is an example of not enough deregulation.
-- Innovation and the "de-integration" of power contracts. Under the old regulated model of delivering gas and electricity, customers were offered a one-size-fits-all contract. For many customers, this system was inflexible and inefficient, like telling a small gardener that you can only buy manure by the truckload. Enron pioneered contracts that could be tailored to the exact needs of the customer.
To do this, Enron unbundled the classic power contract into its constituent parts, starting with price and volume, location, time, etc., and offered customers choices on each one. Again, consumers won. Enron's investors did too, because Enron earned the surplus typically reaped by inventors. Arguably, Enron is the embodiment of what economist Joseph Schumpeter called the "process of Creative Destruction." But creative destroyers are not necessarily likable, pleasant folks, which may be part of Enron's problem today.
-- Minimization of transaction costs and frictions. Enron extended the logic of de-integration to other industries. An integrated paper company, for instance, owns forests, mills, pulp factories, and paper plants in what amounts to a very big bet that the paper company can run all those disparate activities better than smaller, specialized firms. Enron argued that integrated firms and industries are riddled with inefficiencies stemming from bureaucracy and the captive nature of "customers" and "suppliers." Enron envisioned creating free markets for components within the integrated chain on the bet that the free-market terms would be better than those of the internal operations. The development of free-market benchmarks for the terms by which divisions of integrated firms do business with each other is very healthy for the economy.
-- Exploiting the optionality in networks. In the old regulated environment, natural gas would be supplied to a customer through a single dedicated pipeline. Enron envisioned a network by which gas could be supplied from a number of possible sources, opening the customer to the benefits of competition, and the supplier to the flexibility of alternative sourcing strategies. Enron benefited from controlling switches on the network, so that they could nimbly route the molecules or electrons from the best source at any moment in time to the best use, and choose when and where to convert molecules to electrons. This policy, picked up by others in the industry, created tremendous value for both customers and suppliers.
-- Rigorous risk assessment. The strategy of tailored contracts could easily have broken the firm in the absence of a clear understanding of the trading risks that the firm assumed, and of very strong internal controls. Enron pioneered risk assessment and control systems that we judge to be among the best anywhere. Particularly with the advent of Enron Online, where Enron made new positions valued at over $4 billion each day, it became essential to have up-to-the-second information on company-wide positions, prices and ability to deliver.
The unexpected bad news from Enron has little to do with trading losses by the firm, but with fears among trading partners about Enron's ability to finance its trading activity. In a world where contracts and trading portfolios are too complex to explain in a sound bite, counterparties look to a thick equity base for assurance. It was the erosion in equity, rather than trading risk, that destroyed the firm.
-- A culture of urgency, innovation and high expectations. Enron's corporate culture was the biggest surprise of all. The Hollywood stereotype of a utility company is bureaucratic, hierarchical, formal, slow, and full of excuses. And the stodgy images of a gas pipeline company -- Enron only 15 years ago -- is even duller and slower. Enron became bumptious, impatient, lean, fast, innovative, and demanding. It bred speed and innovation by giving its professionals unusual freedom to start new businesses, create markets, and transfer within the firm.
Success was rewarded with ample compensation and fast promotion, and an open-office design fostered brainstorming. The firm's organization and culture was by all accounts not a safe haven for those who believe the role of a large corporation is to fulfill entitlements for jobs. This was a lightning rod for the firm's detractors. And yet, it could serve as a model for more hide-bound enterprises to emulate.
Enron was a prolific source of compelling new ideas about the transformation of American business. It created a ruckus in once-quiet corners of the business economy. It rewrote the rules of competition in almost every area in which it did business. It thrived on volatility.
The proposed sale of Enron to Dynegy risks the loss of a major R&D establishment, especially given Dynegy's track record as a second mover following Enron's lead. Beyond what is likely to be a difficult and time-consuming antitrust review, Dynegy's greater challenge will be to find a way to make Enron's spirit of innovation its own. Or so we all should hope, because prosperity depends on the ability of firms to reinvent themselves and remake their industries.
---
Messrs. Bodily and Bruner are professors at the University of Virginia's Graduate School of Business Administration.

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

J.P. Morgan Wins (by Not Losing as Much)
By Susanne Craig
Staff Reporter of The Wall Street Journal

11/19/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

You know things are bad on Wall Street when the winner of a stock-selection contest can't come close to breaking even.
J.P. Morgan Chase & Co.'s portfolio was the only one in The Wall Street Journal's quarterly stock-picking survey to slide less than 10% during the three months ended Sept. 30. The value of its stock basket fell 8.6% during the third quarter.
Just six of the 15 financial firms managed to beat the benchmark Standard & Poor's 500-stock index, which dropped 14.7% during the period. Among the star performers that came to J.P. Morgan's rescue: Northrop Grumman Corp., SBC Communications Inc. and Procter & Gamble Co.
"It has turned into a real stock-picker's market," says J.P. Morgan equity strategist Douglas Cliggott. "In the first half, the market bought cyclical stocks, such as credit cards and brokers, in hopes of a recovery. We don't think those stocks will get interesting until sometime in 2003." Instead, the firm's portfolio is weighted toward health care and consumer staples, as well as cyclical stocks such as energy and farm equipment.
The quarter was among the roughest in years for Wall Street investors. The terrorist attacks of Sept. 11 helped contribute to the stock-market losses, which drove down the value of all portfolios in the survey, though the markets have since recovered to their pre-Sept. 11 levels. The last time the group posted results this bad was during the third quarter of 1998, during the Asian financial crisis.
Goldman Sachs Group Inc. and Credit Suisse Group's Credit Suisse First Boston finished at the bottom of the pack, falling 23.2% and 30.1% respectively. The performance of last-place finisher CSFB was dragged down by losses at companies such as Veritas Software Corp. (down 72.3% in the quarter), Praecis Pharmaceuticals Inc. (down 64.8%) and software provider Amdocs Ltd. (down 51%).
For CSFB, "it was not a good stock-picking quarter, that's for sure," says Al Jackson, the firm's global head of equity research. "It was our tech and telecom . . . and the events of Sept. 11 that hurt us."
Credit Suisse First Boston recently changed the approach to its model portfolio, opting against sector weightings, Mr. Jackson says. This strategy has hurt CSFB in recent quarters, because of the steep slump in areas such as technology and telecom. The firm recently added a number of Old Economy stocks to its portfolio, such as Citigroup Inc., Dow Chemical Co. and Gannett Co. Says Mr. Jackson: "We are going back to our roots and asking what our best ideas are."
Like CSFB, Goldman was hit by a drop in the share price of technology companies, such as Check Point Software Technologies Ltd. (down 56.5% in the quarter). Its portfolio was also dragged down by shares of embattled Enron Corp. (down 44.3%). Morgan Stanley and Royal Bank of Canada's RBC Dain Rauscher, which placed 6th and 12th respectively, also have the energy company on their lists.
In addition to Enron, stocks hard it by the terrorist attacks, such as lodging giant Starwood Hotels & Resorts Worldwide Inc., Walt Disney Co. and airlines such as Skywest Inc., also hurt the portfolio performance of many securities firms.
It is unlikely people will buy any company's entire recommended list at one time. The Journal survey is intended to give investors an idea of how their portfolio would look if they let the professionals do all the picking. Calculations in the quarterly survey, done for the Journal by Zacks Investment Research in Chicago, take into account capital gains or losses, dividends and theoretical commissions of 1% on each trade.
Overall, Edward D. Jones & Co., of St. Louis, emerged with the most consistent results across the board, placing second in the quarter and for the year. Its 85% return over five years is the best of the group and ahead of the total return for the S&P 500 of 62.7%. Perhaps more than any other firm, Edwards Jones takes a buy-and-hold approach to investing, making very few changes to its portfolio from quarter to quarter, or even year to year.
"It's the old story of the tortoise and the hare, and we believe slow and steady wins the race," says David Otto, Edward Jones director of research. "We are really, really proud of the five-year number. We believe in getting rich, slowly."
On a quarterly basis, the portfolio of Prudential Securities Inc., a unit of Prudential Financial, came in second only to J.P. Morgan, falling 11.8%. However, investors sitting with the stocks Prudential recommends haven't done as well in the long run. The value of its basket of stocks has fallen 45.9% in the past year, finishing ahead of only Lehman Brothers Holdings Inc., which posted a one-year loss of 54.9%.
Seven firms managed to beat the S&P 500 index during the past 12 months, which fell 26.6% in the period.
Lehman, which finished last in the survey in the second quarter thanks to its heavy weighting in technology, managed to move up in the rankings this quarter. This primarily stemmed from its annual shuffle of the 10 stocks in its portfolio, known as its "Ten Uncommon Values." This time around, the firm's portfolio slipped 18.4% in the quarter, for an 11th place finish. Just one of its 10 stocks, Washington Mutual Inc., managed to eke out a positive return, of 3.1%. Its biggest quarterly loser: Energy company Mirant Corp., which fell 36.3% in the period.
"It's a portfolio that has done decently since the market troughed," says Jeff Applegate, Lehman's chief market strategist. He says he believes the market hit bottom Sept. 21.
--- Brokerage Houses' Stock-Picking Prowess

Estimated performance of stocks on the recommended lists of 15 major
brokerage houses through Sept. 30. Figures include price changes,
dividends, and hypothetical trading commissions of 1%.

---- Best & Worst Picks ---- ----- Returns ------
Biggest Biggest Latest One- Five-
Gain Loss qtr. Year Year

Raymond James
CACI Intl. +49.7% Skywest -51.1% -14.2% -14.7% +56.8%

Edward Jones
Amr Water Wk +20.5 Celestica -47.1 -11.2 -18.7 +85.1

Merrill Lynch
Triad +20.1 Amer. -34.5 -15.4 -19.8 +64.9
Hospitals Express

UBS Warburg
PepsiCo +9.7 BEA Systems -69.2 -12.9 -19.9 N.A.

J. P. Morgan Sec.
Northrop +26.6 Macrovision -58.5 -8.6 -20.0 N.A.

Bear Stearns
MBNA +19.2 Embraer -60.3 -15.9 -22.2 +50.9

Salomon S.B.
Abbott Labs +8.5 Hewlett- -43.6 -16.0 -25.0 +17.9
Packard

Morgan Stanley DW
Johnson & John +11.2 EMC -59.8 -14.2 -29.0 +33.7

Dain Rauscher
El Paso Energy +17.4 i2 -82.6 -19.6 -32.2 N.A.
Technologies

A.G. Edwards
Verizon +4.4 EMC -59.8 -17.4 -33.4 +34.8

U.S. Bancorp Piper Jaf.
Eli Lilly +9.4 EMC -59.8 -22.0 -39.9 +36.7

Goldman Sachs
Wal-Mart +8.3 Check Pt -56.5 -23.2 -40.6 +60.0
Sftwr

Credit Suisse FB
Johnson & John +11.2 Veritas -72.3 -30.1 -44.9 +38.1

Prudential Sec.
Kraft Foods +12.9 BMC -41.6 -11.8 -45.9 +41.3
Software

Lehman Bros.
Wash. Mutual +3.1 Mirant -36.3 -18.4 -54.9 +29.6

S&P 500 Index
-14.7% -26.6% +62.7%

*In latest quarter; holding period may be less than full quarter

N.A. = not available

Source: Zacks Investment Research

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

Business/Financial Desk; Section C
German Bank Is in Talks With Enron To Buy a Unit
By SUZANNE KAPNER

11/19/2001
The New York Times
Page 2, Column 6
c. 2001 New York Times Company

LONDON, Nov. 18 -- A large German bank is in talks to buy Wessex Water from the Enron Corporation, people close to the discussions said today.
Enron is looking to sell Wessex Water, of Britain, as well as other noncore assets in India and Brazil, after a financial crisis nearly brought its main energy trading business to a halt. That crisis led to Enron's decision earlier this month to be acquired by Dynegy Inc., a much smaller rival.
The German Bank, Westdeutsche Landesbank Girozentrale of Dusseldorf, or WestLB, is among several suitors for Wessex Water, people close to the discussions said. The sale has also attracted the attention of industry rivals like Thames Water, owned by RWE of Germany. But such a combination would most likely incur a long review by regulators, who might either block the merger on antitrust grounds, or exact stiff concessions, industry experts said.
Wessex Water is likely to be sold for more than $:1 billion ($1.4 billion) but less than the $:1.4 billion that Enron paid for it in 1998, analysts said.
''In hindsight, we made some very bad investments in noncore businesses,'' Kenneth L. Lay, Enron's chairman and chief executive, told analysts in a conference call last week. Those investments ''have performed far worse than we ever could have imagined,'' he said, citing the Azurix water business, of which Wessex Water is a part, and energy assets in Brazil and India.
Executives from Enron were not immediately available for comment today. WestLB executives declined to comment.
WestLB has been aggressively pursuing acquisitions in Britain, bidding for British Telecommunications' phone network and the nation's railway tracks controlled by the troubled Railtrack, which is restructuring under government supervision. Neither of those bids has progressed beyond the initial stages.
Last summer, WestLB helped finance the management buyout of the Mid Kent Water Company through Swan Capital, its private equity vehicle.

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

Credit Markets
Bond Boom Isn't Likely to Lift Economy As Corporations Swap Old Debt for New
By Jathon Sapsford
Staff Reporter of The Wall Street Journal

11/19/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

When AT&T last week completed the second-biggest bond sale in history -- capping one of the busiest bond periods in years -- it came as welcome news amid fears of a credit crunch. Here was new money, meaning new spending on plants, equipment and jobs that could help pull the economy out of its slump.
That $10.9 billion AT&T deal, and a slew of similar bond deals from big companies ranging from Boeing and Anheuser-Busch to Kraft Foods and General Motors, may not provide as big of a boost as economists are banking on. That is because corporations, like homeowners, are in the midst of a refinancing boom.
Corporations are hitting the market not just because rates are cheap, but because they often can't get money in other crucial markets. In particular, they are sidestepping the commercial paper market -- short-term corporate IOUs used to finance day-to-day operations, where rates traditionally are lowest -- because investors are unwilling to finance many well-known corporations.
The result has been a huge jump in bond sales, the majority of which are used to reduce existing debt. Since the Sept. 11 terrorist attacks, about $135 billion in investment-grade bonds have been sold, up from about $78 billion in the year-earlier period. Overall issuance this year is likely to set a record, clearing $600 billion, compared with $411 billion in 2000.
"The driving force behind this surge in bond issuance is refinancing short-term commercial paper to long-term debt," says John Lonski, chief economist at Moody's Investors Service, a credit-rating agency.
Usually, rising bond issuance presages economic growth. In 1991, corporations sold a record number of bonds to exploit falling interest rates. But then, companies poured much of the money they raised back into their operations, a flurry of investment that foreshadowed the economic boom of the late 1990s.
This time around, the surge in bond deals won't pump in enough new money to the economy to make a dramatic difference. Though, as in the case of the millions of homeowners who are refinancing their mortgages to lower monthly payments, it could help ease some pressure on stretched corporate-balance sheets and help to fund some of the companies' day-to-day operations.
Not all of the money being raised is to refinance short-term debt, of course, and the string of bond deals shows that many of the nation's biggest borrowers have ready access to funding if they need it.
But most companies are similar to AT&T, which last week provided the biggest refinancing example yet.
Over the next three months, the telecom company was facing $6.5 billion in expiring commercial paper. Under normal conditions, corporations pay off maturing commercial paper by "rolling over" that debt, or issuing new commercial paper to replace the old. But rolling over commercial paper became much harder for AT&T after Moody's cut the company's short-term and long-term credit ratings. Through the bond deal, AT&T raised money at relatively attractive rates while avoiding the difficulties of the commercial-paper market.
Other companies facing downgrades also are scrambling to find alternatives to the commercial-paper market through bonds, loans or revolving credit lines. "The ripple effects of this are being felt throughout the capital markets," says Meredith Coffey, senior vice president at Loan Pricing Corp., a debt-market-analysis company.
For the most extreme cases, the bond markets don't offer refuge. Enron, hammered by a third-quarter loss of $618 million that led to a string of downgrades, drew down $3.3 billion from its emergency bank credit line to repay investors in its commercial paper. It then turned to its banks for an additional $1 billion loan to pay off more commercial-paper investors, thus tiding it over until it could merge with rival Dynegy.
Most investment-grade companies aren't nearly so bad off, and thus have ready access to bond investors. General Motors, for instance, had little trouble selling $6 billion in debt last month, while Ford Motor easily sold bonds totalling $9.4 billion.
But the surge in bond sales masks signs that even investment-grade companies are having trouble convincing investors that they are good for their money.
Take Ford. Standard & Poor's and Moody's downgraded Ford's debt ratings last month to triple-B-plus and single-A-3, respectively. With that rating, Ford is far enough down the spectrum of investment-grade debt that many of the ultraconservative investors in commercial paper won't touch it, meaning that it had to turn to corporate bonds to refinance its debt. Ford concedes that a big reason it is selling bonds was to avoid the trouble in the commercial-paper market.
Boyce Greer, the money-market group leader at Fidelity Investments, says he often stops buying the commercial paper of a corporation at the first sign of eroding profitability -- even before they get downgraded. "You can't wait around for a rating agency [to downgrade a company]," he says.
Moody's has downgraded five times as many corporations as it has raised so far this year. Thus, the market for corporate commercial paper has shrunk to $1.4 trillion at the end of October, down from $1.6 trillion at the end of last year.
---
Friday's Credit Markets
Last week was a brutal time to own Treasurys. The market sold off so sharply as to push yields, which move inversely to prices, almost back up to where they stood before the terrorist attacks. It was the worst bond selloff since 1987, according to economists at Banc One Capital Markets.
Losses were heaviest in issues like the two-year note, the most sensitive to expectations about Federal Reserve policy. Since hitting a record low of 2.30% on Nov. 7, the two-year yield has risen 0.80 percentage point to 3.05%. In the same period, the 30-year bond yield has risen 0.50 percentage point to 5.27%.
At 4 p.m. Friday, the benchmark 10-year Treasury note was down 1 3/32 points from late Thursday, or $10.94 per $1,000 face value, at 100 25/32. Its yield jumped to 4.897% from 4.756% Thursday.
The 30-year Treasury bond's price fell 1 19/32 to 100 25/32 to yield 5.317, up from 5.211% Thursday.
Why the selloff? People in the market cite a shift toward the view that the U.S. economy may finally be on the brink of recovery. That means the Fed may not need to employ many more rate cuts to get growth back on track.
-- Michael S. Derby and Steven Vames

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

Business; Financial Desk
Preview / WEEK OF NOV. 19-25 Investors Looking for Answers in Enron Filing
Bloomberg News

11/19/2001
Los Angeles Times
Home Edition
C-2
Copyright 2001 / The Times Mirror Company

Enron Corp. investors hope the energy trader's third-quarter report to the Securities and Exchange Commission will answer some of the questions that sent its shares tumbling and led to a proposed sale to rival Dynegy Inc.
Enron, which has been criticized for failing to clearly explain how it makes money, may disclose in a filing expected today more on how much is owed by the company and affiliated partnerships, as well as any planned job cuts and other cost-saving moves related to Dynegy's $24-billion buyout.
Enron agreed to sell after its stock plunged 67% in three weeks amid an SEC investigation into partnerships run by Enron executives. Investors worry that new disclosures, such as previously unreported debt, might threaten Enron's credit rating and scuttle the merger, possibly pushing Enron into bankruptcy.
Enron Chairman Kenneth Lay acknowledged last week that failed investments and a loss of investor confidence forced the sale to Dynegy, and he and other executives pledged to be more open with investors.
Enron shares fell 48 cents Friday to close at $9 on the New York Stock Exchange. Dynegy fell $1.53 to $42.47.
Enron's third-quarter earnings report, which had been expected last week, was delayed by the Dynegy talks and a restatement of earnings, Chief Financial Officer Jeffrey McMahon said.
Enron reduced net income for four years by a combined $586 million to include losses from affiliated partnerships.
Today's filing, called a 10-Q, will include a balance sheet summarizing assets and debts. Enron for years has omitted balance sheets, which the SEC requires as part of the 10-Q, from its press releases announcing earnings.

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

COMPANIES & FINANCE INTERNATIONAL - Dynegy bid faces long wait.
By NANCY DUNNE and ANDREW HILL.

11/19/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Dynegy's $9.8bn rescue bid for Enron, the larger rival energy group, poses complex and unprecedented regulatory challenges for the Federal Energy Regulatory Commission (Ferc), which is likely to lead the review of the bid.
Officials from the two Houston-based companies, which announced the deal 10 days ago, estimated the regulatory process would take six to nine months to complete.
But the Ferc review could take longer, according to experts, and approval of the deal is further complicated by such issues as the parallel Securities and Exchange Commission investigation into Enron's finances.
"It's very complicated. It will be very time-consuming," said one person close to the Ferc commissioners. As of Friday, the groups had not yet filed for Ferc approval.
"(The deal) raises issues that have never been considered before by Ferc," said Edward Comer, general counsel to the Edison Electric Institute, the association of US electric utilities.
"It has never considered the merger of two huge marketers, and in the past, marketing wasn't considered as significant a portion of the energy sector as it has become."
A typical deal now takes about 200 days to win Ferc approval. But Mr Comer said approval of the Dynegy bid could take anywhere from six months to two years.
The agency's guidelines prohibit mergers if they give the new company the market power to push prices above competitive levels for "a significant period of time".
It analyses market power by identifying the products sold, the customers and suppliers affected and market concentration.
"Mergers in the past have been considered on the basis of assets," said Patti Harper-Slaboszewicz of Frost & Sullivan, a market research and consulting firm. "The rules were written when the industry was vertically integrated."
Now the question is how ownership of energy trading services will be calculated. It could be difficult to assess if the companies are exerting market power because information on the trading books of companies such as Enron and Dynegy is closely guarded, she said.
The two companies must also win consent from either the Justice Department or the Federal Trade Commission, and from states where the companies have pipelines and provide retail services.
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

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

Fund Track
Russia Fund Surges Amid Global Woes
By Victoria Marcinkowski
Dow Jones Newswires

11/19/2001
The Wall Street Journal
C17
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Everything is relative in the investing world, so with U.S. investors nervous about homeland stocks, European and Asian markets sagging and terrorism worries abounding, Russia's risky markets seem less so these days.
So far this year, Pilgrim Russia Fund, which was bought by ING Groep NV late last year, has been the top-performing regional mutual fund, gaining 53%, according to fund tracker Morningstar Inc. By comparison, the Standard & Poor's 500-stock index has slumped nearly 14%.
Of course, the risks in Russia remain. Despite recent economic gains, the country still is struggling with a weak banking system, inadequate state institutions to enforce contract laws and few businesses run by the "modern" rules of corporate governance, according to Samuel Oubadia the 37-year-old manager of the Russia fund.
"But they are getting more open," Mr. Oubadia said, though Russia's lax financial reporting standards are still one of the main roadblocks for foreign investors. With $49 million in assets, the Pilgrim Russia fund invests between 90% and 95% in Russian stock, with the balance held in cash.
"While the global economy is slowing, Russia is still in an expansion mode," Mr. Oubadia said. After years of economic reforms, consumer spending is up 10% and the former Soviet Union's gross domestic product is expected to grow 3% to 5% next year, more than twice as much as that of the U.S. and Europe.
Two-thirds of the fund's stocks are oil and gas companies, which are still the most liquid stocks in Russia. Utilities, mining, telecommunications companies and breweries make up the rest. "There's no escaping oil and gas if you want to manage a Russia fund," Mr. Oubadia said.
The spike in oil prices earlier this year made the investment in oil worthwhile, propelling earnings growth for Russia's oil and gas companies. Higher oil prices also worked wonders for the Russian economy, which is largely dependent on oil and gas. More recently, however, falling oil prices have threatened the companies' profit growth.
But the fund manager, who is based in The Hague, said he doesn't think people should invest in Russian oil stocks because of their earnings prospects. "You don't invest because of earnings growth -- there will be none for Russian oil companies this year. You invest because of the stocks' low valuation," Mr. Oubadia said, adding that most of the Russian oil companies still trade well below the world-wide average for the sector.
Yukos Oil is one of the fund's largest investments, making up about 12% of the fund's holdings. Surgutneftegaz and Lukoil Holdings also make up more than 5% each of Pilgrim Russia's assets. While Mr. Oubadia said the companies should be able to handle falling oil prices, partly by cutting production, he worries that further price erosion could hamper a fragile Russian stock market that relies so heavily on oil and gas stocks.
"Can Russian markets do well with lower prices for oil?" he asked. "The short answer is yes. But how low will prices drop?" Mr. Oubadia acknowledged that weak oil prices might cause him to shift some investments from oil and gas into other Russian sectors, including telecom stocks and consumer products.
The Russia fund isn't for the timid. In 1998, when the Russian economy collapsed, the fund -- then called Lexington Troika Dialog Russia, lost 83% of its value. A year later, the fund soared 160%. In 2000 the fund finished down almost 18%.
---
JANUS STOCK SHUFFLE: Janus Capital Corp. bulked up on lower-priced value stocks and shed some shares of its long-held technology companies during the third quarter, a new Securities and Exchange Commission filing showed.
The Denver fund firm reported that during the third quarter, it lowered its investments in 14 of the 20 largest holdings it had owned as of June 30. The largest reduction was a 43.6 million-share sale of Nokia Corp. stock. After the sale, Janus still owned a large 183.2 million-share position in the wireless-phone company at the end of the third quarter.
During the quarter, Janus also sold more than half of its stakes in tech companies EMC Corp. and Sun Microsystems Inc. In addition, the fund company, a unit of Stilwell Financial Inc., trimmed its exposure to energy company Enron Corp., selling 1.5 million shares to reduce its overall position to 41.4 million shares at the end of September.
On the buying side, Janus, one of the hottest fund firms of the late 1990s thanks to bets on leading technology stocks, about doubled its position in software company Microsoft Corp. It also boosted its holding in the investment company run by Warren Buffett, Berkshire Hathaway Inc., while starting a small position in Philip Morris Cos., whose dividend-rich stock is usually more popular with price-sensitive "value" managers. Janus has introduced new value portfolios recently, but most of its investors' assets still follow faster-growing companies.
-- Aaron Lucchetti and Todd Goren

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

Wessex Water

11/19/2001
The Financial News
Copyright (C) 2001 The Financial News; Source: World Reporter (TM)

The Sunday Telegraph
The German state-owned bank, WestLB, is in talks to buy Wessex Water from its troubled US parent Enron.
WestLB is thought to be one of a number of financial buyers to have approached Enron with a view to acquiring Wessex, which is valued at more than AGBP1bn (e1.63bn).
Enron, the energy trading group which bought Wessex in 1998 for AGBP1.4bn, is being bought by its much smaller US rival Dynegy after collapsing into financial crisis.
The Independent on Sunday
The water and sewage company Wessex Water is understood to be up for sale following an offer to take over its owner, Enron.
Three years ago, Enron spent AGBP1.4bn on Wessex Water.
But Dynegy is understood to want to concentrate on US and European energy assets and is not interested in non-core assets.
Any hope to regain the same amount of money could be derailed as the industry is put off by regulatory problems, and the company's results have worsened due to imposed price cuts over the past year.

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

India BSES:Dabhol Pwr Proj Due Diligence Done Jan -Report

11/19/2001
Emerging Markets Report
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- India's BSES Ltd. (P.BSX) said Monday due diligence on the 2,184 megawatt Dabhol power project is expected to be completed by January 2002, the Press Trust of India news agency reported.
"The due diligence process will take six-eight weeks after signing of the confidentiality agreement with Enron-promoted Dabhol Power Co.," the report said, quoting BSES' Chairman and Managing Director R.V. Shahi.
The U.S.-based energy company Enron Corp. (ENE) has a controlling 65% stake in the Dabhol power project located in the western Indian state of Maharashtra.
The Maharashtra State Electricity Board, or MSEB, has 15%, while U.S.-based companies General Electric Co. (GE) and Bechtel (X.BTL) each own 10% in DPC.
Enron wants to sell its stake in DPC because of payment defaults by its sole customer, the MSEB, and the Indian federal government's failure to honor payment guarantees.
In August, the U.S. company said it was willing to sell its stake at cost.
BSES would appoint three separate consultants for technical, financial and legal due diligence on the Dabhol project, Shahi said.
After signing the confidentiality agreement, BSES will formally look into the books of DPC, its loans, sponsors and other assets and legal wrangles before deciding on the acquisition price of the company, the report said.
The Dabhol project, at a cost of $2.9 billion, is India's largest single foreign investment to date.
-By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

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

India Dabhol Pwr: No Termination Notice Until Crt Verdict

11/19/2001
Dow Jones International News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- Dabhol Power Co. will wait for the Bombay High Court's verdict before sending a final termination notice to its sole customer - the Maharashtra State Electricity Board, a source close to the company told Dow Jones Newswires Monday.
"Nothing is going to happen until Dec. 3. The Bombay High Court has adjourned all proceedings...(and)...DPC will wait for the court's verdict before deciding its future course of action," said the source.
Enron Corp. (ENE) has a controlling 65% stake in the 2,184-megawatt Dabhol power project in the western Indian state of Maharashtra. Enron wants to sell its stake in DPC because of payment defaults by the MSEB and the Indian federal government's failure to honor payment guarantees. In August, the U.S. company said it was willing to sell its equity at cost.
At $2.9 billion, Dabhol is India's largest single foreign investment to date. MSEB has 15%, while U.S.-based companies General Electric Co. (GE) and Bechtel (X.BTL) own 10% each in DPC.
-By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

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

Financial Post: News
Fears raised on Enron deal: $15.6-billion rescue bid
Andrew Hill and Sheila McNulty
Financial Times

11/19/2001
National Post
National
FP3
(c) National Post 2001. All Rights Reserved.

NEW YORK - Companies that trade with Enron Corp., the Houston, Texas-based energy group, are taking precautions in case Dynegy Inc., also of Houston, withdraws its $15.6-billion rescue bid for its rival, a decision that could trigger a crisis in the energy trading market.
Counter-parties to Enron, which is one of the principal market-makers providing liquidity in the energy market, are seeking to limit their exposure to the group, in spite of reassurances from both Enron and Dynegy that the takeover will go through.
Experts also say the implications of the deal are so complex that the regulatory review could take much longer than the six to nine months company officials have estimated.
Analysts say the 27% spread between the value of Dynegy's offer price and Enron's share price suggests a 65% to 75% chance the bid will succeed. But bankers and energy executives are still worried about systemic risk, both in the energy market and in financial markets, where companies such as Enron use derivatives to offset the risk of energy price fluctuations.
Enron was close to meltdown until Dynegy stepped in with a rescue bid 10 days ago, having persuaded credit rating agencies not to downgrade Enron's debt to below investment grade.
Clauses built into the merger agreement signed with Enron give Dynegy the right to walk away under certain circumstances, although the two companies' officials and advisors differ on how easy it would be for Dynegy to pull out.
While the situation remains uncertain, companies that deal with Enron are reluctant to lock themselves into long-term contracts to buy or sell power, said John Olson, an analyst at Sanders Morris Harris, the investment banking arm of Houston, Texas-based Sanders Morris Harris Group.
Keith Stamm, chief executive of Aquila Inc., the energy marketing and risk-management company, said his company had begun preparing contingency plans in case the deal fell through.

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

Blackout in the power sector
A V Rajwade

11/19/2001
Business Standard
10
Copyright (c) Business Standard

Every foreign company in the Indian power sector wants to exit. Of these, the most controversial has been Enron and its Dabhol Power Company Ltd (DPCL). This apart, the experience of investors in the "reformed" power sector in Orissa is also unhappy. Five years ago, Orissa was the first state to adopt the World Bank-recommended model of separating generation, transmission and distribution of power, and an independent regulator. The Godbole Committee has recently recommended the same for Maharashtra as well.
Clearly, separating the three functions is a complex restructuring. Maybe it helps privatisation, the current fashion on the subject having been set in Thatcherite Britain. While some privatisations in UK have succeeded, the experience has not been consistent all over.
Take UK's rail sector. While privatising, the government in its wisdom decided to separate the ownership of the rail network (Railtrack) and the ownership and operation of trains. The contractual relationship between the various operating companies and Railtrack were governed by a byzantine, bewilderingly complex system of penalties and incentives, to be monitored by an independent regulator.
Such separation had no parallel. Besides, Railtrack suffered from poor management, cost escalation in modernisation of tracks, etc. Several serious accidents occurred and fixing responsibility became difficult. The "reform" did not work, and Railtrack was put back under public control last month.
What are the chances of trifurcation of the power sector in India succeeding? Pretty poor, if the experience of Orissa is any guide. It faithfully separated the three functions, and privatised distribution and part of generation. AES, a foreign company, was 49 per cent investor in a generating company, and 51 per cent in CESCO, a distribution company. As Gajendra Haldea analysed in this paper on August 27, "The policy and regulatory framework was inadequate and myopic."
Distribution losses, a euphemism for power theft, were much larger than the companies had been led to believe at the time of privatisation. CESCO defaulted in paying the dues of GRIDCO, the transmission company, which in turn defaulted to the generating company. Indeed, all CESCO's cash inflows are now escrowed, leaving it no money even to pay salaries. For all practical purposes, the distribution companies seem to be in a difficult situation, perhaps beyond redemption, and the "reform" is a total mess.
The crux of the problem in the power sector is not whether a unified SEB is less efficient than trifurcated companies it is the political unwillingness to charge a price which covers the cost to all consumers. For a while, cross subsidisation worked with commercial consumers subsidising the household and the agricultural segments.
However, as the burden became too large, the commercial sector started moving to captive generation, further worsening SEB finances. An "independent" regulator for power tariffs may not solve the problem. He may fix economic prices but will the state come forward to protect the bill collectors, punish power thiefs, face social unrest if power to recalcitrant consumers is cut off? So long as the answers to these questions are in the negative, as, sadly, they are, the institutional restructuring is no substitute for substantive action. No wonder all foreign investors in the power sector want to get out!
Enron too wants out but it has many more problems in its home country, over and above its dispute with MSEB. It had attracted a lot of adverse publicity for gouging power consumers in California, a state in a power crisis (see World Money, February 2, 2001). The Internet craze also had a hand in Enron's misfortunes. It became an energy trader, established an electronic trading platform, had broadband ambitions, went into a disastrous diversification in water supplies which, if I remember correctly, led to Rebecca Mark's exit. Perhaps it went into too many areas too quickly under Jeffery Skilling, ex-McKinsey, and was notorious for opaque, complex accounts.
To top it all, last month it announced that it will take an extraordinary $1.2 billion charge in its third quarter results for losses in financial activities. Enron's chief financial officer, who was supposed to be in charge of these, has resigned amidst reports that a private equity fund associated with him was involved in them. The SEC is investigating the affair and Enron's share price is down 67 per cent since mid-October. There are some reports that Shell may make a bid for Enron.
After its ratings were downgraded, Enron is desperate for liquidity and anxious to dispose its assets. DPCL was already on the platter; now a sale has become even more urgent. Reportedly, Tatas and BSES are interested; so are the lending institutions. Clearly, if a settlement is to be reached, this is the optimum time.
But one is not very optimistic. For one, Delhi and Mumbai will be involved, and bureaucracies never understand opportunity costs. Our byzantine decision-making processes make timely decisions impossible. Further, if a deal does take place, there will be the inevitable allegations of corruption. It is much safer for the reputation of the concerned ministers in Mumbai and Delhi to allow the drift to continue, to "let the law take its own course", whatever the costs! Sadly, as Jairam Ramesh said in this paper, Indian politicians respond to developments only out of compulsion, not conviction.

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


Congratulations on the new role.  I think that it will be an interesting
challenge and that you will do a great job.  How soon do you start?  --Sally

Danny Clark@EES
05/25/2000 12:38 PM
To: Sally Beck/HOU/ECT@ECT
cc:
Subject: EBS Position

FYI,
I've accepted the positon with EBS.  Thank you for your recommendation.

dc


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Broadcom Updates Second Quarter 2001 Financial Outlook; Conference Call Scheduled Thursday, June 7, 8:45 a.m. Eastern Time   IRVINE, Calif., Jun 6, 2001 (BUSINESS WIRE) -- Broadcom Corporation (Nasdaq:BRCM) today updated the outlook for its financial performance for the second quarter ending June 30, 2001.   "The continued weakness in the technology sector requires that we lower expectations for second quarter revenue to a decrease of between 32% and 35% from the first quarter," said Dr. Henry T. Nicholas III, Broadcom's President and CEO. "Although current demand conditions continue to be soft, we are starting to see some signs of stabilization in the business for the second half of the year. We also continue to introduce new market-leading products and to gain important design wins with customers that position us well to compete effectively in our markets as the economy recovers."   "In response to the numerous acquisitions made in the last two years and the current more challenging economic climate, we are taking steps to streamline our business," Nicholas continued. "Accordingly, in the first quarter earnings conference call on April 18, we indicated that we were conducting a thorough review of all of our business units with the intent of making reductions in some areas and increasing the level of strategic investment in others. We are beginning to implement these plans during the current quarter. This will result in business unit re-alignment, net staffing reductions, facility consolidations, and other actions that will result in an associated charge to be taken during the second quarter."   Conference Call  Broadcom will conduct a conference call with analysts and investors to discuss its updated second quarter outlook tomorrow (Thursday June 7) at 8:45 a.m. Eastern Time (5:45 a.m. Pacific Time). The company will broadcast the conference over the Internet. To listen to the call, please visit the Investor Information section of the Broadcom Website at www.broadcom.com/investor or go to www.streetfusion.com. The Webcast will be recorded and available for replay until 5:00 p.m. Pacific Time on June 14, 2001.   About Broadcom  Broadcom Corporation is the leading provider of highly integrated silicon solutions that enable broadband communications and networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related applications for digital cable set-top boxes and cable modems, high-speed local, metropolitan and wide area and optical networks, home networking, Voice over Internet Protocol (VoIP), carrier access, residential broadband gateways, direct broadcast satellite and terrestrial digital broadcast, digital subscriber lines (xDSL), wireless communications, System I/O(TM) server solutions and network processing. Broadcom is headquartered in Irvine, Calif., and may be contacted at 949-450-8700 or at www.broadcom.com.   Safe Harbor Statement under the Private Securities Litigation     Reform Act of 1995:  This release and our comments during the conference call may contain forward-looking statements that are based on our current expectations, estimates and projections about our industry, and reflect management's beliefs and certain assumptions made by us based upon information available to us at this time. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements speak only as of the date hereof. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors.   Important factors that may cause such a difference for Broadcom include, but are not limited to, general economic conditions and specific conditions in the markets we address, including the recent significant economic slowdown in the technology sector and semiconductor industry; the timing, rescheduling or cancellation of significant customer orders; the loss of a key customer; the effectiveness of our expense and product cost control and reduction efforts; changes in our product or customer mix; results of changes in our accounting for performance-based warrants; our ability to specify, develop or acquire, complete, introduce, market and transition to volume production new products and technologies in a timely manner; the timing of customer-industry qualification and certification of our products and the risks of non-qualification or non-certification; the rate at which our present and future customers and end-users adopt Broadcom's technologies and products in our target markets; delays in the adoption and acceptance of industry standards in those markets; the volume of our product sales and pricing concessions on volume sales; the qualification, availability and pricing of competing products and technologies and the resulting effects on sales and pricing of our products; intellectual property disputes and customer indemnification claims and other types of litigation risk; the availability and pricing of foundry and assembly capacity and raw materials; the risks inherent in our acquisitions of technologies and businesses, including the successful completion of technology and product development through volume production, integration issues and costs, and contractual, intellectual property and other issues; fluctuations in the manufacturing yields of our third party semiconductor foundries and other problems or delays in the fabrication, assembly, testing or delivery of our products; the risks of producing products with new suppliers and at new fabrication and assembly facilities; problems or delays that we may face in shifting our products to smaller geometry process technologies and in achieving higher levels of design integration; the effects of new and emerging technologies; the risks and uncertainties associated with our international operations; our ability to retain and hire key executives, technical personnel and other employees in the numbers, with the capabilities, and at the compensation levels needed to implement our business and product plans; the quality of our products and any remediation costs; the effects of natural disasters and other events beyond our control; the level of orders received that can be shipped in a fiscal quarter; and other factors.   Our Annual Report on Form 10-K, recent Quarterly Report on Form 10-Q, recent Current Reports on Forms 8-K and 8-K/A, and other Securities and Exchange Commission filings discuss some of the important risk factors that may affect our business, results of operations and financial condition. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.   Note to Editors: Broadcom(R), the pulse logo(R), and SystemI/O(TM) are trademarks of Broadcom Corporation and/or its affiliates in the United States and certain other countries. All other trademarks mentioned are the property of their respective owners.   CONTACT:          Broadcom Corporation, Irvine                   Bill Blanning or Eileen Algaze (business press)                   949/585-5555 or 949/585-5971                   Corporate Communications                   blanning@broadcom.com                   ealgaze@broadcom.com                   or                   Nick Kormeluk, 949/585-6932 (investor relations)                   Director, Investor Relations                   nickk@broadcom.com URL:              http://www.businesswire.com Today's News On The Net - Business Wire's full file on the Internet with Hyperlinks to your home page.  Copyright (C) 2001 Business Wire.  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Our first Working Group meting is set for Friday, January 21, 9 am - 11 am
Central Standard Time.  If you can't make it, please let me know and arrange
for an alternate, if possible.  At this meeting, we will develop group
objectives and some initial to-do's.

If you have not yet responded with your personal information and suggested
objectives, please do so prior to the meeting so we can update the agenda
with everyone's responses.  Thank you!

TIME:  Friday January 21  9AM CST
Call in Numbers - US    (will be provided with final agenda)
International                      (will be provided with final agenda)

In Houston, Room EB 4741

I.     Administrative Issues
 a.  why a working group
 b.  expectations

II.     Our group
 a.  roster
 b.  suggested objectives

III.    Consensus Group Objectives
 (develop single set for the group)

IV.   Identify initial set of subgroups
 a. purpose of subgroups


Yes and no. I am not listening on the calls, but either Andy or Barrett call
me immediately afterwards to update me on the progress. If they leave me a
voicemail, I will forward it to you.


Should we start terminating CES as a shipper on the interstate pipelines?


Jeff,

Mark Tawney indicated that, while it might be a long shot, Lynda might be interested in a core group of people (smaller than all EJ obviously) that would be able to help her build a weather business in Japan.  Do you think there is any merit in this?  If so, let me know the best way to progress, including, if you have it, her phone number.

Joe


Leslie,

I have just completed reviewing the APS filing.  This paper explains much of the observed behavior of APS during the DSTAR (WestConnect) proceedings over the last several months.

The paper is so full of market "scare" tactics it seems appropriate to be reading it during the Halloween season.  The token effort of procuring 270MWs starting 2003 and ramping up to 1670 MWs in 2008 is ridiculous.  The statements that APS generation is somehow more secure and reliable than any generation not owned by APS, using the same grid, and that non-APS generators have little if any responsibility to the "Full-Requirements" customers are all beyond belief.

The mis-characterization of the problems experienced in CA, OR and WA and the contemptuous citing of "experts" seems typical of the APS distain for deregulation.

The entire filing is more like a guaranteed plan to recover the "Billion" dollars invested by APS, with convenient adjustment clauses every three years.

As you noted earlier today, the Commissioner of the ACC may be more concerned over the APS stock price than truly encouraging open markets and retail access and what better why to help the stock price than to award APS a 14 year contract...look at what the Defense Department did for Lockheed!!!

I spoke with Chris Lackey who met earlier this month with Pinnacle West's (APS subsidiary) head of Trading who told him that PinWest is very conservative (as stated in the filing), their primary function is to support APS and they saw no real opportunities to conduct business with Enron.  However that could change if their petition is denied.

Please let me know how you'd like to proceed.  If this is approved by the ACC I assume it must then go to FERC, do we have an opportunity to intervene with the ACC and/or FERC in regards to this filing?  If we do, I'll be happy to help you with composition of the documents.

Kind Regards,

Dave


I'm going to be working late, and I have some errands I need to run, so I
don't really have plans, except that dinner will probably be around 8 pm or
so.

Mat


Hello Paul Thomas,

 This is an automated email delivery.  The following info is for
 tracking purposes only:

 Transaction: 0000199845
 Fulfillment: 00203618*00002
 Location   : 00007

 Industrial Information Resources, Inc.
 Customer Service Department
 (713) 783-5147

 - OUTAGE.dbf


Are you guys still going to desperados (SP?) tommorow?

I think I'm going to head there at about 3PM with Rob Laird and Blair
McDermott (you know Blair... the guy with the huge...)

w/b

Chris


Have you made the rounds today to all the accountants to see if they need your help with anything?

If not, you need to do that.


Dear Outpost.com customer,

As you may recall, I sent you an email about five weeks ago about the
tough times for dot-com companies and the tough times we were
experiencing here at Outpost.com. Amazingly, about 7,000 of you sent
us, well, they were pretty close to love letters, in response. Today
I am thrilled to be able to tell you that it now appears that, like
The Rolling Stones, we will indeed be here forever.

We have just announced that our friends at PC Connection have agreed
to acquire your favorite company, Outpost.com. The best part is that
we will remain Outpost.com and we will remain in our gorgeous
headquarters town of Kent, Connecticut. Thus, we will continue to do
business with you as we always have, with a deep commitment to you,
our customers, with our rather healthy sense of humor, and with the
enormous resources that will now be available to us through the PC
Connection family. And yes, the gerbil stays. We wouldn't have it any
other way.

The most immediate impact this will have on our business is that,
effective immediately, we have access to tens of millions of dollars
of inventory on a daily basis. This will help us speed your orders on
their way to you much sooner. The gerbil brought in some of his
buddies to work in the warehouse, so we now have many more hands
(paws?) available there as well.

Needless to say, we are awfully excited about this. PC Connection is
a company we have long admired, and to say that this is a good fit is
quite an understatement. So, the bottom line is that you are stuck
with us. We just won't go away and we plan on finding new and even
more clever ways to entertain you as you shop for a very long time to
come. As a matter of fact, we would really appreciate it if you could
help us name this silly gerbil as we are all getting tired of calling
him, "Gerbil". You can do this at:

http://www.outpost.com/template/contest/gerbil/index/

Thanks again for all your support over the past six years. It has
been an honor serving you and getting to know you.

Darryl Peck
Founder, CEO & President
Outpost.com (forever, really!)
mailto:Darryl.Peck@outpost.com

Visit us at http://www.outpost.com/entry?site=ajn1


Shari,

Attached please find the REVISED credit terms for a draft EEI Master Power
Purchase & Sale Agreement between EPMI and Sacramento Municipal Utility
District.  Please call with any questions to the aforementioned.

Regards,
Tracy


Not yet.
Please send final version of Annex II.

Sara Shackleton
Enron North America Corp.
1400 Smith Street, EB 3801a
Houston, Texas  77002
713-853-5620 (phone)
713-646-3490 (fax)
sara.shackleton@enron.com

	Jorge A Garcia@ENRON
	04/11/2001 08:40 AM

		 To: Sara Shackleton/HOU/ECT@ECT
		 cc:
		 Subject: Re: Equity Swap Confirm

Good Morning Sara,

Thanks for the e-mail. Have you had an opportunity to review the optional
termination language for the West LB Interest Rate Swap Confirmation?

Please advise.

Enjoy your day!

Jorge

From: Sara Shackleton@ECT on 04/11/2001 08:29 AM
To: Jorge A Garcia/NA/Enron@ENRON
cc:

Subject: Re: Equity Swap Confirm

Jorge:  The attached confirmation looks fine.  However, you did not attach
Annex II which is referenced all over the confirmation.
For future reference, "Calculation Period(s)" should be used for multiple
periods.

Sara Shackleton
Enron North America Corp.
1400 Smith Street, EB 3801a
Houston, Texas  77002
713-853-5620 (phone)
713-646-3490 (fax)
sara.shackleton@enron.com

	Jorge A Garcia@ENRON
	04/06/2001 03:03 PM

		 To: Sara Shackleton/HOU/ECT@ECT
		 cc:
		 Subject: Equity Swap Confirm

There were a couple of cosmetic changes. This is it! Disregard the previous
attachment.

JAG


Mikey,
Please see the attached and tell me if I am smoking crack.      This calc would show me eating the difference between the purchase and sale prices,  although I have no position on this day.    You can go into the tab marked "May1."

Thanks,
JMF


---------------------- Forwarded by Phillip K Allen/HOU/ECT on 11/02/2000
10:36 AM ---------------------------

"George Richards" <cbpres@austin.rr.com> on 11/02/2000 07:17:16 AM
Please respond to <cbpres@austin.rr.com>
To: "Phillip Allen" <pallen@enron.com>
cc:
Subject: Resumes

Please excuse the delay in getting these resumes to you.  Larry did not have
his prepared and then I forgot to send them.  I'll try to get a status
report to you latter today.

 - winmail.dat


Start Date: 10/25/01; HourAhead hour: 3;  No ancillary schedules awarded.  No variances detected.

    LOG MESSAGES:

PARSING FILE -->> O:\Portland\WestDesk\California Scheduling\ISO Final Schedules\2001102503.txt

Error retrieving HourAhead price data - process continuing...
---- Generation Schedule ----
*** Final schedule not found for preferred schedule.
     Details:

  TRANS_TYPE: FINAL
  SC_ID: ECTRT
  MKT_TYPE: 2
  TRANS_DATE: 10/25/01
  UNIT_ID: CALGEN_1_UNITS


Susan:
Sara and I would like to meet with you sometime on Monday to go over all
outstanding work items so we are aware of what can be accomplished before you
leave and what may need to be given to the other paralegals.  Can we do that
at 10 and can you send to us before then an updated list of your outstanding
work assignments? Thanks.

Carol


Gerald,
Do you know if this document has been delivered to TW?
My guess is that it has not.  I will review, print, sign and have
Melissa deliver to TW unless I hear differently from you.

Who should this be delivered to at TW?
Steve Harris?

To: Mark Knippa, Mark Courtney
cc:
Subject: TW Gallup Rate Increase Letter

Attached is a letter to TW notifying them of the CDEC rate increase and
requesting their election on the pricing adjustment.  Please review.  We need
to get this to TW asap.


----- Forwarded by Richard B Sanders/HOU/ECT on 10/06/2000 05:04 PM -----

	"Fergus, Gary S." <GFergus@brobeck.com>
	10/06/2000 04:58 PM

		 To: "'Richard.B.Sanders@enron.com'" <Richard.B.Sanders@enron.com>,
"'msmith1@enron.com'" <msmith1@enron.com>, "'David_Aamodt@pgn.com'"
<David_Aamodt@pgn.com>, "'MBD'" <MDay@GMSSR.com>
		 cc:
		 Subject: FW: Enron Proposals Regarding Document Subpoenas

Here is your copy of the final version sent to the Commission.
Thanks
Gary

> -----Original Message-----
> From: Fergus, Gary S.
> Sent: Friday, October 06, 2000 2:57 PM
> To: 'hym@cpuc.ca.gov'
> Cc: 'MBD'
> Subject: Enron Proposals Regarding Document Subpoenas
> Importance: High
>
> Harvey Morris Esq.
> California Public Utilities Commission
> 505 Public Utilities Commission
> San Francisco, California   94102
>
>  Re:   I.00-08-002  Subpoenas Served on Enron Power Marketing, Inc.
> ("EPMI"), Enron Energy Services Operations Inc. and Enron Energy Services
> Inc. (collectively referred to as "EES"), Enron Energy Marketing
> Corporation ("EEMC"), and Portland General Electric Corporation ("Portland
> General")(collectively sometimes referred to as the "Enron Entities")
>
> Harvey,
>
>  Here are our proposals with respect to the Enron Entities'
> production of documents pursuant to the above described subpoenas issued
> by the California Public Utility Commission (hereinafter "the
> Commission").  The Enron Entities are willing to assist the Commission in
> undertaking its investigation into the problems in the California electric
> markets by producing the information specified on a timely basis.  We
> believe that the production we propose will enable the Commission to
> commence its investigation much sooner than if the parties were forced to
> litigate all of the potential objections to the requests for production,
> which are, by any standard, extremely broad and could involve millions of
> pages of documents.  We make these proposals pursuant to our email
> exchange of October 3, 2000 with the understanding that the Commission
> agrees that by cooperating, offering to produce or producing documents,
> the Enron Entities have not waived any objections or challenges to these
> subpoenas whatsoever and that any claims, defenses, objections,
> jurisdictional or otherwise or other responses have been specifically
> reserved and can be raised in the future, if necessary.   For all of these
> proposals, we exclude documents that are protected from disclosure by the
> attorney client and attorney work product privileges.
>
>  Generally speaking, the Enron Entities propose to produce documents
> for year 2000 as noted below.  We also understand that the Commission will
> be obtaining documents from the ISO and PX and we will not attempt here to
> duplicate documents that we understand will be produced by those entities.
> As you will see in the general documents that are offered here for
> production, Enron Energy Services Operations, Inc. is the parent of Enron
> Energy Services, Inc. and does not have operating authority or engage in
> wholesale or retail purchases or sales of energy.  Thus, the documents
> offered here with respect to those two entities originates with Enron
> Energy Services, Inc. but we have designated them both as EES.  We also do
> not propose to offer duplicative documents as between the Enron Entities.
>
> GENERAL DOCUMENTS
> Requests 1 through 4
>
>  Because of the dynamic nature of the Enron Entities' businesses, the
> burden and expense on them to locate, and produce every corporate
> organizational chart anywhere in their organizations since April 1, 1998
> is significant.   The Enron Entities will provide the Commission with
> exemplars of their current organizational charts, telephone directories
> and so called "family trees" to show its current organization.  To the
> extent that the Enron Entities can readily identify and locate exemplars
> of significant organizational charts, telephone directories or so called
> "family trees" for earlier periods they will also make those available.
> One Enron Entity, Portland General, has published books on its corporate
> history.  If a list of those books would be helpful, we can provide it.
> With respect to the other Enron Entities, to the extent that corporate
> histories can be found, they will be produced.  We anticipate producing
> these documents in the first wave on October 13, 2000.
>
> Requests 5 and 6
>
>  The Enron Entities propose that their responses to Requests 1-4 will
> identify their relationship to affiliated companies and the Transaction
> Documents will identify its customers and suppliers.  We believe this
> information will be sufficient to illustrate these relationships for the
> staff's purposes.
>
> FINANCIAL DOCUMENTS
> Requests 7 through 11
>
>  The Enron Entities will produce their public filings for the period
> requested with respect to financial data.  EPMI, EES, and Portland General
> will provide to the Commission electronic transaction data ( the
> "Transaction Documents") for the purchase and sale of energy delivered
> which information includes economic data.   We anticipate producing public
> filings regarding financial data on October 13, 2000 and the electronic
> Transaction Documents in the second wave of document productions.
>
> GENERATING DOCUMENTS
> Requests 12, 14 and 18
>
>  For the Enron Entities other than Portland General, the generation
> facilities are either non-existent or limited in number and there will
> probably be limited documents available.  The Enron Entities to the extent
> they act as a scheduling coordinator or possessed the right to use or
> resell generation output, do not have the specific documents that pertain
> to each generation unit requested.  The Enron Entities, other than
> Portland General, do have documents and information for Las Vegas
> Cogeneration.  We propose to produce these documents in the second wave of
> document productions.
>
>   For Portland General, the production of the requested documents
> would involve a tremendous volume of documents, as Portland General owned
> twenty generating facilities of a variety of types and sizes during 2000.
> Portland General is a net importer of energy and can only generate about
> one half of its total energy demand.  As a result, we question whether the
> effort required of Portland General is warranted as its impact on the
> California wholesale market is necessarily limited.  Nevertheless,
> Portland General proposes to provide for year 2000 electronic Transaction
> Documents in summary form similar to the data being provided by other
> Enron Entities, to the extent relevant as discussed below.  We propose
> that the Commission defer requesting production of other information until
> it has reviewed the information of generators who sell a significant
> proportion of their energy into the California market.  At that time a
> more accurate assessment can be made of whether this enormous effort will
> be valuable given the limited impact of Portland General generation on the
> California wholesale market.
>
> TRANSACTION DOCUMENTS
> Requests 13, 15, 16, 17 and 19
>
>  We understand that the Commission will be obtaining trading data for
> the purchase and sale of energy delivered in California from the ISO and
> PX.  EPMI can provide the Commission several different sets of relevant
> transaction data for year 2000 (in California and outside of California
> and Real Time) for the purchase and sale of energy delivered with the
> date, counterparty, quantity, delivery point, hours, price, and whether it
> is a purchase or a sale.   Because of the speed with which you want this
> information, it is possible that some entries will be incomplete or
> inaccurate.  For those
> transactions where EPMI served only as the scheduling coordinator, we
> understand that the ISO will show part of the transaction, but there will
> not be a corresponding transaction in the EPMI data we can provide
> quickly.  The reason is that this type of transaction is passed through to
> EPMI's customer on an accounting system rather than as part of the trading
> business.  EES can also provide similar data with respect to relevant
> wholesale and retail transactions with the proviso that with respect to
> retail transactions it will not include the specific names of its retail
> customers but instead will provide a blind customer number due to EES'
> confidentiality obligations to those customers.  We anticipate producing
> the Transaction Documents in the second wave of document productions.
>
> FERC DOCUMENTS
>
> Request 20
>
>  The Enron Entities will produce the requests for data they received
> from FERC and to the extent that FERC has been given responses, copies of
> those responses.  We anticipate producing the FERC documents on October
> 13, 2000.
>
>
>  Based upon discussions that we have had with the various Enron
> Entities, we believe that we could make a second wave of productions on
> Friday October 27, 2000.  It is possible that not all Enron Entities could
> make that date but we believe the bulk of the data could be available for
> production by then.
>
>  We propose to make these productions with the understanding that if
> any entity obtains a more stringent protective order than the one
> currently in place, that all of the Enron Entities document productions
> will be protected by the most stringent protective order.  In addition,
> if, at the request of any party or nonparty to this proceeding, the
> Commission or a court of competent jurisdiction orders that the requests
> for production be limited, reduced or eliminated, the Enron Entities
> reserve the right to limit the production of documents in conformance with
> such order.
>
>  We understand that you will consider these proposals and let us know
> if they are acceptable to the Commission.  If you have any questions or
> comments about our proposal, please do not hesitate to contact Michael Day
> or myself.
>
> Brobeck Phleger & Harrison LLP
>
> Gary Fergus
>
>
>
>
>

=======================================================
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Dave

It looks like we hit a home run.

---------------------- Forwarded by John J Lavorato/Corp/Enron on 07/11/2000
10:18 AM ---------------------------

	From:  Kevin M Presto @ ECT                           07/11/2000 09:54 AM

To: John J Lavorato/Corp/Enron@Enron
cc:

Subject: Bruce

---------------------- Forwarded by Kevin M Presto/HOU/ECT on 07/11/2000
09:47 AM ---------------------------

George Hopley
07/11/2000 09:47 AM
To: Kevin M Presto/HOU/ECT@ECT, Tom May/Corp/Enron@Enron
cc:
Subject: Bruce

Ontario Power Generation and Bruce Power announce leasing agreement at Bruce
Nuclear

    KINCARDINE, ON, July 11 /CNW-PRN/ - Ontario Power Generation (OPG) today
announced it has entered into a major agreement with Bruce Power Partnership
relating to the facilities at the Bruce nuclear site. Bruce Power is 95% owned
by British Energy plc. The transaction provides an opportunity for the two
main unions, the Power Workers' Union and The Society of Energy Professionals
on the Bruce site, to subscribe to 5% of the equity.
    This public/private partnership involves a long-term lease agreement for
the Bruce A (3076 MW-currently in lay-up), and Bruce B (3140 MW) facilities.
The lease runs until 2018, with an option to extend for up to another 25
years. OPG will receive an initial payment of $625 M to be made in three
installments. A first payment of $400 M will be made on closing subject to
normal closing adjustments. The remaining $225 M will be paid in two
installments of $112.5 M each.
    Bruce Power's annual payments include base and variable elements. The
variable elements include a share of the net revenue, and supplementary
payments for the management of used fuel. In total these payments are
estimated to be about $150 M in calendar year 2002.
    Bruce Power will offer employment to all employees at the Bruce site,
other than those being retained by OPG. Employees remaining with OPG include
those that provide waste management and centralized nuclear operations support
services. The agreement is expected to close, subject to Bruce Power obtaining
the necessary licences, in the summer of 2001.
    "Today's announcement is good news for employees, the community, the
electricity consumer and the shareholder" stated Ron Osborne, OPG President
and CEO. "This agreement injects private equity into the Bruce facilities
which in turn will provide new opportunities for employees and the community.
It is also a major step towards opening the Ontario electricity marketplace to
competition and providing electricity consumers with choice." Osborne noted
that an additional benefit of the agreement allows OPG to concentrate on
accelerating the performance improvements underway at its Darlington and
Pickering nuclear facilities while the new company focuses on the Bruce.
    Nuclear safety continues to be of paramount importance for Ontario Power
Generation, and safety has been a key tenet for British Energy. Both companies
are committed to ensuring high safety performance standards.
    "We are delighted to be announcing the creation of a new company. Bruce
Power will demonstrate that safety and commercial success go hand in hand,"
said Robin Jeffrey, Chairman and Chief Executive Officer of British Energy
Canada Ltd. "We have a high regard for CANDU technology and for the skill of
the staff at Bruce. We are confident that by working with the staff and the
unions, Bruce Power can achieve world class safety and commercial
performance."
    To reduce its market dominance, OPG is required by conditions in its
operating licence granted by the Ontario Energy Board (OEB), to reduce its
share of generating capacity to no more than 35 per cent of that available to
the province 10 years after the market opens.
    British Energy was selected following an extensive worldwide competitive
process over the last two years. They have significant operating experience
and a proven safety track record with a range of nuclear reactor types.
    To close the transaction, Bruce Power will be required to secure licences
from the Canadian Nuclear Safety Commission (CNSC) and the Ontario Energy
Board. Bruce Power will be required to follow the stringent licensing and
operating requirements established by CNSC, formerly the Atomic Energy Control
Board.
    Ontario Power Generation is a major North American electricity generating
company. OPG's principal business is the generation and sale of electricity to
consumers in Ontario and into the interconnected markets. OPG's goal is to be
a premier North American energy company, focused on low-cost power generation
and wholesale energy sales, while operating in a safe, open and
environmentally responsible manner.
    British Energy PLC is the UK's largest electricity generator. British
Energy owns and operates 15 reactors in the UK and a further two in the United
States through its joint venture, AmerGen. British Energy's goal is to be a
worldwide electricity leader building on its "Safety First" culture and track
record of commercial success.

    BACKGROUNDER INDEX
    ------------------

    Safety:

    1.  OPG'S COMMITMENT TO NUCLEAR SAFETY
    2.  BRUCE NUCLEAR - SAFETY IS NUMBER ONE
    3.  INFORMATION ON CANDU REACTORS
    4.  EMERGENCY PLANNING IN ONTARIO

    Financial:

    5.  OPG/BRUCE POWER LEASE AGREEMENT
    6.  NUCLEAR USED FUEL, WASTE MANAGEMENT AND
        DECOMMISSIONING
    7.  CHRONOLOGY OF THE PUBLIC/PRIVATE PARTNERSHIP PROCESS

    Employees:

    8.  WHAT HAPPENS TO EMPLOYEES

    Transition:
    9.  REDUCING MARKET DOMINANCE
    10. TRANSITION ARRANGEMENTS
    11. NEXT STEPS

    General.
    12. ONTARIO POWER GENERATION
    13. QUICK FACTS ON BRUCE NUCLEAR POWER DEVELOPMENT

SOURCE Ontario Power Generation Inc.


Consider yourself blessed.


Mike,

Sorry I missed you guys Friday night.  I made back from a golf outing around 9 pm, but you guys must have already left the Front Porch.  Anyway,  I was out the other night and met some Dynegy talent that were interested in an Enron Analyst/Associate and Dynegy Pace Program happy hour.  What do you think about the prospectsof a combined happy hour.  They have a group that goes out on the third Thursday of every month, which would be this Thursday.

Mat