Enron Debt Is Downgraded by Moody's; SEC Moves Company Probe to Washington
The Wall Street Journal, 10/30/01
Enron Credit Rating Is Cut, And Its Share Price Suffers
The New York Times, 10/30/01
FRONT PAGE - COMPANIES & MARKETS: Moody's puts Enron two notches above 'junk' status 
Financial Times; Oct 30, 2001

GLOBAL INVESTING: Private equity woes sap Enron's energy 
Financial Times; Oct 30, 2001

COMPANIES & FINANCE THE AMERICAS - Sell-or-buy poser facing energy analysts.
Financial Times, 10/30/01
WORLD STOCK MARKETS - Boeing brings Wall St back down to earth.
Financial Times, 10/30/01
Moody's downgrades Enron debt
Houston Chronicle, 10/30/01
Enron's latest challenge
Houston Chronicle, 10/30/01
Stocks sink amid trio of pressures
Chicago Tribune, 10/30/01
ENRON CORP.: New line of credit sought as agency cuts debt rating
Chicago Tribune, 10/30/01
Enron Shares Fall 10% as Moody's Cuts Credit Rating
Los Angeles Times, 10/30/01
Enron's Credit Rating Cut
The Washington Post, 10/30/01

Moody's Downgrades Enron's Debt, Maintains Review; Stock Drops 10%
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Dow Jones Energy Service, 10/29/01
LATE TRADING: Enron Continues To Be Pounded By Investors
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FERC Warns That Power-Price Controls Risk Shortages in Northwest
Dow Jones Business News, 10/29/01



Enron Debt Is Downgraded by Moody's; SEC Moves Company Probe to Washington
By John Emshwiller And Michael Schroeder
Staff Reporters of The Wall Street Journal

10/30/2001
The Wall Street Journal
A4
(Copyright (c) 2001, Dow Jones & Company, Inc.)

In another potentially serious blow to Enron Corp.'s finances, Moody's Investors Service Inc. lowered its ratings by one notch on the energy company's senior unsecured debt and kept the company under review for a possible further downgrade. 
It also was learned that the Securities and Exchange Commission has moved its inquiry into Enron's finances to the agency's Washington headquarters from its regional office in Fort Worth, Texas. The change is a sign that the probe is being treated as a high priority, according to a person with knowledge of the inquiry. An SEC spokesman declined to comment.
Moody's reduction on Enron's senior unsecured long-term debt to Baa2 from Baa1 leaves the company's credit rating two levels above noninvestment grade. If the energy-trading giant's ratings were to fall to a noninvestment-grade level, there could be serious consequences for Enron. It could throw the Houston company into default on obligations involving billions of dollars of borrowings and force it under the terms of various financial agreements to issue millions of shares of stock to holders of that debt, which would dilute the value of existing shares. 
While Enron still has some room before hitting noninvestment-grade status, there have been concerns among analysts and investors that the company's recent troubles could escalate. During recent days Enron's bonds have traded at levels similar to securities that carry a noninvestment-grade rating. Prices of the company's bonds improved somewhat yesterday, though its stock price continued to fall sharply. In 4 p.m. New York Stock Exchange composite trading, Enron stock was at $13.81, down $1.59 or 10%, and topped the most-active list with 36.4 million shares changing hands. Enron's share price has fallen more than 50% during the past two weeks. 
An Enron spokeswoman said the company is "working diligently" to keep an investment-grade credit rating. Among other things, the nation's biggest energy-trading firm is in negotiations with its banks on a new $1 billion to $2 billion credit line to bolster its liquidity. Enron repeatedly has said its business operations remain strong. 
Yesterday's ratings downgrade is the latest piece of bad news for a company that has been engulfed in turmoil during the past two weeks. Confidence in its financial situation was shaken after Enron earlier this month announced a $618 million third-quarter loss and disclosed a $1.2 billion erosion of shareholder equity related to transactions it had carried out with entities connected to its then-chief financial officer, Andrew Fastow. Last week, Enron named a successor to Mr. Fastow and said the SEC was looking into the deals. 
The SEC is looking into whether Enron violated federal-securities laws regarding its handling and disclosure of the transactions connected to Mr. Fastow, the person familiar with the probe said. Generally, the SEC's headquarters office has more resources to apply to complex, high-profile cases than regional offices do. Moving the Enron inquiry to headquarters indicates that the SEC is looking to make a decision relatively quickly about whether or not to allege securities-law violations by the company, this person said. 
Enron repeatedly has said the transactions were proper and legal. Yesterday, the Enron spokeswoman said the company is continuing to cooperate with the SEC probe and is gathering and sending the agency information that it requested. 
Moody's said the downgrade was "prompted by the deterioration in Enron's financial flexibility," which has contributed to "a substantial loss in investor confidence." Going forward, Moody's said it will focus on Enron management's "success in lining up further liquidity support and on their ability to retain credit availability" from major trading partners. Enron is a principal in nearly one-quarter of all electricity and natural-gas trades in the nation.

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

Business/Financial Desk; Section C
Enron Credit Rating Is Cut, And Its Share Price Suffers
By Bloomberg News

10/30/2001
The New York Times
Page 2, Column 5
c. 2001 New York Times Company

Shares of the Enron Corporation fell sharply yesterday after Moody's Investors Service lowered the company's credit rating, igniting concern that it might have more difficulty raising the cash it needs to finance day-to-day operations. 
Moody's lowered Enron's senior unsecured long-term debt ratings to Baa2, two levels above so-called junk status, from Baa1.
Moody's also said it might downgrade Enron's commercial paper rating, which could make it harder for the company, the nation's largest energy-trading concern, to borrow the short-term cash it needs to run its trading business in the future. The company borrowed from banks to repay $2 billion in commercial paper last week. It is trying to raise $1 billion to $2 billion in additional financing from banks. 
''A credit downgrade will be punitive as far as their borrowing power,'' said Joe Correnti, who follows Enron for Wayne Hummer Investments in Chicago. ''That's not a good place for them to be. They have somewhat aggressive expansion plans.'' 
Shares of Enron, which is based in Houston, plunged $1.59, or 10.3 percent, to $13.81, continuing the daily trading losses dating to Oct. 17, when Enron reported $1.01 billion in losses from investments outside its business of trading commodities like electricity and natural gas. 
The company's stock, which is down almost 60 percent in a week, is falling faster than the company's debt because the bond holders have first claim on assets after bank loans are paid. 
After the Moody's downgrade, the company's 6.4 percent bonds maturing in 2006 fell 4 cents, to 80 cents on each $1 of face value. Yields have risen to 12.1 percent, up from 10.8 percent before that downgrade, traders said. The bonds were trading at face value the week before. 
Moody's said the cut was prompted by the ''deterioration in Enron's financial flexibility'' since the write-downs and charges. Investment partnerships involving the company's former chief financial officer that had not been disclosed before this month ''led to a substantial loss in investor confidence,'' Moody's said. 
Andrew Fastow, the former chief financial officer, resigned, and the Securities and Exchange Commission asked for information about the transactions he conducted for the partnerships he headed. 
Enron's recent woes had many investors factoring in a credit-rating reduction. ''This move was anticipated,'' said Mike Dineen, who holds Enron bonds in the $5 billion of fixed-income assets he helps manage at the Mony Life Insurance Company. 
Enron's long-term credit ratings outlook was changed last week to negative from stable by Standard & Poor's. S.& P. affirmed the company's rating of BBB+, the equivalent of Moody's Baa1.

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

FRONT PAGE - COMPANIES & MARKETS: Moody's puts Enron two notches above 'junk' status 
Financial Times; Oct 30, 2001
By SHEILA MCNULTY and JENNY WIGGINS

Moody's Investors Service yesterday downgraded the long-term debt ratings of Enron, the US energy group, citing "the deterioration in Enron's financial flexibility" over the past two weeks. 
Moody's was the first of the main rating agencies to downgrade the struggling Houston-based company's debt by lowering it from three to just two notches above "junk" status. 
Moody's began reviewing Enron for a possible downgrade on October 16, when the company disclosed a surprising Dollars 1.2bn reduction in shareholder equity tied to controversial financing vehicles set up by Andrew Fastow, then chief financial officer. 
Mr Fastow was replaced last week, as Enron's share and bond prices plunged on concerns about other possible disclosures. The Securities and Exchange Commission is undertaking an informal inquiry into the group's financial dealings. 
Enron has been forced to seek additional credit from banks after raising Dollars 3.3bn in cash last week to boost its financial position. 
Investors have grown increasingly wary about a company that has long been a Wall Street favourite. Its stock has fallen by more than 50 per cent since October 16, and its bond prices are trading at levels technically considered "junk" status. 
"Moody's actions are prompted by the deterioration in Enron's financial flexibility since the company announced significant write-downs as well as equity charges in previously undisclosed partnership investments," Moody's said. "This led to a substantial loss in investor confidence." 
Even as the US rating agency lowered the company's senior unsecured long-term debt ratings from Baa1 to Baa2, it said they remained on review for downgrade. Moody's also placed Enron's Prime 2 rating for commercial paper on review. Yesterday Enron's stock closed the day off Dollars 1.59 - 10.32 per cent - at Dollars 1.81 and its five-year bond was quoted at about 82 cents in the dollar. Sell-or-buy poser, Page 22 Private equity woes, Page 30 www.ft.com/enron 
Copyright: The Financial Times Limited

GLOBAL INVESTING: Private equity woes sap Enron's energy 
Financial Times; Oct 30, 2001

Enron has just provided the world with another lesson in the difficulties of public companies investing in private equity. 
On October 16 the company's management announced a Dollars 1.01bn charge and a Dollars 1.2bn reduction to shareholders' equity arising from LJM2 Co-Investment and LJM Cayman, two structured products designed to protect it against the fluctuation in value of its private equity investments. 
Andrew Fastow, who was last week replaced as the chief financial officer of the Houston-based energy trading giant, set up a private equity fund called LJM, designed to fund Enron transactions. 
LJM deals did not normally appear on Enron's balance sheet. And that may have been the point of the structure. 
A financial engineer explained that Enron could have set up a fund, whose changing valuations did not increase the volatility of the trading company's earnings, by taking only a minority stake in the LJM fund with some passive co-investors. 
The investors would normally receive a debt-like pay-off, except in cases where the value of the private equity holdings fell, when they would get compensation in Enron shares. 
The value of the portfolio, which included investments in The New Power Company and some broadband companies, did fall precipitously. By the end of last quarter Enron was obliged to issue 62m shares to the passive investors to compensate them. But instead it ended up taking large cash charges. 
Was it worth all this trouble for Enron to keep its volatile private equity holdings off its balance sheet? Obviously not. 
Mr Fastow has now taken a leave of absence and the Securities and Exchange Commission has launched an informal investigation into whether Enron's transactions with the LJM companies were really completed at arms' length. The company's market capitalisation has halved and its bonds are trading at distressed levels. 
But there could still be a good argument for Enron being in private equity. It is almost as much a technology company as it is an energy one and as such it might make sense to outsource some of its research and development to a corporate venture capital unit. 
The problem is shareholders' dim view of private equity. Shareholders refused to give Chase Manhattan Bank a growth multiple when venture capital made up a large proportion of its earnings, but punished its successor, JP Morgan Chase, when it took a succession of private equity write-downs. 
JP Morgan Chase claims a 40 per cent internal rate of return on its investments since inception. But investors have remained stubbornly fixated on private equity's short-term valuation swings. 
The bank is now in the process of raising outside money for its private equity fund, JP Morgan Partners, in an effort to take some of its investment off the balance sheet and change the business into a steady revenue producer. 
Private equity professionals argue that those swings are often meaningless anyway because half way through the life of many private equity investments, their valuations tend to look far worse than they end up. 
In Enron's case it might have been easier for investors to keep their eyes on the long term, if the short-term outlook had been a little clearer. The trading company has faced severe criticism for its lack of disclosure to investors. 
Ironically, the energy company's subtle balance sheet games may in the short term have increased the allure of the company's trading businesses, which continue to perform strongly and experience impressive growth. And for that reason it could probably be argued that Mr Fastow thought he was serving Enron's interests by managing the partnerships - although he is also reported to have been very well compensated for the service. 
Long-term the partnerships have clearly undermined Enron's reputation for plain dealing still further. 
The saddest thing for the corporate world is that Enron is arguably a more natural private equity investor than JP Morgan. As a financial institution, JP Morgan is arguably most interested in the short-term synergies private equity creates with its other businesses. High capital charges that bank private equity holdings will soon attract will make them less attractive as long-term investments. 
Enron was investing in new businesses that it thought would help make its own businesses grow. It was harnessing the immense entrepreneurial power of private equity to make its business grow. 
The first reaction of investors and regulators will be to punish Enron for its shenanigans. Later someone might want to think about changing the mark to market system that drove it to these extraordinary lengths. 
Copyright: The Financial Times Limited


COMPANIES & FINANCE THE AMERICAS - Sell-or-buy poser facing energy analysts.
By JOHN LABATE and SHEILA MCNULTY.

10/30/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Shares in Enron, the energy trading company, continued their downward spiral yesterday, with investors responding coolly to reports that the Houston company was seeking new credit lines. 
At midday the stock was down 9 per cent at $14.10.
Investor anger has been focused on Enron executives who still have much to explain about several off-balance-sheet vehicles and potential conflicts of interest for the company's former chief financial officer. 
Wall Street analysts are beginning to rethink their overwhelmingly favourable guidance earlier in the year. 
"If I could go back to July and downgrade the stock again, I would certainly do that," said Curt Launer, analyst at Credit Suisse First Boston. "I can't go back. The question is: what are you going to do today? Today, I would like to buy it because of the valuations." 
Mr Launer continues to rate Enron as a "strong buy" and he is not alone. Despite weeks of turbulent financial disclosures, the August departure of Enron's chief executive, Jeff Skilling, and the more recent departure of CFO Andrew Fastow, analysts have wavered little in their initial bullishness. 
Among analysts who issue recommendations on the company, nine are "strong buys", five are "buys" and only one is a "strong sell", according to Thomson Financial/First Call. 
There is no doubt the recent turmoil at Enron has created a new difficulty for analysts. Do they hold on and hope for an upturn despite continued questions about the company's disclosure quality, or do they recommend that investors unload their holdings for fears that problems could mount? 
They are defending their recommendations based on Enron's strong track record. Net income, on an operating basis, surged 32 per cent last year to $1.3bn, on revenues more than doubled to $101bn. During the past 15 years, Enron's market capitalisation surged from $2bn to a peak of $70bn. Even today analysts point to Enron's strong position in key sectors of power and gas trading. 
However, at least one independent research firm decided to tell investors to get out early. Off Wall Street Consulting Group in Cambridge, Massachusetts, put Enron on its "sell" list in early May when the shares traded just below $60. 
"We discussed the partnerships (former CFO) Fastow was involved in and that there was not much detail there," said Mark Roberts, analyst at OWS. "Their accounting is extraordinarily difficult to get through and when people make things that difficult there's usually a reason." 
Despite their relative optimism, most analysts say more bad news could follow. 
"The clear immediate task for Enron is to make sure it has enough liquidity to help maintain its credit rating," said Andre Meade, head of US utility research at Commerzbank Securities. 
Mr Meade issued a "hold" recommendation early last year, but has since upgraded to "accumulate" as the stock became more affordable. "We've been saying the numbers have been coming in and they have been hitting earnings (estimates), but (some of its) businesses are black boxes and you don't know how the company is making money from quarter to quarter." 
Yesterday a new note of caution was sounded by Carol Levenson, fixed-income analyst at Gimme Credit research group. "The ensuing total collapse of management credibility and market confidence could have negative credit implications far beyond the potential financial impact disclosed so far," she said. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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


WORLD STOCK MARKETS - Boeing brings Wall St back down to earth.
By ANDREI POSTELNICU.

10/30/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

A stark reality checkswept Wall Street as investors sold off shares on the widespread view that recent gains have yet to be justified by either corporate or economic data. 
The Dow Industrial Average had tumbled 213.05 to 9,332.12 by midsession, while the Nasdaq Composite lost 35.00 to 1,733.96. The broader S&P 500 index edged off 18.89 to 1,085.72.
Boeing fell 8.2 per cent to $34.59 in response to Friday's news that the Pentagon had awarded the $200bn joint striker fighter contract to rival Lockheed Martin. 
Lockheed Martin gained 2.7 per cent to $51.28 on the news. The company is expected to hire 2,500 more staff over the life of the contract. 
Analysts were hesitant to pinpoint the JSF contract news as a cause for yesterday morning's sell-off. 
"This (sell-off) doesn't really seem to be event-specific," says Tom van Leuven at JP MorganChase. "We've seen a strong bounce in recent weeks and the news flow doesn't support that...earnings have been bad and economic data isn't likely to be positive." 
Also depressing the Dow was United Technologies, down 4.2 per cent at $54.60 even though its Pratt & Whitney engine unit is poised to gain from the JSF contract to Lockheed. 
Shares of EchoStar retreated fractionally to $25.03 after the company's surprise victory in the battle to acquire Hughes Electronics, the owner of the biggest US satellite broadcaster, DirecTV and itself a General Motors unit. The tracking stock for Hughes fell to $14.68, while General Motors stock retreated to $43.35, a 4.5 per cent fall in both cases. 
The ADRs of News Corp., the rival bidder to EchoStar, mirrored overnight losses in Sydney and lost 6.5 per cent to $27.14. 
UAL gained 4.8 per cent to $14.60 as its United Airlines unit announced that Jack Creighton would take over as interim chairman and chief executive after James Goodwin stepped down. 
FedEx, the shipping company, gained 4.7 per cent to $41.36 as it announced that its earnings would beat estimates, even though they would come in below figures for the comparable quarter last year. 
In the energy sector, shares of Enron were down 8 per cent to $14.16 after the beleaguered company announced it was seeking additional credit. 
Toronto fell in early trading, hit by the weak opening for US equities and concern about loan provisions in the banking sector. The S&P 300 composite index was off 0.9 per cent at 6,942.60 at midsession. 
Bank of Montreal fell 5 per cent or C$1.70 to C$33.00 following Friday's announcement of a big rise in loan loss provisions for this year. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

Oct. 30, 2001
Houston Chronicle
Moody's downgrades Enron debt 
Move likely to hurt its leverage 
By TOM FOWLER 
Copyright 2001 Houston Chronicle 
Enron Corp. saw its long-term debt rating lowered by one notch Monday, sending the stock to seven-year lows and further hampering the company's efforts to restore investor and client confidence. 
Moody's Investors Service downgraded Enron's rating from Baa1 to Baa2, where it will remain on review for further downgrade, Moody's said in a statement. The firm also placed the Houston company's Prime-2 rating for commercial paper on review for downgrade. 
The Baa2 rating is just two notches above what are commonly called "junk bonds," but in line with the ratings of other competing energy companies, Simmons & Co. International analyst Jeff Dietert noted. 
"For example, El Paso is a Baa2, Mirant is Baa2, Calpine is Baa3," he said. "It's similar to the others in the industry." 
Last Thursday another leading rating agency, Standard & Poor's, revised its outlook on Enron to negative while affirming its BBB-plus long-term rating. Ratings agency Fitch also put Enron on a negative watch. Those agencies have not announced a decision on whether they will change their ratings. 
Shares of Enron closed down $1.59 Monday at $13.81. In the past two weeks the stock has lost more than half its value, dropping from as high as $35 at the beginning of October. 
Enron's rating had been on review by Moody's since Oct. 16, when the company's third-quarter earnings release drew renewed attention to a pair of investment partnerships created by then-Chief Financial Officer Andrew Fastow. 
Analysts began to demand more details behind the complicated and previously overlooked workings of the partnerships, details that Enron did not provide as quickly as some would have liked. The company said it was careful to ensure that the interests of Enron and its shareholders were protected, but the Securities and Exchange Commission's Division of Enforcement launched an informal inquiry into the partnerships. 
Last week the company put Fastow on a leave of absence and named a replacement, then began providing more details about its finances in order to maintain investor and client confidence. 
On Friday, Enron tapped a $3.3 billion line of revolving credit, putting about $1.1 billion in the bank to ensure it has cash on hand. It is using the balance to begin an orderly repurchase of its commercial paper -- a form of short-term IOUs the company issues to raise money at terms better than available from banks. 
That move was lauded by many analysts but also served as a sign that the company was having trouble convincing those who held its commercial paper to continue renewing it at favorable terms. 
Moody's move to lower Enron's credit rating could further complicate its ability to raise money and do business. 
Credit ratings are used to rank companies in their ability pay their bills, pay interest on loans, cover shortfalls in earnings and conduct other fundamental business functions, said Donald Singer, a professor of finance at the University of Houston. The better the ratings, the more strength a company has when it negotiates financing terms with trading partners and the lower the interest rates it can demand from lenders. 
While rating agencies like Moody's closely guard the formulas they use to reach their ratings, it's clear the write-downs and equity charges Enron took in the most recent fiscal quarter cast some doubt on the company's ability to generate cash in the future, Singer said. 
"The rating is less a matter of the psychology of the market and what it thinks the company's stock is worth as it is what the business fundamentals of the firm are," Singer said. 
The lower rating could lead trading partners to demand different terms with Enron and could lead to higher interest rates on a new multibillion-dollar line of revolving credit the company is negotiating with banks. 
The issue of liquidity is crucial for a company that relies heavily on its credit lines to conduct billions of dollars worth of trading deals on a daily basis. On Oct. 24 alone, Enron conducted $4 billion in transactions through its trading unit EnronOnline, a system widely used by energy traders. 
While U.S. firms are continuing to trade with Enron at normal levels, Reuters reported that several unnamed European energy companies have frozen their dealings with Enron in that market and others are keeping a wary eye on their activity with the firm. 
Despite the downgrade, Singer and Dietert say Enron is far from slipping into serious trouble with its energy trading partners. The bank credit lines under negotiation and the $2 billion in cash expected to come with Enron's pending sale of Portland General Electric Co. are expected to reaffirm the company's liquidity. 
The real questions are whether there are more troubling partnerships the company still hasn't revealed and if they will lead to more write-downs or charges such as those that occurred last quarter. Moody's officials said they will continue to review those off-balance-sheet transactions. 
"I'd like to see some type of confirmation that there aren't other partnerships that could cause dilution or the issuance of preferred shares," Dietert said. 
Newspaper reports last week on yet another such partnership came as a surprise to analysts, leading many to ask if there are more they don't know about. The partnership, called Chewco, was formed in 1997 with about $400 million in financial backing to buy interests in unnamed Enron assets, and was run by Michael Kopper, a managing director of Enron's Global Equity Markets Group. 
"Frankly, that was the first time I had ever heard of that entity," said Anatol Feygin, an analyst with J.P. Morgan. "Until now, everything that's come out I've at least heard of or had some idea of what they were from the company's filings or discussions. This is something I had never heard of before." 
Enron has not commented on Chewco and is limited in sharing information on the other partnerships because of the ongoing SEC investigation. 
"People read about these things and they get worried," Dietert said. "They appear to be working to clarify some of the issues, but until they issue a press release or schedule a conference call, we have no official word or answers." 

Oct. 30, 2001
Houston Chronicle
VIEWPOINTS 
Enron's latest challenge 
What about stockholders?
I have a few questions regarding the Oct. 28 Outlook article, "In these challenging time, Enron deserves our thanks," <http://www.chron.com/cs/CDA/story.hts/editorial/1107504> by Bill White. What does White say to those investors who paid $70 a share or more for Enron stock that is now selling for $14 a share? 
Is poor management one of the risks of doing business with Enron? 
I'm as proud as White is to have Enron as a major Houston employer, but I find it unacceptable how a few misguided managers have nearly brought this great company to its knees. 
To the stockholders who have suffered as much as an 80 percent drop in Enron stock value and not bailed out, I say thanks. 
Alan Jeffcoat, Houston 
Open up the numbers
While I agree with much of what Bill White wrote <http://www.chron.com/cs/CDA/story.hts/editorial/1107504> about Enron's being a good corporate citizen in Houston, extensive analysis of Enron's current predicament shows that even the experts who analyze stocks and perform credit ratings have more questions than answers about its accounting and financial reports. 
One of the basic tenets of the industrialized world's financial system is transparency in financial reporting. 
Without complete confidence that profits and losses are fully reported, the investing community will suffer. This is really most people, when you consider all of the pension plans and retirement accounts. 
The sooner the financial experts understand what Enron has done, the better off we all will be. 


Business
MARKET REPORT
Stocks sink amid trio of pressures
BILL BARNHART

10/30/2001
Chicago Tribune
North Sports Final ; N
1
(Copyright 2001 by the Chicago Tribune)

Bad things, it seems, often happen in threes. If that's so, Wall Street could be facing a bout of deja vu. 
Three financial stories currently unfolding bear a slim resemblance to events that nearly caused gridlock in global financial markets in 1998. The analogy is strained, but so are nerves in the post-Sept. 11 era. Case in point: The Dow Jones industrial average fell more than 275 points Monday--its biggest point loss since the week after markets reopened following the attacks--despite a lack of dramatically downbeat news.
One of the closely watched sagas on Wall Street, the deepening problems at energy trading innovator Enron, is being compared to the tragically flawed Long-Term Capital Management private investment fund. 
At Long-Term Capital, professional investors with impressive resumes made a series of disastrous bets, requiring a government- induced bailout in 1998 by major financial institutions that had financed their schemes with massive loans. 
On Monday, Houston-based Enron struggled to raise emergency cash as its stock fell another 10 percent, to $13.81. 
Enron shares, which have fallen from above $80 at the end of last year, have collapsed more than 50 percent this month as analysts began to question mysterious financial deals between the company and company insiders. Last week, Enron's chief financial officer was replaced. 
There was no indication Monday that Enron's troubles have impaired the natural gas and electricity markets. Nor has the Enron predicament yet sparked a backdraft on its lenders. 
The two other strings of the story--debt problems at a sovereign nation and currency imbalances--seem relevant only by coincidence. 
The implosion at Long-Term Capital occurred amid a surprise default by Russia on international debts. Separately, currencies of several Asian countries ran aground a second year, events that deepened Long-Term Capital's woes. 
Current speculation that Argentina will default on $132 billion of international debts hardly represents a shock similar to the Russian debt default. The problems of Argentina's economy and financial system, while serious, have been well-known for months. 
On Monday, Argentina hired a Merrill Lynch consultant, Jacob Frankel, to craft a financial restructuring and said a workout plan will be disclosed in a few days. 
Meanwhile, Monday's slide in the value of the dollar in foreign currency markets reversed the dollar's surprising strength in the wake of the attacks. 
Indeed, the relative stability of the dollar has been a major contributor to investor confidence. The current slippage by the dollar hardly indicates extraordinary instability. 
As far as we know, Enron was not engaged in currency speculation or deals pegged to Argentina. But Enron shareholders and the Securities and Exchange Commission have just begun to investigate. 
Monday's action: Stocks closed broadly lower in light trading Monday, as investors awaited several key economic reports due out this week, including Friday's scheduled report on job losses and the unemployment rate in October. 
Treasury securities rallied on expectations that the economic downturn will be more pronounced and longer than many investors believe and will prompt the Federal Reserve to cut interest rates through the end of the year. 
The Dow Jones industrial average fell 275.67 points, or 2.9 percent, to 9269.50. Chicago-based Boeing, which lost a major defense contract to rival Lockheed Martin, led the Dow losers. Boeing lost $3.93, or 10.4 percent, to $33.75. 
Only one of the 30 Dow industrials, SBC Communications, posted a gain. 
The broader Standard & Poor's 500 index dropped 26.31, or 2.4 percent, to 1078.30. New York Stock Exchange trading volume reached 1.11 billion shares, as losing stocks outnumbered winners by 2-1. 
The Nasdaq composite index fell 69.44, or 3.9 percent, to 1699.52. Nasdaq trading volume totaled 1.67 billion shares. Losers topped winners by nearly 2-1 among Nasdaq stocks. 
Computer networking giant Cisco Systems led the Nasdaq most- active list, dropping 87 cents, to $16.42. A.G. Edwards revoked its "strong buy" rating on the stock. 
The Russell 2000 index of small-company stocks lost 9.24, or 2.1 percent, to 429.41. 
Fund flows: Mutual fund investors withdrew a net $29.5 billion from equity funds in September, the biggest one-month dollar amount for net redemptions, according to the Investment Company Institute, the trade association for mutual funds. 
The redemptions equaled less than 1 percent of assets in stock funds, compared with more than 3 percent withdrawn in October 1987, reflecting the stock market crash of that month. By contrast, cash flow last month into money-market funds soared by $53 billion. 
Treasury auction: Interest rates fell again at the Treasury's weekly auction of 3-month and 6-month bills. 
The discount rate for 3-month bills was 2.05 percent, the lowest rate since August 1958. The rate for 6-month bills was 2.00 percent, the lowest rate on record. 
The coupon-equivalent investment rates at Monday's auction were 2.09 percent for 3-month bills and 2.05 percent for 6-month bills. Bill Barnhart

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

Business
THE TICKER
ENRON CORP.: New line of credit sought as agency cuts debt rating
From Tribune news services

10/30/2001
Chicago Tribune
North Sports Final ; N
2
(Copyright 2001 by the Chicago Tribune)

Enron Corp.'s shares fell near a seven-year low Monday, as the limping energy giant said it was lobbying banks for a new credit line and a rating agency chopped Enron's senior unsecured debt to two notches above junk status. 
The nation's largest natural gas and power marketing company is struggling to bounce back from disappointing third-quarter earnings and a scandal over losses stemming from partnerships managed by the company's former chief financial officer.
Enron shares fell more than 10 percent, or $1.59 a share, to close at $13.81 on the New York Stock Exchange. A year ago, Enron stock sold at nearly $85 a share. 
The ratings cut by Moody's Investors Service, which warned it could slash that rate again and also Enron's short-term debt status, was the latest sword thrust into what was once the raging bull of the energy trading arena. 
Meanwhile, Enron on Monday confirmed it was seeking additional credit lines after tapping its $3.3 billion lines last week, but declined to say how much it was asking its banks to extend. 
"We want to restore investor confidence and nothing instills confidence like cash," Enron spokesman Mark Palmer said. That should leave Enron with a net cash position of $1.2 billion, Moody's said.

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Business; Financial Desk
Enron Shares Fall 10% as Moody's Cuts Credit Rating
Bloomberg News

10/30/2001
Los Angeles Times
Home Edition
C-3
Copyright 2001 / The Times Mirror Company

Enron Corp. shares declined Monday for a ninth day as Moody's Investors Service lowered its credit rating, creating concern that the largest energy trader will be cut off from raising the cash it needs to fund day-to-day operations. 
Moody's lowered Enron's senior unsecured long-term debt ratings to Baa2, two levels above junk, from Baa1 and also placed the Houston-based company's P-2 rating for commercial paper on review for downgrade.
Moody's said it may downgrade Enron's commercial paper rating, which would make it harder for the firm to borrow the short-term cash needed to run its trading businesses. Ahead of a potential cut, Enron took out bank lines to repay $2billion in commercial paper last week. 
"They've pretty much already written off coming to the commercial paper market," said Shannon Bass, who holds Enron bonds in the $50 million he helps manage at Pacific Investment Management Co. "The real issue now is trying to get their house in order." 
Enron shares plunged $1.59, or 10%, to close at a seven-year low of $13.81 on the New York Stock Exchange, continuing a slide that dates back to Oct. 17, the day after Enron reported $1.01 billion in losses from investments outside its energy trading business. The stock has fallen about 60% since Oct. 17. 
Enron has lost more than $50 billion in market value this year. On Dec. 31, Enron had a market value of $62.7 billion. On Monday, the value was $10.5 billion. 
Moody's said the rating cut was prompted by the "deterioration in Enron's financial flexibility" since the write-downs and charges. The partnership investments had not previously been disclosed, leading "to a substantial loss in investor confidence." 
Last week, Enron ousted Finance Chief Andrew Fastow after the Securities and Exchange Commission asked about transactions he conducted for partnerships he headed.

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Financial
Enron's Credit Rating Cut

10/30/2001
The Washington Post
FINAL
E02
Copyright 2001, The Washington Post Co. All Rights Reserved

Enron's credit rating was cut by Moody's Investors Service after the largest energy trader wrote down the value of its assets because of losses from private partnerships. Moody's also said it may downgrade Enron's commercial paper rating, which could make it harder for the company to borrow the short-term cash it needs to run its trading business. Enron borrowed from banks to repay $2 billion in commercial paper last week. 
http://www.washingtonpost.com 
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Moody's Downgrades Enron's Debt, Maintains Review; Stock Drops 10%

10/29/2001
Dow Jones Business News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

A Wall Street Journal Online News Roundup 
HOUSTON -- Enron Corp.'s stock slid further Monday, pushed down in part by Moody's Investors Service announcing a downgrade of the company's credit rating.
The downgrade came as Enron negotiates with banks to establish new credit lines as the nation's largest natural gas and power marketing company struggles to bounce back from disappointing third-quarter earnings and a scandal over losses stemming from partnerships managed by the company's former chief financial officer. 
In composite trading Monday at 4 p.m. on the New York Stock Exchange, Enron (ENE) shares were down $1.59, or 10.32%, at $13.81. A year ago, Enron stock traded at nearly $85 a share. 
Enron's efforts to acquire more credit came after the company last week decided to cash in about $3 billion in revolving credit it has with various banks to shore up investor confidence. 
"We are in discussions about new credit lines," Enron spokeswoman Karen Denne said Monday. "We're taking action to restore investor and market confidence." 
Ms. Denne wouldn't disclose how much credit the company was seeking. The Wall Street Journal reported in its Monday editions that the amount is between $1 billion and $2 billion and that the deal is close to being completed. 
Ms. Denne said of the $3 billion in credit Enron cashed in last week, $2 billion of it was used to pay short term debt. Currently, there are no plans for the other $1 billion, she said. 
Moody's on Monday lowered Enron's senior unsecured long-term debt ratings from Baa1 to Baa2 where they remain on review for downgrade. Moody's additionally placed the company's Prime-2 rating for commercial paper on review for downgrade, citing "substantially reduced valuations in several of its businesses." 
Houston-based Enron is the nation's biggest energy trader and a principal in nearly one-quarter of all electricity and natural-gas trades. Once a favorite of Wall Street, the company now is in the unfamiliar position of convincing a deeply concerned investment community that, despite difficulties, its finances remain sound. 
Confidence in Enron's situation was shaken after Enron earlier this month announced a $618 million third-quarter loss and disclosed a $1.2 billion erosion of shareholder equity related to controversial transactions it had done with entities connected to its then-chief financial officer, Andrew Fastow. 
Moody's said in a press release the "magnitude of the announced charges will reduce Enron's equity base and increase nominal financial leverage to somewhat over 50% while slashing earnings." 
Enron's debt is still investment grade at both Moody's and Standard & Poor's and would have to be lowered by several notches to fall into a noninvestment-grade category. 
Copyright (c) 2001 Dow Jones & Company, Inc. 
All Rights Reserved.

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

CEO: Exelon Monitoring Enron Problems,But No Changes Yet
By Jon Kamp
Of DOW JONES NEWSWIRES

10/29/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

CHICAGO -(Dow Jones)- Exelon Corp. (EXC) hasn't made specific moves to lower its trading operation's exposure to Enron Corp. (ENE), but it's carefully evaluating dealings with Enron in light of the trading giant's recent troubles, a top Exelon official said Monday. 
"We have been very careful to check all of our trades with them to make certain that we're reasonably secure," John Rowe, co-chief executive officer of Chicago-based Exelon, said following a speech at an energy conference. "Obviously we're concerned that if they have big problems, it would really shake up the market. But I don't think that we have out-of-control exposure or anything."
Confidence in Enron's financial situation was shaken after the company disclosed a $1.2 billion reduction in shareholder equity related to controversial transactions with entities connected to former Chief Financial Officer Andrew Fastow. Enron's investment-grade bonds are trading at levels traditionally associated with distressed debt, and on Monday, Moody's Investor Services downgraded its long-term debt ratings on Enron to two levels above junk-bond status. 
Moody's cited a loss of investor confidence associated with Enron's troubles as one reason for the downgrade. Enron shares closed Monday at $13.81, down $1.59, or 10%, on above-average volume of 36.4 million shares. Enron's shares are off 60% since mid-October. 
Despite Enron's recent problems, Exelon hasn't made specific moves to lower its risk exposure to the company, Rowe said. He said he doesn't believe Enron's problems will necessarily grow. 
"I am not in a panic over Enron," he said. "Personally, I would be very surprised if we're looking at some complete collapse there. But very clearly they weren't quite as ironclad as they wanted the world to believe." 
Spokesmen for Reliant Energy Inc. (REI) and Calpine Corp. (CPN) said their companies hadn't changed their credit policies for deals with Enron. Al Butkus, spokesman for Aquila Inc. (ILA), another leading trading company, said, "We watch everybody. We have a tight credit policy, but we don't comment on individual companies." 
Trading volume on EnronOnline, the company's proprietary energy marketplace, continues to run high, with 7,200 trades late Monday, compared with a 30-day average of 5,600, said Enron spokesman Eric Thode. 
Enron's counterparties aren't placing new restrictions on trade with the company, Thode said. 
A more severe credit-rating drop could change Exelon's perspective, Rowe said, a sentiment echoed by officials at other large power trading companies. 
"We are being careful with the Enron exposure right now," Rowe said. 
-By Jon Kamp, Dow Jones Newswires; 312-750-4129; jon.kamp@dowjones.com

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

LATE TRADING: Enron Continues To Be Pounded By Investors
By Maxwell Murphy
Of DOW JONES NEWSWIRES

10/29/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- Enron Corp. (ENE) shares found no safety from investor wrath in Monday's late trading, continuing to fall amid a spate of concerns and government questions about its business. 
The stock has fallen for seven consecutive sessions, and 11 of the last 12, dropping 20% a week ago when the Securities and Exchange Commission requested information about a series of complex transactions between Enron and a limited partnership organized by the company's chief financial officer. Shares fell another 17% Wednesday when Prudential cut the company's rating to sell.
After falling more than 10% in the regular session to close at $13.81, shares recently traded at $13.70. The stock hasn't traded so low since the early 1990s. 
Openwave Systems Inc. (OPWV) also suffered a 10% drop Monday ahead of the release of its fiscal first-quarter results. Shares recently changed hands at $7.70, down $1.29 from the close of $8.99. 
Openwave said it will lose 6 cents to 19 cents a share during its fiscal second quarter, which doesn't jibe with analysts' predictions for break-even results. 
CSG Systems International Inc. (CSGS) posted third-quarter earnings which beat the Street, and reiterated its guidance for the year, though it guided toward the low end of its expected range. And it said 2002 revenue wouldn't be much better, if any, than flat. 
Shares recently traded at $32.93, down $6.27, or 16%, from the close, which was off 82 cents at $39.20. 
Globalstar Telecommunications Ltd. (GSTRF) saw shares more than double Monday after Qualcomm Inc. (QCOM) announced aviation safety technology which uses Globalstar's satellite communications system. 
Qualcomm Inc. (QCOM) is part of a corporate ownership team that owns Globalstar. Other partners include Loral Space and Communications Ltd. (LOR) and Daimler-Chrysler Aerospace. 
In August, Globalstar said it doesn't expect to generate enough revenue at the end of 2001 to continue operations for a significant period beyond 2001 without additional financing. 
Globalstar recently traded at 90 cents, up 4 cents from the close, which was up almost 121%. Shares are up nearly 350% since hitting an all-time low of 20 cents on Sept. 7. 
-By Maxwell Murphy; Dow Jones Newswires; 201-938-5173 
maxwell.murphy@dowjones.com

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

Power Suppliers Urge Changes in U.S. Price-Cap Rules for West
2001-10-29 19:00 (New York)

Power Suppliers Urge Changes in U.S. Price-Cap Rules for West

     Washington, Oct. 29 (Bloomberg) -- Companies that sell power
in the western U.S. said the region may face blackouts this winter
unless federal regulators permit them to charge more for
electricity than current price limits allow.

     Dynegy Inc., Enron Corp. and other power suppliers said they
may not have electricity to offer during regional shortages this
winter if the price caps that the Federal Energy Regulatory
Commission set for California and 10 Western states in April and
June aren't eliminated or changed. They said the present limit may
be too low to encourage dam owners to generate electricity.

     ``The price mitigation plan, the way it is now, will make it
difficult to induce supply,'' G. Alan Comnes, director of
government affairs for Enron Power Marketing, told the commission
at a conference in Washington.

     The commission is considering changes to the pricing formula
it set after skyrocketing electricity costs led to insolvency for
California's largest utilities, units of PG&E Corp. and Edison
International. Commissioners have said they want to fine-tune the
formula before winter, the peak period of demand in the Northwest.

     The current pricing formula is based on the most-expensive
power generated in California. Power suppliers and utilities in
the Pacific Northwest, which want to make sure they have enough
power for customers, want the limits to reflect costs from all
generators in the region.

     Representatives for the California Public Utilities
Commission and Edison International's Southern California Edison
said the price limits work and should be continued. California
PUC's Bill Julian said the mitigation plan, due to expire Sept.
30, 2002, should be extended until California's utilities are
rehabilitated.

                           Prices Lower

     The cost of wholesale power in California has dropped since
FERC ordered the first emergency cap on April 25. The average
price for a megawatt-hour at the California-Oregon border in
September was $24.91, down from $313.70 in April. A megawatt-hour
is enough electricity to power about 750 average California homes
for an hour.

     One adjustment under consideration would link the pricing
formula to the cost of natural gas, a fuel used to generate about
25 percent of power in the western U.S., more during low-
hydropower years.

     The caps were extended to other Western states -- Oregon,
Washington, Arizona, Nevada, Wyoming, New Mexico, Colorado,
Montana, Idaho and Utah -- in June because some said generators in
the West could simply get around the cap by selling outside
California when prices were higher elsewhere.

--Liz Skinner in Washington (202)624-1831 

INDIA PRESS: Enron Close To Deal To Sell Dabhol Pwr Proj

10/29/2001
Dow Jones International News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- U.S. energy company Enron Corp. (ENE) is in an advanced stage of negotiations to sell its Indian unit, Dabhol Power Co., at a 30% discount to financial institutions at a price likely between $700 million-$800 million, reports the Economic Times, quoting unnamed sources. 
The business daily says Enron and the financial institutions, led by the Industrial Development Bank of India (P.IDB), are close to finalizing a broad agreement within the next few days. The final settlement should be worked out before Indian Prime Minister Atal Bihari Vajpayee leaves for the U.S. in the second week of November, according to the report.
Should the deal go through, Enron is likely to settle for a five-year payment plan in equal instalments to minimize a heavy one-time foreign exchange transfer, says the report. 
Dabhol is a 2,184-megawatt power project located in the western Indian state of Maharashtra. Enron holds a 65% stake in DPC. Costing $2.9 billion, the project is the single largest foreign investment in India to date. 

Newspaper Web site: www.economictimes.com 

-By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

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

FERC Warns That Power-Price Controls Risk Shortages in Northwest
By Bryan Lee

10/29/2001
Dow Jones Business News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Dow Jones Newswires 
WASHINGTON -- The Pacific Northwest could see power shortages this winter if federal price controls on western power markets aren't modified or dropped, electricity industry officials warned federal regulators Monday.
The controls, first structured to protect California from another punishing summer, are inappropriate to the Northwest, where demand is highest in the winter, the officials said. 
"The Western Interconnection is an interdependent market, but that does not mean that there is or should be a single price across the market," said Richard Tabors, a consultant to power suppliers and a lecturer at Massachusetts Institute of Technology. "Setting prices in the winter-peaking Northwest based on prices set in summer-peaking California and the Southwest makes little sense." 
The caution came at a Federal Energy Regulatory Commission technical conference designed to help the agency frame possible changes to a June price-control order capping prices in California and 10 other Western states. 
The controls work by establishing a proxy for a fair maximum market price for the entire region based on the most expensive generator called into service during power emergencies in California. The proxy-price formula takes into account the cost of natural gas fuel, emissions-control credits and the efficiency of power plants. 
But California, which experiences peak demand for electricity in the summer, is unlikely to run into a supply crunch again until next year. That means the price cap set in June will remain in effect throughout the winter, when the Pacific Northwest experiences its peak-demand period and may need the flexibility to pay higher prices to attract needed power. 
If the current price-control regime is maintained, it will discourage sales from the Southwest to the Northwest this winter, because transmission costs will drive the cost of those sales above FERC's price cap, Mr. Tabors said. 
California Wants Caps To Stay 
Officials representing California and its financially beleaguered utilities urged the commission to maintain the price-control order and to extend it beyond its October 2002 expiration date to prevent a recurrence of last year's power-market meltdown. 
The price-control regime should remain in place at least until California's utilities return to the market as creditworthy buyers, said Fong Wan of PG&E Corp. (PCG) and Bill Julian of the California Public Utilities Commission. 
A 10% markup allowed to compensate for credit risks for sales into California should be dropped, because the California Department of Water Resources, a creditworthy buyer, is purchasing electricity on behalf of the utilities, they said. 
FERC's price-mitigation order "has been very successful," said Gary Stern of Edison International (EIX) unit Southern California Edison Co. 
Prices stabilized shortly after the controls took effect and have been capped at $92 per megawatt-hour since late June, the last time the California Independent System Operator, the state's grid manager, called an alert. Conservation, mild weather and California's entry into billions of dollars in long-term power contracts have kept market prices well below that cap for the most part. 
FERC, however, is considering changing the pricing order to reflect the different needs of western utilities outside California. The commission is mulling whether power prices should change at times other than when California declares an emergency, perhaps to reflect fluctuations in natural gas prices. 
FERC also is pondering changes to the requirement that generators make all uncommitted power available to California at all times. FERC staff asked whether the so-called must-sell requirement should apply only during emergencies and whether the mandate should be balanced by a "must-pay" requirement. 
Generators have complained that the state still hasn't paid for hundreds of millions of dollars worth of power delivered since the Department of Water Resources took over the job of purchasing power for customers of California's largest utilities. 
California Focus Challenged 
Absent withdrawal of FERC's price-mitigation order, Mr. Tabors and other conference participants argued for changes in the order to better account for the predominance of hydropower generation in the Northwest. 
Setting prices throughout the West based on prices in California, which gets most of its power from natural gas-fired generating plants, runs the risk of supply shortages in the Northwest this winter, they said. 
Utilities operating hydropower facilities won't know how much generating capacity they'll have for next year until February, when a reliable assessment of snowpack will be available. Given the uncertainty, hydropower operators will be reluctant to release water for generation this winter. 
"Shortages can happen this winter," said Mike Naeve, an attorney with Skadden Arps Meaghre & Flom representing Portland General Electric Co., a unit of Enron Corp. (ENE). "Prices based on natural gas may not be sufficient to release hydro you may need next year." 
Under the current regime, the California Independent System Operator, controlled by appointees of Gov. Gray Davis, could "manipulate the market by controlling exports to the Northwest," said Alan Comnes of Enron Power Marketing Inc. (ENE). "The current price mitigation is sowing the seeds for another crisis." 
FERC's pricing order has already been costly, said Mark Tallman of Scottish Power's PacifiCorp (SPI). If there is an Arctic cold snap in the region this winter, price caps set by the California ISO may be insufficient to assure enough supply, he said. 
FERC should allow prices to rise to $250 per megawatt-hour price cap in the Northwest if capacity margins drop to emergency levels, Mr. Tallman said. 
Mr. Tabors and the Enron officials recommended FERC adopt a $1,000 per megawatt-hour "circuit breaker" cap, such as exists in ISO-administered markets in Texas and the Northeast. 
FERC's pricing order also was criticized for failing to account for the economics of "peaker" generating units, which only run during periods of peak demand, when prices typically spike. 
Write to Bryan Lee at Bryan.Lee@dowjones.com 
Copyright (c) 2001 Dow Jones & Company, Inc. 
All Rights Reserved

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