Do you guys follow these reports?  Do we need to correct them?
----- Forwarded by Steven J Kean/NA/Enron on 10/09/2000 08:50 AM -----

	Mark Schroeder@ECT
	10/09/2000 04:05 AM
		 
		 To: Steven J Kean/NA/Enron@Enron, Mark Palmer/Corp/Enron@ENRON
		 cc: 
		 Subject: Calling All Investors: The New Power Company's IPO Priced at $21 
Per Share

Was Enron actually banned from the California residential market, as per 
below?  mcs
---------------------- Forwarded by Mark Schroeder/LON/ECT on 09/10/2000 
10:08 ---------------------------
   
	Enron Capital & Trade Resources Corp.
	
	From:  "IssueAlert" <IssueAlert@scientech.com>                           
06/10/2000 12:13
	

To: 
cc:  

Subject: Calling All Investors: The New Power Company's IPO Priced at $21 Per 
Share


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===============================================================
SCIENTECH IssueAlert, October 6, 2000
Calling All Investors: The New Power Company's IPO Priced at $21 Per Share
By: Will McNamara, Director, Electric Industry Analysis
===============================================================

TNPC, Inc., parent of The New Power Company, announced yesterday that its
initial public offering (IPO) of 24 million common shares was priced at
$21 per share. The stock closed yesterday at $27 per share. The Company
expects to receive net proceeds from the offering of its shares at 
approximately
$473 million, exclusive of the underwriters' option to purchase an additional
3,600,000 common shares to cover over allotments. TNPC, Inc.*a partnership
between Enron, America Online (AOL) and IBM*was formed in late 1999 to
provide electricity and natural gas directly to households and small 
businesses
in the deregulated energy marketplace. TNPC's shares will be listed on
the NYSE under the symbol NPW. Closing of the offering is expected to occur
Oct. 11.

ANALYSIS: I am sure that many eyebrows were raised when TNPC issued the
IPO of its stock at $21, a figure that seemed surprisingly high for a start-up
company that has been in operation only since early summer. It is rather
mind-boggling that a company with no significant track record could open
its stock at such a price, but it is not unheard of. In fact, TNPC is 
following
a trend of new Internet companies initiating IPOs that are supported by
grand concepts rather than tangible success. However, the TNPC "dream team"
alliance between Enron, AOL and IBM has been met with great expectations
(and a lot of skepticism as well) throughout the industry.

I read through the S-1/A filing that TNPC submitted to the SEC, so hopefully
I can cut through the hype regarding this deal to get to its nucleus. First,
TNPC acknowledges repeatedly throughout its filing that it is entering
into an extremely high-risk venture, and in fact will "incur substantial
operating and net losses, and cannot assure that we will attain 
profitability."
Further, TNPC admits that it expects to incur these losses for a 
"significant,"
but undetermined, period of time. Why, then, would Wall Street be greeting
this IPO with such a positive welcome? One could easily argue that the
sheer market presence of Enron, AOL and IBM has by association driven up
the value of TNPC, but I think a deeper answer lies within several factors.

First, TNPC has been bankrolled by some hefty investments. In two separate,
private placements, investors such as Enron, GE Capital Equity Investments
and DLJMB Partners (among others) put up about $214 million in start-up
capital in exchange for shares in the company. Enron is the majority owner
of TNPC, with 57-percent control. This money has allowed TNPC to make 
important
acquisitions. For instance, TNPC bought the residential and small commercial
retail energy business of Columbia Energy Group, which includes approximately
285,000 natural-gas customers and 20,000 electricity customers in eight
states. This is a valuable card in TNPC's deck as it locks in customers
during this time when deregulation is developing slowly in retail markets.
I wouldn't be surprised if TNPC makes a similar acquisition of another
customer base in the near future, such as in Texas, where customers have
been spun off to energy service companies rather than being held by the
T&D operations of utilities. In other words, in Texas TNPC could easily
buy customers without having to buy wires or infrastructure, assuming there
is a willing seller.

Second, and perhaps more importantly, earlier this year Enron transferred
its residential and small commercial retail operations in California and
Ohio to TNPC. This deal included the operations of Enron Energy Services
but did not include PG&E Energy Services, which Enron acquired earlier
this year. Together with the Columbia Energy Group acquisition, TNPC has
come out of the gate running with a significant beginning customer base
of over 325,000 customers. Why would Enron have turned over its residential
customers to TNPC?  Don't forget that Enron struggled in and retreated
from the California residential market, stating that it couldn't make any
money in the retail market. TNPC's S1/A filing confirms rumors that Enron
Energy Services actually retreated from California due to a lawsuit claiming
the company had violated laws relating to advertising directed to residential
consumers in 1997 and 1998. Enron was in fact banned from selling power
to the residential market in California. Under this customer transfer,
Enron is able to put its money into a completely separate business*essentially
moving this high-risk business venture, and worst performing part of its
retail service, off its own books. Yet if TNPC succeeds, Enron still benefits
as it is the majority owner.

I think these two factors answer why Wall Street has looked so favorably
on a self-described "new company with a limited operating history." Looking
ahead, can TNPC maintain this comparatively high value of its stock?  Well,
there's both good news and bad news for TNPC. First, let's look on the
bright side. TNPC has put into place a great management team, starting
with H. Eugene Lockhart, formerly of AT&T, as president and CEO. Other
key players bring retail market expertise from work at MasterCard, Exxon
and PespiCo. In addition, within the energy industry, TNPC arguably could
not have a better backer than Enron. What other company's touch has been
golden in nearly every venture it has pursued? In addition to being the
majority owner, Enron probably is also providing TNPC access to commodities
at preferential prices, which will certainly enhance its sales approach
in the retail market. Plus, TNPC has access to the 24 million customers
that AOL represents, which I've always thought was the company's secret
weapon.

But then there are the risks, and they are substantial. First, competition
is not materializing rapidly on the retail side. In a state like Pennsylvania,
which perhaps represents the strongest deregulated market in the United
States, only about 16 percent of customers in PECO's territory have opted
to switch their provider. So, TNPC has an uphill climb, to say the least,
in making any inroads at capturing a lock*and making money*in the retail
market. Second, the only way that I can see TNPC making it at all is if
they continue to buy customers like they did from Columbia Energy Group.
There are big questions surrounding whether the company will be able to
do this or not, and much of its success hinges on this uncertainty.

Third, and perhaps most serious of all, is TNPC's vulnerability on the
technology side of its operation. TNPC has entered into a 10-year revenue
management and customer care agreement with IBM Global Services, under
which IBM will manage the company's online commerce and billing applications.
IBM's track record in developing customer care systems is less than stellar.
In fact, PG&E initiated a lawsuit against IBM a few years ago when the
utility had to pull the plug on a massive $100 million customer information
system (CIS), employed by IBM, which it claimed was ineffective. IBM has
partnered with SCT to provide the infrastructure to be used by TNPC. Under
an agreement between IBM Global Services and SCT, the SCT Banner CIS will
be integrated into a number of back-office IT solutions under development
by IBM for TNPC. Experts in the CIS industry have questioned whether SCT's
Banner CIS can handle over one million customers. If it cannot, this will
surely limit TNPC's growth potential.

Moreover, although TNPC's IPO signals a strong future, there are many 
uncertainties
surrounding this nascent operation. As one of the few major players in
the energy retail market, TNPC has very few competitors, with the possible
exceptions of NewEnergy or GreenMountain. Another competitor is also emerging
in Britain's Centrica, which plans to expand in North America after its
recent acquisition of Canadian retail gas supplier Direct Energy. 
Consequently,
the coming year could either make or break TNPC and the challenges that
the company faces in wanting to conquer the retail market are extremely
steep.
==============================================================

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Sincerely,

Will McNamara
Director, Electric Industry Analysis
wmcnamara@scientech.com
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