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California Power Crisis in a Nutshell: David Wilson (Update1)
Bloomberg, 01/19/01 California Averts Blackouts; Regulators Take Action (Update3) Bloomberg, 01/19/01 Richardson Orders Natural Gas Sales Into California (Update2) Bloomberg, 01/19/01 USA: ANALYSIS-Utilities no longer your father's Oldsmobile. Reuters English News Service, 01/19/01 EOTT Energy Partners, L.P. Declares Quarterly Cash Distribution PR Newswire, 01/19/01 BANDWIDTH BEAT: Number Of Routes In Price Table Explodes Dow Jones Energy Service, 01/19/01 USA: UPDATE 1-Bush adviser opposes cap on Western power prices. Reuters English News Service, 01/19/01 Pennsylvania PUC Blasts GPU for Comparison to California Bloomberg, 01/19/01 Enron and Owens-Illinois Sign Long-Term $2.2 Billion Energy Management Agreement PR Newswire, 01/19/01 USA: Enron subsidiary, Owens-Illinois in energy deal. Reuters English News Service, 01/19/01 California Power Crisis in a Nutshell: David Wilson (Update1) 1/19/1 17:20 (New York) California Power Crisis in a Nutshell: David Wilson (Update1) (Adds dollar amount of Southern California Edison's last default and references to bond insurers, Fitch and electricity Board; updates federal response. Commentary. David Wilson is a columnist for Bloomberg News. Opinions expressed are his own.) Princeton, New Jersey, Jan. 19 (Bloomberg) -- Californians have suffered power blackouts. The state's two largest utilities have defaulted on debt and failed to make power payments. State and federal officials are working on solutions. The following guide is designed to explain what, and who, is behind it all. The Issue California's two largest utilities must pay more for power than they can charge under a 1996 utility-deregulation law, which froze rates until March 2002. They have racked up more than $11.5 billion in power-related debt. Out-of-state suppliers have balked at selling electricity and natural gas to them because of concern that they may not get paid. The price of power to California utilities more than quadrupled during 2000 amid a surge in the cost of natural gas, which more than half the power plants in the state burn. Natural gas rose as much as 25-fold during December. The Companies PG&E Corp. (ticker symbol PCG): Owner of Pacific Gas & Electric Co., California's largest utility. Its shares have lost 55 percent during the past year, and it's one of only two stocks in the Dow Jones Utilities Average to drop during that period. The unit's losses on power purchases totaled $6.6 billion at the end of last year. On Wednesday, PG&E defaulted on $43 million of commercial paper and the utility unit defaulted on another $33 million. The unit has a $583 million power bill due on Feb. 1, and another $2.12 billion is due by March 2. Edison International (EIX): Owner of Southern California Edison Co., the state's second-largest utility. Its stock price has fallen 67 percent in the last 12 months, making it the worst performer among the Dow utility stocks. Power-buying losses at the unit totaled $4.5 billion as of Dec. 31. The utility defaulted Tuesday on $230 million of bonds and failed to make $366 million of payments for power. Yesterday it defaulted on $32 million of commercial paper. Another $378 million of power payments are due this month. Power suppliers: Include Calpine Corp. (CPN), Duke Energy Corp. (DUK), Dynegy Inc. (DYN), Enron Corp. (ENE), Reliant Energy Inc. (REI), Sempra Energy (SRE), the Southern Energy Inc. (SOE) unit of Southern Co. (SO) and Williams Cos. (WMB). Natural-gas suppliers: Include Coastal Corp. (CGP), Duke Energy, the J. Aron & Co. unit of Goldman Sachs Group Inc. (GS), Sempra Energy and Western Resources Inc. (WR). The Financiers Banks: Bank of America Corp. (BAC) and J.P. Morgan Chase & Co. (JPM) arranged a total of $4.2 billion in loans. They refused Wednesday to let PG&E and Pacific Gas & Electric borrow part of a $1 billion credit line, leading to the commercial-paper default. Ace Ltd. (ACL): Bermuda-based insurance company. A unit has about $14 million of reinsurance on the two utilities' bonds and about $125 million in debt assumed in credit-default swaps, which protect bondholders against defaults. ``Ace believes that any loss would be substantially less,'' it said in a statement. Bond insurers: MBIA Inc. (MBI), the largest U.S. bond insurer, guaranteed more than $1 billion of Edison's and PG&E's bonds. Ambac Financial Group Inc. (ABK) said its exposure totals about $150 million. Smaller amounts are at risk for Financial Security Assurance Co. and Financial Guaranty Insurance Co. The Rating Services Standard & Poor's: Said Dec. 13 that it might cut ``A'' ratings on the parent companies and ``A+'' ratings on the units. Downgraded them to ``BBB-,'' its lowest investment-grade rating, on Jan. 4. Lowered them to ``CC'' on Tuesday except for Southern California Edison, cut to ``D'' because of its default. S&P may also reduce ratings even more. Moody's Investors Service: Said Dec. 11 that it may lower ``A3'' ratings on PG&E and Edison, along with ``A2'' ratings on their utility units. Downgraded them all to ``Baa3,'' its lowest investment-grade rating, on Jan. 5. Lowered ratings on the parent companies to ``Caa3'' and their units to ``Caa2'' earlier this week. All may be cut further. Fitch IBCA: Said Nov. 7 that it might cut ``A'' and ``A+'' ratings on senior unsecured debt of Edison and its utility unit. and its ``A'' rating on Pacific Gas & Electric's first mortgage bonds. Downgraded Edison and its unit to ``A-'' on Dec. 11, to ``CCC'' on Jan. 4, and to ``CC'' on Tuesday. Cut the mortgage bonds to ``A-'' on Dec. 11 and to ``B-'' on Jan. 4. The Agencies California Department of Water Resources: Administers the state's water systems. Started buying power on behalf of the two utilities in January. Can spend as much as $400 million on power under a bill passed yesterday. California Independent System Operator: Owns the system that delivers three-quarters of the state's electricity. Imposes power emergencies as needed. California Power Exchange: Buys power for utilities. Suspended the two utilities' trading privileges after Southern California Edison failed to make a $215 million payment and PG&E failed to meet a new requirement that it post collateral. California Electricity Oversight Board: Five-member state panel that governs both the Independent System Operator and the Power Exchange. California Public Utilities Commission: Regulates utilities. Granted rate increases averaging 10 percent to the two utilities on Jan. 4. The increases are effective for 90 days. PG&E and Edison wanted 26 percent and 30 percent, respectively. Federal Energy Regulatory Commission: U.S. agency that oversees utilities. Issued rules Dec. 15 that freed California utilities from a requirement to buy power through the exchange. Has rejected proposals for caps on the power prices they pay. The Background Power supplies are so tight that California can have an emergency even if only a few plants go off line for repairs or malfunction. Even ocean swells can result in production cuts, as they can clog plants' coolant intakes with sea kelp. About two-thirds of California's power plants are more than 30 years old. The last major plant was built more than a decade ago, before the state toughened its emissions standards. Demand, especially from companies making products such as computers and semiconductors, has grown along with the state's economy. The Emergencies Stage One: Power reserves for hydroelectric plants fall to within 5 percent of demand, and reserves for all other types of plants fall to within 7 percent of demand. Stage Two: Power reserves from all types of plants fall to within 5 percent of demand. Stage Three: Power reserves fall to within 1.5 percent of demand. Can lead to rolling blackouts in parts of the state. The first alert of this type happened on Dec. 7; the first blackouts happened Wednesday. The State Response Davis declared a state of emergency Wednesday, freeing the Department of Water Resources to spend money in its budget and the state's general fund to buy power on the utilities' behalf. California's legislature then approved $400 million in outlays. Legislators are working on a bill, proposed by Davis, that would let the state buy as much as $3.5 billion of power a year under multiyear contracts and sell it to utilities at cost. The plan sets a price of $55 a megawatt hour, below the utilities' average selling price of $72 after the rate increase. Davis has held talks with power generators about the length and price of contracts; he hasn't reached any agreements yet. Additionally, legislators have discussed allowing Pacific Gas & Electric and Southern California Edison to refinance the power- purchase debt by selling bonds. The Federal Response Energy Secretary Bill Richardson issued an order Dec. 14 that required power suppliers to sell electricity in California. The order was extended Jan. 11 and Wednesday, and is scheduled to expire next Tuesday. Richardson, who leaves office tomorrow with President Bill Clinton, signed a similar order for natural-gas suppliers that Davis had requested. The Outcome Very much in doubt. Duke Energy, Dynegy, Reliant Energy and Southern Energy were prepared to force the two utilities to file for bankruptcy before the emergency spending bill was set into motion, Davis said. --David Wilson in the Princeton newsroom (609) 279-4085 or dwilson@bloomberg.net/jmg California Averts Blackouts; Regulators Take Action (Update3) 1/19/1 16:29 (New York) California Averts Blackouts; Regulators Take Action (Update3) (Adds details on gasoline supplies starting in fourth paragraph. For a special report on the California energy crisis, see {EXTRA <GO<}) Sacramento, California, Jan. 19 (Bloomberg) -- California averted a third straight morning of intermittent power blackouts as state and federal officials moved to ensure a steady supply of power to consumers and businesses. Facing less power demand as the weekend approaches, state authorities said they haven't ordered further outages today. The California Independent System Operator, which runs three-quarters of the state's power grid, kept its highest power alert in place. State regulators blocked California's two largest utilities from taking action on their own to cut services to customers. The measure by the California Public Utilities Commission came after state lawmakers yesterday approved $400 million to buy power for the cash-strapped utilities. U.S. Energy Secretary Bill Richardson, who steps down tomorrow, said today he will sign an emergency order requiring natural-gas producers to sell in California. The utilities, PG&E Corp.'s Pacific Gas & Electric and Edison International's Southern California Edison, are on the verge of bankruptcy. A 1996 deregulation law caps rates they can charge consumers, and they have to pay more to power generators because of rising demand and short supplies. How Many Days? The legislation passed yesterday doesn't address PG&E and Edison's mounting debts, which total more than $11.5 billion. The money may not last as long the 12 days that state legislators had hoped, either, analysts said. ``With prices going the way they are in the wholesale market, $400 million or $500 million is not going to last much more than seven days, let alone 12,'' said Paul Patterson, a utility analyst with Credit Suisse First Boston. PG&E's shares rose 44 cents to $10.19 and Edison's declined 6 cents to $8.94. The stocks are the two worst performers in the Dow Jones Utilities Average during the past year. Fuel supplies are also an issue. Valero Energy Corp., which produces 10 percent of the state's gasoline, said the state may soon face shortages of gasoline because Kinder Morgan Inc.'s California pipeline -- one of the West Coast's largest -- was disrupted by blackouts. Jay McKeeman, executive vice president of the California Independent Oil Marketers Association, said he wrote Davis yesterday to warn that refineries could be forced to shut unless they can be assured their usual flow of fuel. `Interruptible' Customers The pipeline, which distributes almost 1 million barrels of gasoline, jet fuel and diesel a day, has been shut for 12 hours to 18 hours a day since Wednesday, said Larry Pierce, a Kinder Morgan spokesman. The pipeline ran last night and was idled again this morning, he said. Kinder Morgan's pipeline is an ``interruptible'' customer, making it among the first to lose power amid shortages. Even if scattered blackouts are avoided today, customers like it still face the possibility of power cuts. The state's utilities are paying as much as 20 times more for electricity than they did a year ago as they face the effects of deregulation, which led them to sell generating plants. High demand, a shortage of available plants and unusually low output from hydroelectric dams are compounding the problem. Pacific Gas & Electric has said six companies, accounting for 36 percent of daily natural-gas supply, may stop deliveries by Tuesday. The utility said it has only been able to buy 60 percent of the gas it needs for each day next month, possibly forcing it to cut supplies to power plants that use the gas to produce electricity. `Least Bad Option' President-elect George W. Bush opposes one possible remedy for the utilities: limits on the wholesale prices that they pay for electricity. ``The president-elect does not think price controls are an answer to our nation's energy problems,'' Ari Fleischer, Bush's spokesman, said during a reporters' conference call. ``He sees very little evidence that price controls work. That is a very unlikely solution in his opinion.'' The Federal Energy Regulatory Commission, which oversees utilities, has turned down proposals for price caps. California Governor Gray Davis and other state officials support caps. U.S. Senator Dianne Feinstein plans to introduce a bill Monday that would allow the U.S. Secretary of Energy to impose them. Both Davis and Feinstein are Democrats. State legislators rushed their spending measure into law after Davis declared a state of emergency Wednesday. The state's four largest power providers had threatened to push Pacific Gas & Electric and Southern California Edison into bankruptcy if the bill wasn't passed. ``This bill is the least bad option to get us through the next few days,'' said Assemblyman Fred Keeley, the state's No. 2 Democrat. ``It will hopefully give us time to put a comprehensive solution in place.'' More Defaults The legislature is also drafting a separate bill that would allow the state to buy power under multiyear contracts and limit the price it pays at $55 a megawatt hour. Customers currently pay about $72 on average. While many generators are balking at that proposal, Davis said he believed producers will eventually accept prices close to $55, especially if the state agrees to sealed bids for contracts. Southern California Edison defaulted on $32 million of commercial paper yesterday. It expects to default on $223 million more of the money-market securities by Jan. 31, according to a Securities and Exchange Commission filing. The utility also forfeited millions of dollars in power contracts to the California Power Exchange yesterday after it failed to make a $215 million payment. The foreclosure was a first for the exchange, which buys power from generators on behalf of utilities. Earlier this week, Edison suspended $596 million in payment to bondholders and utilities. In addition, PG&E defaulted on $76 million in commercial paper. --Peter Robison in Seattle (206) 406-1656 or robison@bloomerg.net and David Ward in Sacramento with reporting by Daniel Taub in San Francisco, Dennis Walters in Ojai, California, David Evans in Los Angeles, Christopher Martin in Chicago, Jonathan Berr, Stacie Babula and Jim Polson in Princeton, Liz Goldenberg in New York, and Liz Skinner in Washington through the Princeton newsroom (609) 279-4000 / dw Richardson Orders Natural Gas Sales Into California (Update2) 1/19/1 17:40 (New York) Richardson Orders Natural Gas Sales Into California (Update2) (Adds Richardson comment in fourth paragraph, details of order in fifth through eighth.) Washington, Jan. 19 (Bloomberg) -- U.S. Energy Secretary Bill Richardson ordered natural-gas suppliers to keep selling to California to keep homes warm and hospitals running after two days of rolling blackouts. California Governor Gray Davis asked for the emergency order because suppliers are threatening to stop shipments to PG&E Corp.'s Pacific Gas & Electric, fearing the state's largest utility will default on payments. Utilities owned by PG&E and Edison International have said they face bankruptcy because state laws won't let them pass on the soaring power costs to customers. Pacific Gas & Electric said a cut in gas supplies would affect homes, hospitals, businesses, oil refineries and power plants. ``I am very concerned that such supply disruptions could endanger the health and welfare of PG&E's residential and commercial gas customers and could exacerbate the already precarious condition of California's electric grid,'' Richardson said in a statement issued on his last day in office. Setting Terms The emergency order, requiring any of PG&E's natural gas suppliers to keep selling to the utility according to contracts in place the past 30 days, will keep gas flowing as California, utilities and generators ``work to find a solution to the current electricity and financial crisis,'' Richardson said. If a supplier and PG&E don't agree on the terms of the contracts, the energy secretary will set the terms, the department said in a statement. The federal order runs through Tuesday. It will be up to the next energy secretary whether to extend it. Richardson said he has spoken with Spencer Abraham, who President-elect George W. Bush has nominated to head the department, about the crisis. President Bill Clinton earlier today signed a memorandum finding that a natural-gas supply emergency exists in central and northern California. The document directs Richardson to ensure that gas is available for high-priority uses, such as home heating and power generation. Last month, Richardson ordered power generators to sell electricity to California after suppliers in the Northwest halted sales. That order also expires Tuesday. PG&E shares rose 44 cents to $10.19. Edison fell 6 cents to $8.94. They've both fallen about 63 percent since Nov. 1. Gas Supplies Pacific Gas & Electric said six natural-gas suppliers, accounting for 36 percent of its daily supply, told the utility they have stopped delivering gas or may stop deliveries by Tuesday. Other suppliers, accounting for 30 percent of daily supplies, are considering stopping deliveries, the utility said. One of PG&E's gas suppliers, Western Gas Resources Inc., stopped deliveries on Jan. 12. The company ended a contract to sell 5 million cubic feet of natural gas a day after the utility ``stopped paying us according to the terms of the contract,'' said Ron Wirth, Western Gas spokesman. Wirth said company officials haven't seen Richardson's order yet so couldn't comment on it. El Paso Energy Corp., which sells natural gas to PG&E through its merchant energy unit, said it has been honoring its existing contracts with the California utility. ``We are still backing the existing contracts to those companies, as of this moment,'' said spokeswoman Kim Wallace. ``This is a minute-to-minute situation.'' The order will impact El Paso Energy because it sells natural gas into California, she said. ``The question is who will pay?'' --Liz Skinner in Washington, (202) 624-1831 or lskinner@bloomberg.net and Daniel Taub in San Francisco, with reporting by Jim Kennett in Houston and Bradley Keoun in New York, through the Princeton newsroom, (609) 279-4000/pjm/shf USA: ANALYSIS-Utilities no longer your father's Oldsmobile. By Paul Thomasch and Jonathan Stempel 01/19/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Jan 19 (Reuters) - Fund manager Don Cox left a meeting with Exxon Mobil executives last September shaking his head, knowing he would stay as far away as possible from California utilities. During the meeting in downtown Chicago, four executives from Exxon Mobil Corp., the world's No. 1 energy company, told Cox to expect natural gas prices to fall to just $1 per million British thermal units (mmbtu). His conclusion? Even the industry's top brass couldn't see the coming power crisis, one that would hit California's utilities particularly hard. "I walked away from that meeting telling my clients to load themselves to the hilt with natural gas stock and don't get involved with the California utilities," said Cox, chairman and chief strategist at the Harris Investment Management Fund, which manages $16 billion. It was the right call. Natural gas hit $10 per mmbtu three months later, the last in a chain of events that sent power prices through the roof and sent California's deregulated electricity market to the brink of collapse. Now, Pacific Gas and Electric Co., a unit of San Francisco-based PG&E Corp. and Southern California Edison, a unit of Rosemead, Calif.-based Edison International, are flirting with bankruptcy, stock-and bondholders have seen billions of dollars melt away, and Wall Street has been forced to reassess utilities as an investment. "This is going to once and for all eliminate the idea that utilities are a homogenous industry," said Cox. "This is a group that cries out for a whole new sort of analysis." SAFE NO MORE For decades, utilities have been seen as a safe haven for stockholders. Returns weren't the stuff of dreams, but there was little risk of losing your shirt. Electricity deregulation, sometimes successful and in California clearly not, has changed that notion. Layers upon layers of power companies have been created, from such power marketers as Enron Corp. and generators as Dynegy Inc., to distribution utilities such as New York City's Consolidated Edison Inc.. "The industry has been in a revolution for a couple of years," said Tim Ghriskey, a portfolio manager for the $2.2 billion Dreyfus Fund. "It's a much more dynamic industry. It's not just buy one, buy all, because they are all different." Utilities stocks were highly rewarding to investors last year, with the Standard & Poor's utilities index surging more than 50 percent. California's power crisis has changed that landscape, though. Share prices of PG&E and Edison have slid more than 60 percent since early November, and dragged down others with them. About 15 percent of the value of the S&P utilities index has been wiped out so far this year. "Unlike the old utilities, nowadays you can make a lot or lose a lot in a hurry," said Ghriskey. UTILITIES LOSE GLEAM It's not just shareholders who have learned the hard lesson that utilities aren't what they once were. Bondholders, too, have been left to wince as top credit rating agencies slashed their formerly investment-grade holdings deep into junk. Still, secured and unsecured bondholders may be in better shape than stockholders, ranking ahead of them in the pecking order when it comes time to decide what gets distributed in a bankruptcy, if there is one - or two. "The sharing of the pain is the one uncertainty from an investor's standpoint," said James Spiotto, a partner and default specialist at Chapman and Cutler, a Chicago law firm. "The solution of a utility bankruptcy is not unlimited pain to the customer because there's a limit to what the customer can bear." Investors see bids for SoCal Edison's and Pacific G&E's first mortgage bonds at around 80 to 82 cents on the dollar, and for their unsecured bonds at 45 to 50 cents on the dollar. That compares to the pennies bid for bonds of many asset-poor start-up telecommunications companies. Bill Gross, who oversees $250 billion for Pacific Investment Management Co. in Newport Beach, Calif. and is widely considered the most powerful U.S. bond fund manager, reckons utilities look more and more like some of those telecoms. "Obviously investors are now awakening to the fact that utilities are not the safe, conservative vehicles that they knew 10 or 20 years ago," he said. "It's not your father's Oldsmobile." Selling now, however, may not be a good solution because the crisis is fluid, some depressed prices could recover, and the market for electric power won't disappear the way some telecoms and dot-coms do. "Generally, the solution for a distressed utility is strung out, and can involve a conversion of debt to equity," said Spiotto. "The real concern is to save the system." First mortgage bondholders, he said, usually do well in a bankruptcy, and could get their principal back, because they have "the system" as collateral. No one, he said, will allow California's lights to dim for good. CLOUDED BY UNCERTAINTY What occurred in California is something of a perfect storm, a situation brought together by a poorly constructed deregulation plan, environmental hurdles, cold weather and a shortage of natural gas production in the United States. PG&E and Edison may indeed go under, investors said, or the nation's richest state could construct a way to bail them out. Either way, stockholders are decidedly unwilling to risk too much of their money on PG&E or Edison at the moment. "It's too uncertain right now; the situation makes us too nervous," said Ghriskey, who doesn't own either utility's shares. "At some point there could be a huge buying opportunity, but first we have to get some visibility on an outcome." The crisis also casts doubt over companies such as Reliant Energy Inc., Duke Energy Corp., and Southern Energy Inc., which face hundreds of millions of dollars of credit exposure because they sell power to the utilities. What's more, it throws a cloud over how deregulation will progress elsewhere in the country. "I think we're locked into several years of energy problems," said Cox of Harris Investment Management. Like his counterparts in the bond market, he sees a parallel with those "new economy" companies. "From now on, talking about utilities as a group will be as problematic as talking about tech stocks as a group," he said. But will the value of their securities recover? "Hope springs eternal," said Spiotto, the Chicago lawyer. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. EOTT Energy Partners, L.P. Declares Quarterly Cash Distribution 01/19/2001 PR Newswire (Copyright © 2001, PR Newswire) HOUSTON, Jan. 19 /PRNewswire/ -- EOTT Energy Partners, L.P. (NYSE: EOT) (the Partnership) announced today a distribution of $0.475 per common unit for the fourth quarter of 2000, or $1.90 on an annualized basis. The fourth quarter distribution is payable Feb. 14, 2001, to unitholders of record as of Jan. 31, 2001. EOTT Energy Partners, L.P. is a major independent marketer and transporter of crude oil in North America. EOTT transports most of the lease crude oil it purchases via pipeline which includes 8,300 miles of active intrastate and interstate pipeline and gathering systems and a fleet of 260 owned or leased trucks. EOTT Energy Corp., a wholly-owned subsidiary of Enron Corp. (NYSE: ENE), is the general partner of EOTT Energy Partners, L.P. with headquarters in Houston. The Partnership's Common Units are traded on the New York Stock Exchange under the ticker symbol "EOT". Media Relations Contact: Kimberly Nelson (713) 853-3580 Investor Relations Contact: Scott Vonderheide (713) 853-4863 /CONTACT: media, Kimberly Nelson, 713-853-3580, or investor relations, Scott Vonderheide, 713-853-4863, both of EOTT Energy Partners, L.P. / 15:44 EST Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. BANDWIDTH BEAT: Number Of Routes In Price Table Explodes By Michael Rieke 01/19/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) A DOW JONES NEWSWIRES COLUMN HOUSTON -(Dow Jones)- The number of city-pairs listed in the daily Dow Jones bandwidth price table exploded this week to 10 from two. The table was started in September, listing only prices for DS3 bandwidth between New York and Los Angeles. That's the route that had the most traffic and therefore would be the first to bring some liquidity to the nascent bandwidth market. The table originally listed only prices for DS3 bandwidth along that route. Later prices were added for OC3 capacity between New York and Los Angeles, followed by prices for DS3 and OC3 bandwidth between New York and Washington, D.C. Earlier this month, DS3 capacity between New York and Washington had the distinction of being the first listing dropped from the price table. One component in the value of a deal is mileage, so the fewer the miles, the less money in the deal. Because New York is so close to Washington, D.C., traders decided there wasn't enough money involved to continue trying to do deals for DS3 bandwidth along that route. They'll only quote prices for OC3 capacity along that route. They also decided there wasn't enough money involved in one-month deals for OC3 capacity along that route. So now they're only making a market for three-month deals on that route. This week a broker told Dow Jones Newswires that a market was being quoted for a new route: Los Angeles to San Francisco, mostly for DS3 bandwidth but also for two one-year contracts for OC3 capacity. The broker wouldn't say which company was the market maker for that route. For a simple definition, a market maker is a company that will give a bid and an offer in a market. Then it has to be willing to buy at the bid price and sell at the offer price. The first guess was, of course, Enron Corp. (ENE) because they've been very aggressive in making markets in bandwidth. Just take a look at the bandwidth bids and offers on Enron Online, if you have access. But Enron isn't the market maker for the Los Angeles-to-San Francisco route. They prefer the nearby Los Angeles-San Jose route and are making a market for it in DS3 and OC3. And it isn't El Paso Energy (EPG) either. They were the second company venture into bandwidth as a market maker. Aquila Broadband Becomes Third Bandwidth Market Maker A little research revealed that Aquila Broadband Services, a unit of Utilicorp United Inc. (UCU), is the market maker for the Los Angeles-San Francisco route. They're the third market maker in bandwidth. The other new routes being quoted are New York-Miami (DS3 and OC3); Seattle-Salt Lake City (OC3); Seattle-Los Angeles (OC3); Seattle-Portland, Ore. (OC3); Los Angeles-Las Vegas (DS3 and OC3); and Los Angeles-Dallas (DS3). A quick check of the bids and offers for the new markets reveals that the quotes are wide. When making a new market, a company doesn't want to risk making a mistake by bidding too high or offering too low. If you bid too high, sellers will jump all over your bid. If you offer too low, buyers will jump all over your offer In the new markets, there's generally $0.0015-$0.0020 per DS0 mile per month between the bid and the offer. In the most mature market, New York-Los Angeles for DS3, the bids and offers for some contracts are separated by only $.0001/DS0 mile/month, sometimes even less. In fact, another decimal place had to be added to the quotes in the price table. Some quotes for DS3 bandwidth between New York and Los Angeles have become so tight that the bid and offer sometimes were separated by only $.00005/DS0 mile/month. Traders are willing to talk about the new markets because they are hoping they will attract more attention followed by more buyers and sellers. As those markets become more liquid, the traders predict, the bids and offers will move closer together. Some carriers aren't going to like seeing quotes for more bandwidth routes. More quotes mean more price transparency. More price transparency means more questions from customers. Some carriers already argue that the prices quoted in the bandwidth market aren't "real" prices, that they are too low. If that's true, traders say, the carriers should be buying. At least some telecom analysts agree. Steven Kamman, an analyst for CIBC World Markets, has already said that in this column. The smartest course for high-cost carriers, like WorldCom (WCOM), is to stop investing in their own networks and start buying wholesale capacity from low-cost carriers, Kamman says. If and when they do, the bandwidth price table should grow even bigger. -By Michael Rieke, Dow Jones Newswires; 713-547-9207; michael.rieke@wsj.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 1-Bush adviser opposes cap on Western power prices. 01/19/2001 Reuters English News Service (C) Reuters Limited 2001. WASHINGTON, Jan 19 (Reuters) - A proposal to cap prices for wholesale electricity in the West in hopes of easing California's power crisis "would start spreading the shortage around" to other states, an adviser to the incoming Bush administration said on Friday. "That is not even a short-term solution," said Ken Lay, head of Enron Corp. and an energy advisor to incoming President George W. Bush, a former Texas oilman who takes the oath of office on Saturday. Enron is the largest power marketer in the United States, and a cap would limit the prices it and other wholesalers could charge to utilities. Lay told reporters the federal government should limit itself to an advisory role, letting California leaders resolve a "pretty much self-inflicted problem." Wholesale power prices were deregulated under the landmark 1996 law but retail rates were not. A proposal by California officials to cap wholesale power prices in the West as a way to help their state would merely "start spreading spreading the shortage around to other states," Lay said. California endured two days of rolling blackouts this week as two large utilities struggled under huge debts incurred buying electricity at higher wholesale prices than they can recoup under the retail rates they are allowed to charge. Outgoing U.S. Energy Secretary Bill Richardson said he would issue an emergency order later on Friday to require out-of-state natural gas suppliers to sell fuel to a cash-short California utility so it can continue to generate electricity. In the short term, Lay said, the state government will have to "buy the power to fill the short positions of the utilities." The longer term solution will probably include longer-running contracts to take advantage of electric prices that are expected to fall later this year. "The biggest problem in California is consumers are not going to see the price signals. If they don't see the price signals, they are not changing behavior so the problem is going to get worse," Lay said. "Painful as it is, they need to see the price signals and start modifying behavior to reduce demand until we get new supplies." California Gov. Gray Davis was expected to sign a bill allowing the state to spend $400 million to buy power on behalf of utilities. The two California utilities, PG&E Corp's Pacific Gas & Electric Co. and Edison International'sSouthern California Edison, have run up about $12 billion of debt and are teetering on the edge of bankruptcy. Their bankruptcy would rank among the nation's biggest, hitting creditors ranging from retirees invested in traditional safe havens to institutional corporations, analysts said. The Clinton administration has tried to help California by issuing week-long orders that force out-of-state power generators to sell extra electricity to the two largest California utilities. Asked how long creditors could continue to show forbearance toward utilities with mounting debt, Lay said Enron had moved to mitigate its exposure. "The generators ought to speak for themselves. They're the ones that have continued to operate plants and try to keep the lights on until the problem is worked out," Lay said."But I'm sure it cannot be long. They have to look out for their shareholders too." Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Pennsylvania PUC Blasts GPU for Comparison to California 1/19/1 17:1 (New York) HARRISBURG, Pa., Jan. 19 /PRNewswire/ -- The chairman of the state Public Utility Commission (PUC) this afternoon criticized GPU Energy for deliberately alarming consumers and elected officials by suggesting the energy crisis crippling California could easily affect Pennsylvania. "I am outraged that GPU would even hint that a similar energy crisis could happen to Pennsylvania," said PUC Chairman John M. Quain. "This appears to be a thinly veiled attempt to influence a decision pending before the PUC. "I assure consumers and legislators that what is happening in California will not happen in our state," he said. "GPU has an economic problem, not a supply problem." GPU in November petitioned the PUC for the right to collect from customers in future years more than $82 million in projected losses from purchasing electricity. Under GPU's 1998 restructuring settlement, generation rates for customers are capped through 2010 for Met-Ed customers and 2009 for Penelec customers. The two companies are subsidiaries of GPU. The PUC sharply criticized the utility for blaming their losses on wholesale market conditions when in fact the losses result from GPU's own business decisions. "The decision to divest their generation was made in their boardroom," said Kevin Cadden, PUC spokesman. "The decision not to enter into long-term power contracts with suppliers was made in their boardroom. These decisions were not made by the PUC." In recent weeks Quain has stressed that three critical factors separate Pennsylvania from California. They include: -- Pennsylvania produces more power than it consumes and therefore does not face an energy shortage like that in California. The state is a net exporter of electricity and the second largest producer of electricity in the U.S. -- Pennsylvania did not require utilities to sell their generation plants as a part of restructuring as California did. Nearly all of Pennsylvania's electric utilities own their own generating plants. GPU chose to sell all of their power plants. -- Pennsylvania does not prevent utilities from entering into long-term power contracts with suppliers. In California, utilities are forced to buy electricity on the spot market, buying power at current market rates. GPU chose not to enter into a sufficient number of these contracts. Cadden said GPU's request would follow standard PUC regulations. "The request for relief will be decided on the basis of the record and law developed in the pending proceeding, and will not be swayed by unfounded comparisons to California," he said. Pennsylvania's Electric Choice Program is widely recognized as the most successful and best run in the country, having saved customers nearly $2.8 billion to date in guaranteed rate cuts and savings. More than 550,000 customers have selected an alternative electric supplier under the program. For more information about the PUC, visit their website at http://puc.paonline.com. SOURCE Pennsylvania Public Utility Commission -0- 01/19/2001 /CONTACT: Kevin Cadden, Communications Manager of the Pennsylvania Public Utility Commission, 717-787-5722 or fa Enron and Owens-Illinois Sign Long-Term $2.2 Billion Energy Management Agreement 01/19/2001 PR Newswire (Copyright © 2001, PR Newswire) HOUSTON, Jan. 19 /PRNewswire/ -- Enron Energy Services, a subsidiary of Enron Corp. (NYSE: ENE), and Owens-Illinois, Inc. (O-I), a leading producer of glass and plastics packaging, announced today a ten-year energy management agreement. The agreement covers 53 Owens-Illinois manufacturing facilities in 20 states and will cover projected energy purchases in excess of $2 billion. Through this initial agreement, Enron will work with Owens-Illinois to manage the supply of electricity and natural gas to O-I facilities and will continue to look for ways to reduce O-I's aggregate demand. "Securing affordable, reliable energy is a key element of our strategy to be the low-cost producer in every market we serve," said Richard A. Jun, vice president of corporate purchasing for Owens-Illinois. "This contract with Enron effectively adds its leadership in energy purchasing management to our ongoing commitment to cost management, an arrangement that should provide savings and reduce our exposure to short-term energy price fluctuations." "Our partnership with Owens-Illinois is a showcase of the depth of Enron's continuing expansion into the industrial market," said Lou Pai, chairman and CEO of Enron Energy Services. "Over the length of this contract, Owens- Illinois will see the considerable competitive advantage of their existing cost-control strategies significantly enhanced by the addition of our expertise in energy efficiency and risk management." Owens-Illinois is the largest manufacturer of glass containers in the United States, North America, South America, Australia, New Zealand, and China and one of the largest in Europe. Approximately one of every two glass containers made worldwide is manufactured by Owens-Illinois, its international affiliates, or its licensees. O-I also is a worldwide manufacturer of plastics packaging with operations in North America, South America, Australia, Europe and Asia. Plastics packaging products manufactured by O-I include containers, closures and prescription containers. Enron Energy Services has built a business to transform the energy marketplace by providing integrated energy and facility management solutions. Enron currently manages energy at over 28,500 customer sites. Contracts signed within the last two years represent a reduction of approximately 8 billion kilowatt hours of electricity consumption and 18 million Btus of natural gas consumption between 2000 and 2012. Enron is one of the world's leading electricity, natural gas and communications companies. The company, with revenues of $40 billion in 1999 and $60 billion for the first nine months of 2000, markets electricity and natural gas, delivers physical commodities and financial and risk management services to customers around the world, and is developing 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". Contact: Peggy Mahoney of Enron Energy Services, 713-345-7034. /CONTACT: Peggy Mahoney of Enron Energy Services, 713-345-7034/ 17:17 EST Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Enron subsidiary, Owens-Illinois in energy deal. 01/19/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Jan 19 (Reuters) - Enron Energy Services, a subsidiary of Enron Corp. , said Friday it agreed to a 10-year energy management agreement with glass container maker Owens-Illinois Inc. . The deal, which cover 53 Owens-Illinois manufacturing facilities in 20 states, will cover projected energy purchases of more than $2 billion, the company said. "This contract with Enron effectively adds its leadership in energy purchasing management to our ongoing commitment to cost management, an arrangement that should provide savings and reduce our exposure to short-term energy price fluctuations," Richard Jun, Owens-Illinois' vice president of corporate purchasing, said in a statement. Enron shares finished off 1-3/16 at $70-7/8 on the New York Stock Exchange Friday, between a 52-week high of $90-9/16 and a 52-week low of $52-5/8. Owens-Illinois' shares, meanwhile, closed unchanged at $6-7/8, also on the Big Board. The company's stock has a a 52-week high of $21-11/16 and a 52-week low of $2-1/2. Gregory Cresci, New York Newsroom (212) 859-1700. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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