-----Original Message-----
From: 	Polsky, Phil  
Sent:	Monday, November 12, 2001 1:36 PM
To:	Ward, Kim S (Houston)
Subject:	FW: Bloomberg :- Dynegy Calls SEC's Probe of Enron `Financial Noi	se'



 -----Original Message-----
From: 	Miller, Stephanie  
Sent:	Monday, November 12, 2001 12:10 PM
To:	Polsky, Phil
Subject:	FW: Bloomberg :- Dynegy Calls SEC's Probe of Enron `Financial Noi	se'



 -----Original Message-----
From: 	"O'Toole, Sharon" <Sharon.OToole@ElPaso.com>@ENRON  
Sent:	Monday, November 12, 2001 11:55 AM
To:	'Blanca Daugherty'; 'Brian Hall-BP'; 'Debbie Chance-HM'; 'Diana Naylor Knox'; 'Kevin O'Toole'; Roberts, Linda; 'Martha Senf'; Baden, Pamela; 'Selena P-Home'; 'Stacey Neuweiler'; 'Stacy Franz'; Miller, Stephanie; 'Steve McGough'; 'Steve Marsh'
Subject:	FW: Bloomberg :- Dynegy Calls SEC's Probe of Enron `Financial Noi	se'




Dynegy Calls SEC's Probe of Enron `Financial Noise' (Update5)
2001-11-12 11:03 (New York)

Dynegy Calls SEC's Probe of Enron `Financial Noise' (Update5)

     (Updates share prices in 14th paragraph.)

     Houston, Nov. 12 (Bloomberg) -- Dynegy Inc. Chairman Chuck
Watson said he's convinced Enron Corp.'s trading operations are
sound and described disclosures about affiliated partnerships that
helped drive Enron's stock down 67 percent in three weeks as
``financial noise.''
     Dynegy agreed Friday to buy Enron for at least $23 billion,
including at least $8 billion in stock and $15 billion in assumed
debt. Dynegy shares rose as much as 16 percent today. Enron rose
as much as 20 percent.
     In an interview after the merger announcement, Watson and
Enron Chairman Kenneth Lay discussed how the Houston-based
companies reached agreement less than three weeks after Enron's
shares began plunging.
     ``All the financial noise about the partnerships, maybe it
has damaged the Enron brand a bit,'' Watson said. ``But I'll tell
you what it hasn't impacted, and that's the high regard that the
industry places on'' Enron's trading business, he said.
     Enron last week restated earnings for four years to include
losses from three affiliated partnerships, reducing earnings by
$586 million.
     Six employees, out of Enron's 20,000, may have improperly
benefited from the partnerships, Lay said.
     ``I'm sorry those six people seem to have gone somewhat over
the edge in their dealings or transactions, but you can't be
absolutely protected from that in any business,'' he said.

                        Lost Effectiveness

     Lay didn't specify which six people he was referring to. He
removed Andrew Fastow, who helped set up and ran many of the
affiliated partnerships, as chief financial officer on Oct. 24. An
Enron securities filing says Fastow made more than $30 million off
two of the partnerships.
    Fastow ``had lost his effectiveness because of all the press
coverage'' on the affiliates, Lay said.
     Treasurer Ben Glisan and Kristina Mordaunt, a managing
director and a corporate counsel for an Enron division, also were
fired, Enron said in a corporate filing on Thursday. Former
employees Michael Kopper, Kathy Lynn and Anne Yeager were in a
position to profit from partnerships, the filing said.
     ``You trust people, you accept their representations and
proposals,'' Lay said. ``Sometimes when you do that, you get
surprised and disappointed.''
      Both executives said they expect antitrust regulators to
approve the merger because the two companies own different types
of assets and won't dominate any market.
    ``There really isn't anything that lays on top of each
other,'' Watson said Friday night. ``We're not in the pipeline
business and they are. We're in the generation business, and
they're really not.''
     Dynegy shares rose 6.2 percent on Friday after terms of the
Enron purchase leaked to the press. Watson expects the acquisition
to add 90 cents to 95 cents a share, or 35 percent, to Dynegy's
2002 earnings. Enron is selling for $10.41 a share, one-fifth the
average price over the past 12 months.
     Enron stock climbed 97 cents, or 11 percent, to $9.60 in late
morning trading. Earlier, they touched $10.38. Dynegy rose $4.54,
or 12 percent, to $43.30 after touching $45.

                            Cash Crunch

     The rapid decline of Enron threatened to bankrupt the company
and disrupt energy markets. Enron handles an estimated one-quarter
of U.S. electricity and natural-gas trades. A falling credit
rating made it difficult for the company to raise capital needed
to back trades.
     As part of the purchase, ChevronTexaco Corp., which owns 26
percent of Dynegy, agreed to provide Enron with $2.5 billion.
     ``What we found when looked under the hood is that the core
of Enron was still there and working as well as ever,'' Watson
said. ``That business was pristine and had nothing to do with the
partnerships.''
     Dynegy began taking steps toward the acquisition in late
October, when Watson called Lay to offer assistance with Enron's
growing financial crisis, the two men said. That led to a Saturday
morning meeting in Lay's kitchen.
     ``He even made me a breakfast roll,'' Watson said.
     ``He didn't eat it,'' Lay said.
     Lay said he won't be an active manager in the new company.
Watson said Friday that he and Lay hadn't discussed a severance
package.
     As head of Enron, Lay had refocused the Houston operator of
U.S. natural-gas pipelines on trading and international expansion,
boosting reported revenue 20-fold since 1995 to $100.8 billion
last year. He said he doesn't regret the strategy.
     ``Clearly, Enron has gotten involved in business that hasn't
turned out well,'' Lay said, pointing to money-losers Azurix Inc.,
created to supply water and build related projects around the
world, and NewPower Holdings Inc., a seller of electricity to
homes and small businesses. ``But you have to keep in mind, too,
that 12 years ago we weren't in the wholesale merchant (trading)
business. Today that's an incredibly valuable franchise.''
     The trading business, which accounts for about 97 percent of
Enron's revenue, buys electricity, gas and other commodities from
producers and sells them to end users such as utilities and
industrial customers. It also advises big business customers on
energy use and sells them gas and electricity.

                     Reassessing Steel, Lumber

     Watson said the new company will keep trading coal, gas,
power and petroleum products, and plans to expand by buying assets
and using them to develop trading. ``We'll just have to reassess
over time whether we stay in'' trading of steel, lumber and other
non-energy commodities, he said.
     Enron wants to shed its 65 percent stake in Dabhol Power Co.
in India, which is owed $64 million in overdue bills from a state
government agency that has refused to pay the power prices Enron
was promised in contracts.
     ``We have strong legal remedies and we're heading down the
path toward arbitration, but we'd still very much like to work out
a settlement with the government,'' Lay said. Potential buyers
have balked at Enron's $1 billion asking price for Dabhol.
     Neither man would comment on whether Dynegy plans to cut jobs
after the merger, or what will happen to the naming rights to
Enron Field. The Major League baseball stadium is home to the
Houston Astros, and Enron paid $100 million to have its name on
the ballpark.
     ``The name of the company is now Dynegy,'' Watson said.
     Dynegy's acquisition requires approval from U.S. securities,
antitrust and energy regulators. Watson expects soon to share
details of the new Dynegy with regulators from the European Union
and U.K., where Enron operates a trading desk and owns a water
company and two power plants.
     ``I don't know if we are required to do so, but we will talk
to them anyway,'' Watson said.
     ``We don't think there are going to be any problems,'' Lay
said.

--Russell Hubbard in Houston (713) 353-4872, or
rhubbard@bloomberg.net, Jim Kennett in Houston at (713) 353-4871
or jkennett@Bloomberg.net and Margot Habiby, through the Princeton
newsroom (609) 750-4500/shf/alp/cdw/slb

Story illustration: For a comparison of Enron and Dynegy and
stocks to indexes, see {DYN <Equity> COMP D <GO>} and
{ENE US <Equity> COMP D <GO>}. To graph the price of an Enron
bond, see {DD1139573 <Corp> GP <GO>}.

For top energy stories, see {TOP NRG <GO>}.

Company news:
DYN US <Equity> CN
ENE US <Equity> CN

NI codes:
NI COS
NI US
NI NRG
NI GAS
NI OIL
NI CA
NI REF
NI PIP
NI MNA
NI TX
NI SEC
NI EUROPE
NI UK
NI EU
NI WIN
NI WNEWS
NI CMD
NI TOP

#<149632>#




#<2124>#

-0- (BN ) Nov/12/2001 16:03 GMT



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 - ATT709346.txt