ASIA-PACIFIC - Enron lenders make legal appeal in India.
Financial Times, 07/30/01
Weather proves to be a prolific market
The Financial News, 07/30/01

Enron keen to sell entire 65 pct stake in Dabhol Power
AFX News, 07/03/01

India: Sale of stake best option, says Enron
Business Line (The Hindu), 07/30/01

Banks want to back Enron's India withdrawal
The Daily Deal, 07/30/01

Power failure
Business Standard, 07/30/01

Cloud over Godbole-DPC parleys
Business Standard, 07/30/01

Centre not to intervene in Dabhol-MSEB spat
Business Standard, 07/30/01

FIIs okayed DPC loans as provided for Int'l arbitration
Press Trust of India Limited, 07/29/01
Energy Landscape Is Forever Altered Electricity: Deregulation and the state's 
emergence as a buyer have changed how Californians get power.
Los Angeles Times, 07/29/01

HEARING WILL DISCUSS ENRON AIR-QUALITY PERMIT
South Florida Sun-Sentinel, 07/29/01

Huge Fees, Many Conflicts In PG&E Case Bankruptcy: The sheer size of the 
professional firms involved and the vast reach of the utility make 
entanglements almost inevitable.
Los Angeles Times, 07/29/01

Power consultant firings called 'tip of iceberg' / Secretary of state says 
disclosure list should be expanded
The San Francisco Chronicle, 07/29/01

Ex-AG says he was questioned / Senators allegedly pursued adviser's role in 
tobacco case
Houston Chronicle, 07/29/01

Enron Lenders Petition Indian Court to Support Company, FT Says
Bloomberg, 07/29/01


California Fires Five Consultants Over Conflicts, Paper Says
Bloomberg, 07/29/01




ASIA-PACIFIC - Enron lenders make legal appeal in India.
By KHOZEM MERCHANT.

07/30/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Eleven foreign lenders to the Enron power plant near Bombay have petitioned 
India's highest court for the right to support the US company in its payments 
dispute with a state utility. 
Banks and financial institutions with loans totalling $440m filed an 
application with India's Supreme Court on Friday after months of quiet 
diplomacy to broker a settlement between Enron - which wants to withdraw from 
the $2.9bn project - and its sole client, Maharashtra State Electricity Board 
(MSEB).
Bank of America, Citibank, ABN Amro, Overseas Private Investment Corp of the 
US and others want an opportunity to argue before the Supreme Court on behalf 
of Enron's majority-owned Indian unit, Dabhol Power Company (DPC), which is 
locked in a legal dispute with MSEB over widening differences surrounding the 
largest foreign direct investment in India. 
Foreign lenders account for 30 per cent of the $2bn in debt loaned to DPC to 
finance the project. The foreign banks are worried by MSEB's determination to 
use a local arbitrator in a politically charged environment. This would 
violate the power purchase agreement between MSEB and Enron. The foreign 
lenders say the provision of arbitration in a neutral international location 
under UN rules was a big factor behind their decision to invest in the 
project. 
Enron launched arbitration proceedings earlier this year after MSEB's 
failure, and later refusal, to pay its bills, which now amount to about $45m. 
The plant has been dogged by political and financial controversy - notably 
over its high tariffs - since it came on stream in may 1999. 
The deteriorating relations prompted Enron to issue a notice of termination 
in May, effectively signalling its wish to withdraw from the project. MSEB 
responded by rescinding its contract and since May has refused to draw down 
power. In June, contractors such as Bechtel of the US stopped work on the 
$1.8bn second stage to build India's first liquefied natural gas project, 
which is about 95 per cent complete. 
(c) Copyright Financial Times Ltd. All rights reserved. 
http://www.ft.com.

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

Weather proves to be a prolific market

07/30/2001
The Financial News
Copyright (C) 2001 The Financial News; Source: World Reporter (TM)

Far from becoming entirely commoditised as risk management grows ever more 
sophisticated and ubiquitous, the derivatives market continues to prove 
itself endlessly inventive in finding new ways to manage old risks. 
These include innovative products to manage insurance, energy and weather 
risks.
The most prolific market and the one that continues to expand, even in the 
current economic climate is in weather derivatives. 
According to a survey by the Weather Risk Management Association and 
PricewaterhouseCoopers, the notional value of weather-related contracts has 
grown to nearly $7.5bn (E8.6bn), and the number of contracts executed has 
increased more than 3,000% since the first contract was written back in 1997. 
The bad news is that growth has not been uniform. 
Over the three-and-a-half years covered by the survey, the US accounted for 
97.5% of the overall value. 
And over the final six months of the survey, the US share had slipped back to 
95.2%, but it was Asia that took up the slack, while Europe's share 
decreased. 
The Italian bank IntesaBci based its newly-formed structured products team in 
the US. 
The group's head, Richard Turrin, who joined the Italian bank from BNP 
Paribas, says: 'As much as 90% of weather trading is US-focused. 
But we are seeing rapidly growing European interest as the energy sector 
deregulates and as companies come to understand they can protect themselves 
against the negative commercial impacts of weather.' 
However, while in the US, the bulk of trading is done by energy companies and 
based exclusively on temperature. 
This is not the case in the European and Asian markets. 
Diego Wauters, head of global insurance and weather derivatives at SociAtA 
GAnArale, says: 'Europe is far more diversified than the US in terms of the 
type of corporates buying weather risk protection. 
In the US, close to 100% of end-users tend to be energy or energy-related 
corporates, while in Europe the split between energy and non-energy companies 
is closer to 50-50. 
But it is in Japan, where the energy markets are not yet deregulated, that 
the most diversified user-base can be found. 
The majority of protection buyers there tend to be non-energy firms.' 
Wauters and others find the Japanese weather derivatives market to be the 
most interesting, as it is characterised by a wide variety of structures, 
linked to rainfall, snowfall and wind speed, as well as temperature. 
Following the Japanese Financial Services Agency's recent move allowing local 
banks to trade in weather derivatives, Nomura is set to start trading later 
this year. 
Other local players already active include IBJ, which began selling 
corporates' protection last year, and Bank of Tokyo Mitsubishi. 
Despite the efforts by the growing number of local players, SocGen is still 
believed to be the largest player in Japan. 
Based in London and led by Wauters, SocGen's insurance and weather 
derivatives group has been active for the last three and a half years in 
Japan and the rest of Asia. 
The group has written a good chunk of the more esoteric deals there, 
including a 'wind deal' hedging the organisers of a local flower show against 
losses incurred through high winds, and a temperature-rainfall deal, hedging 
an ice-cream maker against low temperatures and high rainfall. 
Globally, the team claims to have closed a record 260 deals in the last 18 
months. 
Given the low amount of activity, the level of competition outside the US is 
surprising. 
Along with Enron, which is the most active player in the weather markets, the 
top players are SocGen and French rival BNP Paribas, whose 12-strong team is 
led by Denis Autier. 
However, in recent months a number of new players have entered the market 
Deutsche Bank, ABN, Nomura and Royal Bank of Scotland, to name but a few. 
Another, recent entrant, Dresdner Kleinwort Wasserstein, completed its first 
deal in the German market last month when the bank provided protection for a 
local electricity provider, Gruppen Gas-und-ElektrizitAtswerk BergstraAne. 
Dresdner is unusual in releasing deal details in a market which increasingly 
chooses to remain tight-lipped. 
Few players are willing to detail or outline their deals, or even comment on 
the number of deals completed. 
The silence may owe itself to the scarcity of activity. 
Keeping their client-bases to themselves may be key for the growing number of 
players who may have to wait for some time until they see widespread uptake 
and growing revenues. 
Rob Preston, a founding director of Speedwell Weather Derivatives, a 
London-based weather consultancy, says: 'The banks are being very cagey about 
their deals. 
There should be an incentive for them to tell the market about their 
activity, if only in order to increase awareness. 
But, and probably because, the market is developing quite slowly, and in 
order to protect their patches, they have chosen instead not to publicise 
their deals.' 
The exchange-traded side has also been slower to develop in Europe than in 
the US. 
Liffe became only the second derivatives bourse to offer weather products 
when it launched a series of temperature indices earlier this month. 
Even so, these are only published indices, and futures are not scheduled to 
launch until October at the earliest. 
EEX, which recently became the first integrated spot and futures exchange for 
power in central Europe, had plans to launch similar weather products but 
still has no start date. 
Nonetheless, the players remain confident the market will grow. 
New entrants such as Deutsche Bank, which is to start trading in weather 
derivatives this summer, are confident things will pick up. 
Michael Nutt, head of the emerging commodities group at Deutsche, says: 'The 
number of inquiries we have received about weather-risk protection has far 
exceeded our expectations. 
What has been particularly interesting and encouraging is the breadth of that 
interest. 
We have received inquiries from a wide range of corporates not just from the 
traditional users to be found in the energy and power community.'

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

Enron keen to sell entire 65 pct stake in Dabhol Power

07/30/2001
AFX News
(c) 2001 by AFP-Extel News Ltd

BOMBAY (AFX) - Enron Corp said it is keen to sell its entire 65 pct stake in 
Dabhol Power Co Ltd to either the government or financial institutions. 
This is the best approach to resolve the on-going dispute with the 
Maharashtra State Electricity Board and the government of Maharashtra, Enron 
said in a statement.
The statement follows on from a recent Financial Times interview with Enron 
Corp chairman Kenneth Lay in which Lay said Enron was hoping to exit Dabhol 
Power. 
He said: "We want out. We have made it pretty clear to the government 
leadership that we are now at a point where we would like to be taken out and 
we think most of our partners do." 
Enron's statement said: "To date no realistic proposal has been offered. 
Furthermore, no progress has been made in securing creditworthy buyers that 
can purchase power at a price that is reasonable for new-generation plants." 
sk/jd/jr For more information and to contact AFX: www.afxnews.com and 
www.afxpress.com

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

India: Sale of stake best option, says Enron

07/30/2001
Business Line (The Hindu)
Fin. Times Info Ltd-Asia Africa Intel Wire. Business Line (The Hindu) 
Copyright (C) 2001 Kasturi & Sons Ltd. All Rights Res'd

MUMBAI, July 29. ENRON India on Saturday said selling its interests in Dabhol 
Power Company to the Union Government or lenders to the project "is the best 
approach" to resolve the dispute between DPC and the State Electricity Board. 
The company had issued a release in response to its Chairman, Dr Kenneth 
Lay's statement that the company wants out of the project. The company said 
that any sale would need to be on terms providing complete recovery of 
capital costs and related expenditures. A buyout option could help resolve 
the dispute, it said.
According to the release, DPC was not offered any realistic proposal and no 
progress was made in securing creditworthy buyers to purchase the power 
plant. 
The company reiterated that it would pursue international arbitration to 
resolve the problems between Dabhol Power Company and to protect the rights 
of DPC's sponsors, lenders, fuel suppliers and LNG shipowners. 
Meanwhile, international lenders of the Dabhol Power Company, including the 
US Government's Overseas Private Investment Corporation, have said that they 
extended loans worth about $444 million (Rs 2,088 crore) to the project only 
because the PPA provided for settlement of disputes by neutral international 
arbitration. 
- Our Bureau

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

M and A
Banks want to back Enron's India withdrawal
by Terry Brennan

07/30/2001
The Daily Deal
Copyright (c) 2001 The Deal LLC

Eleven foreign lenders petitioned India's Supreme Court for the right to 
support Enron's plans to back out of a $2.9 billion power plant investment 
near Mumbai. 
Eleven foreign lenders with $440 million in loans asked India's highest court 
for the right to support Houston based Enron Corp. in its bid to withdraw 
from a $2.9 billion power plant investment near Mumbai, according to 
published reports.
Bank of America, Citibank, ABN Amro, Overseas Private Investment Corp. of the 
U.S. and seven other lenders petitioned India's Supreme Court on Friday for 
the right to support Enron's plans to back out of India's largest foreign 
direct investment project, The Financial Times reported. 
The foreign lenders, who account for 30% of the $2 billion debt loaned to 
Dabhol Power Co., Enron's majority owned Indian unit, said plans by the 
Maharashtra State Electricity Board, the plant's sole client, to seek local 
arbritration in a $45 million billing dispute might be affected by Indian 
politics, the paper reported. 
www.TheDeal.com

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

Power failure
Our Editorial

07/30/2001
Business Standard
11
Copyright (c) Business Standard

No sector of the Indian economy represents the failure of economic reforms as 
glaringly and painfully as the power sector. Restructuring of the state 
electricity boards (SEBs) on the basis of what was seen as a robust model 
separation of generation, transmission and distribution activities was 
attempted by some states. A Central Electricity Regulatory Commission and 
several state-level regulatory bodies were set up. Foreign investors were 
invited into generation and distribution activities. So, it cannot be said 
that no changes were attempted, or that they were not in line with the 
overall objective of promoting private investment in the context of the 
complementary roles of competition and regulation. But, when we look at the 
state of the sector today, the only reasonable assessment of it is that it is 
deep in crisis. 
The SEBs collectively owe the central power companies a reported Rs 28,000 
crore. A government committee recently recommended that half the dues be 
written off, while the other half settled by way of an issue of 
interest-bearing bonds by the SEBs to the power companies. The moral hazard 
the incentive to default on future obligations inherent in this 
recommendation is obvious, and could not have escaped the committee's 
considerations. That they could only arrive at this solution speaks 
eloquently about the complete bankruptcy in this sector. Its financial state 
just does not allow anybody to take even the slightest risk inherent in a 
solution that would have some chance of long-term success.
Two foreign investors Enron, a generator in Maharashtra and AES, a 
distributor in Orissa have been in mortal conflict with the state governments 
about finances. Maharashtra cannot afford to pay Enron for the power it was 
buying from it. Attempts to resolve the problem by getting other states to 
buy power from Enron are getting nowhere, because, of the four states that 
are reportedly interested, none is willing to pay a price that would make the 
arrangement as a whole viable. AES is looking for an exit route because it 
has found through experience that the theft of power from its network is far 
higher than it was given to believe when it decided to enter the business. It 
cannot make up for these losses by charging higher prices because the state 
regulatory commission will not allow it to do so. And, its attempts to 
improve recovery of charges from errant consumers do not have the backing of 
the state. 
Bankrupt SEBs, disgruntled foreign investors and palliative settlement 
solutions this is the power sector scenario all around the country today. 
Mumbai, where the private distributor BSES deals with relatively small 
distribution losses, is the only possible exception. There are two 
implications of this. One, the economy cannot grow on the back of Mumbai's 
efficient power distribution system. Two, the lesson from Mumbai (not the 
rest of Maharashtra, though) is that somebody has to pay the distributor for 
the power consumed. It could be the individual user or it could be a state 
subsidy. Unless this basic message is drilled into the minds of both the 
government and users, an inevitably dark future awaits us.

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

Cloud over Godbole-DPC parleys
S Ravindran Mumbai

07/30/2001
Business Standard
2
Copyright (c) Business Standard

The statement by Enron chairman Kenneth Lay that the company wants to exit 
the controversial Dabhol power project in Maharashtra has virtually put a 
spanner in the negotiations between the Godbole committee and the Dabhol 
Power Company. The next round of negotiations may not take place at all. Lay 
had said in an interview from London to Financial Times published on Saturday 
"We want out. We have made it pretty clear to the government leadership that 
we are now at a point where we would like to be taken out and we think most 
of our partners do." 
"The dominant view in the Godbole committee is that it is impossible to find 
a solution with DPC through negotiations and the next meeting between the two 
sides slated for end-August may not happen at all," said sources in the 
Godbole panel who spoke on condition of anonymity. Two reasons are being are 
cited for this. Firstly, they feel that if Enron wants to exit the project. 
There is little that can be achieved through negotiations. Secondly, they say 
that the chasm between the two sides is very difficult top bridge.


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

Centre not to intervene in Dabhol-MSEB spat
Our Economy Bureau NEW DELHI

07/30/2001
Business Standard
2
Copyright (c) Business Standard

The Centre is unlikely to intervene directly in the Dabhol problem despite 
Enron's willingness to sell its interest in the 2184 mw project to the 
government. 
Power ministry sources said the government has made its intentions very clear 
on this issue on several occasions that any direct intervention by the Centre 
was highly unlikely as it would face severe opposition from other states. 
"There is absolutely no change in that stance at present," said an official. 
The Centre was inclined to play the role of facilitator only in arriving at a 
solution to the problem, and the central government's representative in the 
re-negotiation committee set up by the Maharashtra government had already 
been asked to expedite the proceedings, he said.
Enron in a statement on Saturday said that as the largest shareholder in 
Dabhol Power Company (DPC), the company believed that selling its interest 
either to the central government or to the project's lenders was the best 
approach to resolve the protracted dispute between DPC and the Maharashtra 
State Electricity Board (MSEB). 
It stressed that any sale would need to be on terms providing a complete 
recovery of capital costs and related expenditures. 
The company pointed out that the Dabhol issue was clearly having an adverse 
effect on the confidence of potential foreign investors to India. "Pursuing a 
buyout option could help resolve the dispute in a timely manner protecting 
India's investment climate and interests of DPC's stakeholders," said the 
statement.

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


FIIs okayed DPC loans as provided for Int'l arbitration

07/29/2001
Press Trust of India Limited
(c) 2001 PTI Ltd.

Mumbai, Jul 29 (PTI) International lenders of Enron's Dabhol Power Company 
(DPC), including US government's Overseas Private Investment Corporation, 
have said that they extended loans worth about USD 444 million (Rs 20.88 
million) to the project only because the PPA provided for settlement of 
disputes by neutral international arbitration. 
"Had the PPA not provided for settlement of disputes before arbitration panel 
in a neutral forum, we would not have disbursed loans worth about USD 444 
million", DPC's 11 foreign lenders have submitted in an application seeking 
intervention in the energy major's petition, to be heard by the Supreme Court 
of India next week.
"The PPA constitutes the project's backbone as DPC's entire revenues were to 
be received from Maharashtra State Electricity Board (MSEB) and were the 
basis for our decision to extend the said loans to the USD three billion 
project". 
The FIIs say that MSEB knew that the cost of developing and building the 
project would be obtained, in substantial part, from loans provided to DPC on 
a "non-recourse" basis by them and other lenders. 
"MSEB had expressly confirmed, agreed and acknowledged that monies due to DPC 
from itself would be paid directly to an account (escrow in this case) 
created for our benefit and security", they said. 
Emphasising for international arbitration in dispute resolution between DPC 
and MSEB, the FIIs submitted before the Supreme Court that the arbitration 
provision to be held in London, a neutral international location under the 
UNCITRAL rules, was "critical factor in their decision to fund the project". 
"It is customary for the FIIs who lend and advance monies to international 
projects, to require reference of disputes to international arbitration in 
accordance to UNICITRAL rules at a neutral forum", the applicants said. 
The FIIs said they had relied upon the opinion of MSEB's solicitors Little & 
Company that UNCITRAL abritration was valid, binding and enforceable. 
"In present circumstances, the agreement, contemplating an expeditious and 
final resolution by arbitration, has for all practical purposes been rendered 
nugatory", they said. 
The FIIs, in their application, have said that they were directly affected by 
the current disputes, particularly the denial of prompt enforcement of 
UNCITRAL clause. 
The lenders said continuing uncertainty regarding the enforceability of 
arbitration agreements arising from Mumbai High Court order together with 
resulting delay in resolving the issues was not conducive to a stable 
business environment. 
"The High Court's remand in this matter to MSEB and subsequent likely appeals 
from any order issued to the board will inevitably result in delay and 
frustrate the UNCITRAL arbitration agreement set forth in the PPA", they 
asserted. 
The 11 FIIs, including OPIC are Bank of America, ABN Amro Bank, Credit Suisse 
First Boston, ANZ Export Finance Ltd, Citibank, KBC Finance Ireland, Erste 
Bank der oesterreichishen Sparkassen AG, BNP Paribas, Credit Lyonnais and 
Standard Chartered Bank. 
(THROUGH ASIA PULSE) 29-07 2001

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

Metro Desk
Energy Landscape Is Forever Altered Electricity: Deregulation and the state's 
emergence as a buyer have changed how Californians get power.
NANCY VOGEL
TIMES STAFF WRITER

07/29/2001
Los Angeles Times
Home Edition
A-1
Copyright 2001 / The Times Mirror Company

SACRAMENTO -- California's immediate electricity crisis seems to have passed. 
But like a hurricane that resculpts a tropical island, the crisis has 
radically altered how 27 million Californians get their electricity and what 
they pay for it. 
Not all the state's energy problems have disappeared; a siege of very hot 
weather, for example, could still bring shortages. But the degree of change 
in the short-term energy picture since the blackout days of early spring is 
hard to overstate.
A megawatt-hour that once cost hundreds, sometimes thousands, of dollars now 
regularly sells for less than $80. 
There hasn't been a forced outage since May 8. 
Predictions that California would suffer 260 hours of blackouts this summer 
now seem ludicrous. 
The state government, which was spending an average of $65 million a day to 
buy power in May, now pays an average of less than $30 million a day. Basking 
in unexpectedly cool summer weather, the government has so much power on hand 
that on some days it has had to sell surplus electricity at a loss. 
That sudden shift, from crisis to calm, obscures an equally dramatic change 
in California's long-term approach to how electricity gets bought and sold. 
Just three years ago, the state had embarked on a broad deregulation scheme 
designed to put most decisions about electricity into the private 
marketplace. 
Now, the state government itself has become the biggest buyer of power in the 
West. 
The state's two largest utilities, already stripped by deregulation of much 
of their ability to generate electricity, are, at least temporarily, also out 
of the power-buying business. Financially wounded, maybe crippled, their role 
has been sharply curtailed, perhaps for years. 
Utility rates paid by millions of customers have been raised, and the state's 
utility watchdog, which used to control rates, is poised to yield much of its 
authority to an unlikely agency: the Department of Water Resources, whose 
principal job until January was running reservoirs and canals. 
And consumers seem almost certain to be saddled with billions of dollars in 
debt and contracts to buy power that practically guarantee high electricity 
rates for years to come. 
The two sets of changes, the short-term and the long, are interconnected. 
Both stem from the state's dramatic entry into the market seven months ago. 
On Jan. 17, blackouts darkened much of the state. Power plant owners refused 
to sell electricity to Pacific Gas & Electric and Southern California Edison, 
the state's two biggest utilities, which had been nearly drained of cash by 
eight months of soaring wholesale power prices while being prevented by the 
state from raising rates for consumers. 
Four private energy companies were warning that they would take the two 
utilities into Bankruptcy Court the next day if the state did not begin to 
pick up the bill for electricity. 
Faced with the options of rationing power, shocking California's economy with 
a tripling of electricity rates or opening the state's checkbook, a 
grim-faced Gov. Gray Davis signed an emergency decree to allow the Department 
of Water Resources to use its budget to buy electricity that would then be 
sold to consumers. 
That act, later broadened and formalized by the Legislature, opened the door 
for taxpayer money--$8 billion and counting--to be used to buy electricity. 
"It's our obligation to provide power to the homes and businesses that drive 
California," Davis said at the time. "I'm disappointed the utilities can't do 
it. We have no choice but to step in, and we will do it." 
The involvement of the state in buying power changed the political 
calculations involved in setting electricity rates. For months, the private 
utilities had complained that California's rates, which were frozen as part 
of the state's deregulation law, were lower than the cost of buying power. 
But raising rates to help the utilities was politically unpalatable; the 
Public Utilities Commission in January gave them just a fraction of what they 
sought by raising rates for PG&E and Edison residential customers by 9%. 
After the state began buying power, though, it was California's treasury that 
was at risk. Pressure built quickly for more rate hikes. In March, the PUC 
approved the largest increase in its history, boosting the rates of some 
customers by more than 40%. 
Those increases showed up in bills last month. The higher costs and 
conservation efforts have reduced demand. Cooler-than-expected weather 
lowered demand even more. Californians used 12% less electricity last month 
than in June 2000, after adjusting for weather and economic growth, according 
to the California Energy Commission. 
Seven months after the state began buying power, January's sense of urgency 
has dissipated. Buyer's remorse is setting in. Grumbling grows louder about 
how deeply the state has inserted itself into the electricity business. 
It was a "huge mistake" to let the Department of Water Resources become the 
buyer of most of the electricity used by California, said Bill Booth, an 
attorney for the California Large Energy Consumers Assn., a group of heavy 
industry manufacturers that pushed hard for deregulation in the early 1990s. 
"I would hope that the state as an entity chooses to get out of that role 
sooner rather than later," Booth said. "The state has shown zero capability 
of doing that well," he said, voicing a criticism also made by Republican 
lawmakers. 
Davis and his advisors argue that they had little choice but to jump in and 
buy power on behalf of the utilities. And they insist that their intervention 
has stabilized the market. 
Long-Term Contracts Called 'Insurance' 
After the state government began buying electricity, officials moved quickly 
to get the state out of the exorbitant spot market by locking up $43-billion 
worth of long-term power contracts, some lasting more than a decade. 
Lawmakers and consumer advocates are growing increasingly critical of those 
contracts, some of which are now more expensive than the falling prices in 
the spot market. 
But Davis administration officials insist that spot market prices are falling 
only because the state is now buying 40% of its power under contract, rather 
than bidding up prices by seeking all of its electricity in the market. 
"Insurance is insurance, and it costs a little bit, but it's a damned good 
thing to have," said S. David Freeman, the governor's top energy advisor and 
the former general manager of the Los Angeles Department of Water and Power. 
"The people in this ballgame that will criticize long-term contracts will 
criticize anything with stability in it because God forbid that it may turn 
out to cost a tiny bit more than what the spot market is in the future," 
Freeman added. "That kind of thinking leads you to be in the spot market." 
The shift out of the spot market is not the only factor that has stabilized 
the situation, however, and some accuse the governor of taking undue credit. 
The change is "clearly explained by the fundamentals of supply, which has 
increased, and demand, which has decreased because people are conserving," 
said Gary Ackerman, executive director of the Western Power Trading Forum, a 
group of electricity sellers. 
The price of natural gas, the fuel used to run most of California's power 
plants, has fallen by half since early January. There is widespread 
disagreement about why--mirroring the argument over why gas prices spiked in 
the first place. 
When prices rose, electricity companies accused gas pipeline companies of 
gouging. The gas firms said power generators bid up the price knowing they 
could recoup the cost by selling expensive megawatts. 
Another factor in lowering wholesale electricity prices is that the state's 
overall power supplies are more abundant because many power plants that were 
shut down this spring are running again. 
At times last winter, more than 10,000 megawatts of capacity were offline. 
Recent plant shutdowns have totaled closer to 4,000 megawatts. Three new 
power plants have opened this summer, adding 1,415 megawatts to the state's 
capacity. 
Statewide demand for electricity has been peaking at a little more than 
30,000 megawatts in recent days. 
Again, the reasons for the additional supply are disputed. Generating 
companies say their plants were shut down earlier this year for repairs and 
maintenance. 
State officials and consumer advocates have alleged that some of the plants 
were taken offline to manipulate prices. Today, with less power being bought 
on the spot market, there are fewer incentives for such manipulation. 
A federal wholesale electricity price cap that took effect in June also has 
also dampened prices, experts say. 
The Federal Energy Regulatory Commission imposed the cap, now at $92 per 
megawatt-hour, after resisting the pleas of California politicians for nearly 
a year. 
"They just did a complete 180," said Severin Borenstein, director of the 
University of California Energy Institute in Berkeley, "and if they had done 
it earlier, we would have saved a lot of money." 
The agency that manages most of the state's transmission grid has found that 
bids by power sellers dropped after June 21, when the price limit took 
effect. But assessing how much of the change resulted from the cap and how 
much from other factors "is difficult," said Anjali Sheffrin, director of 
market analysis at the California Independent System Operator. 
The changes in the market--and the debate between the administration and its 
critics--involve who pays for risk. 
Little Incentive for Firms to Trim Costs 
Before deregulation in 1998, California's electricity industry was designed 
above all to avoid the risk of shortages. Utilities built a cushion of 
supply, and regulators guaranteed that they could pass on the cost to their 
customers. 
Critics said that such regulation left the utilities with little incentive to 
trim costs, meaning that ratepayers paid higher bills. 
Deregulation was supposed to shift the risk of owning power generation to 
private companies and those who bought their stock. Proponents said consumers 
would benefit as private firms risked their own money to build power plants 
and competed with one another to sell electricity. 
But in practice, competition in California brought price spikes and supply 
shortages. 
"The reason why economists have preached that competition is better than 
regulation," said Ken Rose, executive director of the National Regulatory 
Research Institute at Ohio State University in Columbus, "is that the 
investor putting his own dollars on the line will be more careful with those 
dollars. The downside of that is if there's any ability of the suppliers to 
control prices, then they'll exploit that advantage, which is what you'd 
expect them to do. 
"You can't make risk go away," he said. 
Now Californians face a different risk: that a new, largely untested 
96-person, $2-million-per-month bureaucracy designed to buy power could run 
amok. 
There's no easy way to disband the power-buying operation until the utilities 
get back on their feet financially. That could take years. In April, PG&E 
filed for bankruptcy to fend off creditors. Edison's finances have started to 
improve somewhat, but the company is still seeking help from the Legislature, 
where no rescue plan seems to be gaining momentum. 
In the meantime, the Department of Water Resources has little oversight as it 
goes about its newly assigned job of buying electricity. 
The Public Utilities Commission for 80 years has dictated the rates utilities 
could charge. But under new rules proposed earlier this month, the PUC will 
essentially become a rubber stamp, adjusting rates for customers of PG&E, 
Edison and San Diego Gas & Electric Co. to match whatever amount of money the 
Department of Water Resources says is needed. 
Even PUC officials say such a drastic loss of control is necessary to allow 
the state to sell $13.4 billion in bonds. Those bonds are designed to repay 
the state's taxpayers for past power costs. They will be backed by the money 
that customers pay PG&E, Edison and SDG&E each month. 
That is just one of the ways in which the drastic actions taken to prevent an 
energy meltdown have hemmed in policymakers trying to envision the future 
shape of the state's electricity industry. 
"There is certainly a lot less room for designing the future than many people 
would like," said state Sen. Debra Bowen (D-Marina del Rey). 
For example, competition--the dream of deregulators--appears dead for at 
least several years. 
That's because of the need to pay for the long-term contracts and reimburse 
the state's general fund for the billions already spent. 
The owners of steel mills, cement plants and grocery stores blanch at the 
cost of the contracts. They are chafing to break from the utilities and cut 
their own deals for electricity with private companies such as Enron Corp. 
Such one-on-one deals were banned by the Legislature when it put the state 
into the power-buying business. 
"Ultimately, we think our own companies buying power for themselves is the 
best solution," said Jack Stewart, president of the California Manufacturers 
and Technology Assn. 
But that move would again shift the risks inherent in the electricity 
business. Allowing big firms to walk away from the utilities would mean that 
someone else--renters, homeowners and small business owners--would have to 
bear the cost of maintaining a cushion of extra supply for the state. Many 
lawmakers are reluctant to allow that. 
"Any kind of meaningful competition in California has been postponed until 
2004, 2005, at which time some of the long-term contracts start ending," said 
Michael Shames, executive director of the Utility Consumers' Action Network 
in San Diego. 
Ultimately, Davis said in an interview, "the long-term solution to this 
problem depends on having more power than we need." 
Generators base their prices "on how much power they know you do or do not 
have," Davis said. To protect consumers from being gouged, he said, the 
state's goal should be to always have at least 15% more power than it needs. 
Private companies will never take on the risk of building the last few power 
plants necessary to ensure a surplus, said Davis, so the state must. 
To that end, Davis backed a law that takes effect next month creating a 
Public Power Authority. The agency will be able to sell $5 billion in revenue 
bonds to build, buy and own power plants and to finance energy efficiency and 
conservation programs. 
Ironically, the governor said, this new agency, as the "builder of last 
resort," could clear the way for the competition that the state's 
deregulation plan so miserably failed to achieve. 
"We've never really had a chance to test deregulation in an ideal world, 
because we've never had more power than we need," the governor said. "My 
overriding goal is to keep the lights on and provide Californians with the 
power they need. . . . A byproduct of our efforts will be to put the state in 
a position where deregulation works." 
In the hybrid system Davis envisages, the state government will act like a 
giant public power agency and control nearly as much electricity as private 
companies. That role for California government would have been inconceivable 
just two years ago, said Ohio State University's Rose, who tracks the way 
each state regulates the electricity industry. 
"I don't know of any other state headed toward that," he said. "But no other 
state has had the crisis of California." 
* 
MORE INSIDE 
PG&E Bankruptcy: Legal and other fees in the case could amount to $470 
million, one expert says. C1

PHOTO: It rained on Pacific Gas & Electric's corporate headquarters in San 
Francisco the day in April that the firm filed for bankruptcy protection 
because of mounting debts in California's energy crisis.; ; PHOTOGRAPHER: 
ROBERT DURELL / Los Angeles Times; PHOTO: State Sen. Debra Bowen (D-Marina 
del Rey) is upbeat with Gov. Gray Davis in January as they announce the 
results of an energy auction on the Internet to keep electricity rates 
stable.; ; PHOTOGRAPHER: ROBERT DURELL / Los Angeles Times 
Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 

LOCAL
HEARING WILL DISCUSS ENRON AIR-QUALITY PERMIT
Staff Reports

07/29/2001
South Florida Sun-Sentinel
Broward Metro
3B
(Copyright 2001 by the Sun-Sentinel)

Deerfield Beach 
Officials with the state Department of Environmental Protection on Monday 
plan to hear from the public about its decision to tentatively grant Enron 
Corp. an air-quality permit for its proposed power plant.
Officials from the department planned the meeting, scheduled for 6 p.m. at 
the Deerfield Beach City Hall, 150 NE Second Ave., after a resident requested 
one, said Al Linero, the state air-quality administrator dealing with 
Broward's power plants. 
Environmental officials have said they intend to grant Enron an air-quality 
permit for the plant, but people who live in Coconut Creek and Coral Springs 
who object to the plant have requested an administrative hearing on the 
matter this fall.

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

Business; Financial Desk
Huge Fees, Many Conflicts In PG&E Case Bankruptcy: The sheer size of the 
professional firms involved and the vast reach of the utility make 
entanglements almost inevitable.
TIM REITERMAN
TIMES STAFF WRITER

07/29/2001
Los Angeles Times
Home Edition
C-1
Copyright 2001 / The Times Mirror Company

SAN FRANCISCO -- When a big bankruptcy case comes along, so does the 
bankruptcy gang. 
After PG&E Corp.'s Pacific Gas & Electric Co. filed for protection from 
creditors in April, major law firms and other high-priced professionals 
queued up and began billing.
PG&E's lead counsel already has charged $2.65 million in the first two months 
of a case that some experts say could stretch into years. A financial advisor 
asked for as much as $350,000 a month and once considered seeking a "success 
fee" of $20 million if the company's reorganization panned out. A financial 
consultant of the PG&E creditors committee has proposed a $1.5-million fee 
for six months' work. 
The PG&E case offers an extraordinary view of an arcane field usually outside 
the limelight. 
Total court-approved fees in the bankruptcy filing--the third-largest in U.S. 
history--could amount to at least $470 million, said UCLA law professor Lynn 
LoPucki, a leading expert on bankruptcy practice. 
"The bigger the case, the bigger the fees," he said. But even that figure, 
LoPucki said, could go higher because of the regulatory and public policy 
issues involved in the case, which he described as "one of the most complex 
cases ever." 
Along with those huge fees come complex potential conflicts. Ethical problems 
have long haunted the bankruptcy field, despite repeated efforts at reforms 
that have followed scandals involving prominent firms. Though the PG&E 
bankruptcy case is in its earliest stages, entanglements that experts say 
could present ethical issues already have arisen as several prominent firms 
were approved by the bankruptcy judge: 
* PG&E's main law firm also represents banking interests that are tied to one 
of the utility's biggest debts, a nearly $1-billion credit arrangement. 
* PG&E's accounting firm has done unrelated work for more than 80 companies 
involved in the PG&E bankruptcy case, including some of the utility's 
creditors. 
* The law firm for the official committee of PG&E creditors represents a 
$400-million Arizona power project being developed by an arm of PG&E's parent 
company. 
* The accounting firm for the committee does work for PG&E and its parent 
company, a corporate relationship being examined by the state's utility 
regulator. 
For shareholders or creditors of a company in bankruptcy proceedings, 
conflicts can create serious problems. The complex legal and accounting 
issues that arise in a bankruptcy case provide numerous opportunities for 
professional firms to alter outcomes in ways that benefit a favored company 
and harm the client relying on their advice. 
Experts say the sheer size of today's professional firms and the vast reach 
of PG&E, whose business activities touch virtually every sector of 
California, make conflicts almost inevitable. 
"Very few people have the expertise for high-profile, high-stakes 
bankruptcies, so you have a small pool from which to draw representation, and 
that's where . . . potential conflicts come up," said Nancy B. Rapoport, a 
University of Houston law professor and a leading bankruptcy ethics expert. 
"Today," LoPucki said, "it's not a question of whether there's a conflict, 
it's how big it is." 
Dozens of Firms Vying for Contracts 
The bankruptcy case of PG&E, with a reported $31.5 billion in assets, is big, 
indeed. Only two cases from the late 1980s, Texaco Inc. and Financial Corp. 
of America, surpass it when measured by the dollar value of the assets at 
stake. 
Records show that about a dozen firms are in line for lucrative contracts 
with either PG&E or the official committee representing thousands of the 
utility's unsecured creditors. So are dozens of other firms that have 
continuing legal work for the company. 
All will be paid from the PG&E bankruptcy estate, if Judge Dennis Montali 
approves their employment. 
To become eligible for legal, accounting and consulting work, each firm must 
convince the judge that it is qualified to do the job and does not have 
unmanageable conflicts of interest. 
Many firms in the PG&E case have worked with one another or represent parties 
with a financial interest in the outcome, such as lenders and creditors, in 
matters outside the case. 
With the limited number of bankruptcy specialists, "naturally you have 
lawyers and others working both sides of the fence," said Mary Josephine 
Newborn Wiggins, professor at the University of San Diego School of Law. 
"There are bound to be some situations where it gets sticky." 
Time and again, firms acknowledged in disclaimers filed with Bankruptcy Court 
that they have so many ties to other companies that they may not have 
unearthed all connections and potential conflicts. Some addressed potential 
conflicts by erecting "ethical walls" within their own firms or having 
clients sign waivers that absolve the professionals of conflicts of interest. 
Experts say ethical walls amount to honor systems with no outside monitoring 
and that waivers sometimes are granted without the client's full 
understanding of the potential conflicts. 
They also point out that not all connections between adversarial interests 
constitute conflicts, and not all conflicts are serious enough to disqualify 
a firm from a case. 
The fact that so many issues arise in cases of this magnitude has meant that 
the bankruptcy system is forced to make accommodations for big firms with 
overlapping clients. 
"By traditional conflict standards, the large firms could not participate in 
the cases," LoPucki said. "There has been a huge shift in what is acceptable. 
It is more lenient. A firm is allowed to represent [clients] today where they 
would not have been allowed 20 years ago." 
'Ethical Walls' Used to Avoid Conflicts 
The complexity of the entanglements--and the manner in which the system has 
adapted to them--can be seen in the roles played in the PG&E case by two of 
the nation's largest accounting firms, Deloitte & Touche and 
PricewaterhouseCoopers, and one of its most prominent law firms, Milbank, 
Tweed, Hadley & McCloy. 
When PG&E proposed hiring Deloitte & Touche for a base fee of $855,000 and an 
hourly rate of $450 to $650 for partners, the U.S. trustee in the case, Linda 
Ekstrom Stanley, objected. 
The U.S. trustees office is an arm of the Department of Justice that Congress 
created in 1978 to help combat what critics derisively dubbed bankruptcy 
rings. The trustees administer bankruptcy cases and are instructed to guard 
against abuses and profiteering by professionals. 
So far in the PG&E case, Stanley's office has weighed in against the 
appointments of several major companies, voicing objections ranging from 
excessive fees to conflicts. Her office succeeded in preventing the creditors 
committee from hiring a public relations firm, and it won a tentative ruling 
that would prevent PG&E from indemnifying a financial consulting firm against 
negligence claims arising from its work. 
The investment banking firm, Dresdener, Kleinwort & Wasserstein, has stopped 
working for PG&E because of the lack of indemnification. PG&E is hunting for 
a new financial consultant. 
In the case of Deloitte & Touche, Stanley's office seized on the company's 
disclosure that it had worked not only for PG&E but also for its parent 
company and for another subsidiary, PG&E National Energy Group. The 
accounting firm had performed $14.4 million in work last year for the three 
PG&E entities. 
The trustee said that work posed a potential conflict because the California 
Public Utilities Commission was reviewing PG&E's controversial transfers of 
funds to its parent company. 
Deloitte & Touche argued successfully that its relationships with three PG&E 
entities did not compromise the company's ability to fairly represent PG&E in 
the bankruptcy. 
In the interest of full disclosure, Deloitte & Touche reported it formerly 
employed a daughter of Judge Montali. The firm also said it employs the wife 
of another bankruptcy judge in San Francisco. She logged fewer than 50 hours 
of tax consulting work last year for PG&E's parent, the firm said. 
Ethics experts said such personal connections generally would not be enough 
to prompt a judge to disqualify a firm. "It's obviously an interesting 
relationship," Rapoport said. "It comes down to . . . how much of an 
appearance of too much closeness he wants to put up with." 
Issues involving the second accounting firm, PricewaterhouseCoopers, arose 
when the committee representing PG&E's creditors proposed hiring the firm as 
its accountant and financial advisor. Stanley's office objected that the 
firm, like Deloitte & Touche, works for PG&E and its parent. 
"Professionals . . . must have no conflict of interest . . . and owe 
undivided loyalty to the creditors committee," the trustees office said. 
"It is not beyond imagining that [PG&E and its parent] could influence 
[PricewaterhouseCoopers] through these continuing relationships, the promise 
of future engagements and other intangibles," the trustee said in one filing. 
PricewaterhouseCoopers said it would build an ethical wall within the firm to 
avoid problems or other dicey situations in which PG&E, its parent or 
affiliates are adversaries. The judge approved the hiring. 
Rapoport said such ethical walls do not necessarily prevent improper 
communications within firms. "I don't think you can rely on an honor system 
or an internalized moral compass. That is why we have rules in the first 
place," she said. 
As its legal counsel, the PG&E creditors committee received permission to 
hire Milbank. The law firm disclosed that it represented some of PG&E's 
creditors in matters unrelated to the bankruptcy. The firm also represents a 
$400-million Arizona power plant project being developed by a subsidiary of 
PG&E Corp.'s National Energy Group. 
Some bankruptcy experts said there was a potential for conflict, but the firm 
said the connection was tangential. 
In addition, the firm worked for the California Power Exchange, the 
now-bankrupt entity that under California's deregulation plan served as the 
state's energy marketplace. Milbank resigned that post several weeks before 
the Power Exchange filed its own bankruptcy petition in March. The 
resignation, Milbank said, was "due to certain potential conflicts with 
creditors" of the exchange. 
One of Milbank's clients is Enron Corp., which, using other counsel, sued the 
Power Exchange, trying to get back collateral held by the exchange to ensure 
power deliveries. 
Enron now sits on the PG&E creditors committee represented by Milbank. 
Another of PG&E's creditors is the Power Exchange, which is seeking nearly $2 
billion for energy companies that sold electricity to the utility but were 
not paid. Records show Milbank has filed a claim of about $373,000 against 
the exchange for legal work. 
George Sladoje, president and chief executive of the Power Exchange, said he 
was shocked when Milbank, its longtime counsel, quit. "It was very difficult 
to find [new] counsel," he said. "There were conflicts all over the place" 
among law firms because so many did legal work for PG&E and Southern 
California Edison. 
Ed Feo, managing partner of Milbank's Los Angeles office, said the company 
did its best to avoid conflicts in both bankruptcy cases--by dropping 
representation of a client in one and fully disclosing its connections in the 
other. 
As for Milbank's role in the PG&E case, Rapoport said that representing 
creditors and a creditors committee is "OK as long as their interests do not 
diverge." 
However, she said, "Bankruptcy is like the Chinese game of Go. Moves have 
ramifications 20 steps later." 
Disclosure Often Is Safest Legal Course 
As a practical matter, the safest course legally in a bankruptcy case is to 
try to disclose every connection and let the judge decide whether to allow a 
firm to participate. 
"Disclosure cures a multitude of ills," said Lawrence Gottesman, chairman of 
the bankruptcy practice at Brown, Raysman, Millstein, Felder & Steiner in New 
York City. By contrast, he said, "the penalty for working with an undisclosed 
conflict can be severe." 
Milbank learned that three years ago, when John G. Gellene, once a lawyer 
with the firm, was sentenced to 15 months in prison and fined $15,000 for 
failing to disclose during a bankruptcy case that he also was working for a 
creditor in separate litigation. Before the sentencing, the firm had returned 
$1.9 million in legal fees and fired Gellene. 
To ferret out potential conflicts, firms rely heavily on the computer. Those 
involved in the PG&E case, for example, usually checked their computerized 
client lists against the biggest 100 PG&E creditors and other players, such 
as other professional firms, the trustee's staff and the judge. 
Even then, there are limits. The computerized checks did not touch tens of 
thousands of smaller PG&E creditors. And the firms themselves commonly issue 
disclaimers, saying they might not have turned up all their potential 
conflicts. 
If a law firm finds it has a troubling conflict, it also can seek a conflict 
waiver from its existing client, which essentially gives the firm permission 
to pursue dual representation. 
PG&E's lead counsel, Howard, Rice, Nemerovski, Canady, Falk & Rabkin, 
reported receiving $1.9 million from the company in the year before the 
Chapter 11 filing and it billed $2.65 million in fees and expenses for the 
two months after that. 
Among the firm's potential conflicts was its representation of an affiliate 
of Bank of America Corp. The bank participates in a revolving credit 
agreement that allows PG&E to borrow up to $1 billion. PG&E listed Bank of 
America as the agent for a $938-million claim. 
The law firm said its relationship with the Bank of America affiliate was 
"sufficiently attenuated" that it did not need a conflict of interest waiver 
from its client. But the firm sought and received conflict waivers from a 
second bank and the affiliate of a third bank involved in the credit 
agreement. 
There was no objection by the trustees office, and the judge approved hiring 
the firm. "We see if [a firm has] a disqualifying connection and, if not, we 
let it go," said Stanley, the U.S. trustee. 
Indeed, if every potential conflict were examined closely, some say, the 
bankruptcy system would grind to a halt. 
"It would be horrendous," said Daniel Bogart, a law professor at Chapman 
University. "There are conflicts that matter and those that don't. The 
parties have to reach a level of comfort quickly."

PHOTO: The official seal of the U.S. Bankruptcy Court in the financial 
district of San Francisco.; ; PHOTOGRAPHER: ROBERT DURELL / Los Angeles 
Times; PHOTO: Linda Ekstrom Stanley, U.S. trustee for the PG&E bankruptcy 
case, has weighed in against the appointments of several companies, voicing 
objections ranging from excessive fees to conflicts.; ; PHOTOGRAPHER: ROBERT 
DURELL / Los Angeles Times 
Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 

NEWS
Power consultant firings called 'tip of iceberg' / Secretary of state says 
disclosure list should be expanded
Bernadette Tansey, Kelly St. John
Chronicle Staff Writers

07/29/2001
The San Francisco Chronicle
FINAL
A.15
(Copyright 2001)

Calling the dismissal of five Davis administration energy consultants who 
disclosed ownership of power company stocks "just the tip of the iceberg," 
Secretary of State Bill Jones continued yesterday to attack potential 
conflicts of interest in the state's electricity-buying program. 
"These few firings don't resolve the issue at all," said Jones, a Republican 
who may challenge Davis in the next gubernatorial race.
Jones said the list of advisers required to file financial disclosures should 
be expanded and the issue further investigated by state Attorney General Bill 
Lockyer and by the state Fair Political Practices Commission. 
Davis spokesman Steve Maviglio said yesterday that financial statements have 
been submitted by all 42 contractors required to do so under state law. All 
of the traders who held stock in energy companies met a deadline last week to 
sell their shares, and the few whose disclosures raised questions have been 
let go, he said. 
"The governor's office is now involved in making sure (traders) meet the 
highest ethical standards," Maviglio said. 
Five energy traders who helped negotiate state spot market purchases or 
long-term power contracts were dismissed and a sixth left state service for 
another job after the Davis administration reviewed their financial 
statements last week, Maviglio said yesterday. 
Susan Weber, chief counsel for the state Department of Water Resources, which 
began buying power in January for state utilities swamped with debt, has also 
been reassigned because the Davis administration was dissatisfied with her 
handling of the ethics issue. 
"Despite being under a tremendous burden, it's no excuse for not following 
the law," Maviglio said. 
He said the state water department sought guidance in April from the attorney 
general's office and the Fair Political Practices Commission on which of the 
energy contractors, who were swiftly hired to help keep the lights on in 
California, were required to submit financial statements. The department did 
not act quickly enough to order the disclosures once it received that advice, 
Maviglio said. 
Four of the dismissed traders owned stock in Calpine Corp., based in San 
Jose: William F. Mead, Herman Leung, Constantine Louie and Peggy Chen. A 
fifth, Bernard Barretto, owned stock in Enron. 
Calpine sold the state power worth $14 million early this year and signed a 
significant share of the $43 billion in long-term contracts later secured by 
the state. A higher-ranking consultant, Richard Ferreira, disclosed that he 
owned up to $10,000 in Calpine stock. 
Concerns ranging from the timing of the stock purchases and the adequacy of 
the financial statements led to termination of the five traders, Maviglio 
said. 
"They were close to the line," he said. "We thought that was inappropriate." 
Reached by phone at his home in Duarte (Los Angeles County) yesterday, Mead 
said state officials never told him owning energy stock was a problem until 
they abruptly asked him to sell the stock earlier this month. He complied 
immediately. 
Mead, hired in February as a trader on the spot market, bought 800 shares of 
Calpine in 1999 and watched them soar to a value of more than $100,000 today. 
"I feel like, honestly, there was no conflict of interest," said the 
55-year-old engineer, who noted that Calpine does not sell power in the spot 
market where he was trading. "I was never put in a position to make a 
decision on Calpine." 
"We're ultimately pawns in a political game," Mead said. 
Jones said Davis is still exempting 21 advisers involved in the power 
purchasing effort from filing financial disclosures. He wants Davis' two Wall 
Street advisers, Joseph Fichera and Michael Hoffman, to fill out the forms. 
But Maviglio said Fichera and Hoffman have nothing to do with power 
purchases, serving only as consultants in the pending issue of $12.5 billion 
in bonds to reimburse the state for its power purchases.

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


NEWS
Ex-AG says he was questioned / Senators allegedly pursued adviser's role in 
tobacco case
Associated Press

07/29/2001
Houston Chronicle
4 STAR
42
(Copyright 2001)

AUSTIN - Former Texas Attorney General Dan Morales says he was questioned 
last week by U.S. Senate staff members and private lawyers about presidential 
adviser Karl Rove and his role in Texas' legal battles with tobacco 
companies. 
Morales, a Democrat, said six staff members, lawyers and Democratic Party 
activists focused on Rove's dual role as a consultant to the Philip Morris 
tobacco company and as an adviser to then-Gov. George W. Bush.
Morales told Saturday's Austin American-Statesman that he answered questions 
for about four hours over two days at a Washington, D.C., hotel. 
Washington Democrats are looking into recent allegations of conflicts of 
interest in the White House, including questioning the Bush administration's 
announcement that it may settle national litigation against some of the same 
tobacco companies Morales sued in 1996. 
"I've always said Rove was a big obstacle to us filing the lawsuit against 
the tobacco companies," Morales said Friday. 
Morales, who is considering a run for U.S. Senate, generally has kept a low 
profile on the tobacco issue since he left office. A federal investigation 
into his own actions regarding the $17.3 billion settlement is ongoing. 
Morales would not specifically identify anyone with whom he met with. 
The White House said it was unaware of the meeting. 
"It's rather odd that Senate staff would be interested in discussing a member 
of the president's staff with a former official and opponent of then-Governor 
Bush," said Anne Womack, an assistant press secretary for the White House. 
Recently, Democrats have criticized Rove for attending meetings with company 
officials from Intel, Enron and General Electric, among others, five months 
before selling his stock in those companies. 
Democratic Sen. Joseph Lieberman, chairman of the Governmental Affairs 
Committee, has threatened to subpoena Bush administration documents over the 
handling of environmental regulations.

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

Enron Lenders Petition Indian Court to Support Company, FT Says
2001-07-29 23:32 (New York)


     Mumbai, July 30 (Bloomberg) -- Foreign lenders to Enron
Corp.'s Indian power project have petitioned the country's
highest court for the right to support the world's top energy
trader in its payment dispute with the Maharashtra State
Electricity Board, the Financial Times reported, without citing
its sources.
     Enron's $3 billion project, Dabhol Power Co., and the
electricity board, its sole customer, have for seven months
been in dispute over $64 million in unpaid bills.
     The electricity board has said it will use a local
arbitrator to mediate the dispute. The foreign lenders say this
violates a provision for arbitration in a neutral location that
was a factor in their decision to invest in the project, the
paper said.
     Bank of America Corp., Citigroup Inc.'s Citibank, ABN Amro
Holding NV, Overseas Private Investment Corp. of the U.S. and
other financial institutions have loaned $440 million to
Enron's project, the paper said.
     The state electricity board stopped buying Dabhol's power
in May, saying it's too expensive. The move came days after
Dabhol said it was beginning a six-month notice period to end
its contract with Maharashtra. Dabhol halted production after
the board stopped buying its power.
     Enron wants India to buy out its 65 percent stake in the
project, in which it has invested $875 million.


California Fires Five Consultants Over Conflicts, Paper Says
2001-07-29 17:42 (New York)


     Los Angeles, July 29 (Bloomberg) -- California Governor Gray
Davis's administration fired five energy consultants because of
conflicts of interest between their official duties and personal
finances, the Los Angeles Times reported.
     Four of the consultants owned shares of Calpine Corp., a San
Jose, California-based electricity generator, the Times said. One
of them, William Mead, told the paper that state officials didn't
tell him that he couldn't own energy-company stocks.
     The highest-ranking consultant fired, Richard Ferreira,
disclosed that he owned as much as $10,000 in Calpine stock, the
paper said. Ferreira, who couldn't be reached for comment, had
participated in a review of one of Calpine's power-supply
contracts with the state, the paper said.
     California law prohibits officials from taking part in
decisions that affect their financial interests. The state, which
began buying electricity on behalf of its biggest utilities in
January after prices soared, has awarded Calpine about $13 billion
in supply contracts, the Times said.
     Two other consultants reported owning stock in Enron Corp.,
the biggest electricity trader, the paper said. Another two bought
stock in Edison International, owner of Southern California
Edison, the state's No. 2 utility.
     Davis officials disclosed the firings on Friday, the Times
said. They also are investigating a sixth consultant, Elaine
Griffin, who bought Calpine stock just before starting her state
job and left three days after reporting the investment, the Times
said. She couldn't be reached for comment, the paper said.