Gas Liberalization Turns Volatile For German Utility
The Wall Street Journal Europe, 08/23/01
2 Sides Spend Millions To Generate Support
The Washington Post, 08/23/01
Traders, Old Utilities Tangle Over Wires
The Washington Post, 08/23/01
Relentless Search for Growth Humbles a Mutual Fund Star
The New York Times, 08/23/01
From Maine to N.Y. Way of Atlanta; Trades Light Up States by Long Distance
The Washington Post, 08/23/01
UK: Copper pushes ahead in subdued LME pre-market.
Reuters English News Service, 08/23/01
Papers on Dabhol project not received
The Times of India, 08/23/01
INDIA: ANALYSIS-Poor governance hobbles India's reform drive...
Reuters English News Service, 08/23/01





Politics & Economy
European Notebook
Gas Liberalization Turns Volatile For German Utility
By Philip Shishkin
Staff Reporter

08/23/2001
The Wall Street Journal Europe
2
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Two years ago, the municipal utility in Heidelberg, Germany decided to do something very unusual for European utilities. It went shopping for natural gas. 
For more than 40 years, the utility, Stadtwerke Heidelberg, didn't have a choice in suppliers. As with other large industrial buyers of natural gas in Europe, it was locked into long-term supply contracts; in its case, with Ruhrgas AG and two other regional pipeline operators, which own most of the natural gas pipelines in Germany and are regulated by German authorities.
But in 1998, the European Union moved to deregulate Europe's natural gas market, freeing factories, utilities and other large industrial gas purchasers to forgo their traditional suppliers and look elsewhere. The directive took effect in August 2000. 
So when Stadtwerke Heidelberg's latest contract expired, it went shopping for gas, one of the first German utilities to do so. 
"We wanted to show that it's possible to get gas from another supplier," said Peter Erb, the utility's manager of energy trading. "All the big players in the German market were saying it's not possible." As for his traditional suppliers, Mr. Erb said, "They were very angry." 
In the end, Stadtwerke Heidelberg succeeded in finding an alternative supplier, but the utility's troubles in the open market show just how difficult the process can be. 
The utility and its new supplier, Enron Corp. of the U.S., had to negotiate with Ruhrgas and the two other natural gas providers for six months before they could get access to transmission pipelines. They also had to navigate through a confusing thicket of tariffs, rules and technical requirements. 
Although the EU's gas directive required pipeline owners to provide non-discriminatory access to their system, it didn't make clear how that would be done. As many would-be gas suppliers quickly learned, negotiating such access can be very tough. The rules differ in different European nations and the pipeline owners can use the confusing regulations to their advantage to frustrate competitors. 
So far, there isn't "the degree of competition that the industrial gas users expect from a liberalized market," said Francesco Balocco, energy issues manager at the European operations of Dow Chemical Co. 
Energy consulting firm Dri-Wefa recently surveyed 59 large industrial gas buyers, and found that while 40% have sought new gas contracts, only 12% have switched suppliers. The survey identified 13 new entrants into the gas-supply market, including incumbent national players expanding in other EU countries and also large energy-trading firms such as Enron. 
Stadtwerke Heidelberg started its effort to diversify its natural-gas purchasing in December 1999, when it had just months remaining on its 20-year contract. Mr. Erb picked up the phone and started calling potential suppliers and found the most interest at Enron's German headquarters. The Houston, Texas-based natural gas giant had grown explosively at home by competing for business against monopoly gas providers, and it was looking to do the same abroad. 
It took the two companies six months to secure access to pipelines in Germany. "It's absolutely natural for a network operator that is also competing in the supply market to try to keep us off the network," said Paul Hennemeyer, Enron's director of regulatory affairs. Enron's officials ran into constant delays, were asked to supply more and more information and sometimes even had a hard time reaching the right people at the companies they were negotiating with, Mr. Hennemeyer said. 
Ruhrgas says it was trying to be helpful, but argues that lengthy negotiations were inevitable because it was tackling many access issues for the first time. "We made every contribution to provide for fair and easy access network access," said a Ruhrgas spokeswoman. "In the beginning, the system needed some time to develop." Shortly after a deal was reached, the German government spelled out new rules on pipeline access, which will make future negotiations easier. 
In Oct. 2000, Enron began to deliver gas to Stadtwerke Heidelberg, and to another German municipal utility, which followed a similar negotiating path. Stadtwerke Heidelberg moved cautiously; it bought 30% of its natural gas from Enron, with the remainder from its traditional suppliers. Enron and Stadtwerke Heidelberg won't discuss the details of their contract, though both say Enron offered a cheaper price than Stadtwerke Heidelberg's other suppliers. 
But the German utility quickly absorbed the cost-saving lessons of a deregulated market: 
Starting in October, the utility will drop Enron in favor of another company, Wingas, which has built a new pipeline to Heidelberg. The reason: a combination of a better price and the convenience of a new supply route. 
"We obviously didn't break out the Champagne," Enron's Mr. Hennemeyer recalls. But he says Enron welcomes such switching of suppliers in general as a sign of the free market.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

A Section
2 Sides Spend Millions To Generate Support

08/23/2001
The Washington Post
FINAL
A15
Copyright 2001, The Washington Post Co. All Rights Reserved

To hear executives at Enron Corp. tell it, their company has been outgunned for years by the giant utilities in the lobbying battles in Washington over electricity policy. 
"We're a little guy," said Jeffrey K. Skilling, who served as chief executive of the Houston company until he quit last week. "We've been fighting a battle against some very big hitters."
From 1992 to 1999, utilities spent large sums to keep electricity deregulation at bay, helping to prevent Congress from taking any action to mandate it at the local level and engineering a House restructuring bill generally viewed as favorable to utilities. That bill died in the House Commerce Committee in 1999. 
"A ferocious lobbying campaign was waged" on retail deregulation, said a former Republican aide. Southern Co., the big Atlanta-based utility holding company, made its influence felt, he added. 
In 1992, Southern hired Mississippian Haley Barbour to work for it in Washington. Barbour left in 1993 to serve as chairman of the Republican National Committee, a post he held until 1997. When he left the RNC, Southern again used his services. 
After the GOP took control of Congress in 1995, the company also had direct access to House Speaker Newt Gingrich (R-Ga.) and Senate Majority Leader Trent Lott (R-Miss.), who looked out for the company's utilities in their home states. 
Reports filed last year with the Federal Energy Regulatory Commission provide other insights into the source of Southern's strength in the South. In 1999, its affiliates in Mississippi, Alabama, Georgia and Florida reported spending more than $20 million on various civic, political and related activities, including $250,000 for the Birmingham Early Learning Center, $323,717 for the Mississippi Power Foundation, and dozens of other gifts ranging from $5,000 to the Gulf Coast Symphony to $191,398 for community charities in north Florida. 
But Enron Chairman Kenneth Lay was cultivating his own GOP connections. A longtime fundraiser and activist for former president George Bush, Lay and Enron officials had contributed more than $550,000 to his son's presidential bid by July 1999, according to the Center for Public Integrity. 
Lay, according to a spokesman, has also helped raise money for House Majority Whip Tom DeLay (R-Tex.) and for his Republican Majority Issues Committee, which was set up in 1999 to support House GOP members facing close races. 
Nonetheless, Southern Co. still outspent Enron on lobbying in 1999 by $4.2 million to $1.9 million, according to the Center for Responsive Politics. 
"People talk about Enron being big and powerful," Skilling said. "I mean, come on . . . the utilities were powerful adversaries. We're still a little company compared to them." 
-- Dan Morgan


http://www.washingtonpost.com 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

A Section
Traders, Old Utilities Tangle Over Wires
Dan Morgan
Washington Post Staff Writer

08/23/2001
The Washington Post
FINAL
A01
Copyright 2001, The Washington Post Co. All Rights Reserved

ATLANTA -- Last of three articles 
Ever since steamboat captain W.P. Lay founded Alabama Power Co. in 1906 to develop electricity along the Coosa River, utility companies have been stringing wires throughout the South for one purpose: so southerners could have power and light.
Now a bunch of outsiders, who buy and sell electricity but don't have a single retail customer below the Mason-Dixon line, have their sights set on those wires, and they are getting a helping hand from some powerful allies in Congress and the Bush administration. 
Aided by supercomputers, and operating out of trading rooms as big as hockey rinks, the new breed of traders buy blocks of electricity anywhere along the nation's power grid, then borrow transmission lines to ship it to the highest bidder. But to more effectively move power from where it is cheap to where it is in strong demand, they want to remove what they contend is a "wire curtain" around the South. That means forcing the southeastern utilities to relinquish control of the wires to a new, federally supervised regional authority. 
"The monopoly is the wires, and that's where the battles occur," said Jeffrey K. Skilling, who was chief executive of Houston's Enron Corp., the largest of the power merchants, until he resigned last week. 
The clash grows out of a huge federal gamble on electricity deregulation. 
In 1992, with many utility behemoths staggering under debt from cost overruns on nuclear plants and the rapid spread of computer technology putting new demands on the grid, Congress opted for a competitive market. The plan was to dismantle long-standing utility monopolies and replace them with innovative electricity companies responsive to the laws of supply and demand. 
Now these new merchants of power, along with restructured utilities that have shed their old ways and embraced the new competitive world, have become strong advocates for a free-flowing, national electricity market. But in a classic Washington lobbying confrontation, they are running into resistance from traditional utilities, exemplified by Atlanta's Southern Co., now the parent of Alabama Power and other southern utilities. 
At issue is how fast the federal government, in the wake of the California electricity crisis, should push for yet more changes. 
Last month, the Federal Energy Regulatory Commission (FERC), recently stocked with President Bush's pro-market appointees, ordered most utilities to negotiate with federal mediators on procedures for handing over control of their wires to a few big regional authorities. Those authorities, in turn, will build new transmission lines, do away with bottlenecks, set uniform rates and ensure equal access to all. Next month, the Senate will take up proposals to give FERC even more authority to restructure the electricity industry. 
But what is good for Enron may not necessarily be good for utility customers in the South, according to executives at Southern Co., whose affiliates dominate power sales in Georgia, Alabama, Mississippi and north Florida. Southern Co., Chairman H. Allen Franklin said in a recent interview, "will not go blindly" into the system proposed by FERC. 
Although unfettered access to Southern's 26,650 miles of lines might help long-distance sellers of wholesale power such as Enron, company officials say it could mean congestion, power outages and higher prices for their 3.9 million retail customers. 
"When California was restructured, it was thought there would be massive savings," Franklin said. "Well, there haven't been." 
Building the Power Trade 
If the California energy crisis left doubts about the future of a competitive market in electricity, a visit to Houston dispels them. 
In the city's energy alley, Enron Corp. -- with annual sales of more than $100 billion last year, double those of Texaco -- is finishing a new 40-floor office building adjacent to its 50-story tower. Enron's competitors, Dynegy Inc., Reliant Energy and El Paso Energy, are a few blocks away. Duke Energy North American, merchant arm of Charlotte-based Duke Power, has settled in as well. And Calpine Corp. plans to take over 12 floors of a new 32-story building near Enron. 
These power merchants are at the center of a burgeoning unregulated wholesale market, which now handles about a quarter of U.S. electricity output. But it is still a work in progress, fluid and accommodating in the Northeast and parts of the Midwest but much less open in the South. 
In exchange for utilities opening up their transmission lines to the new wholesale market, the 1992 Energy Policy Act law allowed them to buy or build unregulated power plants outside their service areas. Many did. Quickest to embrace competition were California and the Northeast, which had long endured high power costs. To spur competition, California and some northeastern states went further, requiring utilities to sell off their regulated plants and begin buying bulk power from wholesalers. 
Many states went further still, ending their utilities' long monopoly over retail sales and allowing customers to pick their own electricity provider. 
The Northeast already was something of a mecca for power traders because of its experiments with power pooling, in which groups of utilities merge their separate transmission systems and use a central manager to market and distribute their electricity. 
Enron, formed in 1985 by the merger of two big gas-pipeline companies, was quick to seize the opportunities. Its chairman, Kenneth Lay, a former official at the Federal Power Commission, FERC's precursor, during the Nixon administration, had pioneered natural gas trading during the volatile period of pipeline deregulation in the 1980s. 
As the electricity market began to develop in the early 1990s, Lay and Skilling, a weekend dirt biker with a degree from Harvard Business School, began applying some of the lessons learned in the natural gas markets. 
Enron signed its first long-term power contract in 1989, Skilling recalls. Independent companies that wanted to install gas-fired generators and sell the power on the grid could buy the gas from Enron under long-term contract -- then sell the electricity back to Enron. 
"We started creating forward and futures markets" using "a lot more financial engineering" than was required in other commodity businesses, Skilling said. By the late 1990s, Enron was buying the output of generating plants days, weeks, months and even years before it was produced, using sophisticated weather and economic data to predict a price at which it could be profitably sold. 
During the past five years, Enron has been one of the nation's fastest-growing companies. Its net income rose 40 percent in the second quarter of this year, although the price of a share has sunk to less than half of its 2000 high of $90, mainly because of setbacks in businesses unrelated to electricity. Investors pushed the price still lower after Skilling's departure last week. 
Southern Inhospitality 
Like other merchants, Enron plunged into California after the legislature opened up that giant state to electricity competition. But the Southeast remained less-friendly territory. 
Texas is the only southern state to adopt retail deregulation. Florida goes so far as to ban out-of-state companies from building almost any plant for the wholesale market. 
The region is the domain of huge traditional utilities that control the wires from Louisiana to Florida and up into Appalachia and the Carolinas. The web of power lines, tied to the utilities' coal-, nuclear- and gas-fired generating plants, reaches across states via 500-kilovolt workhorses and down into neighborhoods served via single wires strung on wooden poles. 
For Southern Co., its reputation as a traditional utility heavy is a badge of pride. In 1997, it displayed a picture of a gorilla on its annual report. 
Clustered around its borders are Entergy, another huge holding company that serves Louisiana, Arkansas, and parts of Mississippi and Texas; Florida Power & Light; Carolina Power & Light; Duke Power; and the federal government's centralized power giant, the Tennessee Valley Authority. 
Those utilities have been under little pressure from customers to share the lines with wholesale competitors in the interest of lower prices. Prices run 15 percent or more below the national average, thanks to a rich lode of coal and natural gas and general public acceptance of the high-tension lines that carry the power generated by those fuels. 
FERC, in a series of orders from 1996 to 2000, required utilities to open their wires for power shipments by independent merchants and to post how much transmission capacity they have available at any given time. The message, a former official said, was "they couldn't use the wires to preclude others from getting their juice to market." 
But merchants say it is difficult to ascertain the accuracy of the postings made by the southeastern utilities because they operate the transmission lines as part of their closed, plant-to-customer systems. 
A November 2000 FERC staff investigation of bulk power markets in the Southeast concluded that the transmission monopoly enjoyed by the region's utilities has discouraged independent power producers from siting new plants in the region. 
FERC investigators cited Southern Co.'s refusal to let SkyGen Energy Inc. connect to its transmission lines in Alabama. Southern said the added load "would cause an area-wide stability problem for electric supply." 
In that case, FERC denied SkyGen's request for relief. 
Enron Vice President Kevin Presto said that day-ahead sales to customers such as municipal utilities in Southern's territory have become possible. But he said Enron has trouble getting long-term transmission commitments from Southern that would enable it to sell such power regularly. Also, he said, Enron cannot easily move power long distances through Southern's grid. "If I tried to buy transmission across Southern Co. to Jacksonville Electric, there'd be zero available," Presto said. 
Of the overall situation in the Southeast, he said that the utilities "give you 0 to 5 percent of their transmission capability because they preserve the rest of it for native load [retail customers]. So you have a huge highway that's supposed to promote the free sale of electrons that isn't available to the wholesalers." 
Southern Co. Chairman Franklin dismissed as "unfounded" the complaints of the merchants, and officials representing Alabama and Georgia municipal utilities tied to Southern Co.'s lines say they generally have been treated well. 
Robert Johnston, president of the Municipal Electric Authority of Georgia (MEAG), which supplies power to 48 towns, took issue with the notion of a wire curtain. 
"The market is growing in Georgia," he said. MEAG has its own trading room and has done business with a hundred or so traders or independent power producers. It also has its own generators producing power at four sites, though Southern Co. has an interest in all of them. 
"There's not a grass-roots interest" driving the reforms, Franklin said. "It's the wholesale players." 
While it squares off against the newcomers in the Southeast, though, Southern itself has aggressively exploited the growing wholesale market. Until it was spun off as a separate company earlier this year, Mirant Corp., Southern Co.'s marketing subsidiary, competed in California, the Midwest and the North, supplementing leaner profits from Southern Co.'s regulated units. 
"Southern's strategy has been clear: Compete elsewhere and run a monopoly at home," said Allen Mosher, director of policy analysis at the American Public Power Association. 
Well Connected for Battle 
The next move is up to the federal government. 
Next month, Sen. Jeff Bingaman (D-N.M.), chairman of the Energy and Natural Resources Committee, plans to propose legislation giving FERC expanded powers over wholesale transactions and transmission, so that "vested interests" will not be able to "manipulate the use of the transmission system" to benefit their own plants, Bingaman's office said. 
In the House, key players will be Commerce Committee Chairman W.J. "Billy" Tauzin (R-La.), whose state is home to Southern Co.'s western neighbor, Entergy, and Rep. Joe Barton (R-Tex.), chairman of the energy and environment subcommittee, who has had close ties to the huge coal-dependent Texas utility TXU. 
Last week, Entergy hired former FERC chairman Curt L. Hebert Jr., a Mississippi prote{acute}ge{acute} of Senate Minority Leader Trent Lott (R-Miss.), to handle regulatory and government affairs. 
Enron recently hired a former aide to House Majority Leader Richard K. Armey (R-Tex.), as well as a former senior spokesman in the Bush campaign, Edward Gillespie of Quinn Gillespie & Associates. 
Enron officials are counting on support from House Majority Whip Tom DeLay (R-Tex.), the hometown Houston congressman, though it is uncertain how much influence DeLay, an enthusiast for electricity deregulation, can bring to bear. 
Industry lobbyists who gathered on Capitol Hill in July for closed-door meetings that DeLay sponsored, but did not attend, could not reach consensus on electricity. As a result, the energy bill passed by the House on Aug. 2 skirted key issues involving greater accessibility to the grid and electricity reliability. 
Bush's election, and the fact that many utilities have plunged enthusiastically into the competitive market, clearly has created a more favorable political climate for the power merchants. Bush's first two appointees to FERC, Pat Wood III and Nora Mead Brownell, moved quickly to fix what they viewed as the Washington electricity bottleneck. 
Wood had worked with Enron during a six-year effort to create a more competitive energy market in Texas, where Wood headed the state's public utility commission. Brownell, a former Pennsylvania utility regulator, won praise from Enron in 1997 when she helped block a restructuring plan that Enron contended would keep it out of the Philadelphia market. 
On July 11, with a majority in tow, Wood, Brownell and William L. Massey, a Clinton appointee who is an ardent supporter of competition, tossed out proposals by Southern Co. and other utilities and directed utilities throughout the country to commence negotiations with federal mediators on handing over control of their lines to four independent regional transmission organizations, or RTOs. 
"It was about time [a bomb] was dropped," Wood said. 
But FERC's action may only have been what power association's Mosher calls the "beginning of a long movie." 
Among those opposing expanded FERC authority are environmentalists who are fearful that new federal powers could lead to an expansion of high-voltage power lines; western property-rights advocates; and state utility regulators. Politically well-connected groups not now regulated by FERC -- including the TVA, rural electric co-ops and municipal power systems -- are also wary of new federal powers. 
"There are big questions about FERC's role, who will determine transmission-line charges, should there be federal [authority] to site power lines, should there be FERC jurisdiction over power generation and reliability," said Rep. Richard Burr (R-N.C.), vice chairman of the House Energy and Commerce Committee. 
Idaho utility regulator Marsha Smith, who heads the electricity committee for the National Association of Regulatory Utility Commissioners, noted that her state's three investor-owned utilities cannot transfer ownership or control of their transmission lines "without our approval." 
Such approval does not seem likely anytime soon. Smith noted that 60 percent of the state's power comes from hydroelectric dams. "That's public property," she said. 
In Alabama, James Sullivan, a state utility regulator overseeing Southern Co.'s affiliate, said he was not happy about the way FERC was proceeding. 
"I'm opposed to any [changes to] our electric system in Alabama until I know it's going to bring rates down and enhance reliability for us," he said. 
In the view of Southern Co. Chairman Franklin, it is still an "open question" whether FERC has the legal authority to force utilities to surrender control of all their wires. 
Nonetheless, the restructuring of the power markets may already have gone too far to "put the genie back in the bottle," according to a former FERC official. 
The power merchants readily concur. 
"Everybody's paying too much because you've got this huge conservatism built into this bureaucratic operation of the utilities," Enron's Presto said. 
Staff researcher Richard Drezen contributed to this report.


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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



Business/Financial Desk; Section A
Relentless Search for Growth Humbles a Mutual Fund Star
By PATRICK McGEEHAN

08/23/2001
The New York Times
Page 1, Column 1
c. 2001 New York Times Company

James D. McCall was one of Wall Street's best stock pickers in the late 1990's, his hand so hot that Merrill Lynch, eager to revive sales of its mutual funds, paid a ransom to his previous employer to win his services. Starting early last year, Merrill's brokers collected more than $1.5 billion from their clients for Mr. McCall to invest. 
But in a breathtaking reversal of fortune, Mr. McCall has compiled one of the worst investment records of the new century with that money. All but about $650 million has been lost, leaving shares that cost many Merrill customers more than $10 each worth slightly more than $2.
As of Tuesday, Mr. McCall's main fund, Merrill Lynch Focus Twenty, held the rare distinction of ranking in the bottom 1 percent among funds of its kind for the previous day, week, month, quarter and year, according to Morningstar Inc., a company that analyzes mutual funds. 
Though Mr. McCall is free to invest anywhere in the stock market, he has stuck to a growth-seeking strategy that kept the fund invested primarily in technology stocks throughout that sector's long, steep decline. Down almost 80 percent in the last year, the fund's performance has been significantly worse than that of the average technology fund, let alone its peer group of more diversified funds. It did, however, register aggressive gains in two market rallies. 
Lately, the Focus Twenty fund seemingly went from bad to cursed as some of Mr. McCall's favorite stocks were laid even lower by a series of unfortunate surprises. His bigger holdings include Enron, whose shares fell 8 percent after its chief executive suddenly resigned, and Ciena, which dropped 30 percent in a day on disappointing earnings. 
''It has been a miserable week,'' Mr. McCall allowed in an interview on Tuesday. ''It's not easy managing a portfolio like this in this type of an environment.'' 
Mr. McCall's rapid rise and fall demonstrates how fleeting stock-picking stardom can be, said John C. Bogle, founder of the Vanguard Group mutual fund company. Too often, Mr. Bogle said, investors chase after the past returns of the fund manager of the moment, only to find out they were pursuing a ''comet.'' (Investors in Vanguard's own aggressive growth fund, Vanguard Growth Equity, have had their shares drop 53 percent in value from their peak 17 months ago.) 
Still, Vanguard is known for its index funds -- the antithesis of Mr. McCall's stock-picking discipline -- and Mr. Bogle is indexing's most outspoken champion. In speeches around the country, he has repeatedly and coyly -- avoiding any mention of Merrill's name -- cited the giant brokerage firm's creation of Focus Twenty and another fund in March 2000 as an example of racing to cash in on the latest market fad. 
In roughly five weeks, Merrill's brokers gathered a total of more than $2 billion for Focus Twenty and the Internet Strategies fund. Almost immediately, those funds collapsed along with the Internet and technology stocks they owned. Internet Strategies, which Mr. McCall does not manage, never recovered and has now lost more than 80 percent of its value; Merrill plans to merge it with another of its stock funds. 
But Mr. McCall, 47, said his fund did not face a similar fate. Indeed, he said, Robert Doll, the chief investment officer for Merrill's funds, recently told the firm's brokers that Merrill was committed to Focus Twenty and its aggressive, concentrated style. 
Mr. Doll was not available for comment, but Merrill confirmed Mr. McCall's account. ''We are committed to having a full range of investment styles, aggressive growth being one of them,'' said a spokesman, Erik Hendrickson. 
Funds seeking to rack up market-beating returns by making big bets on as few as 20 stocks proliferated in the late 1990's, in part because of Mr. McCall's success managing the PBHG Large Cap 20 fund for Pilgrim Baxter, a fund company in Wayne, Pa. In the two and a half years Mr. McCall ran it, the PBHG fund ranked first among its peer group -- funds that buy stocks of large companies whose earnings are expected to grow quickly -- with average annual returns of more than 50 percent. 
It was those knockout numbers that brought Merrill calling in its search for proven growth-fund managers to broaden the firm's value-oriented lineup of funds. After Mr. McCall accepted Merrill's job offer, Pilgrim Baxter sued to stop him from breaking his employment contract. Mr. McCall countersued, and Merrill later agreed to pay an undisclosed sum to settle the litigation. 
In court papers, Pilgrim Baxter disclosed that Mr. McCall had earned as much as $1.5 million annually there. Mr. McCall and Merrill officials have repeatedly declined to reveal how much the firm paid Pilgrim Baxter or any details of Mr. McCall's compensation at Merrill. Often, however, investment returns affect the pay of fund managers. 
Like Focus Twenty, most of the concentrated funds sank last year with the collapse of technology stocks. The managers of some of those funds, including Marsico Focus, have shifted money out of volatile technology and telecommunications stocks and into more mature companies, like Citigroup and Omnicom, which owns ad agencies. 
Mr. McCall sniffed at some of those choices, saying that the fund managers were not staying true to their mission of aggressive growth investing. 
''I'm not going to own an Omnicom,'' he said, ''or a Sony or a Viacom or General Dynamics, because they're growing in the single digits.'' Thomas Marsico, the manager of Marsico Focus and one of the original concentrated-fund managers, did not return a call seeking comment. 
Mr. McCall said he would continue to try to identify the companies that have the best chance of increasing their profits at extraordinary rates, regardless of what value other investors are assigning to those prospects at any given time. 
''Valuation is not one of the factors that enters into our methodology,'' Mr. McCall said. 
About 70 percent of Focus Twenty's assets are in technology stocks, according to Morningstar. But the fund's biggest holding now is Idec Pharmaceuticals, a drug maker. 
Kunal Kapoor, a Morningstar analyst who tracks Merrill's funds, calls Mr. McCall a momentum investor who seeks ''growth at any price.'' Mr. McCall may be the best investor of that stripe, Mr. Kapoor said, but the strategy is so risky that he questions whether it was ever appropriate for so many of Merrill customers. 
''I was really surprised by the amount of funds they were able to raise for a fund like that in such a short time,'' Mr. Kapoor said. ''The question is: Do you really need a fund like this?'' 
Reading a prepared statement, Mr. Hendrickson said Merrill Lynch considered concentrated funds to be ''an appropriate option'' for some investors, because they ''maximize the impact of professional stock-picking over the long term and additionally may serve as an alternative to individual stock holdings.'' 
He pointed out that Merrill managed another concentrated fund, Merrill Lynch Focus Value, that had performed well this year, gaining more than 3 percent. 
As for Mr. McCall's returns, Mr. Kapoor said he could not fault Focus Twenty because it had performed as would be expected for a fund of its composition. It rang up some of the biggest gains of any fund in two brief periods when the market picked up -- the third quarter of 2000 and April of this year -- and some of the biggest losses when the market was down. 
Rather, he said he was more disappointed with the other fund Mr. McCall manages, the Merrill Lynch Premier Growth fund, which is supposed to be less volatile because it holds about 50 stocks. That fund is down more than 50 percent this year and has shrunk to less than $100 million in assets. 
Mr. McCall said that he had warned Merrill's brokers all along just how volatile his returns could be and that Focus Twenty was no place for investors to put money they might need any time soon. 
But, he said, he thinks that now, more than ever, is the time to take a chance on the fund, with its shares selling for about $2.20. 
''I don't think $2 a share is a lot to risk,'' the indomitable fund manager said. ''We could go down from here certainly, but over the long term, there is more potential on the upside than on the downside.''

Photo: Before James D. McCall came to Merrill Lynch, he was at Pilgrim Baxter, where he successfully managed the PBHG Large Cap 20 fund. (Ethan Hill)(pg. C2) Chart: ''Losing Big'' Since March 2000, clients of Merrill Lynch have poured more than $1 billion into the main fund managed by James D. McCall. As many fund managers pulled their money out of technology stocks, Mr. McCall stayed with the sector and compiled one of the worst investment records among fund managers the last 18 months. Chart shows Merrill Lynch Focus Twenty fund since Mar. 2000 (Source: Bloomberg Financial Markets)(pg. C2) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

A Section
From Maine to N.Y. Way of Atlanta; Trades Light Up States by Long Distance

08/23/2001
The Washington Post
FINAL
A15
Copyright 2001, The Washington Post Co. All Rights Reserved

If the state of New York avoids brownouts this summer, it will be due in a small way to the efforts of Andrew Gillespie, a young electricity trader who works for Mirant Corp. in an Atlanta suburb. 
Mirant grew out of Atlanta-based Southern Co.'s aggressive attempt to enter the unregulated market that was developing outside its home region. Early this year, Southern spun off Mirant as a separate company that Wall Street stock traders value at about $11 billion.
Gillespie spends much of the day staring at a map of New York that glows green on his computer screen. The map displays the prices at which electricity is selling at key points on the state's power grid. 
One summer day, Gillespie called a trader who buys electricity from New England's centralized power pool, which manages power sales from regional utilities such as New England Power, Boston Edison and Central Maine Power. 
He agreed to buy 14 megawatts over a 16-hour period the next day and pay about $9,000. He used the phone to offer the power to the New York Independent System Operator, a nonprofit organization set up to manage the state's wholesale market and its high-voltage transmission system, for a small markup. 
Then he waited to find out whether the offer was accepted. If it was, he would go online to book a transmission route. If not, he would unload the power on another trader in the over-the-counter market, made up of merchant companies such as Enron Corp., Dynegy Inc., Duke Energy North America, Reliant Energy, El Paso Merchant Group, Calpine Corp. and Entergy-Koch Power Marketing. 
Traders like the Northeast because it allows one-stop shopping. "If I want to wheel power from Maine through Massachusetts to Connecticut, I pay just one transmission charge rather than having to call each utility and schedule it," said Michael Hobbs, Mirant's marketing director for the northeastern United States. 
In the South, traders say, booking transmission can be a lot more complicated -- and sometimes impossible. Utilities operate their own contained systems and advise traders when and if they have "ATC," available transmission capacity. 
Electricity trading is a commodity business not unlike selling wheat, platinum or hog bellies, though it is trickier than most, according to Marce Fuller, Mirant's chief executive, because electricity can't be stored. 
"Information is paramount," Hobbs said, so Mirant traders keep a constant eye on weather reports and also consult the company's on-site meteorologist. To provide further assistance, a digital board that wraps around the trading room updates information ranging from the temperature and humidity in Brazos County, Tex., to the spot price of electricity at "COB," traders' slang for the California-Oregon border. 
The jobs of the traders at Mirant, Enron and the other companies didn't exist a few years ago, and neither did most of the companies. Regulated utilities, co-ops and a few big government power agencies, such as the Tennessee Valley Authority, generated almost all of the power and shipped it to retail customers over their own wires. 
Now roughly a quarter of the electricity produced in the United States comes from unregulated companies that sell almost exclusively to the long-distance bulk-power trade -- the wholesale market. 
-- Dan Morgan


http://www.washingtonpost.com 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



UK: Copper pushes ahead in subdued LME pre-market.

08/23/2001
Reuters English News Service
(C) Reuters Limited 2001.

LONDON, Aug 23 (Reuters) - Copper prices rebounded in London Metal Exchange (LME) pre-market trade on Thursday, having fallen through the psychological $1,500 a tonne level the previous evening, traders said. 
"There was nothing on the close last night to suggest anything happening, and there was no interest overnight, but this morning we've seen a number of the electronic screens - particularly Enron - being marked higher," said one senior trader.
Three months copper was indicated at $1,513/1,515 at 0850 GMT, up $11 from Wednesday's evening kerb close. 
"The market hasn't given up the ghost yet. There's still some room to push higher, with minor technical resistance around $1,525," the trader said. 
With consumer buying still largely absent, trading conditions remained subdued, however. 
"The appeal of the markets is limited at the moment. Too many fingers have been burned - you can still see a lot of the specs sidelining themselves," the trader said. 
"We've suffered consumer destocking in the first and second quarters. There's a bit of weakness in the U.S. dollar, which is helpful, but business confidence isn't great." 
Despite periodic short-covering rallies, the overall downtrend remains in place pending concrete evidence of an upturn in the economic situation, analysts said. 
"The short-term moving averages may be a bit more constructive after last week's rally, but the trend is still down. I remain sceptical for the time being," the trader said. 
Aluminium also pushed higher in early trade, indicated up $5 at $1,428/1,430. 
Initial resistance is evident at $1,430 with a stiffer upside barrier at $1,440, analysts said. 
Nickel edged up $20 to $5,720/5,750, shrugging off news that Russia's Norilsk Nickel had restarted work at its key nickel plant, which was halted after an accident on Sunday. 
"The third smelting furnace started working at 0400 local time (2000 GMT) on August 23," spokesman Yevgeny Yerokhin told Reuters. "By this time another two furnaces had already started working." 
"The plant will fully restore its production volumes by the end of the day on August 24," he added. 
The smelting division of the nickel plant, in the Norilsk region on the northern Siberian Taimyr peninsula, was halted on Sunday after a leak of melted metal damaged water cooling systems and electricity supply lines. 
The plant's management has promised to catch up with the output arrears stemming from the accident within a month. 
The rest of the complex was little moved in early trade. 
Zinc was indicated unchanged at $849/852, showing little response to overnight news thatthe U.S. Defense National Stockpile Center (DNSC) had cancelled its remaining long-term zinc sales in fiscal year 2001 after it failed to make any zinc award in its latest bid invitation. 
"DNSC anticipates resuming sales in the first quarter of fiscal year 2002 depending on market conditions," it said in a statement. The DNSC had been offering prime western zinc for sale by sealed bid on a monthly basis. 
Lead was also unchanged at $480/483, with tin up $10 at $3,870/3,900 and alloy down $5 at $1,180/1,190 after a hefty 1,580-tonne increase in LME stocks.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Papers on Dabhol project not received

08/23/2001
The Times of India
Copyright (C) 2001 The Times of India; Source: World Reporter (TM)

MUMBAI: The consumers' representative for the Maharashtra Electricity regulatory Commission (MERC), ``Prayas,'' has not yet received the sheaf of documents from the Maharashtra State Electricity Board (MSEB) concerning the Dabhol power project (DPC) which it had asked for. 
The MERC had passed an order on July 31 asking the MSEB to furnish the financial documents relating to some contracts signed by Enron for the project. The MSEB is learnt to be now examining the legality of making these documents public after a stern letter from the Dabhol Power Company, pointing out that the board might be liable for ``damages and legal action'' if the contractors take offence to making the documents public.
Enron wrote to the MSEB a few days after the order, contending that most of these documents had confidentiality clauses which would make it actionable. Asked about this, sources at DPC said that suppliers would be upset if their terms and conditions were made public since Enron's is only one of the plants sourcing business from them. For instance, Enron's LNG fuel supply contract with an Oman company has a confidentiality clause and would fear exposing its contract terms to the public in view of the fact that over 80 per cent of its supply is concentrated in Japan, Taiwan and Korea. ``It would be damaging for its business if our deal, which is less than 18 per cent of its business, ends up influencing its other deals,'' the source said.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	


INDIA: ANALYSIS-Poor governance hobbles India's reform drive...

08/23/2001
Reuters English News Service
(C) Reuters Limited 2001.

ANALYSIS-Poor governance hobbles India's reform drive 
By Alan Wheatley, Asian Economics Correspondent
NEW DELHI, Aug 22 (Reuters) - After six months of political stalemate, the rave reviews for Finance Minister Yashwant Sinha's reforming budget have given way to the despairing conclusion that perhaps India embraces change only in a crisis. 
In which case, a new wave of reforms might not be far away. 
For unless growth picks up substantially from last year's 5.2 percent pace, policy experts said India would face a further deterioration in its public finances and rising unemployment that could put the world's largest democracy under serious strain. 
"We can't go on without further reforms for very long because we won't be able to grow even by five percent," said Shashanka Bhide, chief economist of the National Council of Applied Economic Research. 
"So the crisis is already there. If we're not going to get six percent-plus growth rates, then it's a political problem." 
There is a broad consensus - on paper - on the need for a second wave of reforms to build on ground-breaking liberalisation measures rushed in after a balance-of-payments crisis in 1991. 
Because its economy is fairly closed, India has weathered the current global downturn much better than most of its Asian neighbours, who would be delighted with five percent growth. 
Still, output has slowed for two years in a row as post-reform momentum has petered out. And crucially, five percent growth falls far short of the 8.7 percent average needed over the next decade to achieve Prime Minister Atal Behari Vajpayee's goal of doubling per capita income, currently around $460 a year. 
"Eight million people come into the workforce every year and a five percent growth rate would leave large numbers of people unemployed, which means there will be greater social unrest," said P Chidambaram, a former finance minister. 
"A five percent growth rate, while statistically acceptable, is simply politically unacceptable and socially unacceptable." 
COMPETITIVE POLITICS 
It was to raise the economy's speed limit that Sinha unveiled in his February budget a raft of far-reaching structural reforms making it easier to fire workers and rolling back the policy of reserving certain industries for small and medium-sized firms. 
The reforms are high on the list of the many blueprints for change in India but they soon became mired in what the Planning Commission aptly calls the "compulsion of competitive politics". 
On a charitable view, the slow progress is a reflection of the wondrous kaleidoscope that is India's multi-party democracy. 
"This is not a country, this is a vast continent in search of a synthesis in the political domain, the social domain and the economic domain," said Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry. 
Less charitably, the legislative paralysis is due to the failure by an enfeebled Vajpayee to crack heads in his unwieldy 19-party coalition and force ministers to put the national interest before the myriad vested interests opposed to change. 
Arjun Sengupta, a professor at the Centre for Policy Research, said the absence of a unified agenda meant each member of the coalition was ploughing its own furrow, resulting in policy inconsistency that was deterring badly needed investment. 
"This is the main problem we have today: we do not have a coherent, unified policy framework," Sengupta said. 
He said the reform task facing the government was all the more difficult because India's most populous and backward states were falling farther and farther behind the better-off ones. 
"If the Centre cannot take care of the problems of disparity between the states, we are facing major problems which can become explosive," Sengupta, a former ambassador and IMF official, said. 
Peering through the gloom, optimists point to the precedent of legislation passed without the pressure of a crisis in 1999 to open up India's insurance market to foreign firms. 
They hope two equally controversial reform bills, to liberalise the crisis-ridden power sector and to make it easier to wind up bankrupt firms, will also eventually become law after they won cabinet approval last week, ending months of wrangling. 
"Anybody who says reforms have been a failure in this country hasn't looked at figures on poverty very closely," said Planning Commission member N.K. Singh. He said the poverty rate had fallen in the past decade to 27 percent from 37 percent. 
REFORM PRIORITIES 
The list of reforms needed to sustain this improvement is lengthy. Because of its pivotal role in the economy, the power sector is many experts' number one priority. The well-catalogued troubles that foreign firms such as Enron Corp have encountered dealing with India's all-but-bankrupt state power boards have flashed warning signals to potential foreign investors. 
Domestic investors have also been deterred because industrial users pay twice as much as they would in China for electricity. 
Nevertheless, attempts at serious reform have foundered on twin political rocks: how to end overmanning at the power boards, estimated at 50-70 percent, and how to charge users, mainly farmers, market rates for stolen or heavily subsidised power. 
D.K. Srivastava, a professor at the National Institute of Public Finance and Policy, said politicians might consider tough measures if they could be assured that benefits would be visible before they have to seek re-election two or three years later. 
"Any government under any minister will say to you, How can I survive unless I can show my voters jobs?'," Srivastava said. "This is one of the basic constraints on power sector reform." 
T.K. Bhaumik, a senior adviser at the Confederation of Indian Industry, agreed and said reformers were partly to blame for having failed to sell the case for change to India's mass poor. 
"We did not articulate the economic reform process to the people," Bhaumik said. On privatisation, for instance, policy-makers did not spell out the consequences for jobs. 
"I don't think we really understood the issues properly. We simply followed the Washington consensus and that didn't go down well with the people," he said. 
As Divestment Minister Arun Shourie knows only too well. The privatisation programme he oversees, a litmus test of India's reform will, is stalled because of what Shourie calls "fractured" politics and "noise" generated by corporate interests. 
Shourie said he could only hope that fading growth would jolt India's politicians into putting the country's interests first. 
"We're on the cusp at the moment on the question of reforms and I feel the real circumstances in which India is placed will force the political class to do the right thing," he said.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.