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Democrats Prepare to Duel Bush Over Energy Price Caps in West
The Wall Street Journal, 06/01/01 Electricity Trading Is Target of State Probe Regulation: A special Senate panel is investigating alleged price manipulation of power transactions. Los Angeles Times, 06/01/01 Companies Rush to Purchase Their Indian Units, Boosting Share Prices of Concerns With Foreign Ties The Wall Street Journal, 06/01/01 Exxon, Shell Poised to Win Saudi Deals --- They Appear Favored To Lead Key Projects In Coveted Gas Sector The Wall Street Journal, 06/01/01 NEW PACKAGE TO RESOLVE DPC, INDIA'S MSEB SITUATION: OFFICIAL Asia Pulse, 06/01/01 GLOBAL INVESTING: Betting on better times for utilities Financial Times; Jun 1, 2001 INTERNATIONAL ECONOMY, MIDDLE EAST & AFRICA: Hopefuls await details of Saudi gas deal Financial Times; Jun 1, 2001 FITCH PLACES INDIA ON NEGATIVE RATING OUTLOOK ON FISCAL CONCERNS Asia Pulse, 06/01/01 Thomas E. White becomes Secretary of the Army M2 Presswire, 06/01/01 Some light at last! The Economic Times, 06/01/01 Calif. investigations focus on whether out-of state wholesalers manipulated energy prices Associated Press Newswires, 06/01/01 California Lawmakers Eye Billing Businesses for Edison Rescue Dow Jones Business News, 05/31/01 Construction of power plant in DeSoto County is underway Associated Press Newswires, 05/31/01 Politics & Policy Democrats Prepare to Duel Bush Over Energy Price Caps in West By John Harwood and Jeanne Cummings Staff Reporters of The Wall Street Journal 06/01/2001 The Wall Street Journal A16 (Copyright © 2001, Dow Jones & Company, Inc.) WASHINGTON -- If you talk to economists, many will say President Bush is on solid ground in opposing caps on soaring electricity prices in California and elsewhere. But if you talk to voters, many will suggest he has political problems. And now that Democrats control the U.S. Senate, they are poised to make those problems a lot worse. Mr. Bush got a taste of what is coming in his widely touted showdown with California Gov. Gray Davis in Los Angeles this week. The Republican president repeated his familiar argument that capping wholesale electricity prices would do nothing to curb demand or increase the supply of power for California. But the Democrats' Mr. Davis, fortified by polls showing that 70% of Californians favor price caps, managed to get equal billing during Mr. Bush's visit for his argument that they are needed to keep the state from slipping into recession and threatening the national economy in the process. Because Sen. Jim Jeffords of Vermont left the Republican Party last week and changed control of the Senate, Democrats now have a more effective national platform to press the same arguments -- and to threaten Mr. Bush's political standing beyond the already hostile turf of California. The incoming chairman of the Senate Energy and Natural Resources Committee, Democratic Sen. Jeff Bingaman of New Mexico, says he plans to move soon on legislation capping prices for California and other Western states, a bill that has attracted some GOP support as well. "I think it's clear to anybody that the prices being charged for wholesale power are excessive," said Sen. Bingaman, in an interview while he was heading toward California on a fact-finding mission. "I don't believe it's going to be adequate to get us through this summer, to just continue saying that eventually supply will come into line with demand and the problems will be resolved." Meantime, the incoming chairman of the Permanent Subcommittee on Investigations, Democratic Sen. Carl Levin of Michigan, plans to investigate the role of oil companies in higher gas prices. "This is the manipulation of prices, and we've got to investigate it because our people in Michigan are absolutely furious," Sen. Levin says. Just as Republicans once used the machinery of Congress to probe then-President Clinton's problems, Democrats see ripe opportunities for embarrassing an ex-oilman president with strong links to Texas energy-producing companies that are profiting from today's supply squeeze. During the 2000 presidential campaign, five of the major companies now supplying power to California -- Duke Energy Corp., Dynegy Inc., Enron Corp., Reliant Energy Inc., and Williams Cos. -- gave some $3.6 million to Mr. Bush and the GOP, more than triple the amount donated to Democrats. Three of those companies are based in Mr. Bush's home state of Texas, which only adds to the political tensions. The Democratic offensive has the GOP worried. Price caps amount to "terrible policy, but good politics," frets Republican pollster Neil Newhouse. Mr. Bush now faces "a difficult job" overcoming the Democratic arguments for caps, he adds, because "control of the Senate has given them a megaphone on issues that they just didn't have before." That doesn't necessarily mean Mr. Bush ultimately will suffer grave damage. As congressional Republicans learned to their chagrin in battles with Mr. Clinton, the presidential bully pulpit remains the most potent weapon in American politics for framing policy debates. Even with that advantage, though, the Clinton administration found that the initial appeal of arguments on issues such as tobacco regulation and prescription drugs faded under sustained counterattack by Republicans and affected industries. And so far, polls are showing that Mr. Davis also is paying a political price in California for the crisis. Still, Mr. Davis, who faces re-election next year and may later seek the 2004 Democratic presidential nomination, believes he can limit the damage by emphasizing his efforts to expand supply and spotlighting the actions of energy companies in Texas and elsewhere. On CNN's "Larry King Live" this week, he complained that "money sucked out of this state" amounts to "a massive transfer of wealth" from Californians to the industry. Whatever the political ramifications, they aren't limited to California. Consumers in Washington, Idaho and Montana that are serviced by the same electric grid have seen 30% increases in their utility rates. That is why Mr. Davis, with support from some GOP governors in the West, is asking the Federal Energy Regulatory Commission to impose short-term wholesale price caps to help protect electricity consumers from soaring rates until new power plants approved for construction in California increase supply enough to bring prices down through market forces. California Democratic Sen. Dianne Feinstein and Oregon Republican Sen. Gordon Smith are offering legislation to accomplish that in the committee that Mr. Bingaman now will chair. As a matter of policy, most economists probably would agree with Mr. Bush's free-market position on price caps, though that sentiment is hardly unanimous. As he met with the president this week, Mr. Davis released a letter from 10 prominent economists backing price caps as a temporary remedy for a market "not characterized by effective competition." One of the signatories was Alfred Kahn, architect of airline deregulation under President Carter. But Bush economic advisers, heeding the free-market arguments that have held the high ground in regulatory policy debates since the Reagan era, insist that such caps would distort the energy market and be difficult to abandon even when market conditions turn more favorable for consumers. "Price caps do nothing to reduce demand, and they do nothing to increase supply," Mr. Bush said in California this week. Mr. Davis says the Federal Energy Regulatory Commission is obliged under law to assure "just and reasonable" prices, and he says he will sue the agency to force it to act despite the dismissal earlier this week of a similar lawsuit filed by California's Democratic legislative leaders. Whether the governor's effort succeeds, it could provide another forum in which supporters of price caps can make their case. In discovery, for instance, California attorneys may be able to get industry data on how much the wholesalers are paying to produce electricity and their real costs of delivering it. Such transactions are drawing attention because of the significantly higher prices being charged in California compared with other states. This week, for instance, the price of a million British Thermal Units of natural gas in the San Juan Basin in New Mexico was $2.80, said one economist for the Senate Energy Committee. But when that gas arrived at the Southern California border, she said, the price was $10.20 per million BTUs. Mr. Bush himself voiced concern about such differentials in his meeting with Mr. Davis, and ordered the FERC to step up monitoring for price gouging. He has designated Pat Wood, a recent FERC appointee who headed the Texas Public Utilities Commission during his governorship, as the administration's lead liaison to California. Mr. Wood, in fact, could end up an increasingly important player as the crisis in California and other Western states plays out this summer. Mr. Wood, who supported some price caps in Texas, is considered more flexible on the issue than is FERC's current chairman, free-market champion Curtis Hebert. During his confirmation hearings, Mr. Wood said it may be too late for price caps because the commission would need months to study materials and determine an appropriate market rate. If the administration continues resisting caps, Democrats vow to score political points heading into the 2002 congressional elections. "Bush is the individual who ginned this up into a crisis" by frequently calling attention to the nation's energy problems, says Jim Jordan, executive director of the Democratic Senatorial Campaign Committee. "Yet the administration won't consider any serious short-term action to alleviate the problem for the public." --- Energy Problems? Public views of President Bush and energy problems, nationally and among Californians: Nationally Q: In general, do you approve or disapprove of the way President Bush is handling his job as president? Approve 52% Disapprove 38% Q: Based on what you have read or heard, do you favor or oppose President Bush's plan to deal with the country's current energy problems? Poor job 49% Good job 38% Q: How do you think President Bush is handling energy? Oppose 42% Favor 38% Unsure 20% In California Is it a good or bad thing for the federal government to cap energy prices? GOOD THING BAD THING NO OPINION All adults 70% 24% 6% Registered voters 68 26 6 Democrats 79 17 4 Republicans 57 37 6 Other 63 29 8 Sources: National poll numbers from CNN/Time poll; California numbers from the Field Poll Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. California; Metro Desk Electricity Trading Is Target of State Probe Regulation: A special Senate panel is investigating alleged price manipulation of power transactions. RICH CONNELL; ROBERT J. LOPEZ TIMES STAFF WRITERS 06/01/2001 Los Angeles Times Home Edition B-1 Copyright 2001 / The Times Mirror Company California officials are probing a vast private network of electricity trading floors suspected of being a central culprit in California's spiraling energy prices. A special state Senate panel investigating alleged manipulation of the energy market is zeroing in on hundreds of thousands of secretive transactions each year that help determine whether California will have the power it needs--and what it will have to pay to get it. Those activities also are central to a lawsuit by the San Francisco city attorney, who has accused power companies of using unfair business practices to reap huge profits from the state's volatile and vulnerable energy market. A single electron may be traded nearly a dozen times, often at escalating prices, before reaching California. By then, the actual cost of producing the electricity may have no relation to its price. Unlike other commodity and stock exchanges, the frenzied daily activity on the energy trading floors escape any independent oversight, which critics contend makes the operations ripe for collusion and price-fixing. "They're playing the California power game," said attorney Michael Aguirre, a former federal prosecutor now suing power companies on behalf of Lt. Gov. Cruz Bustamante. "The trading is the epicenter of the whole enchilada. They trade and inflate the value." Power company representatives say their trading floors operate legally and ethically. "I don't think there has ever been the slightest shred of evidence [of] something illicit or wrongdoing," said Gary Ackerman of the Western Power Trading Forum, an industry trade group. Ackerman and players in the market say prices are not always ratcheted up through the trading. Often, they say, traders can match supply and demand to help stabilize prices through daily transactions and long-term contracts. Still, Aguirre and others say, these sophisticated trading operations have outmaneuvered bureaucrats at Cal-ISO and the state Department of Water Resources, the agencies responsible for buying billions of dollars worth of power over the past several months. The sprawling trading floors, scattered across the country, are marvels of high technology. Amid banks of computers and huge wall screens that track weather, electricity prices and demand across vast regions, mathematicians, meteorologists and rows of gung-ho traders try to optimize profits buying and selling one of the world's most volatile commodities. "These are trading floors that are well outside any regulatory format," state Sen. Joseph Dunn (D-Santa Ana) said Thursday. "What impact do these trading floors have on the situation in California?" Plant Operations Also Scrutinized Although trading floors are an important focus of state authorities, the probes of the power companies include an array of issues. Investigators are digging into the operations of power plants to determine whether unnecessary shutdowns have been used to tighten supplies and hike prices. Dunn, a onetime consumer attorney, is heading the Senate investigation panel that is trying to unravel these issues and the role of the trading floors, operated by the nation's largest power marketers: Enron, Mirant, Duke Energy, Dynegy Inc., Williams Cos. and Reliant. The committee is seeking records that could determine whether the power companies have swapped information on trading tactics to maximize prices. Among dozens of categories of documents Dunn's committee has requested--and may ultimately subpoena--are computer records from trading floors, recordings of communications between traders for different companies and training manuals for traders. "We know one product of that trading is it drives up the price. . . . What are you trading for, other than to drive up the price?" Dunn said in a recent interview. His committee, which has yet to uncover any wrongdoing, is battling with the power companies to obtain information the firms insist is confidential. San Francisco City Atty. Louise H. Renne also is focusing on trading-floor activity. "That is a central concern of ours," said Owen Clements, Renne's chief of special litigation. Clements suspects power traders may be "churning" megawatts through repeated sales and boosting prices. "If everyone passes it around and makes a profit, and the ratepayer and the state of California are stuck with the bill . . . that certainly looks like an unfair business practice," he said. A spokesman for Houston-based Enron, which operates one of the busiest trading operations, said critics misunderstand the energy market, where profits are not necessarily tied to high prices. "We're agnostic about the direction of prices," Mark Palmer said. "We make money one way or the other." He said the trick is in having a diversified portfolio--and offering unique risk services--to absorb the changing market. Palmer said those implying misconduct on the trading floors are "100% politically motivated. . . . These are folks who want to return California to [power] regulation." Still, some industry officials acknowledge that some additional oversight of trading floors may be needed. Ackerman, of the power trading association, said his members have asked federal regulators to consider an auditing program to review trading activities. "If people don't have confidence in trading floors," Ackerman said, "that's a problem." * Times staff writer Miguel Bustillo contributed to this story. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. World Stock Markets Companies Rush to Purchase Their Indian Units, Boosting Share Prices of Concerns With Foreign Ties By Jesse Pesta Staff Reporter of The Wall Street Journal 06/01/2001 The Wall Street Journal C11 (Copyright © 2001, Dow Jones & Company, Inc.) NEW DELHI -- Foreign companies are on a shopping spree in India's stock market, buying up their own affiliates and hoping to take them private. In recent weeks, companies ranging from Otis Elevator Co. and Carrier Corp., both of Farmington, Conn., to Hoganas AB of Sweden, a player in the global iron-powder business, have made open offers for the shares of their Indian units, sometimes at prices that suggest they consider themselves a bargain. Boston chemicals maker Cabot Corp. offered 100 rupees ($2.13) a share for Cabot India Ltd. at a time when it was trading around 55 rupees. Royal Philips Holland has offered to buy the 17% of light-bulb maker Punjab Anand Lamp Industries it doesn't already own, according to Punjab. Otis and Carrier, which are units of United Technologies Corp., Hartford, Conn., have offered to buy all shares outstanding of their Indian affiliates, Otis Elevator Co. (India) Ltd. and Carrier Aircon Ltd. The price for Carrier shares was a nearly 100% premium to the stock's price prior to the offer. The buybacks have triggered a surge in the stocks of other companies with a foreign pedigree. Companies including Rayban Sun Optics India Ltd. (a unit of Bausch & Lomb Inc., Rochester, N.Y.) and Philips India Ltd. (a unit of Royal Philips Holland) have seen share prices rise as much as 40% or more since the mid-May offers for Otis and Carrier, which were two of the early ones in the current wave. Both Rayban and Philips India deny open offers are planned. In any case, Philips already boosted ownership in its Philips India unit to 83% from 51% late last year. In contrast to the surging shares of multinationals since mid-May, the Bombay Sensitive Index has risen only 1.56%. It closed yesterday at 3631.91, down 30.13. The trend has several drivers. For one thing, Indian stocks remain battered after a rash of big market scandals earlier this year. Meantime, taking a company private means it no longer is required to share as much information about its business either with the market or a local partner. "In tough times it will safeguard your interest," says Jignesh Shah, strategist at Ask-RJ Investment Management in Bombay. But most significantly, India has slowly made it easier in recent years for foreigners to invest. Indeed, the buyback trend contrasts with the feud between Dabhol Power Co. and its customer, the Maharashtra State Electricity Board, over unpaid electricity bills. Dabhol, which is 65%-owned by Houston's Enron Corp., is India's largest foreign investment and an emblem of the difficulties foreign companies have encountered through the years. But the buyback trend "works against the story of negative foreign-investment environment" in India, one analyst notes. As a rule, the companies play down the importance of stock price. Hoganas's buyback for instance reflects the company's global strategy, but reflects as well on a liberalizing India: Everywhere else in the world Hoganas owns 100% of its subsidiaries, even Japan and China, says Virendra Sud, managing director. But India didn't allow full foreign ownership 15 years ago, when the company came here, he says, or else "we would have done it then." It's purely coincidental that the buyback comes just as the stock market "has sort of hit rock bottom," he says. Otis attributes its buyback partly to India's growing appetite for more sophisticated elevators, which means transferring advanced designs here. Technology transfer heightens the need for closer cooperation with the parent, says Managing Director Ashok Malhotra. But the company's reason for going public in the first place sheds light on the regulatory cycle playing out today in India. In the 1970s, India went through a phase of requiring foreign companies to be part locally owned, so Otis made the public offer that it is trying to undo today. "You have to work under the rules of the time," Mr. Malhotra says. --- Yesterday's Market Activity Nasdaq's losses overnight pressured markets throughout Asia as Tokyo blue chips tumbled 1.7% and South Korea's benchmark index fell 2.6%. European markets rebounded somewhat from the previous day's declines, though volume was thin. Overall, the Dow Jones World Stock Index rose 0.10%, or 0.20, to 195.33. Excluding the U.S., the index fell 0.68%, or 0.96, to 141.08. In TOKYO, the Nikkei Stock Average was down 1.7%, or 231.21 points, to 13262.14. Nomura Securities downgraded its ratings on Fujitsu, Toshiba and NEC, causing a broad slump in technology shares. Fujitsu ended down 2.8% at 1,543 yen, NEC slumped 3.9% to 1,947 yen, and Toshiba fell 3.6% to 675 yen. In HONG KONG, the Hang Seng Index ended down 1.8%, or 245.72 points, at 13174.41. China Mobile fell 2.8% or 1.1 Hong Kong dollars to close at HK$37.80. Property concern Cheung Kong dropped 3.4% to HK$85 and Sun Hung Kai finished down 2.4% at HK$72.75. In LONDON, the FTSE 100 Index slipped 0.01%, or 0.8 points, to 5796.10. Services company Rentokil Initial surged 12.9% to 215 pence after it said sales from continuing businesses were up 7.1% and operating profit was up 9% year on year. It also said it has bought back 120 million of its own shares since March. Invensys closed 6% higher at 142 pence after posting results in line with expectations. Retailer Boots ended 3.5% higher at 597 pence after posting earnings results in line with expectations. In PARIS, the CAC 40 Index closed up 0.2%, or 9.92 points, to 5454.19. Alcatel closed up 2.4% to 29.95 euros following the release Wednesday of weaker-than-expected results and the demise of merger talks with Lucent Technologies. J.P. Morgan cut its earnings-per-share forecast for the communications-equipment supplier. Deutsche Bank also expressed negative sentiment about the company, saying an industry turnaround is unlikely before the fourth quarter of 2001. Car maker Renault closed down 1.1% to 55.15 euros. Lehman Brothers cut its 2001 earnings forecast, citing exposure to falling demand in U.S. and Europe. --- MSCI Indexes % FROM May 30 May 29 12-00 U.S. ........... 1183.7 1201.5 -5.3 Britain ........ 1723.9 1744.4 -6.4 Canada ......... 1030.8 1049.4 -10.9 Japan .......... 828.4 844.2 +2.5 France ......... 1763.4 1794.3 -7.3 Germany ........ 755.2 767.4 -7.7 Hong Kong ...... 6844.0 6920.0 -11.0 Switzerland .... 939.5 946.6 -7.6 Australia ...... 700.3 702.9 +9.4 World Index .... 1120.6 1136.4 -8.2 EAFE MSCI-p .... 1325.6 1342.7 -11.2 As calculated by Morgan Stanley Capital International Perspective, Geneva. Each index, calculated in local currencies, is based on the close of 1969 equaling 100. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. International Exxon, Shell Poised to Win Saudi Deals --- They Appear Favored To Lead Key Projects In Coveted Gas Sector By Bhushan Bahree Staff Reporter of The Wall Street Journal 06/01/2001 The Wall Street Journal A11 (Copyright © 2001, Dow Jones & Company, Inc.) PARIS -- Exxon Mobil Corp. and the Royal Dutch/Shell Group appear poised to win coveted leadership roles this weekend in a historic reopening of Saudi Arabia's energy industry. People familiar with developments said that barring last-minute upsets, Exxon, the world's largest publicly owned oil company, will be named operator of the largest opening being offered by the Saudis, the South Ghawar natural-gas project that will require investment of $15 billion and is named after the world's largest oil field, in the country's eastern province. But, they cautioned, because Shell has been competing hotly for South Ghawar, nothing can be taken for granted until the Saudis officially name the winners and sign memorandums of understanding on Sunday. As of late last night, Shell, the second largest company, was expected to win the second prize: leadership of the Shaybah gas project, which requires investment of $5 billion and is named after a recently developed oil field in the kingdom's remote Empty Quarter, a southeastern desert region. Saudi Arabia already has named Exxon leader of the third and last gas project opened to foreign investment, the Red Sea project that requires investment of as much as $5 billion. Saudi Arabia's energy industry was nationalized in the 1970s, but over the past two years has been reopened to foreign investment, prompting a fierce contest among the world's largest oil companies. The people familiar with developments cautioned that until the choices have been endorsed by an 11-member ministerial committee headed by Saudi foreign minister Prince Saud al-Faisal, and given the final nod by Saudi Crown Prince Abdullah, they couldn't be considered final. The people said the ministerial committee met late yesterday ahead of a formal signing ceremony planned for Sunday in Jeddah, the Saudi city on the Red Sea coast. Such is the importance of getting into Saudi Arabia that the chief executives of the eight companies chosen to participate in the gas projects are flying to Jeddah to sign the memorandums, a prelude to negotiations about fiscal and other terms. Final agreements aren't expected until year's end at the earliest. Officials of Exxon, Shell and the Saudi government declined to comment on the choices made by the kingdom, which has the world's largest crude reserves and is fifth in the natural-gas reserves after Russia, Iran, Qatar and the United Arab Emirates. A leadership role -- or operatorship in industry parlance -- brings the opportunity to set the pace of the project and create local networks that can prove valuable for future projects. The kingdom still isn't allowing foreign companies into its crude-oil business, which is run by the state-owned Saudi Aramco, but foreign oil companies hope they eventually will be allowed into that sector, too. Indeed, Aramco is expected to participate in the gas projects opened to foreigners, with voting rights that have yet to be determined. The projects are wide-ranging and encompass a long chain from exploration and production of natural gas, to its transportation and use to generate electricity and in water desalination plants. Last month, Saudi Arabia named eight foreign companies, from a list of 11, to take part in three consortiums for these projects. Besides Exxon and Shell, they are BP PLC, TotalFinaElf SA, Conoco Inc., Phillips Petroleum Corp., Occidental Petroleum Corp. and Enron Corp. The three companies that sought but failed to get a place are Chevron Corp., ENI SpA, and Marathon Oil Canada Inc. Industry officials say the competition was some of the fiercest ever. Said a senior industry executive: "Everybody is looking 10 years down the road, and the place to be is in Saudi Arabia." Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. NEW PACKAGE TO RESOLVE DPC, INDIA'S MSEB SITUATION: OFFICIAL 06/01/2001 Asia Pulse © Copyright 2001 Asia Pulse PTE Ltd. NEW DELHI, Jun 1 Asia Pulse - A new package 'acceptable to all' is being evolved to resolve the seven-month old wrangle between Enron promoted Dabhol Power Company and the Maharashtra State Electricity Board (MSEB) over the issue of cost of power and payment of bills, A V Gokak, the federal government's representative in Maharashtra's negotiation committee said today. "Things are moving in the right direction and government is serious to resolve the crisis," Gokak told PTI after a meeting with the Finance Minister, Yashwant Sinha, here. Gokak said none of the parties to the dispute are in favour of closure of the $3 billion project. Earlier, the Indian government had asked Central Electricity Authority (CEA) to explore possibility of selling the DPC power to deficient states. But the Power Minister, Suresh Prabhu, had ruled out possibility of National Thermal Power Corporation (NTPC) lifting DPC power. Prabhu had stated that the government would make all efforts to settle the matter in consultation with the stake holders. Asked if any time frame has been set to break the impasse, Gokak said "delay is in nobody's interest, but there are no readymade solutions." The negotiating committee, headed by Madhav Godbole, has held two rounds of negotiations with the last round held earlier this week being termed "positive" by both DPC and the MSEB. Gokak is believed to have put forward alternative solutions in resolving the crisis. (PTI) MYB 01-06 2030 Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. GLOBAL INVESTING: Betting on better times for utilities Financial Times; Jun 1, 2001 By JOHN DIZARD The share price of one large electron-pushing company is up nearly 70 per cent this year, but could be in line for another pop to the upside. That may sound like a report from Mary Meeker, the formerly omniscient internet stock guru, or like your broker's stock-of-the-week pitch. Well, neither will be making such a claim at the moment - their legal departments have them on too tight a leash. And the stock I have in mind is not a technology stock in the sense of a silicon basher or programmer farm. It is Edison International, the California electric power holding company, whose Southern California Edison utility has been very publicly hovering at the edge of bankruptcy for several months. The day after President George W. Bush made his "You're on your own, California" speech, Edison's share price dropped more than 5 per cent. And while the year-to-date rise, from Dollars 6.25 to Dollars 10.50 this week, has been impressive, share-holders have seen a 46 per cent loss year on year. So why should anyone be optimistic about the chances for the common shareholders in the holding company? Essentially because the state legislators are being terrified into coming up with a bail-out plan - not exactly the plan of Gray Davis, the governor of California, but one that will preserve some value for the holding company shareholders and give them a more predictable future. By now every one knows that the California utilities were squeezed by fixed retail rates and rising wholesale costs. Edison has said it has Dollars 3.5bn in "undercollected" wholesale power purchase costs. The state of California (and its taxpayers) stepped in to buy power when the utilities ran out of borrowing capacity in January. PG&E, the other big investor-owned utility, filed for Chapter 11 protection back in April. Edison held off from filing, preferring to try to get a state government bail-out. Much is missing from the standard account. For example, consumer groups believe there is a lot of padding in the "undercollect", and that the holding company should cough up billions in assets paid for with dividends supplied by the SCE subsidiary. Many of the California public believe that the merchant generators such as Duke Energy and Enron should pay back overcharges rather than get any back bills paid. And yet the legislative tide is turning in Edison's favour. Within the next couple of weeks, I expect the Democrats - who control both the state Assembly and Senate - to come up with a bail-out plan for Edison that has a good chance of passing both houses and being signed into law by the governor. The reason is the the distinction they have begun to make between ratepayers and taxpayers. To a legislator, tax payments, as distinct from utility rates, are things that run through their hands and go to favoured programmes. Taking over the payment of electric wholesale costs did not look too scary back in January, when Governor Davis said it would go on for a few weeks and be easily covered with the cash on hand. Well, the state has paid out nearly Dollars 8bn and its cash reserves will be under increasing pressure until a Dollars 12bn-Dollars 13bn bond issue can be floated some time after August 15. A decline in tax receipts is putting even greater stress on the state government's resources. So the legislators want to get as far out of the power business as they can, as fast as they can. That means saving Southern California Edison from Chapter 11. The deal being negotiated within the Democratic leadership looks something like this. The state will make a large loan, call it Dollars 1bn, against the security of Edison's transmission system, to be repaid either through a sale of the system to the state or a deduction from the allowed return on the towers and wires. The holding company will pay out about Dollars 400m to prop up the subsidiary. The rest of the undercollect will be paid for by a "dedicated rate component", or charge to ratepayers - mostly commercial, industrial and large users - that cannot be revoked by the Public Utility Commission. The generators can get 70 cents on the dollar for their back bills right away, or they can litigate forever. There are a few details that lawyers will quibble over, such as the constitutionality of retroactively raising rates. And some may ask if it is not cheaper just to let Edison go into Chapter 11, because even with the plan it will not be able to take the state's place as a wholesale buyer at any time soon. But I would bet on its passing anyway. And that would be good news for Edison International shareholders, since they will have held on to most of the holding company's assets, and still have an ongoing business in the subsidiary. Don't bet the rent money on it, but it looks closer to me than a comeback in spending on semiconductors. Maybe the children's college money - if you lose it, they should work harder anyway. Copyright: The Financial Times Limited INTERNATIONAL ECONOMY, MIDDLE EAST & AFRICA: Hopefuls await details of Saudi gas deal Financial Times; Jun 1, 2001 By ROBIN ALLEN and MATTHEW JONES ExxonMobil and Royal Dutch/Shell are the favourites to lead two of Saudi Arabia's multi-billion dollar upstream gas projects to be opened to foreign companies, according to industry observers in the Middle East. A committee of Saudi ministers responsible for the developments was due to meet late last night. The companies are expected to learn the size of their stakes either late today or early tomorrow, an official close to the projects said. Saudi Arabia, which has excluded foreign companies in upstream operations since 1975, last month announced the selection of eight oil groups to participate in three gas projects requiring initial investment of around Dollars 25bn. Exxon has already been appointed leader of Core Venture 2, on the Red Sea coast, which also includes Occidental Petroleum and Enron Corp of the US. The partners in Core Venture 3, the Shaybah development in the south-eastern quarter of the kingdom, are Shell, TotalFinaElf of France and Conoco of the US. Analysts and industry experts in Riyadh and Abu Dhabi said Exxon was expected to be named leader of South Ghawar, also known as Core Venture 1, with a 35 per cent stake. BP and Shell would each be awarded 25 per cent shares while Phillips would receive 15 per cent. Exxon was expected to be given a 70 per cent share of Core Venture 2, with the remainder split equally between Occidental and Enron. Shell was tipped to lead Core Venture 3 with 40 per cent of the project, while Total and Conoco were expected to win 30 per cent each. One analyst said there was an outside chance that BP would be awarded leadership of Core Venture 1 for political reasons. A BP official last night said the group had had no indication of the decision, but added: "Even if we are not selected we will still have a very significant part in a huge project. The important thing is to be there." Additional reporting by Robin Allen in Dubai Copyright: The Financial Times Limited FITCH PLACES INDIA ON NEGATIVE RATING OUTLOOK ON FISCAL CONCERNS 06/01/2001 Asia Pulse © Copyright 2001 Asia Pulse PTE Ltd. NEW DELHI, June 1 Asia Pulse - International ratings agency Fitch has changed the Rating Outlook on India's sovereign ratings from Stable to Negative, citing well-flagged concerns about fiscal policy, privatization and the deterioration in the foreign investment climate. Fitch currently rates the foreign and local currency obligations of India at BB+ and BBB- respectively. The negative rating outlook reflects the slow progress of the government in implementing privatization and addressing the weaknesses in public finances. The fiscal-monetary policy mix in India remains unfavorable, resulting in relatively high real interest rates and crowding out of private sector investment. Until the authorities display a concerted willingness to address fiscal imbalances, India will remain locked in a stop-go cycle of growth and the sovereign could slip into a debt trap, Fitch said in a press statement. The recent corruption scandal, involving the ruling Bhartiya Janata Party (BJP)-led coalition government, threatens to exacerbate these trends and slow economic reform. India's general government fiscal deficit at over 9 per cent of GDP is among the highest in the realm of rated sovereigns. Persistently high fiscal deficits have led to a build-up of the general government's debt burden, estimated to be over 60 per cent of GDP. In addition, the government has guarantees outstanding amounting to 9 per cent of GDP. Fitch reiterates the point that such guarantees, issued to back mainly infrastructure projects, are contingent liabilities of the government. This has most recently been borne out in the case of Enron, where the US power company has invoked a central government guarantee for payment arrears accumulated by the Maharashtra State Electricity Board. ASIA PULSE 01-06 1609 Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Thomas E. White becomes Secretary of the Army 06/01/2001 M2 Presswire Copyright 2001 M2 Communications, Ltd. All Rights Reserved. Thomas E. White became the 18th secretary of the Army today after being nominated by President George W. Bush on May 1, 2001, and confirmed by the Senate on May 24. White expressed his gratitude to the president and the secretary of Defense for their confidence and trust in him. During his confirmation hearing before the Senate Armed Services Committee on May 10, White identified four objectives he will pursue as secretary of the Army in support of the president and the secretary of Defense: to invest in people, to assure readiness, to transform the entire Army and to adopt sound business practices. The secretary of the Army is the U.S. Army's senior civilian, responsible by statute for all matters relating to Army manpower, personnel, reserve affairs, installations, environmental issues, weapons systems and equipment acquisition, communications and financial management. The secretary leads a work force of some one million active duty, National Guard and Army Reserve soldiers and 225,000 civilian employees. The department has an annual budget of approximately 70 billion dollars. Before his appointment as secretary of the Army, White was the vice chairman of Enron Energy Services, the Enron corporation subsidiary responsible for providing energy outsource solutions to commercial and industrial customers throughout the United States. White began his service to the nation in 1967, after graduating from the U.S. Military Academy at West Point. His distinguished career as a commissioned Army officer included two tours in Vietnam and service as commander, 1st Squadron, 11th Armored Cavalry Regiment; commander, 11th Armored Cavalry Regiment, V Corps; and executive assistant to the chairman, Joint Chiefs of Staff. He retired from the Army in 1990 with the rank of brigadier general. For additional information, see the Army web site at http://www.dtic.mil/armylink or contact Army Public Affairs at (703) 697-7550. ((M2 Communications Ltd disclaims all liability for information provided within M2 PressWIRE. Data prepared by named party/parties. Further information on M2 PressWIRE can be obtained at http://www.presswire.net on the world wide web. Inquiries to info@m2.com)). Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Some light at last! 06/01/2001 The Economic Times Copyright (C) 2001 The Economic Times; Source: World Reporter (TM) NEW Delhis intervention in the tussle between Enron and the Maharashtra government is a welcome development. The government wants the Central Electricity Authority to find out whether electricity generated by Dabhol Power Company can be sold to states which need power badly if it cant be used by Maharashtra. This is a good idea India is seriously short of reliable, quality electricity supply. Maharashtra claims that it doesnt need even the 740 MW now generated by DPC at going rates. This creates further trouble: the lower Maharashtras offtake, the higher the unit price of DPC power. Once other power hungry states start buying up electricity from DPC, the price per kilowatt hour will fall sharply. The first step to getting DPC out of the hole that Enron, Maharashtra and successive Indian governments have dug it into, is to allow the utility to sell power to anyone who wants to purchase it at going rates. However, asking central utilities like the fledgling Power Trading Corporation to evacuate DPC power for sale outside Maharashtra wont solve the hassles of the sector for all time. The government should modify electricity laws to allow generating companies to sell electricity to all users immediately. An ordinance passed by New Delhi will do the trick power is a concurrent subject, with central legislation overriding states. But even if that happens, it is doubtful if there will be too many buyers for Dabhol power at its present price about Rs 4 per unit with the plant running at high capacities. If the price is to be brought down further, the deal with MSEB will have to be renegotiated. The Godbole Committee says that some financial restructuring, de-dollarising of debt and equity, and so on can bring prices down by about 30 per cent from DPCs minimum Rs 4 per unit rate today. Otherwise, as the GC points out, it will be impossible for the project to be viable at current tariffs. India desperately needs electricity to grow. For the power sector to grow, reforms are necessary at every level renegotiations, yes, but also changes in laws and the rules of the game. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Calif. investigations focus on whether out-of state wholesalers manipulated energy prices By MICHAEL LIEDTKE AP Business Writer 05/31/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SAN FRANCISCO (AP) - State energy regulators say they are close to finishing probes into whether electricity wholesalers illegally aggravated the state's power squeeze. In one year, California's power crisis has raised customer rates by $5.7 billion and dumped a $13 billion bailout bill on taxpayers. State officials hope to recover the money if they find evidence that out-of-state wholesalers manipulated the market to illegally driving up prices. The wholesalers say they are being turned into scapegoats for a 1996 deregulation law sculpted by California lawmakers and the state's two largest utilities, Pacific Gas and Electric and Southern California Edison. The utilities have reported a combined $8.2 billion in losses since June 2000. Two legislative committees are investigating allegations that wholesalers created artificial supply shortages that drove wholesale electricity prices as high as $1,900 per megawatt hour. Before June 2000, wholesale prices for energy sold under similar terms rarely climbed above $150 per megawatt hour. At least five lawsuits, including one filed by San Francisco City Attorney Louise Renne, seek damages from wholesalers on behalf of all Californians. "I don't think these are going to be very hard cases to make," said Owen Clements, chief special litigator for San Francisco. "Even if they didn't break the letter of the law, they clearly have violated the spirit of the law." Attorney General Bill Lockyer is offering multimillion-dollar rewards to power plant workers and energy traders who provide the state with inside information about wholesaler's decisions. "Everyone feels like they're being ripped off. There's a lot of emotional belief that unfair things have been done, but we're still working through the case," said Lockyer, a Democrat who voted for the deregulation law when he served in the state Senate. The state utilities commission is inspecting power plant documents that may show whether some facilities shut down unnecessarily to diminish supply. The commission and Lockyer are investigating whether the plants then increased production to reap big profits. Power wholesalers maintain that the plants, many of which are 30 to 40 years old, shut down for legitimate equipment repairs and maintenance. "No one in our industry cuts back on production so a competitor can make more money. It just doesn't happen, at least not on planet Earth," said Gary Ackerman, executive director of the Western Power Trading Forum, a trade group. The Federal Energy Regulatory Commission earlier this year alleged that Tulsa, Okla.-based Williams profited from the closure of two Southern California power plants owned by a business partner, Arlington, Va.-based AES Corp. Without admitting wrongdoing, Williams refunded $8 million to settle the charges. California's investigations are examining the conduct of Williams, as well as several other prominent power wholesalers, including Houston-based Enron Corp., Dynegy Inc., and Reliant Energy, Charlotte, N.C.-based Duke Energy and Atlanta-based Mirant Corp. Cohen said the utilities commission could file a civil lawsuit against the wholesalers by the end of June. Lockyer expects to wrap up an investigation in late July at the earliest. --- On The Net: California Public Utilities Commission: http://www.cpuc.ca.gov California Attorney General: http://www.caag.state.ca.us http://www.enron.com http://www.reliant.com http://www.dynegy.com http://www.duke-energy.com http://www.williams.com http://www.mirant.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. California Lawmakers Eye Billing Businesses for Edison Rescue By Jason Leopold 05/31/2001 Dow Jones Business News (Copyright © 2001, Dow Jones & Company, Inc.) Dow Jones Newswires LOS ANGELES -- California lawmakers are mulling yet another set of ideas for rescuing embattled Southern California Edison, and this time businesses would be on the hook. In an attempt to deflect charges of a bailout that have thus far stymied efforts to restore the utility to solvency, legislators are now considering ways to shift the burden of financing the rescue from residential ratepayers to the state's largest businesses, aides to key state lawmakers said this week. The ideas being worked over by Senate President Pro Tem John Burton, Assembly Speaker Robert Hertzberg and Assemblyman Fred Keeley have yet to take shape as formal proposals. But an aide to Burton said some key lawmakers are so "desperate" to keep Edison International (EIX) utility Southern California Edison from following PG&E Corp. (PCG) unit Pacific Gas & Electric into bankruptcy court that they are willing to consider anything that will takse residential consumers out of the equation. "The idea is that the large industrial customers are the ones who pushed for deregulation in the first place, so they should be responsible for bailing out Edison," the aide said. "We're looking to take the burden off of residential ratepayers." The premise of a plan discussed by lawmakers on a conference call Thursday is to designate Southern California Edison's largest commercial ratepayers as non-core customers. Those customers -- some 3,600 users of more than 500 kilowatt-hours a month -- would be responsible for financing the cost of power the utility must purchase or have purchased for it in the wholesale market. The non-core customers would also help the utility recoup most of its $5.5 billion in unrecovered power costs through a surcharge on their bills. Core residential customers would be protected from the wholesale power market as the primary beneficiaries of the low-cost power the utilities generate themselves or have locked up in long-term contracts. Enron Pushing Access to Customers Separately, Enron Corp. (ENE) has been lobbying lawmakers for several weeks to win approval to sign power-supply contracts with Southern California Edison's largest commercial customers, leaving the utility to serve just its residential customers and small businesses, aides to Gov. Gray Davis, Messrs. Burton and Hertzberg said. An Enron executive confirmed that the company sent a four-page proposal to Mr. Hertzberg proposing that Southern California Edison's large industrial customers sign so-called direct-access contracts with Enron. Enron also has recently made a presentation about direct access to some members of the California Chamber of Commerce. Under the proposal, heavy users would be required to contract directly with companies like Enron for their power. Direct access was a key part of the state's 1996 deregulation plan, but was scrapped early this year when the state started buying wholesale power in place of the utilities. The core/non-core proposal is one of several being discussed by lawmakers as alternatives to a memorandum of understanding Mr. Davis struck with Edison in April. The MOU -- which doesn't vary much from an agreement in principle reached in February -- has been called dead on arrival by some lawmakers, who have been mulling various alternatives rather than moving the agreement forward. State Sen. Debra Bowen, a Redondo Beach Democrat and chairwoman of the Senate energy committee, said there are so many "Plan B's" floating around the Legislature that, "We're going to need to hire an apiculturist." Steve Maviglio, a spokesman for the governor, said the Davis administration is still dedicated to seeing legislation to enact the memorandum of understanding move through the Legislature, but said separating the utility's "core and non-core" customers would be at the forefront of new discussions. It was too early to say whether the governor would support the plan, he said. Dominic DiMare, a lobbyist with the California Chamber of Commerce, said the chamber has told the Davis administration that shifting the burden of the Southern California Edison bailout to businesses is "a very bad idea" that could cost the state billions of dollars in economic activity. "This [plan] would really screw businesses," Mr. DiMare said. "We just got hit with a 50 to 90% rate increase. We're dangerously close to losing our businesses to other states." Write to Jason Leopold at jason.leopold@dowjones.com Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Construction of power plant in DeSoto County is underway By TIMOTHY R. BROWN Associated Press Writer 05/31/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. JACKSON, Miss. (AP) - A North Carolina-based independent electric power plant developer and operator has started construction on a $490 million generating facility in DeSoto County. Cogentrix Energy Inc. will build the 800-megawatt power plant in Southaven on 40 acres next to existing TVA and Entergy electric substation facilities. The plant is the largest economic development project in the history of the north Mississippi county. The second largest project is a $150 million power plant currently being built by Duke Energy. Both are expected to be operational in 2003. The National Energy Production Corporation, a subsidiary of the Enron Corp., is serving as the engineering and construction contractor for the Congentrix project. "It is in construction as we speak," Jeff Freeman, Congentrix vice president for corporate communications, said Thursday. "NEPCO is mobilized on site and they are doing earth work. It will probably take them 24 to 27 months to get the plant in commercial operation." Freeman said the Charlotte, N.C., company found several reasons why building a plant in Southaven, a fast-growing city located just south of Memphis, Tenn., was a good investment. "The first thing that we look for in any project is a basic need for the commodity that we produce, which is electricity," Freeman said. "The area served by the transmission systems, TVA and Entergy, at this location provide access to areas that need electricity." The plant will use natural gas as fuel and will include the latest in environmental and combustion control technologies, Freeman said. Cogentrix owns all or part of 27 facilities with a capacity to generate about 7,000 megawatts in 14 states. Southaven Mayor Greg Davis said both plants will generate about $300,000 to the city, in lieu of taxes, and about $1 million each to the county school system. Davis said the plants will not employ many workers so traffic in the area will not increase. He also pointed to the positive impact of temporary jobs during construction. "Then, road and bridge tax that they will be paying is substantial also," Davis said. "So from a financial impact we will see a great return in the investment." --- On the Net: Congentrix: http://www.congentrix.com Duke Energy: http://www.duke-energy.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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