Defending Free Markets
The New York Times, 08/22/01
OBSERVER - The right stuff - AVENUE OF THE AMERICAS.
Financial Times, 08/22/01
Power station blast still a puzzle
The Northern Echo, 08/22/01
Panel unable to find meeting point with Enron
The Times of India, 08/22/01
INDIA: ANALYSIS-Poor governance hobbles India's reform drive.
Reuters English News Service, 08/22/01
Calif Senate Panel To Study Muni Utils Pwr Mkt Activities
Dow Jones Energy Service, 08/21/01
Fired Calif DWR Traders Had Access To ISO's Control Room
Dow Jones Energy Service, 08/21/01




Editorial Desk; Section A
Letters to the Editor
Defending Free Markets

08/22/2001
The New York Times
Page 18, Column 5
c. 2001 New York Times Company

To the Editor: 
Paul Krugman misunderstands Enron, the people who work here and the botched California regulatory system (column, Aug. 17). The broader goal of his latest attack on Enron appears to be to discredit the free-market system, a system that entrusts people to make choices and enjoy the fruits of their labor, skill, intellect and heart. He would apparently rely on a system of monopolies controlled or sponsored by government to make choices for people. We disagree, finding ourselves less trusting of the integrity and good faith of such institutions and their leaders.
The example Mr. Krugman cites of ''financialization'' run amok (the electricity market in California) is the product of exactly his kind of system, with active government intervention at every step. Indeed, the only winners in the California fiasco were the government-owned utilities of Los Angeles, the Pacific Northwest and British Columbia. The disaster that squandered the wealth of California was born of regulation by the few, not by markets of the many. 
KEN LAY 
Chairman and Chief Executive 
Enron Corporation 
Houston, Aug. 20, 2001

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


OBSERVER - The right stuff - AVENUE OF THE AMERICAS.

08/22/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

This year's honour roll of former chief executives is impressive and lengthening. Flemming Lindelov of Carlsberg Breweries left for a decorative arts company, while Jeff Skilling resigned from Enron last week for "personal reasons" and the amiable Michael Bonsignore bade farewell to Honeywell. 
While some bosses have been shown the door, there appears to be a separate pattern forming - chief executives leaving prematurely because life at the top is too tough and stressful, raising the question as to whether the modern CEO has the right stuff.
And there is the pressing issue of how activist a board should be in these "transition" issues. Take, for example, Hewlett-Packard directors, several of whom this week swore their allegiance to Carly Fiorina, the chief executive whose fate has been the subject of much speculation. 
In venture-capital-backed companies directors have traditionally been active in recruiting and overseeing financial management, taking credit for success and, sometimes, distancing themselves from blame. But in public companies, which have fuller management teams, directors have tended to take a back seat. 
According to Roger Kenny, managing partner of Boardroom Consultant, a New York firm that recruits directors and senior management, boards have become more responsive to their company's performance - and are willing to act. 
"Institutional investors have been successfully criticising boards for a long time. They have put some fibre in the backbone of the directors," said Kenny. 
Directors are now faced with preventing or mitigating CEO disasters. "In the past, boards may have felt beholden to the CEO and been willing to overlook mistakes, giving him time to right the ship. Today, a sense of urgency often pervades board meetings when performance slips," he added. 
Take the case of Lucent. "If Lucent's board had removed its CEO earlier in the game, would the company be in better shape today?" asks Kenny. Or Xerox. "Should Xerox's board have demanded more information about strategic execution from the new CEO before the strategy foundered?" 
There are no sure answers but the short period that many CEOs remain in the job - on average four years - suggests it is tough to satisfy shareholders and directors, particularly during a downturn. 
"One of the great revelations of the past year has been the capacity of a CEO to destroy value in a very short period of time," said David Nadler, chairman of Mercer Delta Consultants. 
Boards need to act pre-emptively to reduce the risk of a meltdown. The trick lies in the timing. Some say boards should give CEOs more time because the economy can be blamed for failure. Others argue they should give the CEO less time because the economy makes the situation perilous and there is no time to lose. 
"Boards struggle to balance acting swiftly (to prevent Lucent-like situations) and not jumping the gun," said Kenny. "It's a fine line, especially during economic downturns such as the current one." 
Kenny says there are a number of steps a board can take to prevent CEO failure, including becoming involved in CEO succession and doing "whatever it takes" to become familiar with the company's core business strategy. 
And tradition is important. The Hewlett-Packard directors insisted that Fiorina was faithful to the founders' dream - until then, there had been outside speculation that, for Fiorina, it would be the HP way or the highway. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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


Power station blast still a puzzle
Chris Brayshay

08/22/2001
The Northern Echo
13
Copyright (C) 2001 The Northern Echo; Source: World Reporter (TM)

SAFETY inspectors investigating a power station explosion which killed three workers have so far found no evidence of mechanical failure. 
Andy Sherwood, 36, and Darren Higgins, 28, caught the full brunt of the blast in a transformer at Enron's Teesside Power Station at Grangetown, Middlesbrough, on August 8 and could only be identified from dental records.
Colleague Lawrence Surtees, 40, died in hospital the next day after suffering near 100 per cent burns. Graeme White, 37, is being treated in hospital for moderate burns. 
The dead men were carrying out maintenance on the transformer at the time of the explosion. 
Vera Baird, MP for Redcar, has discussed the situation with Ian Waugh, the Health and Safety Executive (HSE) inspector in charge of the team investigation. She said: "I said when this appalling tragedy occurred that I would monitor the investigation on behalf of my constituents and I have been told that the investigation has established that the cause was the explosion of a transformer. 
"I am assured that there is no fundamental hardware problem with the equipment used on the site that would be likely to cause a repetition and this will be reassuring for the people who live and work nearby." 
Less that a week after the funeral services of the men who died, the MP has revealed that all interviews and investigations of equipment are complete and Mr Waugh is waiting for his inspectors to write their reports, which ought to take about four weeks. 
Mr Waugh will then review their findings and his final report will be sent to the Teesside Coroner. 
A copy of the report will also be sent to Cleveland Police who set up a joint investigation with the safety inspectors. 
Mrs Baird's reading of the team's findings so far went unchallenged by Government sources last night, who added that the team reserved the right to return to the plant for a re-examination if something cropped up in the reports which required further investigation. 
A spokesman for Enron said: "Assurances about the safety of Teesside Power Station have been given by the site operator - Enron - to local residents and industrial neighbours over the past few days as the process of restarting the plant was carried out. 
"The company is not be commenting on any possible cause of the incident on August 8 and will not be drawn in at this stage as the investigation by the HSE remains incomplete."

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


Panel unable to find meeting point with Enron
Seema Kamdar

08/22/2001
The Times of India
Copyright (C) 2001 The Times of India; Source: World Reporter (TM)

MUMBAI: The Enron renegotiation committee, which is expected to submit its report soon, has been unable to find a meeting point with the multinational over any of the issues discussed during its meetings. 
According to sources, the meetings with Enron were doomed right from the word go, since Enron disagreed with most of the suggestions made by the committee. This could have to do with the energy major having already decided to exit the plant and not wanting to make any further compromises.
To begin with, the committee wanted to scale down the tariff from over Rs 4 per unit to Rs 2.07 per unit. This was not acceptable to Enron, which was willing to settle for not more than a 10 per cent reduction in tariff. 
Enron representatives told the panel that its landed cost of LNG alone worked out to Rs 2.11 per unit in power tariff. Even the offer made by states outsides Maharashtra to buy Enron power could not meet with a consensus, sources said. 
Among the states which approached the panel to buy Enron power were Delhi, MP, UP, Rajasthan, Punjab, and Karnataka. However, Enron found the purchase rates which ranged from Rs 1.50 to Rs 2.50 impractical. 
The committees demand to remove the dollar denomination in tariff was rejected outright by Enron on the grounds that its international lenders would never agree to accept returns in Indian currency. A debt moratorium for five years, as suggested, was also ruled out. 
Enron was asked to bring down interest rates on its debt component to less than 12 per cent. This was ruled out by the multi-national which claimed it was less than the cost of its borrowings. While the projects Indian lenders agreed last year to cut interest rates from 21.5 per cent to 16 per cent, its international lenders charge nine per cent in dollar terms. 
Enrons return on equity too has hovered around a low of 12 per cent, since the past two years, lower than the interest on its debt. 
With a view to reducing the liability of the cash-strapped Maharashtra State Electricity Board (MSEB), the renegotiating committee suggested that the Dabhol plant be operated at a lower plant load factor (PLF) of 30 per cent. The PLF is a major bone of contention between the two parties, since the state says it does not need power at a 90 per cent PLF and since tariff is predicated on a PLF of 90 per cent in the power purchase agreement, irrespective of the actual offtake. 
It is learnt that Enron was asked to operate the plant at 30 per cent PLF from 2002 and scale up to 68.5 per cent in 2007 to offset the huge tariff burden on MSEB. This proposal was unpalatable to Enron. 
Another proposal which was turned down by Enron was the suggestion that the returns on its equity be trimmed to 16 per cent in rupee terms at 68.5 per cent PLF. As of now, the DPC gets 16 per cent returns at 68.5 per cent PLF in dollars with a 0.7 per cent incentive for every one per cent increase in the PLF. 
According to sources, the committee discussed abolishing the incentive component, bringing down PLF, and pegging return in Indian currency. With the multi-national mouthing a firm No to most of the proposals, it remains to be seen how the Godbole report will be implemented and whether the state will see yet another round of protracted litigation on the controversial project.

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

INDIA: ANALYSIS-Poor governance hobbles India's reform drive.
By Alan Wheatley, Asian Economics Correspondent

08/22/2001
Reuters English News Service
(C) Reuters Limited 2001.

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. 	

Calif Senate Panel To Study Muni Utils Pwr Mkt Activities

08/21/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LOS ANGELES -(Dow Jones)- A California Senate committee investigating electricity market manipulation in the state will continue its activities past the legislature's Sept. 14 adjournment date, and will look into prices charged by municipal utilities as well as by private generators, said committee Chairman Joe Dunn, D-Santa Ana, Tuesday. 
"We had to prioritize who we would investigate first. We started with generators, then expanded to traders and we're also going to look at the state's utilities. We've already made document requests of the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District," Dunn said.
Dunn said the LADWP hasn't provided all documents to the committee, though they have indicated they are happy to cooperate. 
"It's taken LADWP a while. It doesn't seem to be the case that they are withholding those documents, though we don't have them all," Dunn said. 
No one at LADWP was available to comment on the matter. 
The Senate Select Committee to Investigate Market Manipulation has cited Enron Corp. (ENE) and Reliant Energy (REI) with contempt for refusing to provide certain documents. If the full Senate approves those contempt charges, the companies could be punished, most likely with fines. 
A study by trade group Independent Energy Producers Association found that Reliant and Enron Power Marketing Inc. charged the state's power-buying arm less than the average price of $269 a megawatt-hour for electricity in January through March. The LADWP and SMUD charged more than the average. 
The committee's next hearing will be in the first week of September, Dunn said. Hearings throughout the fall will concentrate on depositions, he added. 
-By Jessica Berthold, Dow Jones Newswires; 323-658-3872; jessica.berthold@dowjones.com -0- 22/08/01 01-17G

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

Fired Calif DWR Traders Had Access To ISO's Control Room
By Bryan Lee

08/21/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

OF DOW JONES NEWSWIRES 

WASHINGTON -(Dow Jones)- Four of the five California Department of Water Resources power traders fired last month for conflict of interest reasons had access to the state electricity grid operator's control room.
That revelation was contained in a recent letter to the House Government Reform Committee from Terry Winter, the California Independent System Operator's president and chief executive. 
The letter responded to House lawmakers' concerns, voiced during an Aug. 2 hearing, about DWR power traders having access to the ISO's control room floor and the wealth of market-sensitive information available there. 
Rep. Doug Ose, R-Calif., who chairs the committee's energy policy panel, said access to the ISO's control room allowed DWR traders to "cherrypick" power purchases, and led federal regulators to exclude DWR purchases from consideration in a recent landmark refund order. 
The five fired DWR traders owned stock in Calpine Corp. (CPN), a major power provider in California. 
The four fired DWR employees with access to the ISO control room were William Mead, Herman Leung, Constantine Louie and Peggy Chung. The fifth, Richard Ferreiro, wasn't among those Winter listed as having control-room access. Neither did Elaine Griffin, who resigned after it was learned she owned Calpine stock. 
They were among 14 DWR employees who had their control-room access privileges terminated by the ISO over the past two months. The others had their badges deactivated because they either hadn't filed necessary confidentiality statements or hadn't been using their badges to access the ISO control room, said Stephanie McCorkle, an ISO spokeswoman. 
Nine DWR power traders still enjoy access to the ISO control room, according to Winter's letter to Ose. Among them is Bernard Barretto, who reportedly owns stock in Enron Corp. (ENE). 
Steve Maviglio, a spokesman for California Gov. Gray Davis who recently sold Calpine stock after conflict-of-interest concerns were raised, said earlier this month that Barretto's investment met state ethics rules because Enron wasn't making sales in the spot market, where the DWR employee was involved in making power purchases. 
DWR employees' investments are "thoroughly reviewed" to make sure there are no conflicts, DWR spokesman Oscar Hidalgo said. Employees must either divest their stock or recuse themselves from deals that involve their financial interests, Hidalgo said. 
An Ose spokesman, Yier Shi, said the congressman believes the arrangement has worked against the interests of California consumers. 
"It's pretty obvious that it isn't in the interest of California consumers, the DWR or the ISO to have that conflict of interest in the power-purchasing process," Shi said. 
"Why is DWR getting preferential access? That's the core issue," Shi added. 
Allowing DWR power traders into the ISO control room is "a real conflict because DWR is the major buyer in the state," said Lynne Church, president of the Electric Power Supply Association, whose members include many of the companies that own power plants in California. 
"Having access to the control room gives them intelligence on what sellers into shorter-term markets are charging, (including) what's being sold and to whom," Church said. 
"Any kind of buyer or seller would give their eye teeth for that kind of access," she said, noting that no other grid operator in the country allows that sort of access. "It's just unconscionable for them to have that kind of access to market intelligence." 
During the Aug. 2 hearing that Ose chaired, Winter agreed that having DWR employees in the control room was a problem. The ISO is "working very hard to get them out," he said. 
The access was provided back in January, after the DWR was forced to begin purchasing what since then has amounted to about $10 billion in power on behalf of the state's bankrupt and near-bankrupt investor-owned utilities, Pacific Gas & Electric Co. (PCG) and Southern California Edison Co. (EIX). 
Power providers were balking at continuing to sell power to California unless they were assured of creditworthy buyers. And the DWR refused to take on the responsibility unless the ISO granted the agency access to the control room, Winter told Ose's subcommittee. 
The arrangement was necessary to avert imminent blackouts, he said. 
The DWR will withdraw its employees from the ISO control room effective Sept. 1, Pete Garris, who oversees power purchases for the DWR, announced over the weekend. 
"It wasn't our intent to be there on a permanent basis," said Hidalgo, the DWR spokesman, who described the privilege as "a temporary move to keep the lights on." 
Now that the state's electricity crisis has lessened, the DWR's "goal" is to have the traders out of the ISO control room by Sept. 1, Hidalgo said. 
"We're pleased to see that the DWR is working toward resolving its conflict of interest problems with the ISO," said Shi, the Ose aide. "We hope this change of policy isn't too little too late for California consumers to win refunds." 

-By Bryan Lee, Dow Jones Newswires; 202-862-6647; Bryan.Lee@dowjones.com

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