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ENRON PLANT HEARING PLANNED FOR TONIGHT
South Florida Sun-Sentinel, 05/03/01 Would buying boycott help lower California's electricity bill? Associated Press Newswires, 05/03/01 INDIA: Indian banks appeal to govt to help end Enron row Reuters, 05/03/01 DNC: Special Interests Write Bush Energy Policy PR Newswire, 05/03/01 UK: INTERVIEW-Innogy starts trading power in mainland Europe Reuters, 05/03/01 Mosaic Group posts strong first quarter results Canada NewsWire, 05/03/01 European Phone Companies' Outlook Brightens: Rates of Return Bloomberg, 05/03/01 UK:Corporates warm to charms of credit derivatives Reuters, 05/03/01 Allegheny Energy buys three power plants Associated Press, 05/03/01 Allegheny Energy Buys Midwest Capacity From Enron Unit Dow Jones, 05/03/01 Allegheny Energy Supply Completes Purchase of Midwest Assets; Adds 1,700 MW to Growing Generation Fleet Business Wire, 05/03/01 SSB Cuts Forecast For Power Profitability In 2002, Beyond Dow Jones, 05/03/01 Fitch Affs Northern Border; Rtg Outlook To Stable From Negative Business Wire, 05/03/01 INDIA: UPDATE 1-Enron to meet govt panel over Indian project Reuters, 05/03/01 India State Panel's Sat Meet With Enron Unit Postponed Dow Jones, 05/03/01 EnergieKontor Secures Enron Deal For Spain, Germany Projs Dow Jones, 05/03/01 The Bottom Line: Scottish Power Looks To Refine Focus Dow Jones, 05/03/01 LOCAL ENRON PLANT HEARING PLANNED FOR TONIGHT Staff Reports 05/03/2001 South Florida Sun-Sentinel Broward Metro 3B (Copyright 2001 by the Sun-Sentinel) Pompano Beach A town meeting will be held tonight on Enron Corp.'s power plant proposal for Pompano Beach. Called by Commissioner Kay McGinn, the meeting will be open to anyone who wants to speak. The City Commission is to vote Tuesday on whether to approve a zoning variance for the project. The meeting will be held at 7 p.m. at the Pompano Beach Civic Center, 1801 NE 6th St. Would buying boycott help lower California's electricity bill? By MICHAEL LIEDTKE AP Business Writer 05/03/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SAN FRANCISCO (AP) - There's a limit to how much people will pay for most things in life. If the cost scares off enough buyers, prices eventually fall. So what would happen if this textbook example from Economics 101 were applied to California's electricity crisis? What if the state officials struggling to maintain energy supplies simply refused to buy power above a certain price and accepted more blackouts this summer? The question would have been absurd just a few months ago and even now the notion seems surreal, given the possible consequences. Inviting even more blackouts inevitably would hurt businesses and frustrate consumers, threatening to further depress California's already slumping economy - the sixth largest in the world. But desperate times require drastic measures, according to the economists, lawmakers and activists who believe the state will be better off sitting in the dark than buying electricity at any price during a summer shortage likely to produce recurring blackouts anyway. "It's better to use (blackouts) and break the (wholesale energy) cartel than simply to suffer them," said Michael Shames, executive director of the Utility Consumer Action Network, a San Diego watchdog group. Refusing to buy enough power to keep the lights on "would be like playing with fire," counters Wells Fargo & Co. chief economist Sung Won Sohn. "Blackouts aren't a just matter of inconvenience or being too hot or cold. They cost businesses a lot of money." Buying electricity at the last minute to meet the state's power needs already has cost the California government $5.7 billion in the past 3 1/2 months. The state energy bill for 2001 could reach $50 billion, in money otherwise spent on education, public safety and health care, Shames said. Faced with the prospect of a significant budget deficit, some lawmakers think it's time for California to take a stand against the power wholesalers - many of whom are based outside the state. This Tuesday, the state Senate Energy Committee will consider authorizing the state to refuse to buy power above certain prices. Current law requires state electricity managers to avoid blackouts by buying all available power at any cost. "We have been over a barrel in so many ways," said Sen. Dede Alpert, D-Coronado, who sponsored SB73x. "Maybe there's a point in the market where (we) just say no and go with the planned blackout strategy instead." Economists give the bill little chance of succeeding. "It's never going to happen. It's not a viable option," said University of California at Berkeley Professor Severin Borenstein, one of the energy experts who have studied the idea. The business lost during blackouts would mean more layoffs in a state already skittish over the technology downturn and the looming Hollywood writers strike, economists say. Other ripple effects include diminished gasoline supplies, leading to even higher prices at the pump, and distribution headaches that could leave store shelves bare. And some consumers - the elderly and the infirm, for example, need power at any price. Without electricity, Manteca resident Betty Jarzemkoski said she wouldn't be able to help her ailing husband to get out of his motorized bed at home. "It would be a real hardship for us," said Jarzemkoski, 78. "I'm on a fixed income so I hope they can figure out something to bring down prices. But we need power." Despite such concerns, the concept of a buyer's boycott hasn't been flatly ruled out - at least publicly - by Gov. Gray Davis as he struggles to reduce the state's staggering electricity bill. The state is spending as much as $90 million per day to meet California's electricity needs and the bleeding is sure to get worse. When the summer heat increases demand and tightens supplies, California might spend more than $1 billion each week, state officials estimate. Extended blackouts pose an even greater cost, economists say. When Northern California suffered rolling blackouts for several hours Jan. 18-19, the economic losses totaled $2.3 billion, mostly from lost profits and wages, estimated the Los Angeles Economic Development Corp. Multiply that over several weeks across the entire state, and it becomes apparent why it makes more sense for California to continue buying power at inflated prices, even if leaves the state with deep debts and a ruined credit rating, economists argue. As it is, California probably won't be able to round up enough power at any price on some days this summer, making some blackouts a virtual certainty. The blackouts will reduce the state's economic output by $2 billion to $16 billion, according to a study released last month by the Bay Area Economic Forum. The resolve of the state's politicians and ratepayers would be sorely tested for a boycott to succeed, much in the way that labor strikes boil down to whether workers or management can withstand more financial pain. "Politicians aren't going to willingly turn out the lights because politicians want to get re-elected," said Borenstein, director of the University of California's energy institute. "As soon as people start losing their jobs because the power is off, the public will get tired of the blackouts real quick." Still, Californians might tolerate an increase in blackouts if they understand why the state chose to pursue such a drastic course, said Stanford economics Professor Frank Wolak, who heads the Independent System Operator's market surveillance committee. "This isn't something you could do without an enormous public relations campaign," he said. "The campaign would have to explain that the state had no other choice but to do this because (federal power regulators) aren't doing their job and enforcing the law against unjust and unreasonable prices." The largest out-of-state generators are in such robust financial shape that it might take weeks before they would feel such pain from a California boycott that they would be forced to lower prices. After making record profits last year, power wholesalers Enron, Reliant, Dynegy, Duke Energy, Williams and Mirant and earned a combined $1.6 billion during the first three months of this year. --- On The Net: Bay Area Economic Forum report: http://www.bayareacouncil.org/ppi/enp/enp-mid.html Electric Power Research Institute: http://www.epri.com Utility Consumers' Action Network Report: http://www.ucan.org/cartelrep2.htm INDIA: Indian banks appeal to govt to help end Enron row 05/03/2001 Reuters English News Service (C) Reuters Limited 2001. BOMBAY, May 3 (Reuters) - Indian lenders to U.S. energy group Enron Corp's gas-fired power plant south of Bombay have appealed to the Indian government to help end the company's row with a state-owned electricity board over pricing and upaid bills. The board of Enron's Indian unit, Dabhol Power Co (DPC) has authorised management to stop selling power to the Maharashtra State Electricity Board (MSEB) if a bitter dispute over pricing and unpaid bills cannot be resolved. In the past half year the MSEB has defaulted on bills for electricity supplied by Dabhol, which operates the world's largest gas-fired plant on the west coast of India, 160 kilometres (100 miles) south of Bombay. Indian financial institutions, which contributed $1.4 billion towards the project in loans, are pressing the government to help end the crisis, a source told Reuters. "We have asked the government for help. We are awaiting their reply," the source, who is employed with a large financial institution, said. The domestic lenders to the project are Industrial Development Bank of India , ICICI Ltd , Industrial Finance Corporation of India , Canara Bank and State Bank of India . The Dabhol Power Company (DPC), owned 65 percent by Enron, last month took the major step of bailing out of the $2.9 billion power project, citing non-payment of bills by the Maharashtra State Electricity Board (MSEB). The DPC board's move sparked widespread fears that India's image as a safe destination for foreign direct investment would be damaged. POWER STRUGGLE MSEB, which is a state-owned utility, has been a regular defaulter on payments to DPC saying that it finds the power too costly. It has also backed out on its commitment to buy more power to be produced by the project's second phase which is to begin operations later this year. Last month MSEB said it had paid Dabhol Power 1.34 billion rupees ($28.60 million) for electricity it bought in March. But the payment only partially resolves the total overdue amount of 2.26 billion rupees ($48.2 million), which Enron has been unable to collect even after invoking guarantees issued by the government of Maharashtra, India's most industrialised state, and the federal government. The state utility still owes Enron payments for power purchases in December and January. The Indian government has maintained that the contract must be renegotiated and has set up a committee to do so. "We are concerned and would like the renegotiations to happen fast," the source added. The dispute has raised fears that Enron could pull the plug on the project, cease providing power to the local state electricity board and perhaps even sell the plant. "The plant is good, Maharashtra needs power and I am sure buyers can be found," the source added. ($1=46.82 Indian rupees). DNC: Special Interests Write Bush Energy Policy 05/03/2001 PR Newswire (Copyright © 2001, PR Newswire) WASHINGTON, May 3 /PRNewswire/ -- The Democratic National Committee issued the following today: Dick Cheney began dropping hints this week as to what the Bush energy policy will look like, and it is long on oil and short on conservation. But something was missing from the coverage of Cheney's announcement: not just who benefits from the Bush plan, but who's writing it as well. (Photo: http://www.newscom.com/cgi-bin/prnh/20000107/DCF015 ) It's hard to understate the influence big donors and high-ranking executives have with the Bush Administration. Take Tom Kuhn, for example, one of the energy executives who came calling when Bush was thinking about actually following through on his pledge to limit carbon dioxide levels. Kuhn, a top Bush fundraiser, also served on Bush's Energy Department transition advisory team, and still enjoys access to the highest reaches of the Bush White House. Not surprisingly then, the Big Oil Bush Administration's energy policy could not make Bush's huge donors and the special interests in the energy business any happier. Since the energy industry's problems are Bush's problems, the first things on Bush's hit list are the environmental regulations that keep Big Energy in check -- and our country clean. With an energy executive running around the West Wing, Bush's energy policy could be summed up as, "Drill anywhere, anytime, and keep those checks coming." The Democratic Party is committed to fighting for a balanced energy policy that keeps our country's priorities -- such as a clean environment -- in mind. To learn more about Bush's misplaced priorities and kowtows to the special interests, keep reading to find out the "Top Ten Paybacks To The Energy Industry," and to see how you, too, can get on the Bush gravy train in "Recipe for a Quid Pro Quo," courtesy of the Democratic Party's http://www.100DaysofBush.com. BUSH'S TOP TEN PAYBACKS TO THE ENERGY INDUSTRY One of the most obvious and recurring themes of Bush's first 100 days has been the extraordinary influence the oil and gas industry has had in the new administration. Oil and gas interests are some of Bush's top campaign contributors, giving more than $3 million to get Bush elected. In exchange, Bush has rolled back regulations issued by the Clinton administration on such things as air conditioner efficiency, as well as breaking his campaign promise to regulate carbon dioxide emissions. Bush has proposed drilling in the Arctic National Wildlife Refuge and national monuments. Bush has taken a backseat when it comes to the energy crisis California is experiencing, while cutting funding for energy conservation programs. He has also repaid top donors, lobbyists and industry officials with key positions throughout his administration. Here is just a sampling of how the oil, gas and other energy industries have benefited in Bush's first 100 days: 2 - BUSH TAKES HANDS-OFF APPROACH TO CALIFORNIA CRISIS WHILE ENERGY COMPANIES MAKE MILLIONS Bush Did Little to Aid California in Energy Crisis; Fleischer Said Crisis is a "California Matter." Bush has done little to aid California in its energy crisis, such as refusing to support wholesale price caps on electricity. White House spokesman Ari Fleischer said, "The president continues to believe that the issue is mostly a California matter, dealing with the legislation that is before the state. And the leaders of California are working to address that in their own right." Fleischer also said that Bush wanted to focus on a "long term" national energy policy. (AAP Newsfeed, 1/23/01; Wall Street Journal, 1/23/01) Texas Energy Company Accused of Price Gouging to Make Money off California's Energy Crisis. The Federal Energy Regulatory Commission ordered further inquiry into allegations by California officials that El Paso Natural Gas Co., a Houston based subsidiary of El Paso Energy Co., manipulated the natural gas market by keeping supply artificially low, contributing to the high price of electricity in the state. El Paso Energy was one of the Texas firms "grandfathered" by Bush's voluntary emissions standards in Texas. Between 1993 and 1998, El Paso Energy and El Paso Natural Gas PACs gave a total of $8,000 to Bush's gubernatorial campaigns. During the 1999-2000 election cycle, El Paso Energy Corp. and El Paso Natural Gas Co. gave a total of $743,029 to Bush and the GOP -- $460,395 to GOP in soft money, $247,750 to GOP candidates from its PAC, and $34,884 to the Bush campaign from its employees and executives. (www.opensecrets.org; Los Angeles Times, 3/30/01; tebb.epenergy.com; Boston Globe, 10/3/99) Electricity Wholesalers Reported "Gigantic Earnings Surges" from Energy Crisis. According to the Los Angeles Times, several electricity wholesalers to California reported "gigantic earnings surges" for the quarter ended March 31. The following companies, all contributors to Bush, have earned record profits off of the energy crisis in California. (Los Angeles Times, 4/18/01) COMPANY TOTAL TO BUSH COMPANY PROFIT Enron Corp. Enron is Bush's largest Enron's operating income was career patron, giving at $406 million in the first least $563,000 for his quarter of 2001, compared campaigns, including his with $338 million in the 1978 House campaign. same period last year, a 20% (San Diego Union-Tribune, increase.(Los Angeles Times, 2/11/01) 4/18/01) 6 - BUSH'S TRANSITION TEAMS Energy Interests Dominated Bush Transition Energy Advisory Team. Big energy and oil firms dominated the Bush transition's Energy Advisory Team, having contributed $857,232 to the Republican Party and Bush during the campaign. (Center for Responsive Politics, www.crp.org) Almost Two-Thirds of Bush's Energy Transition Team Worked for Energy Industry. Out of the 48 members of the Bush Energy Department transition team, 31, or almost two-thirds, worked for the energy industry: NAME EMPLOYER Brian Bennett Southern California Edison Robert Card Kaiser Hill Steve Chancellor Black Beauty Coal Company Joe Colvin Nuclear Energy Institute Don Duncan Phillips Petroleum Company Tom Farrell Dominion Energy Gay Friedman Interstate Natural Gas Association of America Jack Gerrard National Mining Association J. Roger Hirl Occidental Chemical Corporation Hunter Hunt Hunt Power, L.P. Jerry Jordan Independent Petroleum Association of America Buddy Kleemeier Kaiser Francis Oil Company Tom Kuhn Edison Electric Institute Ken Lay Enron Albee Modiano U.S. Oil and Gas Association David N. Parker American Gas Association C.J. "Pete" Silas Phillips Petroleum Company Gary Ellsworth USEC, Inc. Buck Harless International Industries Stephanie Kroger Mayor, Day, Caldwell & Keeton (lobbies for companies in oil and gas industries; www.mdck.com) Joe Farley Balch & Bingham (lobbying firm which focuses on managing and operating utilities of all kind; www.balch.com) Bill Martin Washington Policy and Analysis (lobbying firm which represents American Gas Association; www.influenceonline.net) The Honorable Howard Baker Baker, Donelson, Bearman, Caldwell (lobbying firm dealing with energy industry; www.bakerdonelson.com) Erle Nye TXU Electric and Gas Corporation Gregg Renkes The Renkes Group (lobbies for members of industry, including Edison Electric Institute; www.influenceonline.net) Dick Silverman S.R.P. Matt Simmons Simmons & Co. International John Tuck Baker, Donelson, Bearman, Caldwell (lobbying firm dealing with energy industry; www.bakerdonelson.com) Daniel Yergin Cambridge Energy Research Associates The Honorable Thomas C. Merritt Merritt Tool Company, Inc. (Oilfield Service Business; Inside F.E.R.C.'s Gas Market Report, 5/5/95) John Wootten Peabody Group Coal Executive, Irl Engelhardt was an Energy Advisor to the Bush-Cheney Transition, gave $100,000 to Inaugural Fund. Irl Engelhardt of Peabody Group, Inc. served as an energy advisor on the Bush-Cheney transition. During 1999- 2000 the Peabody Group gave $250,000 to the Republican National Committee, and Irl Englehardt personally gave $100,000 to the Bush-Cheney Inaugural fund. (Washington Post, 3/25/01; www.crp.org) /CONTACT: Jenny Backus of the Democratic National Committee, 202-863-8148/ 11:47 EDT UK: INTERVIEW-Innogy starts trading power in mainland Europe By Stuart Penson 05/03/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, May 3 (Reuters) - British utility Innogy said on Thursday it had started trading wholesale electricity on the French-Italian border and was set to enter the German power market. "We have done some wholesale trading on the Italy-France border, moving power from France to Italy, and we are very close to doing some in Germany," said director of trading Tony West in an interview with Reuters. "This year we will significantly increase our trading in (mainland) Europe; we are discussing relationships with counterparties at the moment," he added. Innogy is building a European power trading team at its headquarters in Swindon, southern England, from where it already trades the UK gas and power markets. FRANCE COULD BE KEY MARKET West said the company initially had expected the main focus of its European trading strategy to be Germany and the north west of the continent. But the early signs were that France would also play a key role, particularly as Innogy had gained access to capacity in the UK-France undersea interconnector cable. "France has taken me by surprise. It might be more important than we anticipated although there are clearly still issues about the speed of liberalisation," said West. A core of about eight companies regularly trade power in France, including TXU Europe, Enron and a trading alliance between Endesa and Morgan Stanley Dean Witter, according to traders. West said Innogy had so far concentrated on buying power in France, not always from French companies, and taking it to Italy via the cross border interconnector between the two countries. Innogy had bought some of the 400-megawatts available on the interconnector through recent auctions, he said. "It's easy to trade through France, the cost of taking power through to the border is minuscule, although buying power in France and then selling it in France is a lot more difficult," said West. He said Innogy had signed grid balancing agreements with French transmission grid operator RTE. Andy Duff, managing director of generation and trading, added France could become become important for Innogy on a retail level, as well as a trading level, depending on how effectively the UK-France interconnector could be used. "The European market will be driven by the operation of interconnectors and transmission services as well as exchanges," said Duff. Innogy may look to trade on Germany's two power exchanges as well as that country's burgeoning over-the-counter market. The company is in the process of signing standard trading agreements for Germany based on the terms devised by the industry group the European Federation of Energy Traders (EFET). FOCUS ON TRADING, NOT ASSETS Duff said Innogy's strategy in Europe was to focus on trading but not the acquisition of physical assets. "We are not going to lead with assets in Europe. We will focus on trading services-type arrangements, extracting value from (other companies') assets. That's the main thrust of the business," he said. West said Innogy's trading in mainland Europe would expand into natural gas as opportunities emerged. The company already trades around the UK-Belgium gas interconnector. Mosaic Group posts strong first quarter results 05/03/2001 Canada NewsWire (Copyright Canada NewsWire 2001) -- Diluted Cash Earnings per Share Increases by 29% and Revenues up by 89% -- TORONTO, May 3 /CNW/ - Mosaic Group Inc. (MGX:TSE), Canada's leading outsourced marketing services agency, announced today that it continued its trend of strong earnings growth for the period ending March 31, 2001. Posting its 18th consecutive quarter of year over year revenue growth, Mosaic has also reported an average quarterly organic growth rate of 27% since 1996. Financial highlights from continuing operations(x) for this quarter include: - Revenues at $171.8 million - up 89% or $80.7 million from Q1 2000. "Mosaic has consistently outpaced the growth of its peers within an industry that is clearly expanding," said Mike Preston, Chairman and CEO Mosaic Group Inc. "We have posted 18 consecutive quarters of continued growth while adding to our blue chip client list. We are building our business by taking our clients' business farther every time we deal with them. Our organic growth comes not only from securing new client wins, but from the cross-selling wins that are characteristic of a mature company able to leverage a robust and diverse range of service offerings." New Client Wins In the first quarter of 2001, Mosaic's newly acquired business unit Paradigm, has secured new client business worth between $20 million and $25 million a year in revenue. Combined with new client wins from Mosaic's other business units, and increases in spending from some existing clients, Mosaic has made significant progress in closing its new business gap for 2001. New Power --------- During the first quarter of 2001, Paradigm signed a contract with New Power to acquire residential and commercial customers through a variety of direct response channels such as outbound telemarketing, inbound telemarketing, direct mail and "feet on the street". New Power was formed by Enron Corp., the largest buyer and seller of electricity and natural gas in North America. Paradigm had previously provided contract marketing services to New Power. Through diligent effort, Paradigm was able to expand the contract to include the performance-based customer acquisition component. /For further information: Please Contact: Clint Becker, Chief Financial Officer, Mosaic Group Inc., (416) 813-4275, email: beckerc(at)mosaicgroupinc.com; Donna Cox-Davies, Director of Communications, Mosaic Group Inc., (416) 813-4279, Email: cox-daviesd(at)mosaicgroupinc.com/ 16:10 ET European Phone Companies' Outlook Brightens: Rates of Return 2001-05-03 08:52 (New York) European Phone Companies' Outlook Brightens: Rates of Return London, May 3 (Bloomberg) -- European telephone companies such as British Telecommunications Plc and Deutsche Telekom AG have improved their ability to pay back debt in recent weeks, making their bonds a buy, investors said. ``Sentiment seems to be changing,'' said Anna Lees-Jones, who helps manage about 28 billion pounds ($40 billion) of corporate bonds at M&G Investment Management. ``I've been building up my telecoms position all year.'' British Telecom's 10-year euro-denominated bonds sold in January yield about 214 basis points more than government debt, down from a record 238 in March. Contracts that pay out if the company goes bankrupt have also fallen in the past month, according to Enron Corp., which trades the derivatives. Bond yields and bankruptcy derivatives have also declined for Deutsche Telekom and Royal KPN NV, after the companies said they would sell assets to pay down debt that has pushed their credit ratings to record lows and weighed on their shares. Phone companies sold $100 billion of bonds last year to finance licenses and equipment for new mobile services. British Telecom said yesterday it will sell its stakes in Japan Telecom Co. and Spain's Airtel SA to Vodafone Group for 4.8 billion pounds. British Telecom may also sell as much as 7.5 billion pounds of shares to existing investors in a so-called rights offer, according to Legal & General Group Plc, one of the company's shareholders. Deutsche Telekom will sell assets such as cable television, and a stake in Global One and Wind SpA, Chief Financial Officer Karl-Gerhard Eick said last week. KPN, the biggest Dutch phone company, said on March 26 it plans to raise at least 5 billion euros from asset sales to lower debt. Those plans have helped shift investors' perceptions of the companies' creditworthiness, money managers said. `Drastic Measures' ``At the beginning of the year the market was assuming telecoms companies would be downgraded from single-A to triple- B,'' said Peter Harvey, who helps run about $8.6 billion at F&C Management. ``Drastic measures such as deeply-discounted rights issues led investors to believe they will maintain their single-A status.'' The gap, or spread, between British Telecom's sterling denominated bonds maturing in 2006, and U.K. five-year government bonds has narrowed 50 basis points to 109 basis points in the past month. Spreads between Deutsche Telekom's 6.125 percent five- year euro bonds and German government debt narrowed 35 basis points to 107 in April. Bankruptcy Swaps Fall Those shifts in sentiment are also reflected in Enron's bankruptcy swaps, where prices have fallen in the past month, said Simon Brooks, a trader at Enron. Enron prices the swaps using indexes that measure the probability of bankruptcy and the likely recovery rate in that event. The price is expressed as a percentage above a benchmark interest rate such as the London interbank offered rate, or Libor. British Telecom bankruptcy swaps have declined to 66 basis points from 96 on April 1, Enron said. Bankruptcy swaps on Deutsche Telekom dropped to 78 from 100, while KPN's fell to 135 from 183. Over the same period, France Telecom SA's declined to 70 from 100 and Telecom Italia SpA's fell to 94 from 119. British Telecom's bond yields may fall further relative to government debt, analysts said. They still offer higher yields than those of rival Vodafone Group Plc, which has the same ratings though with a stable outlook. While both companies have five-year euro-denominated bonds, British Telecom's offer 55 basis points more yield. The rivals also both have bonds maturing in 2004, and Vodafone's yield about 23 basis points fewer. ``If BT retains their rating, their spreads should be probably 20 to 30 basis points narrower,'' said Brian Venables, head of credit strategy at WestLB. ``Even though it has performed extremely well this year, there is much greater potential for BT's debt.'' Debt Reduction Target Both Moody's Investors Service, which rates British Telecom ``A2'', and Standard & Poor's, which rates it ``A'', have those ratings on watch for further cuts after trimming them four rungs last year. The company's asset sales to Vodafone are ``definitely positive in terms of the rating assessment,'' said Aidan Fisher, who rates British Telecom for Moody's. In combination with the proceeds of a rights sale, ``that would meet the target they set themselves this year -- that's quite a lot to achieve in a 12 month period.'' British Telecom has said it wants to slash its 30 billion pounds of debt by a third and fend off further rating cuts. Before companies such as British Telecom clarified their debt-reduction plans, ``the world and his wife were underweight'' telecom bonds in March, said Harvey at F&C. The investment firm has since raised its holding of telecom bonds to neutral, from underweight, relative to its benchmark, he said. Bond yields ``were trading very much out of line to the rest of the market,'' said Lees-Jones at M&G. Now, ``they have come in quite a bit and will come in further.'' --Tom Kohn and Alice James in the London newsroom (44-20) 7330 7929 or at tkohn@bloomberg.net, with reporting by Christine Harper /zls Story illustration: {CRED <GO<} to see credit analysis on Bloomberg. {BRITEL <Corp< <GO<} for BT's bonds. {DT <Corp< <GO<} for Deutsche Telekom's bonds. UK:Corporates warm to charms of credit derivatives By Tom Bergin 05/03/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, May 3 (Reuters) - European corporates are beginning to turn to credit derivatives, among the more esoteric and complex of financial instruments, to hedge the risk their debtors won't pay up, market participants said on Thursday. Credit derivatives are insurance-like tools that allow users to hedge the risk of default on a debt. They are mainly used by banks, hedge funds and insurance companies to hedge or gain exposure to the risk of a bond issuer defaulting. Dealers said an environment of deteriorating credit quality and a growing awareness among corporates that credit derivatives offer certain advantages over established hedging tools was behind the increasing use of the instruments. The market remains small, with only around a dozen non-financial European corporates regularly using credit derivatives to manage their credit portfolio at present. But market professionals predict they will one day become as commonplace in the corporate world as other hedging tools such as interest rate swaps and currency options. "We see (corporate use) as a big growth area for credit derivatives, maybe the biggest," says Bryan Seyfried, vice-president of Enron Credit in London. Enron Credit grew out of the efforts of energy company Enron Corp. to hedge its own credit risk portfolio and now specialises in marketing credit risk management solutions to other non-financial corporates. Ralf Lierow, director of credit derivatives at Siemens Financial Services in Munich, said the ability to buy and sell in a liquid market means credit derivatives offer a flexibility that established tools like credit insurance and forfaiting guarantees lack. Credit derivatives were are often cheaper than the alternatives, too, he added. "This is not a trading book thing. For us, the credit default swap is another tool for credit risk management," Lierow said. HELPS OPERATIONAL UNITS DO MORE BUSINESS Siemens Financial Services acts as the centralised risk portfolio management operation for companies within the Siemens electronics and industrial group. It first started using credit derivatives in July 2000. Large companies like Siemens can have hundreds of millions of dollars in receivables on their books at any time. The efficiency with which these companies manage the credit risk on their receivables has an impact on their day to day business. "The advantage for the operative area is that they can offload more receivables and do more business," Lierow said. Siemens uses credit default swaps, the most liquid type of credit derivatives, to hedge its portfolio of debtors on a constant basis. As the balance of cash owed by each name fluctuates over time, the company tries to match this with default swap positions. Hence, if a customer fails to pay, Siemens can recoup the debt from the default swap seller. Other companies use credit derivatives less frequently. "There are occasional corporate users that have secured one-off requirements for balance-sheet management aims or to strip out the credit risk of a commercial transaction," said Walter Gontarek, head of global credit products at RBC Dominion Securities. By hedging a country or company risk which a corporate may not be comfortable in carrying, a credit derivative can facilitate a project that may otherwise be unfeasible, dealers said. NOT PUT OFF BY BAD PRESS Corporates' adoption of credit derivatives is in spite of the negative publicity the instruments have received in recent years. A number of disputes over whether protection buyers could force banks to pay up on contracts have ended up in court. However, traders insist that subsequent work done on contract documentation minimises the risk of such disputes in future. Nonetheless a very practical concern for corporates remains, in that credit derivatives documentation was designed by bankers with sovereign and corporate bonds in mind. The International Swaps and Derivatives Association (ISDA) standard documentation for credit default swaps allows for a pay-out in relation to defaults on bond payments but not on a private debtor's failure to pay. "We use the ISDA framework but we need it redrafted in specific ways to fit our needs. You cannot take a standard contract and trade on it if you want to hedge trade receivables," Lierow said. These amendments add to the cost of the credit derivative. Another problem that corporates face is the complexity of credit derivatives. There is little experience of the instruments, which are barely a decade old, in the corporate world. Siemens had to get its expertise from the financial markets, hiring Lierow from Bankgesellschaft Berlin. Clive Banks, UK head of derivatives sales to buy-side clients at Schroder Salomon Smith Barney, said much of the effort in marketing credit derivatives to corporates involves educating them about the products and the risks involved. "It's about explaining credit risk management and what kind of volatility and cost having credit risk introduces," he said. OUTLOOK PROMISING Yet some corporates are beginning to take full advantage of their new tool. Lierow said that Siemens, which currently only buys credit protection, planned to start acting as a default swaps seller in the coming months. He said selling would facilitate better matching of protection levels to actual exposures, and would enable diversification of risk away from industry sectors where the company's activities are concentrated. "You could improve the portfolio mix by buying protection on automotives and selling protection on pharmaceuticals," he said. Allegheny Energy buys three power plants 05/03/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HAGERSTOWN, Md. (AP) - Allegheny Energy Inc. said Thursday it has purchased three power plants from Houston-based Enron Corp. The company said it issued more than 14 million shares of common stock worth $667 million to pay for the transaction. The plants are in Tennessee, Indiana and Illinois. The Midwestern purchase will bring an additional 1,710 megawatts on line. The company is expected to own 14,000 megawatts of generating power by 2005. Allegheny also has plans to build natural gas-fired facilities in Arizona, Indiana and Pennsylvania. Allegheny Energy is the parent of Allegheny Power, which supplies electricity and natural gas to 3 million people in Maryland, Ohio, Pennsylvania, Virginia and West Virginia. Allegheny Energy Buys Midwest Capacity From Enron Unit 05/03/2001 Dow Jones News Service (Copyright © 2001, Dow Jones & Company, Inc.) HAGRSTOWN, Md. -(Dow Jones)- Allegheny Energy Inc.'s (AYE) Allegheny Energy Supply Co. unit purchased 1,710 megawatts of natural gas-fired merchant generating capacity in three Midwest states from Enron Corp.'s (ENE) Enron North America unit. Financial terms weren't disclosed. In a press release Thursday, Allegheny said it financed the acquisition through debt and equity and expects the purchase to add to earnings in 2001, excluding transaction costs. Allegheny noted that this latest acquisition gives Allegheny Energy Supply more than 14,000 MW of total generating capacity that it will own or control by 2005. Allegheny Energy Global Markets will market output from the three facilities. On April 27, Allegheny priced its public offering of 12.4 million shares at $48.25 each, and said it would use the $598.3 million in gross proceeds to fund its previously reported acquisition of generating facilities located in the Midwest and for other corporate purposes. New York Stock Exchange-listed shares of Allegheny recently traded at $49.85, down 51 cents, or 1%, on composite volume of 306,000 shares. Average daily volume is 538,773 shares. Allegheny, which posted an operating net of $313.7 million, or $2.84 a share, on revenue of $4.01 billion for the year ended Dec. 31, is an energy company. Company Web site http://www.alleghenyenergy.com -Karen M. Chow; Dow Jones Newswires; 201-938-5400 Allegheny Energy Supply Completes Purchase of Midwest Assets; Adds 1,700 MW to Growing Generation Fleet 05/03/2001 Business Wire (Copyright © 2001, Business Wire) HAGERSTOWN, Md.--(BUSINESS WIRE)--May 3, 2001--Allegheny Energy, Inc. (NYSE: AYE) today announced that its unregulated generation subsidiary, Allegheny Energy Supply Company, LLC, has completed the purchase of 1,710 megawatts of natural gas-fired merchant generating capacity in three Midwest states from Enron North America, a wholly owned subsidiary of Enron Corp. (NYSE: ENE). The acquisition gives Allegheny Energy more than 14,000 MW of total generating capacity that it will own or control by 2005 and marks a significant step in the Company's strategic course toward becoming a national energy supplier. Earlier this year, Allegheny Energy Supply acquired 83 MW of coal-fired generation in the Conemaugh Generating Facility near Johnstown, Pa. Additionally, the Company has announced plans to build a 1,080-MW natural gas combined-cycle plant in La Paz County, Ariz.; a 630-MW natural gas combined-cycle facility near South Bend, Ind.; and a 540-MW natural gas fired combined-cycle generating facility in Springdale, Pa. Another 220 MW of peaking capacity have already been completed in Pennsylvania. The Midwest acquisition was financed through a combination of debt and equity and will be accretive to Allegheny Energy's earnings in 2001, excluding transaction costs and other costs related to the integration. Yesterday, the Company issued more than 14 million shares of common stock to facilitate the transaction. Alan J. Noia, Chairman of the Board, President, and Chief Executive Officer of Allegheny Energy, said, "I am pleased to announce the closing of Allegheny Energy's largest generation acquisition to date. It provides our Company with significant generation presence and capability as an energy merchant to sell electricity from efficient natural gas-fired generation facilities in more areas of the country with a growing demand for energy." Output from the three facilities will be marketed by Allegheny Energy Global Markets. "These premium generating assets are designed for operation in times of peak electricity demand," said Noia. "Because of its national presence, Allegheny Energy Global Markets will be able to market the output from these newly acquired facilities in a wide variety of ways with our portfolio of existing assets and other supply arrangements so that overall operational efficiency and shareholder value is maximized." Allegheny Energy Supply's newly acquired facilities include: the Gleason, Tenn., plant (546 MW), approximately 40 miles north of Jackson, Tenn.; the Wheatland, Ind., plant (508 MW), approximately 70 miles northeast of Evansville, Ind.; and the Lincoln Energy Center plant (656 MW) in Manhattan, Ill., near Chicago. These assets give Allegheny Energy Supply additional generating capacity within the East Central Area Reliability region (ECAR) and initial generation sources in the Mid-America Interconnected Network (MAIN) and the Southeastern Electric Reliability Council (SERC). Salomon Smith Barney acted as financial advisor and Jones, Day, Reavis & Pogue acted as legal counsel for Allegheny Energy for the acquisition. CONTACT: Allegheny Energy Supply, Hagerstown (Media) Janice Lantz, 412/858-1630 Media Hotline: 888/233-3583 or (Investors) Greg Fries, 301/665-2713 11:35 EDT MAY 3, 2001 SSB Cuts Forecast For Power Profitability In 2002, Beyond 05/03/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Salomon Smith Barney's utility analysts sharply cut their forecast of the profitability of generating electricity in the U.S. in 2002 and beyond because power prices are expected to drop more sharply than natural gas prices starting next year. The analysts cut the profit margin in natural gas-fired power in 2003 to $3.98 a megawatt-hour from $8.73/MWh, a 54% difference from their last forecast in February. They lowered their power price index for 2002 by 1.5% and for 2003 by 7.1% Thursday in a published report. Their forecast is based on forward markets for electricity and gas. "Gas prices are remaining strong for a much longer period of time, while power prices drop off," senior electricity industry analyst Raymond Niles said in a telephone conference with investors. As a result, stock prices for power producers such as AES Corp. (AES), Mirant (MIR), Calpine Corp. (CPN) and NRG Energy (NRG) could peak this summer in advance of strong third quarter earnings reports, the Salomon report says. "Investors may still shy away from asset and investment-heavy power producers if realized prices begin to reflect the decreases in power prices now projected in the forward curve," the report warns. After this summer, the stocks of energy companies that focus more on trading will regain momentum, Salomon expects. These "energy merchant" companies, such as Enron Corp. (ENE), Williams Cos. (WMB), Duke Energy (DUK) and Dynegy (DYN), should be able to take advantage of higher trading volume and greater volatility in power markets in non-summer months, according to Salomon. "We expect (annual trading) volumes to grow, industry-wide, between 25% and 40%, on average, during 2001-03, as the $800 billion global energy commodity market continues to open," the report predicts. The overall electricity price trend is national, according to Salomon. The report, titled "Power Curve," expects 2001 wholesale power prices to exceed last year's by 131% in the West and by 34% on average in the eastern U.S., including Texas. But since their last forecast, the analysts lowered their forward price curve for next year and beyond in 10 of 11 regional power pools. "Interestingly, the exception to that is the New York Power Pool," Niles told investors. For the remainder of this year, however, Salomon still expects power producers to beat substantially last year's breakthrough results. "About 50% of the spike upward in western U.S. power prices the past six months has been from something we've never seen before in this industry: political and credit risk," Niles said in the conference. Western merchant power suppliers are benefitting from the "unholy mess in California," Niles said, but that won't last forever. "Whenever the debate tapers off and we have a resolution in sight, that premium will slowly drain out of the western markets, and bring down profitability for the group," Niles said. National calls for reregulation due to the California crisis could continue to hurt stock prices for the entire sector, even though reregulation won't happen. Further, in so far as such calls discourage investment in generating plants, transmission lines and gas pipelines, they could also extend the current period of extremely high earnings, according to the report. In non-western states, the greatest profitability from power generation for the next two years is seen in New England. -By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com Fitch Affs Northern Border; Rtg Outlook To Stable From Negative 05/03/2001 Business Wire (Copyright © 2001, Business Wire) NEW YORK--(BUSINESS WIRE)--May 3, 2001--Fitch has affirmed its `BBB+' senior debt rating for Northern Border Partners, L.P. (NBP) and its `A-` senior debt rating for its regulated pipeline affiliate Northern Border Pipeline Co. (NBPL). The Rating Outlook for both companies is changed to Stable from Negative. The rating action was taken after a review of NBP's recent acquisitions and long-term business plan. A combination of debt and equity at NBP was used to fund the recent acquisitions of Bear Paw, LLC, Midwestern Gas Transmission Company, and Dynegy Canada midstream assets. An additional $125-150 million of equity is expected to be sold in the coming months to pay down short-term debt and complete the permanent financing. The improvement in Rating Outlook primarily reflects NBP's demonstrated commitment to undertake conservative long-term financing and operating strategies. Future acquisitions at the partnership level are expected to be financed 50/50, debt/equity so as to maintain financial flexibility and a stable credit profile. Moreover, management has shown a strong bias to minimize commodity price risk as it expands its non-regulated gas operations. For example, processing contracts for Bear Paw's four processing facilities are contracted for on a percentage of proceeds basis and liquids prices have been 90% hedged by NBP through 2001, limiting downside exposure. NBPL continues to exhibit strong competitive market, operating, and financial characteristics that are consistent with its current `A-` rating. The company is a low-cost transporter of Canadian gas into the Midwest, with costs per hundred miles of less than 4 cents per mcf. The December 2000 completion of the Alliance Pipeline has had minimal impact on Northern Border as capacity utilization approaches 100%. Pipeline capacity is 99% subscribed through mid-September 2003. Its shippers are financially strong customers with uniform take-or-pay contracts. The company has never written off a bad debt. NBPL should generate EBITDA/interest coverage of nearly 4.0 times over the next few years. Credit concerns primarily relate to NBP's changing business mix and the expectation of increased market risk associated with its growing midstream operations as compared with the stable, low-risk profile of NBPL. While projected consolidated and stand alone credit measures at NBP remain relatively strong, there will be less predictability in the future cash stream utilized to service debt. NBP is a publicly traded master limited partnership. Its primary holding is a 70% economic interest in NBPL, a 1,214-mile FERC regulated interstate pipeline transporting natural gas from the Canadian border to the upper Midwest. Enron Corp. and The Williams Companies, Inc. hold a 10.0% and 3.3% stake in NBP, respectively, with the remainder publicly held. Enron controls an 82.5% stake in the management committee of NBP with Williams holding the remaining management allocation. CONTACT: Fitch, New York Ralph Pellecchia, 212/908-0586 or Hugh Welton, 212/908-0746 13:58 EDT MAY 3, 2001 INDIA: UPDATE 1-Enron to meet govt panel over Indian project 05/03/2001 Reuters English News Service (C) Reuters Limited 2001. NEW DELHI, May 3 (Reuters) - The Indian unit of Enron Corp said on Thursday that its officials would meet members of a government panel formed to re-negotiate a troubled $2.9 billion power project in western India. But the willingness to meet the panel next week should not be construed as an offer to renegotiate the contract, Dabhol Power Company (DPC) said in a statement. "As a matter of courtesy we have agreed to meet with them next week," the DPC statement said. "Since the purpose of our meeting is to hear out the committee and understand their thoughts, we will not present any proposal." DPC said it had constantly maintained that it was open to maintaining a dialogue towards resolving issues. "(But) This meeting should in no manner be construed as an open offer from DPC to renegotiate the terms of the contract," it added. DPC and the government of the western state of Maharashtra have been locked in a payment battle for months, with the state's electricity board balking at paying Enron what it considers too high a rate for electricity. At present, Maharashtra's State Electricity Board (MSEB) owes the DPC, of which Enron is a 65 percent stakeholder, some $48 million for power. The Maharashtra government last week announced the formation of a panel of experts to re-negotiate its contract with DPC and lower the cost of power sold to MSEB. LARGEST FOREIGN INVESTMENT The Dabhol project, the single largest foreign investment in India, consists of two phases, the already-built 740 megawatt power plant and a 1,444 MW plant that is expected to be finished this year. Last week, Dabhol's board authorised the plant's managing director to issue a preliminary notice of termination of service to MSEB. The notice, which has not been issued, would be the first step for Enron to pull out of the project. Earlier, a source familiar with the project told Reuters that Indian lenders, who have provided millions of dollars to Houston-based Enron to build DPC are lobbying with the government to act quickly and end the crisis. "We have asked the government for help. We are awaiting their reply," the source, who is employed with a large financial institution, said. The domestic lenders to the project are Industrial Development Bank of India , ICICI Ltd , Industrial Finance Corporation of India , Canara Bank and State Bank of India . If Enron pulls out of the project, the source said, the lenders would have no choice but to seek an alternative buyer. "The plant is good, Maharashtra needs power and I am sure buyers can be found," the source added. India State Panel's Sat Meet With Enron Unit Postponed 05/03/2001 Dow Jones International News (Copyright © 2001, Dow Jones & Company, Inc.) NEW DELHI -(Dow Jones)- India's Maharashtra state government's expert committee's Saturday meeting with the U.S. energy major Enron Corp.'s (ENE) Indian unit Dabhol Power Co. has been postponed until May 11 at the request of DPC, a committee member told Dow Jones Newswires late Thursday. The nine-member committee has been appointed to renegotiate the Maharashtra State Electricity Board's controversial power purchase agreement with DPC. The state government has asked the committee to try to negotiate a revised agreement within a month. "The negotiating committee's first meeting with the Dabhol Power Co. management scheduled for Saturday has been postponed until May 11, 0530 GMT, at DPC's request. They (DPC) told us they wanted some more time to prepare themselves for the meeting and we have granted their request," said a committee member. The committee's goals are to lower the power tariff and allow the sale of excess power to the federal government or its utilities. A restructure of the DPC's stakeholding may also be on the agenda. -By Himendra Kumar, Dow Jones Newswires; 91-11-461-9427; himendra.kumar@dowjones.com EnergieKontor Secures Enron Deal For Spain, Germany Projs 05/03/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) LONDON -(Dow Jones)- German wind farm developer EnergieKontor AG said Thursday it has signed a framework agreement with Enron Wind GmbH for deliveries of wind turbines for projects in Germany and Spain. In all, Enron will deliver 200 megawatts' worth of 1.5 MW turbines for onshore projects in EnergieKontor's home market and in Spain, one of its fastest-growing export markets. In addition, Neuer Markt-listed EnergieKontor said it has entered into exclusive negotiations with the local authorities for permission to build up to 15 wind farms at a number of sites in the Castilla-La Mancha region. Each site would have an installed capacity of 45-50 MW, making a total of 700 MW. "Once we reach this stage there is about an 85-90% of the project going ahead, sometimes more," a spokesman told Dow Jones. EnergieKontor said it assumes that it will set up the first windfarms in Castilla-La Mancha as early as next year. -By Geoffrey T. Smith, Dow Jones Newswires; (+44 20) 7842 9260; -geoffrey.smith@dowjones.com The Bottom Line: Scottish Power Looks To Refine Focus By Andrea Chipman Of DOW JONES NEWSWIRES 05/03/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) LONDON -(Dow Jones)- After more than a year of lagging earnings, investment missteps and unexpected disasters, U.K. vertically-integrated utility Scottish Power (SPI) is hoping a new strategy to streamline its businesses will signal a more focused period for the company. But it's got its work cut out. While investors were cheered by news that its U.S. Utah-based Hunter power plant is back online after a six-month outage that cost the company an estimated $160 million, uncertainty over its plans for its Southern Water unit and apparent ongoing commitment to loss-making telecoms venture Thus are seen as muddling group focus. "It all adds up - the lack of coherent strategy, quite substantial downgrades and a whole host of non-core businesses that they don't have any natural management flair or expertise in," said Brian Gallagher, a senior fund manager at London-based Gartmore Investment Management, which has GBP3 million of Scottish Power shares in its Global Utilities Fund. "We have a reasonably low opinion of the company." The company said Thursday that its pretax profit before goodwill amortization and exceptional items for the fiscal year ending March 31 fell to GBP628 million from GBP736 million a year ago. Adjusted earnings per share declined to 30.65 pence in the 2001 fiscal year from 41.22 pence in 2000. The company acknowledged profits have been hit hard by the Hunter outage, competition on wholesale and retail markets in the U.K. and strict price controls on its regulated infrastructure businesses. Although the company's shares were trading at 458.5 pence after the release of Thursday's earnings results, up from 441.5 pence Wednesday, they are down more than 15% from 533 pence a year ago. Executives say they are restructuring the business into three targeted divisions to capitalize on its traditional strengths in generation and power supply and infrastructure and to expand its overseas activities. "We've now got a trading and commercial link between generation and supply and the first thing we are doing is putting emphasis on that...on growing earnings across that value chain," Scottish Power Chief Executive Ian Russell told journalists in a conference call Thursday. "In the U.S., we are focused on cost cutting and on acquiring new businesses." Scottish Power's move away from a full multi-utility profile - begun last year with its partial disposal of Thus and its withdrawal from an Internet banking venture with the Royal Bank of Scotland - toward a more narrowly focused energy business mimics a trend across the industry toward greater specialization. The company is also considering selling Southern Water, which would allow it to focus even more closely on its power business. Yet analysts and investors say they are looking for more details of the company's overall growth strategy from Russell, who took over as chief executive last month, and other managers. The toll from months of drift, is evident, they said. Sales Of Southern Water, Thus Seen Indeed, despite its efforts to chart a new road, Scottish Power appears to be reluctant to acknowledge the failure of some of its non-core ventures. Russell said his company remains "supportive" of Thus, which reported a 2000 fiscal year loss of GBP21.4 million this week, and has no plans to exit its remaining 50% stake in the company. Similarly, he said, Scottish Power hasn't yet made a final decision to dispose of Southern Water - which has cut costs under its Scottish parent but is increasingly unable to cover its capital expenditure - although he said the company had received "a number of offers" from potential buyers. Although he declined to identify any of the bidders, Italian energy company Enel SpA (ENI) has confirmed its interest. Industry sources said a prompt sale of the water unit looks likely, with some bids already exceeding the GBP2 billion at which many analysts value the company's combined assets and debt. It's unclear, they said, how Southern Water or Thus would fit into Scottish Power's new image. "Scottish Power sees itself as an international energy company," a source familiar with the company said. In a year's time, he added, "it would be unlikely that Southern Water and Thus would be part of the company." Revenues from the sale of the water unit would also help Scottish Power pursue its U.S. expansion without adding to its 90% gearing levels, analysts and investors said. Russell declined to comment on reports Scottish Power is considering buying Enron Corp.'s Oregon-based unit, Portland General, but admitted the company would be a logical geographical fit with Pacificorp. Analysts said Scottish Power's plans for U.S. growth is likely to be a key part of its energy strategy. "We like their U.S. strategy where they've leveraged expertise gained in the highly competitive U.K. market," said Gareth Lewis-Davies, head of utilities research at Lehman Brothers in London. Closer to home, competition and the trend toward increased specialization in the power industry may force Scottish Power to determine whether its business strength lies in asset management or retail and generation. "Strategic decisions need to be made, and I'm not sure if they are going to make them in the near term or not," said Andrew Wright, U.K. utilities analyst at UBS Warburg in London. "They are pretty much involved across the value chain, and I think it remains to be seen which part of the value chain they specialize in, if any." Company Web site: www.scottishpower.co.uk -By Andrea Chipman, Dow Jones Newswires; 44-207-842-9259; andrea.chipman@dowjones.com
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