India Min: Govt Likely To Pay Enron's Nov Bill - Report
Dow Jones, 02/07/2001

UAE Offsets Group Plans Yemen Power, Energy JV - Official
Dow Jones, 02/07/2001

Energy News From The European Press Wednesday
Dow Jones, 02/07/2001

Enron Broadband Services Connects Bandwidth Pooling Points at Three Interxion
Sites
M2 Press, 02/07/2001

An Ideologue Looming Large,
Business Standard, 02/07/2001

'NTPC Should Also Absorb Some Part Of DPC Power'
Business Standard, 02/07/2001

The California Energy Crisis Deregulation Didn't Foster Competition
Los Angeles Times, 02/07/2001

Dabhol, Enron Unit in India, Invokes Payment Guarantee
The New York Times, 02/07/2001

Texas Energy Company Thrives In California's Deregulationed Atmosphere
Knight-Ridder Tribune, 02/07/2001

Taxing My Patience
The New York Times, 02/07/2001

Natural-Gas Companies Discover California Is a Surprise Bonanza
Dow Jones, 02/07/2001

California Power Crisis May Slow Asia Deregulation
Bloomberg, 02/07/2001

My Kingdom for A Building Permit
Forbes, 02/19/2001

India Min: Govt Likely To Pay Enron's Nov Bill - Report

02/07/2001
Dow Jones International News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- India's Power Minister Suresh Prabhu said Wednesday
that the federal government cannot default on the counter-guarantee that the
Dabhol Power Co. invoked Tuesday and was likely to pay the company's
outstanding bills for November 2000, the Press Trust of India reported.
As reported, Dabhol, which is owned by Enron (ENE) of the U.S., Tuesday
invoked a federal guarantee on payment of overdue bills after its main
customer, the Maharashtra State Electricity Board, failed to pay its debt of
790 million Indian rupees ($1=INR46.37) on time.
Prabhu also hinted at working out a new arrangement with the U.S. energy
giant to settle the issue.
"We are looking at options to resolve the current problem," he told PTI.
Prabhu is holding consultations with the Finance Minister Yashwant Sinha to
resolve the present crisis and a possible reworking of the Power Purchase
Agreement is on the cards, PTI quoted Power Ministry officials as saying.
Under the existing contract with Enron, in the case of a payment default on
the part of the government of Maharashtra, the federal government is obliged
to make the payment.
Apart from the November dues, the MSEB owes Enron's India subsidiary 1.52
billion Indian rupees for December.
Enron Corp. Wednesday said it expected the Indian government to repay its
debt of INR2.31 billion for the two months within the stipulated 30 days, a
company official said.
"The government has 30 days to pay up and by all indications that will be
done," said a Bombay-based Enron official on condition of anonymity.
Analysts said Dabhol's action was a "statement of a lack of confidence" in
the state paying its debt. Guarantees from the Indian federal government to
foreign companies are rare, and several observers believe this is the first
time one has been invoked.
Neil McGregor, Dhabol's president, said in a statement Tuesday that the
government must "recognize the serious domestic and international
implications of contractual agreements not being honored."
The $2.4 billion Dhabol project, the country's biggest foreign investment,
began in 1993 and went through a series of ups and downs following
accusations that it had bribed officials to win the contract. The project was
then stalled for more than a year in late 1995 when a new government went
back on an agreement to let Enron produce electricity in Maharashtra state.
A court later dismissed the bribery charges and the government renegotiated
the deal.
In recent months, Dabhol has been criticized for the high cost of its
electricity. Politicians have called for a renegotiation of Dabhol's
contract, and a reexamination of whether the facility's second phase, which
is now being built, should be completed.
-By Muneeza Arjuman, Dow Jones Newswires; 91-11-461-9427;
muneeza.arjuman@dowjones.com

UAE Offsets Group Plans Yemen Power, Energy JV - Official

02/07/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

DUBAI -(Dow Jones)- The United Arab Emirates' Offsets Group plans to initial
a joint venture energy and power deal with Yemen "very soon," Offsets Chief
Executive Mohammed Saif al-Mazrou said Wednesday.
Al-Mazrou didnt give further details.
Offsets was initially set up to leverage U.A.E. defense procurements into
investments in the country, but has since expanded its role to a venture
capital organization as well as a government economic think tank.
In March 1999, the company launched the Dolphin project, a regional gas
project aimed at linking Qatar, the U.A.E. and Oman. A year ago, Offsets sold
49% of the project to TotalFinaElf SA (TOT) and Enron (ENE), which have been
commissioned to implement the initial phase of the project, estimated at a
cost of $4 billion.
Al-Mazrou said the new joint venture in Yemen won't be related to the Dolphin
project.
-By Dyala Sabbagh, Dow Jones Newswires; 9714 3314260;
dyala.sabbagh@dowjones.com

Energy News From The European Press Wednesday

02/07/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Securing more capital will be a key factor in furthering the expansion plans
of state-owned Swedish power company Vattenfall (S.VTF), reports
FinansTidningen. Vattenfall's Chief Executive Lars Josefsson said during a
briefing Tuesday that the issue is being discussed by the board and there is
a dialogue with the company's owners, the paper says.

An accord between German utility HEW (G.HEW) - a unit of Vattenfall - and
Mirant - formerly Southern Energy of the U.S. (SOE) - over the ownership of
Bewag (G.BWG) could be reached within weeks, Vattenfall CEO Lars Josefsson
told Welt.
Czech electricity concern CEZ AS (R.CEZ) plans to restart the reactor at the
Temelin nuclear power plant Feb. 11, a day before a scheduled safety
inspection by the International Atomic Energy Agency, several newspapers
report. CEZ managers said repairs to faulty turbine pipes can continue while
the reactor is running.

Alessandro Sala, CEO of Swiss power company Atel (Z.AAR) tells HandelsZeitung
that the structure of Switzerland's power market liberalization law will
limit the reductions in prices for households. Industrial customers, though,
are already getting deep discounts. Atel plans to make acquisitions to double
revenues from its installation business. It isn't interested in buying Sulzer
Infra (Z.SLZ), however.

Hungary's six electricity distributors are seeking a lift of the import
monopoly of state-owned wholesaler MVM Rt. (R.MVM), as they are required by
the government to buy MVM's electricity at a higher price then their retail
prices, several papers say. Due to the new regulatory conditions, the
distributors' combined return on equity will drop this year to 3%, from 9.8%
in 2000 and 7.8% on average over the past four years, they say.

Maersk Contractors, the drilling unit of the A.P. Moller (K.MAP) group, will
be leasing a deep-water drilling rig for oil exploration in the Caspian Sea,
writes Borsen. Maersk already operates 50 rigs.

Swedish Prime Minister Goeran Persson is likely to discuss environmental
issues when he meets Polish Prime Minister Jerzy Buzek Wednesday, reports
Dagens Industri. Swedish Foreign Minister Anna Lindh recently said a
potential problem to Poland's entry into the European Union is its poor
environmental record, the paper says.

The bidding war for Spanish utility Hidroelectrica del Cantabrico (E.HIC) saw
German giant RWE (G.RWE) top rival offers with a bid of EUR26 a share,
Expansion reports. Tuesday was the end of the bidding period, and Cantabrico
shareholders must now evaluate the RWE offer as well as those made by Spanish
utility Ferroatlantica and the joint bid from Portuguese utility EDP and
Spanish savings bank Cajastur.

Spanish oil company Repsol (REP) and Gas Natural are "reviewing their
strategies for the electricity market," Expansion reports. Repsol could make
a bid for Iberdrola (E.IBR), the newspaper says.

German utility E.On (EON) has taken the first steps in the planned sale of
its VAW aluminum unit, FT Deutschland reports on the basis of information
from unnamed investment banks. The sale price would likely be less than DEM5
billion (EUR1=DEM1.95583), the paper says.

Unions are angered by Italian power company Enel SpA's (EN) 11,000 planned
lay-offs and will put up a tough fight. Enel promises, however, that the
staff cuts will be the result of not replacing retirees and of incentive
plans, reports Il Sole 24 Ore.

In the next three years, fuel distributor Shell (RD) wants to double the
number of fuel stations in Poland from 116 at present, Puls Biznesu reports.
In 2001, Shell plans to spend $8.5 million on 17 new stations.

Turkish fuel retailer Opet Petrolculuk and Enron (ENE) are to sign a
partnership agreement, reports the Dunya. The report gave no other

Austrian oil companies have increased gasoline prices by 25 groschen a liter
(ATS1=100 Groschen, EUR1=ATS13.7603), reports Die Presse.

Enron Broadband Services connects bandwidth pooling points at three Interxion
sites

02/07/2001
M2 Presswire
Copyright 2001 M2 Communications, Ltd. All Rights Reserved.

LONDON -- Enron Broadband Services, a wholly-owned subsidiary of Enron Corp.
(NYSE: ENE), and Interxion Holding N.V., a pan-European operator of
carrier-neutral Internet Exchange Centres (IECs), announced today an
agreement that provides Interxion's tenants in the Frankfurt, Brussels and
Dusseldorf IECs access to Enron's bandwidth pooling points. The agreement
gives bandwidth consumers and carriers greater control of their capacity and
the improved ability to deliver advanced applications.
Pooling points provide an interconnection and switching platform for buyers
and sellers of bandwidth. They enable the dynamic provisioning and monitoring
of bandwidth at varying speeds, terms and qualities of service. Consumers and
carriers of bandwidth gain an additional sales channel for excess bandwidth,
as well as the ability to secure bandwidth at short notice and for varying
periods of time.
In addition, access to the value-added services of the Enron Intelligent
Network creates business opportunities in the delivery of advanced
applications, such as streaming, digital media and e-commerce.
"This is an important step towards revolutionizing the bandwidth market,"
said Steve Elliott, president of Enron Broadband Services Europe. "Until now,
the market has been characterised by a lack of liquidity and inflexible
contract terms. By leveraging our market-making and risk management
expertise, Enron is in a position to deliver more flexible bandwidth
solutions."
"Enron is a shareholder in Interxion and this commercial agreement is an
indication of the synergy that exists between the two companies," said Bart
van den Dries, CEO of Interxion. "By adding the Enron pooling points to the
choice of carriers already available on our sites, Interxion reinforces its
position as one of Europe's leading carrier-neutral providers of managed data
services. Enron Energy Services and Interxion have also signed a letter of
intent outlining plans for an energy outsourcing partnership, which is
further evidence of the strong relationship between the two companies."
Editor's Notes
About Enron
Enron Broadband Services is a leading provider of high quality, high
bandwidth delivery and application services. The company's business model
combines the power of the Enron Intelligent Network, Enron's Broadband
Operating System, bandwidth trading and intermediation services, and
high-bandwidth applications to fundamentally improve the experience and
functionality of the Internet.
Enron's Broadband Operating System allows application developers to
dynamically provision bandwidth for the quality of service necessary to
deliver broadband content. Enron is also creating a market for bandwidth that
will allow network providers to scale to meet the demands required by
increasingly complex applications. Enron Broadband Services can be found on
the Web at www.enron.net.
Enron Energy Services serves commercial and industrial businesses by
providing integrated energy and facility management outsourcing solutions
internationally. Enron's innovative approach to energy delivery and
management allows customers to focus critical resources on their core
businesses while Enron assumes the responsibility of managing their energy
and facility costs.
Enron Energy Services can be found on the Web at www.ees.enron.com
Enron is one of the world's leading electricity, natural gas and
communications companies. The company, with revenues of $101 billion in 2000,
markets electricity and natural gas, delivers physical commodities and
financial and risk management services to customers around the world, and has
developed an intelligent network platform to facilitate online business.
Fortune magazine has named Enron "America's Most Innovative Company" for five
consecutive years, the top company for "Quality of Management" and the second
best company for "Employee Talent." Enron's Internet address is www.enron
.com. The stock is traded under the ticker symbol "ENE."
About Interxion
Interxion, with headquarters in Amsterdam, operates a growing number of
carrier-neutral Internet exchange centers (IECs) across Europe. All of
Interxion's Internet exchange centers are connected to the networks of major
national and international telecom carriers as well as to various European
Internet exchanges.
Interxion's IECs are at the heart of all internet activities. In the
state-of-the-art IECs, Interxion offers integrated solutions for
connectivity, equipment housing, storage and maintenance needs of internet
related companies including ISPs, ASPs, e-commerce companies, content
providers, media companies and web hosting companies. As the only neutral
full-scale managed connectivity provider, Interxion enables customers to join
forces and exchange services.
Interxion brings these companies together, creating partnerships that can
benefit from the business opportunities which are offered by the Internet.
Interxion currently operates IECs in Amsterdam, Brussels, Dublin, Dusseldorf,
Frankfurt, Copenhagen, London, Madrid, Milan, Paris, Stockholm, Vienna and
Zurich and is rolling out to Helsinki, Finland, and Hilversum, the
Netherlands, in the near future. For more information: www.interxion.com
((M2 Communications Ltd disclaims all liability for information provided
within M2 PressWIRE. Data prepared by named party/parties. Further
information on M2 PressWIRE can be obtained at http://www.presswire.net on
the world wide web. Inquiries to info@m2.com)).

CONTACT: Ed Neale, Firefly Tel: +44 (0)20 7386 1435 e-mail:
Edward.neale@firefly.co.uk Anita Cullen, Enron Tel: +44 (0)20 7783 2384
e-mail: anita_cullen@enron.net
An ideologue looming large
Ajay Singh

02/07/2001
Business Standard
10
Copyright (c) Business Standard

"You're all English-speaking. You are the opinion-makers of the country. Why
don't you spend some time understanding Indian realities?"
His words fell on the audience like the staccato of an AK-47 assault rifle.
They were dead on target some of Delhi's best-heeled businessmen, gathered
together at the Ashoka Hotel convention hall. S Gurumurthy, Sangh Parivar's
swadeshi ideologue, had been invited to deliver a lecture on a serious issue
`Challenges and opportunities before the country'. But also sharing the dais
with him, and speaking on the subject, were film stars Amrish Puri and Pooja
Batra. It was clear that he was not too happy about this.
I was in the audience waiting for the conference to end. I had to take
Gurumurthy to lunch. His speech ended with muted but unmistakably snide
remarks from the audience. But, he also walked away with maximum applause. To
me, this illustrated the most striking element about his personality: you can
love Gurumurthy or hate him; but you can't ignore him.
We walked to the neighbouring Samrat Hotel's Kamakshi restaurant, because
Gurumurthy likes simple south Indian vegetarian food. Straightaway, we
ordered rasam and papad as starters. Gurumurthy was still upset. "The
organisers should have prepared the audience for such serious topics as
this," he said.
As the bowls of rasam and the papad arrived, I prepared myself for a session
with the man considered to be an influential link between the RSS and the
BJP. He wields tremendous clout, but avoids displaying it on his sleeve.
"Were you always in the RSS?" I asked. "No, I was closely associated with
Kamraj-ji's Congress till his death," he said, to my surprise. "Kamraj-ji
used to like me a lot, and our approach was to de-Dravidianise Tamil Nadu
politically," he revealed.
This figured! I know this is politically incorrect, but it must be said.
Gurumurthy is a Brahmin, and like most of his ilk, he was ideologically at
the receiving end of the virulent anti-Brahmin movement which swept Tamil
Nadu in the 1960s. That it has now waned, and even leaders of Dravidian
parties follow Brahminical rituals these days, says a lot about the
rethinking on the issue.
"Are you a practitioner of Brahminism?" I asked. This was a `Did you beat
your wife last night?' kind of question. I wanted to provoke Gurumurthy, who,
even his colleagues admit, symbolises traditional Brahminism. Gratifyingly,
he rose to the bait. "Call me Brahminist or retrograde, it doesn't bother me.
If Dravidianism is good, then Brahminism is equally good," Gurumurthy said, a
flash of belligerence flaring. He explained his political theory of
de-Dravidianisation of Tamil Nadu. "Dravidianism was political speculation
which became political reality. It (Dravidianism) was poison injected by the
British," he said.
That Gurumurthy originally came from the Congress fold was news, but more
revelations were to follow. He was most appreciative of Indira Gandhi's
efforts to de-Dravidianise Tamil Nadu by forging an alliance with the DMK in
the 1970s. "This was indeed a positive contribution of Indira Gandhi," he
said. Coming from a Sangh stalwart, this was significant.
After Kamraj's death, Gurumurthy found himself in the company of the
legendary and irrepressible media baron, Ram Nath Goenka. From here began his
association with the RSS. "It was
a political assignment," he said,
recounting the past. This was
the time when Jayaprakash Narayan began his war against Indira Gandhi, and
Goenka's
The Indian Express played a crucial role in the campaign. "Obviously, in
those circumstances, my job was more than a financial adviser's," he said.
"But how did you get attracted to the RSS," I asked curiously. "It was the
sincerity of people in the RSS that attracted me. They are the gentlest
people I have ever come across. Had I not come into contact with the RSS, I
would have been a hundred times richer in terms of money, but I would have
been a thousand times poorer in other respects," said the chartered
accountant who virtually reveres his association with the Sangh Parivar.
"But you're influential because you are associated with the RSS," I said. At
one or other time, many in the party and government have felt (and said) that
Gurumurthy and his Swadeshi Jagran Manch hold a brief for only some Indian
industrialists and use their closeness to the RSS to camouflage this.
"Give me one example when I've used my influence in the government," he said
flatly. "You have suggested to the Prime Minister indirectly that he should
remove an officer from the PMO," I said. "Indirectly! No, you are mistaken.
This was a direct suggestion. Such officers are a blot on a great leader like
Atal Bihari Vajpayee, and I have never been circumspect on the issue," he
said, adding that had he been influential, his suggestions would have been
accepted. "My opinion may be powerful, but it does not mean I wield power,"
he explained.
Gurumurthy asked for curd-rice for the main course, a dish all south Indian
Brahmins swear by (it is also P V Narasimha Rao's favourite food). He
continued on the earlier theme. "It is unfortunate that in 50 years, the
system has produced very few Bhure Lals (an IAS officer who was one of V P
Singh's favourite officers)."
What did he think about the present government? "The problem is that an
Anglo-Saxon class continues to rule the country. Such people have serious
limitations in understanding Indian realities. They run the country like a
Bishop runs the Church. In the process, elite India has become the real
India," he said. Being a believer in cultural nationalism, Gurumurthy
hastened to add, "This divide is only perceptional. What links them is events
like the Kumbh. Culture and religion are the interface where elites and
subaltern meet. This is why secular parties are oblivious to real India," he
said.
"You have been consistent in opposing the government's economic policies. Why
is it that even Vajpayee, who belongs to the Sangh, is pursuing the same
course?" I asked. What I really wanted to know was his views on the
speculation about strained relation between the government and the Sangh
Parivar on economic issues.
"The government is not the sole arbiter of economic issues. This is
determined outside the government. Just as the atmosphere for socialism was
determined by forces outside the government, the atmosphere needed to pursue
policies of globalisation is being decided outside the government," he said.
"If this is such an obvious trap, why are people like Vajpayee and Yashwant
Sinha falling into it?" I demanded. "They cannot function in isolation. What
we have is intellectual extremism of the English-speaking class," he said.
"Extremism?" I asked, as we ordered coffee.
"They (the English-speaking class) are the one who espoused Enron's cause.
They are the ones who suggested that billions of foreign exchange would pour
in once the insurance sector was opened up. Did they prove to be correct?"
Gurumurthy asked triumphantly. "Are these people, including the financial
newspapers, ready to accept that they were wrong in their assessment?" he
said. "If the people who supported Enron accept that it was a mistake, the
country would be 50 per cent more intelligent."
He continued: "This class never accepts that the past was
a mistake. Forgetting the past is
a typical characteristic, whether it is the issue of the Ram Temple,
socialism or Enron".
Perhaps, this was the closest Gurumurthy could come to admitting his growing
disenchantment with the present regime. On reforms, he said: "Policies are
largely bureaucracy-led, and there is no political control over what is
believed to be reforms," he said. Another intriguing statement!
We finished lunch and prepared to leave. I mentally summed up all that
Gurumurthy had said. The one thing that came forcefully to mind was his
complete contempt for anyone (including those in his own party) who belongs
to what he calls the "Anglo-Saxon class". As I bid him goodbye, I decided
that to get to the bottom of that mystery will need many more lunches.
Gurumurthy's subconscious needs to be explored. It is a puzzle, wrapped in an
enigma.

`NTPC should also absorb some part of DPC power'
Renni Abraham MUMBAI

02/07/2001
Business Standard
3
Copyright (c) Business Standard

Maharashtra finance and planning minister Jayant Rajaram Patil has said that
invocation of the government of India counter-guarantee by the Dabhol Power
Company has set the stage for the resolution of the Enron crisis. Talking to
Business Standard, Patil spoke on the state government's future course of
action and several other issues.
Excerpts:
Please comment on DPC invoking the Centre's counter-guarantee.
The move is aimed at resolving the crisis. We have made it clear that the
high DPC tariffs have become unaffordable for the Maha-rashtra State
Electricity Board. Also, it is not financially prudent for the state
government to bail out MSEB in respect of the DPC payments every month. A
logical solution has to be found within the MSEB itself which has to be able
to absorb the DPC power. With the GOI counter-guarantee invoked, the state is
set for resolving the whole issue. The solution has to involve the central
government as it was the Centre that had invited the power major and
solicited others like Cogentrix to invest. Maharashtra, with a favourable
industrial climate, became the testing ground for the setting up of first
such power project.
What led to the present crisis and how is this being addressed to? Even the
setting up of review committee has been inordinately delayed?
Maharashtra economy cannot sustain payments to DPC's phase II, which too has
been sanctioned. I do not want to rake up the politics behind this. We have
to look forward to resolving the problem on hand.
As far as Maharashtra is concerned, the eight-party Democratic Front
government has unanimously decided that the present high DPC tariff is not
affordable and has to be rationalised. The Centre has to actively look into
it.
As far as the delay in the review committee's constitution is concerned, the
task would be completed soon. We have shortlisted a number of experts and are
seeking to constitute an independent body of experts to look at the multifold
aspect of the DPC project and suggest ways to resolve the present crisis. The
panel would probably be asked to immediately submit a set of recommendations
to resolve the issues at hand, while looking at the various other options
before it and suggest multifold recommendations to the government.
What options does the government have?
There are several lines of thought with regard to resolving the DPC issue.
The state government is clear that the DPC will have to make available
cheaper power. Another option could be staggering phase II. For instance,
block B and C of phase II could be staggered. We know that once the jetty for
LNG is commissioned by DPC the tariffs would be reduced substantially.
Similarly, we would be keen to look into the possibility of restructuring the
rupee-dollar arrangement so that the risk of foreign exchange fluctuations
are reduced. The panel would look into this aspect as well. MSEB has to be
able to afford DPC power. Along with cheaper tariffs, it might also be
necessary for the National Thermal Power Corporation to absorb some part of
the power generated by DPC. The Centre should take some component from Phase
I and II. We have to resolve the present crisis as a nation and a state.
Why did DPC not invoke the Letter of Credit before the GOM and GOI
guarantees?
The Rs 135 crore LC was not invoked for obvious reasons. By invoking the GOM
and GOI guarantees, a dead-end has been reached as far as brokering piecemeal
solutions are concerned. Now the issue has to be resolve in totality.
We want to reach a new understanding with DPC on the project in which the
Centre will have to get into the picture. Union energy minister Suresh Prabhu
has been stating that the Maharashtra government should forward a proposal
for resolving the issue. We are in the process of doing just that.

Metro Desk
THE CALIFORNIA ENERGY CRISIS Deregulation Didn't Foster Competition
NICHOLAS RICCARDI; STEVE BERRY
TIMES STAFF WRITERS

02/07/2001
Los Angeles Times
Home Edition
A-1
Copyright 2001 / The Times Mirror Company

The way people scrambled for a stake in California's power market three years
ago, you'd have thought it was the second coming of the Gold Rush.
Politicians and free marketers boasted that they were freeing millions of
customers from their monopolistic utilities so they could shop for cheaper
electricity. The state ordered an $87-million publicity campaign, promising a
brave new energy world bustling with competition.
But those dreams of capitalism unleashed never materialized, dashed by
provisions in the 1996 deregulation law that effectively undermined
competition and gave the utilities a substantial edge over newcomers. In the
end, only 1.7% of the utilities' residential users switched to other
providers, many opting to pay more for "green" energy.
Although the chaos swirling around California's electricity crisis has
chiefly focused on soaring wholesale prices, the virtual absence of
competition at the consumer level has played a key role in deregulation's
undoing.
Had competition among retailers flourished, garnering the millions of
customers deregulators expected, prices might never have reached today's
unprecedented peaks and the turmoil might have been tempered, economists and
retailers say.
Retail competition "would not have prevented a crisis, but it would have
toned it down," said Richard Counihan, spokesman for Green Mountain Energy,
which has returned most of its 50,000 customers to the utilities' ranks.
Now even the prospect of competition is gone. A measure enacted by the
Legislature last week, which made state government the biggest electricity
buyer in California, suspended further retail competition, preventing anyone
from underbidding the state.
"That buries us," said Tony Wayne, president of UtiliSource of Brea, which,
under the new law, can keep its relatively small number of customers but is
barred from entering into new contracts.
Few thought it would come to this.
High Hopes Collide With Reality
Almost 300 firms registered with the state to sell electricity to consumers.
Many of them, quick-buck hucksters or small-time operations, were scared off
by background checks, fingerprinting and the $25,000 deposit required to
enter the market.
But then there were the likes of giant Enron Corp., which predicted that the
new market would pull 700,000 customers from the utilities in the first few
weeks. Another firm deployed 400 salespeople, nabbing residential and
business prospects by the thousands.
They quickly discovered that the structure of California's landmark
deregulation effort erected protective barriers preventing most retailers
from beating the prices of the big three utilities--Southern California
Edison, Pacific Gas & Electric and San Diego Gas & Electric.
For example, deregulation law allowed the utilities to keep their 9 million
customers until each took the initiative to switch. Any ratepayer who used a
moderate amount of energy and wanted to change companies had to pay $600 for
a new meter--unless the retailer wanted to eat the cost itself.
In contrast, Pennsylvania, where deregulation has been more successful than
in California, requires most of its utilities to surrender some of their
customers. Last year, 300,000 customers of one utility were auctioned off to
the retailer who could promise them the most savings. All together, close to
1 million customers have switched from utilities to retailers, with savings
estimates ranging from a few dollars to $15 per month.
In California, the next barrier was expressly designed by deregulation
architects to keep new retailers at bay, at least temporarily.
Before throwing utilities into a free-for-all, lawmakers felt obligated to
give them time to pay off debts that would hurt their ability to offer
competitive prices. The Legislature froze customer prices at 1996 levels,
well above what the utilities were then paying for electricity. The
difference would be used to pay their debts.
The hitch for prospective retailers was that their customers--like those
remaining with utilities--would be charged the extra amount too. That
seriously hurt the retailers' ability to shave prices for their customers
without taking a hit themselves.
Utility executives say the so-called competition transition charge
accomplished its intent: providing some protection against new players until
the utilities could shed their debt and compete on an even field.
According to those executives, the plan went awry when wholesale electricity
prices soared before the special debt charge was lifted and competition had a
chance to flourish.
"We haven't had enough time for this market to work," said Denise Grant,
director of the Edison division that works with retailers. She said Edison
expected to lose 150,000 customers annually--a far cry from what has
happened.
Retailers say they faced other obstacles that seemed designed to help the
utilities keep as many of their customers as possible.
One of the biggest was a newly created energy marketplace called the Power
Exchange.
Under the exchange's rules, all buyers--little guys with a few hundred
customers and mammoth utilities with millions--paid the same price for
electricity. Once again, retailers were stymied in their search for ways to
cut their customers' bills.
Retailers had no place else to shop for energy because suppliers could make
more money selling in high volume to billion-dollar utilities on the Power
Exchange, rather than cutting small deals with upstart companies.
Wayne, the president of UtiliSource, learned the hard way. He was peddling
electricity in California in early 1997, before the state created the Power
Exchange. After arranging a good, but informal, deal with a Washington
generator, he sent out hundreds of salespeople, took to the road himself and
soon cornered 10,000 customers.
But the birth of the exchange caused the death of his deal, Wayne said. The
generators pulled out when they realized how much money they could make
selling on the open market.
"That was an oh-my-god. They said, 'Why should we give you a discount when we
can sell it to the Power Exchange ourselves?' " he said.
Retailers say the state protects the utilities in subtler but no less
damaging ways. That includes billing customers who switch companies for
certain overhead costs of their old utilities, such as weather forecasters
and accountants involved in procuring electricity.
In late 1999, a coalition of retailers filed a complaint with the Public
Utilities Commission arguing that their customers should not be forced to pay
costs for utilities they had decided to leave.
Earlier this month, the PUC finally reached a decision that favors the
retailers' argument but accepts the utilities' calculations of the expenses
borne by retailers, an amount critics say is far too low.
In dissenting, Commissioner Richard A. Bilas called the decision's paltry
award to retailers another strike against them.
"We cannot keep stymieing retail competition if we are seeking rational
markets," he said. "Energy service providers [retailers] have left the state
in droves. . . . They need all the encouragement we can give them."
Retailers Found Little Opportunity
Be they multinational giants or kitchen-table entrepreneurs, retailers are
dismayed by their experiences with deregulation.
Enron spent $5 million trying to sell electricity in 1997 and the spring of
1998. But, unable to offer enticing discounts, the firm picked up only 30,000
customers.
In a recent meeting with reporters and editors at The Times, Enron Chief
Executive Kenneth Lay suggested that the framers of deregulation kept market
forces pinned down in the retail sector. As a result, there was little money
to be made and little incentive to stick around.
"The more customers you signed up," Lay said, "the more [money] you lost."
Last week, Enron returned a number of its remaining electricity contracts to
PG&E. "In the end," Lay said, "we couldn't change the rules and we pulled
out."
On the other end of the spectrum, Paul Oshideri is now a one-man operation
since he laid off his seven employees during his unprofitable two years
trying to entice customers to Cucamonga Energy.
"You don't have that many options," said Oshideri, who is still holding on to
his 250 customers and vows not to quit. "What can you do? You can't do
anything right now."
Only when it came to businesses and big institutions such as universities
were retailers able to make a dent in the market. The small price reductions
they offered translated into huge savings for those large users of
electricity. The retailers also offered a variety of other services,
including aid to help businesses become more energy efficient.
Although fewer than 2% of all residential customers have switched to new
energy companies, 13% of industrial users have done so, according to the
Public Utilities Commission.
"If they'd structured this differently they would have had households able to
make big savings just like industrials," said Cal State Fullerton economist
Robert Michaels.
There is some dispute among deregulation critics over whether legislators
designed the law to protect the utilities from an onslaught of competition,
or it just turned out that way.
Jesse Knight, a former member of the Public Utilities Commission who
dissented on the panel's deregulation plan, said the law is biased against
retail competition.
"But I don't think it was the legislation's intent to protect the monopoly,"
Knight said.
There is general agreement, however, that not enough attention was paid to
the mechanics of the retail market.
Much of the deregulation legislation deals with generation, transmission and
wholesale prices of electricity. The only provisions on the retail end simply
allow consumers to shop for deals.
Lay, the Enron executive, recalled that the utilities fought hard to maintain
their customer base. The irony is that, with wholesale prices skyrocketing
over the last six months, buying electricity for all those customers has
driven the utilities to the brink of insolvency.
"With 20-20 hindsight, I expect they wish they'd agreed to more choice at the
customer level," Lay said. "Then maybe they wouldn't be in the circumstances
they're in."

Business/Financial Desk; Section C
COMPANY NEWS
DABHOL, ENRON UNIT IN INDIA, INVOKES PAYMENT GUARANTEE
By P.J. Anthony

02/07/2001
The New York Times
Page 4, Column 1
c. 2001 New York Times Company

The Dabhol Power Company, the Indian subsidiary of the Enron Corporation,
said yesterday that it was invoking an Indian government guarantee to cover
bills for electricity totaling $50 million. Dabhol made the request after the
Maharashtra State Electricity Board failed to make the payments. The bills
include electricity provided in November and December. Under an agreement
with Enron, the governments of the Maharashtra state and India have
guaranteed they will pay Enron if the state utility defaults. P. J. Anthony

Texas Energy Company Thrives in California's Deregulated Atmosphere
Brandon Bailey

02/07/2001
KRTBN Knight-Ridder Tribune Business News: San Jose Mercury News - California
Copyright (C) 2001 KRTBN Knight Ridder Tribune Business News; Source: World
Reporter (TM)

Though it produces hardly any power for California consumers, a Texas energy
company is thriving in a deregulated energy marketplace that it helped shape.
Through a combination of business and political savvy, the Houston-based
company, Enron Corp., has become a leading trader in the state's little known
but increasingly important wholesale power market.
And while critics contend Enron's soaring fortunes suggest too much influence
over a badly flawed system, some analysts simply credit the company with
skillfully operating in a world that barely existed a decade ago, where
electricity is traded like soy beans or oil.
"The sellers have all the leverage and all the brains. And the buyers have
been slow and stupid," said John White, an environmental lobbyist who tracks
energy issues. "What I wish is that the buyers' side of the California market
had people as smart and clever and aggressive as Enron."
Even as California overhauls its market, Enron will likely play a big part in
the state's energy future.
Partly as a result of state and federal policies that Enron has championed,
wholesale trading is now a crucial link in the process of delivering
electricity to homes and businesses nationwide. Those policies are unlikely
to change under President George W. Bush, who counts Enron chairman Ken Lay
as a friend, campaign contributor and energy adviser.
Enron reported record operating profits of $1.3 billion last year, excluding
one-time adjustments. That's up 32 percent from 1999.
Most of its revenue came from wholesale operations. While Enron doesn't
provide financial results for each state, company CEO Jeff Skilling said this
week that California accounted for about 7 percent of the company's $100
billion in sales.
"We've probably bought and sold more power than any other market-maker in the
West," said Enron executive vice president Steven Kean.
Originally a gas pipeline firm, Enron now has many interests, from building
power plants in India to trading wood products and telecommunications
bandwidth on-line. It recently launched a venture with Blockbuster to deliver
videos over a fiber optic network. But Enron's primary business involves
acting as a middleman between energy producers and the companies that deliver
power to consumers.
At the company's 50-story Houston headquarters, Enron traders use
sophisticated software to monitor supply and demand, often based on such
variables as weather, plant breakdowns and availability of fuel.
Traders buy power from sources all over the region -- independent generators,
local utilities, public agencies or other traders -- and assume the risk of
finding someone willing to pay a little more. Or they will contract to sell
electricity at a certain rate, betting on their ability to obtain that power
more cheaply.
"They'll take positions based on where they think prices are going to go,"
said Gary Ackerman of the Western Power Trading Forum, which has 30 member
firms. "This is a guessing game. Enron does it better than most."
Enron's traders may buy from several sources to supply one customer. Or they
might purchase a large volume and sell it off in slices, either on the spot
market or in long-term contracts.
"They understand financial markets and they understand risk management," said
Jim Angel, a finance professor at Georgetown University. "That gives them a
big competitive advantage over the old dinosaurs of the industry."
Enron pioneered such trading, he said, building on skills it developed in the
natural gas business. But today, most power companies are involved in similar
deals.
"As a generator, my production cost might be 20 cents," Ackerman said. "If
someone else is offering the same commodity for 18 cents, just for this week,
I'll shut down my plant and buy their power and then turn around and resell
it."
Some critics suggest a market based on such price changes is too risky for a
commodity as essential as electricity. Attorneys have filed two consumer
lawsuits accusing generators and traders of manipulating supplies to drive up
prices.
But traders deny those allegations. Enron's Kean said they help find supply
to meet demand, while their long-term contracts protect buyers from price
spikes. Kean said Enron makes a profit buying and selling, no matter if
prices are high or low.
Those transactions are increasingly integral to the energy industry as it
tries to balance out surpluses and shortages around the region. Ackerman
estimated the volume of electricity sold back and forth on a given day is
often ten times the amount actually delivered to consumers.
Such trading will continue, he said, even though the state is now negotiating
long-term contracts with energy providers. "The traders will still try to
beat the costs of serving those contracts."
And traders may benefit from the demise of the state's Power Exchange. The
central spot market is closing because its largest customers, the utilities,
are insolvent.
Without the exchange to post an hourly rate, said James Bushnell of the
University of California Energy Institute, "there really isn't much in the
way of meaningful price information any more. And that does advantage
marketers. The cynical interpretation is that if buyers and sellers don't
have the information, the marketers can make money."
Enron was an outspoken opponent of the exchange when California first planned
for deregulation.
Over the last decade, Enron has joined forces with manufacturers and
industrial interests in a number of states, as they lobbied for permission to
bypass local utilities and negotiate for better deals with competing
suppliers.
In challenging the well-entrenched utilities, Enron has built its own
political clout. The company and its employees gave $2.3 million to federal
campaigns in the last election cycle, according to the non-partisan Center
for Responsive Politics. Enron donated $235,000 to California campaigns in
1998, including $75,000 to Gov. Gray Davis.
The company also has deployed its own army of lobbyists and consultants. A
few years ago, it hired former Christian Coalition leader Ralph Reed for
advice on building grass-roots support. In California, it recruited former
staffers from the Public Utilities Commission to help make its case.
During California's early discussions, state regulators embraced a
utility-backed plan for a single agency to run the state's transmission grid
and operate a central exchange for wholesale energy transactions.
But Enron and its allies argued the agency would be dominated by the
utilities, which would discourage competition and make it harder to negotiate
lower prices.
In the end, California adopted a compromise: It created the Power Exchange --
mandatory for utilities and voluntary for others -- and a separate agency,
the Independent System Operator, to run the state's transmission grid.
Critics suggest the complex, decentralized structure has made it easier to
abuse the market, by withholding supplies or taking advantage of congestion
on the transmission grid to drive up prices.
But no one has produced evidence tying any company to wrongdoing. And Enron
denies taking any unfair advantage.
"The fact of the matter is it's easy to blame people from out of state," said
Kean. "It tends to deflect attention from some of the real causes of the
problem. The real underlying cause was that you had rapid demand growth and
you didn't have enough supply."
Enron has plans to increase California's supply. Though it currently has only
has a wind-power facility near Tehachapi, it's planning a 750 megawatt
gas-powered plant in Kern County and has three more up for licensing.
The company also has sought to build a retail business aimed at industrial
and commercial clients. It abandoned an earlier effort to sign up residential
customers in 1998, after concluding that California utilities had succeeded
in structuring deregulation to discourage competition for those customers.
But Enron has contracts with commercial clients to provide a range of
services, from advising on energy efficiency to supplying power at a
guaranteed rate.
As Skilling recently told industry analysts, Enron's business is "packaging
energy supplies for our customers."
It doesn't matter, he explained, if that energy comes from a plant that Enron
owns, or from a contract with another supplier. "It's all part of one
business model."

Editorial Desk; Section A
Liberties
Taxing My Patience
By MAUREEN DOWD

02/07/2001
The New York Times
Page 19, Column 1
c. 2001 New York Times Company

WASHINGTON -- At first, I had separation anxiety.
I missed all the chaos and intrigue, the lies and cover-ups and sweet talk
and reconciliations and razzmatazz.
I stalked my ex. I couldn't help myself.
I drove up to Chappaqua and stood around for hours in the cold and slush of
Bill's driveway. I bought a box of Pepperidge Farm Double Chocolate Chunk
cookies at his favorite deli, hoping the aroma would lure him out of the
house.
Bill still had trouble written all over him. I still wanted to cover a guy
who had trouble written all over him.
I wasn't ready for Junior. I wasn't looking forward to a lot of
towel-snapping bonhomie, punctuality and discipline from the West Wing, and
peace and quiet from the East Wing.
The future was looking depressingly like the past. Washington smells of
mothballs -- a tax cut, recession fears, a Star Wars shield, energy woes,
abortion curbs, Christian right-eousness, a rumor of war in the Middle East,
the trio of Bush, Powell and Cheney saber-rattling at Saddam.
In this week of birthday homages to the Gipper, W. even resumed a Reaganesque
theme-of-the-week to hawk a Reaganesque tax cut.
As Bill flew off to the Boca sunshine, I slunk back to rainy D.C. to face the
music.
W. was busy peddling his tax cut with a lot of photo ops featuring
working-class families.
To hear the Bush rhetoric, the tax cut was all about helping poor single
waitress moms, grannies who can't pay their heating bills, lower-middle-class
families that are maxing out credit cards for their kids' medical bills, and
small businesses owned by women.
On Monday, President Bush made like the host of a game show and displayed a
big blown-up check made out to ''U.S. Taxpayer'' for $1,600, the average
benefit that he says the average family with two children would receive. He
introduced three average families that would get anywhere from $1,055 to
$3,266 in savings from his plan.
On Tuesday Mr. Bush went to McLean, Va., to visit an adorable store, Tree Top
Toys and Books, and make the pitch that his tax plan would create capital so
that other adorable businesses like this one, and trail-blazing female
entrepreneurs like its owner, could thrive.
Today the president planned to have a reunion with the ''tax families,'' as
the families used as props on airport tarmacs during his campaign were
called. At the White House he will be welcoming Tammy, a waitress at the Pit
Stop Emporium; Ken, a repairman at Bennett's Garage; Joseph, a manager at
Aldi Foods; Denise, a stay-at-home mom; and Michael, a driver for U.P.S.
I seem to recall President Bush vowing to restore integrity and honesty to
Washington. Then shouldn't his photo ops this week have been a whole lot
different?
On Monday he could have gathered Jack Welch, Bill Gates and Kenneth Lay, the
chairman of Enron Energy Corporation, one of W.'s biggest corporate
contributors.
The president could have brandished a blown-up check made out to ''U.S.
Fatcats'' for $160,000 and come clean about who will make out like bandits,
courtesy of his bill: not the blue-collar crowd but the golden-parachute
crowd, that elite 1 percentile that will get 40 percent of the cut.
Dick Cheney, lately of Halliburton, and Paul O'Neill, lately of Alcoa, could
have been on hand to share inside tips about tax shelters, trust funds and
stock option packages to defer income.
All the moguls' progeny could have smiled for the camera, since, if the Bush
tax cut passes, they won't have to pay any of those niggling inheritance
taxes on their parents' estates.
On Tuesday, instead of going to a toy store the president would have headed
to the nearest Lexus dealership to show the sort of toys the wealthiest
Americans could buy with their humongous tax cuts.
Today, instead of a reunion of his tax families, he could have gathered the
fur-clad and Gulfstream-riding Pioneers, the rich Republicans who pumped $90
million, the biggest fundraising haul in history, into W.'s campaign, hoping
for a tax windfall.
Lastly, in the spirit of bipartisanship, W. could have ushered out to the
cameras a new millionaire who could use a good tax cut now that he's raking
in $100,000 a pop for his speeches: my ex.

Commodities
Natural-Gas Companies Discover California Is a Surprise Bonanza
By Chip Cummins
Dow Jones Newswires

02/07/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Last quarter, Anadarko Petroleum Corp., a Houston oil-and-gas concern,
discovered an unexpected bonus from last year's acquisition of rival Union
Pacific Resources Group Inc.
The purchase, it turns out, included commitments to transport natural gas
along a pipeline running from the Rocky Mountains into California. For years,
those contracts weren't worth much. But late last year natural-gas prices
skyrocketed, especially for gas delivered to California.
Thanks to its hold on precious space in one of a handful of pipelines into
the state, Anadarko booked about $135 million in extra profit in the fourth
quarter. It may see more in the first quarter.
Call it a California bonanza for natural-gas companies. While wholesale
natural-gas prices have eased in some parts of the country such as in West
Texas -- where prices are hovering around $5 to $6 per thousand cubic feet --
the gas can fetch twice as much if it is delivered in California. Natural gas
was recently changing hands at as much as $10 to $15 per thousand cubic feet
at Topock, Ariz., a pricing hub on the California border.
Regional gas prices often fluctuate because of unusual weather or pipeline
disruptions. But California's gas premium has been remarkable for how wide it
has grown and how long it has lingered.
"It's a pretty major change in market dynamics," says Art Gelber, principal
at Gelber & Associates, a Houston energy-consulting and asset-resources firm.
The simple explanation for the difference: Natural-gas demand continues to
outstrip the state's own modest production, and pipeline capacity for
out-of-state gas hasn't kept up.
According to the California Energy Commission, the state produced just 16% of
the gas it consumed in 1999, the most recent year for which figures are
available. Of the nearly 5.15 billion cubic feet of gas a day California
imported, almost half came from the Southwest, an additional 28% came from
Canada and 10% from the Rocky Mountain states. To get that gas from the well
to users, gas marketers buy up capacity in a limited number of
California-bound pipelines. With a shortage of pipeline capacity,
transportation costs have climbed and are passed along to end users.
California's pain has turned into unexpected gain for a handful of companies.
Occidental Petroleum Corp., a big California gas producer, is finding its gas
is suddenly much more valuable than it was just a few months ago. In a recent
conference call with analysts, the company noted that prices in California
have been more than $3 higher per thousand cubic feet of gas than elsewhere
in the country, which the company said will be reflected in the first-quarter
earnings.
Both Occidental and Anadarko have spent time explaining the unusual
California gains to Wall Street, and any windfalls this quarter are likely
already priced into their shares, analysts say. In 4 p.m. composite trading
on the New York Stock Exchange, Occidental rose 20 cents to $23.62 while
Anadarko rose $2.05 to $63.45.
Considering the companies' diverse oil-and-gas portfolios, California's
recent volatility wouldn't likely move stock prices much anyway. But the
experiences of Occidental and Anadarko in the state highlight what unforeseen
surprises can pop up in such an unbalanced commodity market.
California is serviced by four major pipelines. Transwestern Pipeline Co., a
subsidiary of Enron Corp., operates a line from West Texas into Southern
California; El Paso Corp.'s El Paso Natural Gas Co. runs another pipeline
largely parallel to Transwestern; PG&E Corp.'s PG&E Gas Transmission Co.
brings gas down from Canada; and Williams Co.'s Kern River pipeline brings
gas in from the Rocky Mountains.
For years, the contracts on the Kern River line and other pipelines that
Anadarko inherited from Union Pacific were money losers as transportation
rights into California traded at a discount. "There was plenty of gas going
into California and California didn't need any more," says David Larson,
Anadarko's manager of investor relations. But by the end of last year, the
contracts were soaring in value.
With California gas consumption ballooning to meet soaring
electricity-generation demand, the state's pipelines filled up quickly.
Normally, other suppliers would redirect gas to places where the price was
highest, and the situation would work itself out. But capacity is so limited
that producers simply can't get more gas to California.
In its complicated contractual agreements involving a handful of gas
marketers, Anadarko was able to realize big gains, in essence agreeing to
transport other producers' gas into California. Anadarko's contracts lay out
fixed rates for slots in the pipelines, but the company can pocket gains if
market rates for the transportation rise above the fixed rates. Anadarko
booked the fourth-quarter gain by valuing its contracts at current market
prices, called marking to market.
The contracts stretch out over several years and with rates still volatile,
Anadarko could book more profit should the market price of the contracts
continue to soar. Mr. Larson says the contracts could add $10 million to $20
million to the company's bottom line in the current quarter, though their
value could just as easily fall, resulting in a charge.
Meanwhile, Occidental, based in Los Angeles, produces and markets a little
more than 300 million cubic feet of natural gas a day in California. The
higher prices that gas is currently fetching there is likely to show up on
its bottom line this quarter.
Occidental's Elk Hills field is producing at about 10% above its stated
capacity, says John Allen, general manager for the operation, about 15 miles
west of Bakersfield in south-central California.
In other commodity markets:
COCOA: Prices on the Coffee, Sugar & Cocoa Exchange established a new peak
for their seven-week old run-up, on persistent concerns over nearby supply
availability. After conquering the Jan. 29 high of $1,084 a ton, the
most-active May contract established a new 181/2-month high of $1,097. It
settled at $1,095 a ton, up $21.
GOLD: Prices fell on the Comex division of the New York Mercantile Exchange
after news that two large producers will boost their forward sales, traders
said. The April contract dropped $2 to $265.40 a troy ounce.
Enza Tedesco contributed to this article.

California's Power Crisis May Slow Asia Deregulation (Update2)

     (Adds comment from government in paragraph seven that sale of
Korea Electric Power Corp. will go ahead on schedule.)

Sydney, Feb. 7 (Bloomberg) -- Asian officials are backing
away from deregulating their electricity industries after bungled
reforms in California caused power blackouts and pushed the
state's two biggest utilities to the brink of bankruptcy.

Companies and consumers will have a longer wait for cheaper
power as governments from Korea and Japan to Taiwan and Malaysia
delay plans to break up or deregulate monopoly electricity
companies.

Korea is reviewing plans to separate state-controlled Korea
Electric Power Corp.'s coal and gas-fired power plants into five
companies. The break up is scheduled for April.

``Stable supply is our first priority,'' Shin Kook Hwan,
Korea's commerce, industry and energy minister said last week.
``That's more important than leaving electricity supply in the
hands of market rules, especially in light of California's power
crisis.''

Malaysia's biggest utility, Tenaga Nasional Bhd., last month
asked the government to halt the opening of the power industry,
while Australian companies are complaining their country's system,
similar to that of California, needs an overhaul.

Asian governments are ``going to pause and take a deep breath
before they dive into the next phase of deregulation,'' said Rob
Booth, managing director of Bardak Group, an Australian energy
consultancy.

While Korea is looking at the implications of the California
power crisis, the government said this will not delay the sale of
its stake in Korea Electric Power Corp. starting 2002. The
government has 52.2 percent of Kepco, which will be sold off in
stages.

                            LA to KL

California's legislature last week voted to issue as much as
$10 billion in bonds to help rescue PG&E Corp.'s Pacific Gas &
Electric and Edison International's Southern California Edison,
which ran out of money as the price they paid for power rose eight-
fold in less than a year.

PG&E and Edison have run up more than $11.5 billion in debt
from buying power.

Price-cutting was the goal in California, but it all went
wrong. PG&E and Edison piled up debt because California's 1996
electricity deregulation law set no limits on the price they pay
for power, but capped the rates they can bill consumers.

Producers and distributors of power were supposed to match
their needs through a central ``pool'' where the price was set
depending on supply and demand. As demand rose and environmental
restrictions discouraged building of new power stations, supplies
tightened and generators pushed the price above the rate the
utilities could charge customers.

Power outages in California show the power pooling system
hasn't benefited customers, said Fuad Jaafar, chief executive of
Tenaga, which is two-thirds government owned and the biggest
Southeast Asian power utility by sales.

                         Power Down

It's in Australia, though, that the biggest parallels to
California are being drawn.

Australia is the only country in Asia which has split up and
deregulated its power industry, and is one of only four places in
the world which chose to use the ``pool'' price-setting mechanism,
invented in the U.K., which has failed in California.

``Australia is the last place in the world still trying to
get one of these U.K.-style markets to work,'' said Booth.

All the others -- California, the U.K., and Alberta province
in Canada -- are abandoning the system because it gives
electricity generators too much power to manipulate prices to
boost their profits, said Booth.

Bob Lim, an adviser to the Energy Markets Reform Forum, said
its members, large industrial power users in southeastern
Australia, don't want to be named because they're negotiating
power supply agreements, and finding it difficult to agree
``reasonable'' prices.

``That's an early symptom of what's happening,'' said Lim.

``There is a lot of nervousness about the market because of the
fundamentally flawed trading system.''

While there is concern about pool trading, analysts say
Australia's system is more resilient because unlike in California,
energy retailers have been able to use forward purchases and other
agreements to fix prices for much of their future power needs.

Meantime, a number of companies are benefiting from higher
power prices.

Origin Energy Ltd., a gas retailer and distributor, is the
best pick among Australian-listed companies which own generating
plants, said J.B. Were utilities analyst Gavin Rogers in a report.

``It owns peak power generation plants, has no current
exposure to electricity retailing and controls near-to-market gas
reserves, hedging it from any future input cost increases,''
Rogers said.

Most Australian generating plants are either state-owned, or
controlled by overseas companies.

Edison International owns Loy Yang B power station in
Victoria state, while NRG Energy Inc. of the U.S. has a one-
quarter stake in the adjacent A$4.7 billion Loy Yang A station.

Other foreign investors include AES Corp. of the U.S., U.K.-
based International Power Plc and Powergen Plc, and CLP Holdings
Ltd. of Hong Kong.

                         Elsewhere

In Japan, deregulation poses a different problem. Increased
competition could leave generators with too much capacity,
discouraging the construction of new, cleaner and more efficient
power stations.

Japanese electricity producers such as Tokyo Electric Power
Co., the largest, will face a tougher market, said Yoshinori Moda,
a utility analyst at Nikko Salomon Smith Barney in Tokyo.

``Electricity companies will likely lose after deregulation
because they don't have an alternative other than reducing prices
or losing customers,'' he said.

Japan's government on March 21 last year opened 30 percent of
the power market to competition, allowing non-utilities to retail
electricity directly to factories and other big users.

Deregulation has forced Tokyo Electric, or Tepco, and other
power utilities to reduce charges and cut costs to deter potential
market entrants.

Tepco's rate cuts in October last year will reduce the
company's sales by 130 billion yen during the six months to March,
the company said in November.

Some parts of the world, such as Scandinavia and several
northeastern U.S. states, have succeeded in deregulation by
allowing generators and their customers to agree power sale
contracts outside the pool, said Booth. That's the way the U.K.
and California are going as well, he said.

But he warned that usually there are too few power generators
in an individual market to create sufficient competition that
would allow regulators to relax.

``Even with conventional trading systems of the type that
have been successful, you still have to have enough competition to
keep people honest,'' said Booth.

--Stephen Wisenthal in Brisbane (617) 3857-3026, or at
swisenthal@bloomberg.net, Miho Yoshizaki in Tokyo, Renee Kim in
Seoul and Jane Lee in Kuala Lumpur, through the Singapore newsroom
/am/pl

My Kingdom for A Building Permit

Rise above all the finger-pointing, the shouting, the machinations in the
dark*and many Californians agree: The state desperately needs to build new
power plants. Over the last decade the population has climbed 14% to 34
million. The peak demand for electricity (on a hot day in July) has climbed
19% to 53,000 megawatts. The number of big power plants built in the state
since 1990: zero.

Who's to blame? Even though they've driven out industry, environmentalists
are now crying, Don't look at us*we'd love to see some new plants built,
since they could replace some older, dirtier ones. Says Richard Ferguson,
head of the Sierra Club's California Energy Committee, "We need new
generation, and the old plants are hogging our air space."

The bureaucrats haven't helped. While the California Energy Commission has
recently green-lighted ten new plants, it will be years before they come on
line. Applications take an achingly slow 12 months to work their way through
the permit process, compared with 90 days in Texas. (Texas has built nine
large power plants since 1990.) In California as many as 17 assessments*from
historical significance to
impact on fish and wildlife*can require changes to the blueprints.
Result: Ancillary costs to developers in California run as high as $30
million for one project, compared with $1 million in Texas.

The utilities deserve some blame for bad forecasting*and for the financial
ruin that is being visited upon them, says Peter Huber in his column (see The
Kilowatt Casino). They agreed to buy electricity at spot prices and to sell
at fixed retail prices, figuring they could clean up on the easy spread
between the two prices. For several years they did make some nice money this
way. Wholesale prices got as low as 3 cents a kilowatt-hour, while the retail
rate was close to 10 cents. Then the wholesale price spiked last summer to 86
cents. The two biggest California utilities, PG&E and Edison International,
lost $11.1 billion between them since last summer and have wrecked their
credit ratings. Potential builders of generating stations don't want to sell
to such shaky customers.

Blame politicians, too, for preventing plant construction. In October
Governor Gray Davis put a ceiling on wholesale rates at 25 cents a
kilowatt-hour, but in December he made it a "soft cap," allowing wholesalers
to sell above that, if they could provide the state with a reason for
charging more. Still, it had a chilling effect. Right after the governor's
move, Calpine, a wholesale generator, yanked six of seven applications to
build so-called peaker plants. These are tiny, 50-megawatt-or-less dynamos
that operate only 30 to 45 days a year, when demand peaks and electricity
should command a premium price. Twenty-five cents does not go very far in
this kind of plant. With the spot price of natural gas at $10 delivered, the
fuel for a kilowatt-hour runs about a dime. Now figure in construction costs
($25 million for 50 megawatts) that have to be amortized over a relatively
small number of kilowatt-hours and you have a formula for losses if the plant
is in a state where the governor wants to put "profiteers" in jail.

Next on our list of plant-stoppers: the neighbors. Sunlaw's proposal to build
a 550-megawatt, $350 million plant in southeast Los Angeles county hasn't hit
any snags with the CEC or the South Coast Air Quality Management District.
Indeed, the plant would produce less toxic waste than the steady stream of
diesel trucks at the industrial warehouse now at the site. Yet residents of
the mostly blue-collar Hispanic neighborhood are crying environmental racism
and will put the plant up to a vote in March. "There is nothing that a local
community cannot defeat," says Michael Zenker, a director for Cambridge
Energy Research Associates. The CEC can overrule local jurisdiction, but
tries to avoid that whenever possible-it has acted only twice in the last 20
years.

Will the commission now flex its muscles? Maybe not, if that means stepping
on some big toes. Keep an eye on Calpine's plan to build a 600-megawatt plant
in Silicon Valley, where demand has shot up 33% since 1996. The powerful
opponent: Cisco Systems, which is building a 20,000-employee campus nearby.
It fears the plant's proximity will threaten the health of its employees.
Cisco has not, however, volunteered to light its headquarters with candles.