----- Forwarded by Jeff Dasovich/NA/Enron on 03/27/2001 09:58 AM -----

	Jean Munoz <jmunoz@mcnallytemple.com>
	03/26/2001 10:11 AM
		 
		 To: <smara@enron.com>, <jeff.dasovich@enron.com>
		 cc: 
		 Subject: Enron in Sac Bee

FYI, in case you haven't already seen this:

CalPERS has big energy tie
By John Hill
Bee Capitol Bureau
(Published March 26, 2001)

When Californians complain about energy outlaws romping through the chaotic
electricity market, carting wagonloads of money to Texas, one name often
tops the list: Enron Corp.

But at least one pretty sizeable wagon full of cash has not gone home to
energy moguls in 10-gallon hats, but rather to retired California government
workers on pensions.

For eight years, Enron has had an unusual investment partnership with the
California Public Employees' Retirement System, the fund that administers
retirement and health benefits to more than 1 million past and present
public employees.

Most recently, the two agreed in 1998 to pony up half a billion dollars each
for business ventures in energy companies, including Enron subsidiaries --
although not the one that markets electricity in California.

CalPERS and Enron have, on average, doubled their money each year. That
makes the Enron deal one of the pension fund's most lucrative.

CalPERS owns stock in thousands of companies, including high-performing
electricity generators and lagging utilities. But Enron is one of fewer than
10 companies involved in this kind of venture with the pension fund.

"Enron is one of our oldest and closest relationships here in the
alternative investment area," Barry Gonder, a CalPERS senior investment
officer, told a CalPERS committee last October. "And as you all know, it's a
highly innovative and successful company."

All true, but in California, Enron has been a major player in the
electricity market, and the company and its chairman, Kenneth Lay, a
prominent supporter of President Bush, have become lightning rods for
high-voltage rage.

"Lay pockets millions every year into his personal account and now he wants
us to pay him more," a Sacramento resident asserted in a letter to The Bee
last month. " ... The power companies are reducing power to drive up prices
and put more money in the pockets of people such as Lay."

Enron has been making scads of money -- profits were up 34 percent in the
fourth quarter of 2000. But the company won't say how much of this comes
from California, and minimizes the importance of this market.

Despite the hostility toward Enron, no one has asked CalPERS about the
arrangement, said spokeswoman Patricia Macht.

Even if it did cause an outcry, CalPERS doesn't make investment decisions
based on the popularity of the companies. Even when CalPERS divested itself
of tobacco stocks recently, it justified the decision by citing lawsuits and
regulatory actions that could sour the investments.

In fact, Macht said, CalPERS is barred by its fiduciary responsibility to
its members from applying social filters that are not in keeping with their
financial best interests.

"It's a slippery slope," she said. "If we do it for energy now, what's to
say a month later, a legislator or interest group who has a beef against a
single company" might also demand that CalPERS sell its stock.

At the October meeting, CalPERS committee sessions didn't address Enron's
role in the electricity crisis. State Controller Kathleen Connell, however,
asked Andy Fastow, Enron's chief financial officer, how power shortages
affected Enron's profits.

"How does Enron benefit from that, and what can you do to maximize this fuel
energy shortage, not only now but as we move into the future?" Connell
asked. She was unavailable for comment Thursday and Friday.

Consumer advocates said they were surprised to learn of the CalPERS
connection to Enron.

"I guess it's nice that some folks on retirement income get a soft landing
because they were thrown into cahoots with marauders," said Nettie Hoge of
the Utility Reform Network in San Francisco, an advocacy group. But she
added, "It's a short-term return for a bargain with the devil."

The CalPERS relationship with Enron goes back to 1993, before California
even embarked on its ill-starred energy deregulation experiment.

At the time, the energy sector was out of favor with investors. CalPERS
figured that the reputation masked some good opportunities, and decided to
start putting money in energy, said Gonder, the CalPERS investment officer.
CalPERS needed a partner that understood the industry. Enron was an obvious
choice.

Enron had its own reasons to hook up with CalPERS.

The company did not respond to requests for comment. But in the October
CalPERS committee meeting, Fastow said that Enron has been investing about
$7 billion a year in the energy and communications industries. "So we need a
lot of capital," he said. Cal-

PERS, with assets of $165 billion, is one of the biggest pots of money
around.

Enron could have issued stock for the investments. But as a public company,
it has to worry about showing quick returns, Fastow said. A pension fund, he
said, could provide "more patient money."

As it turns out, CalPERS patience has not been tried. In the initial 1993
deal, Enron and Cal-PERS both kicked in $250 million. By the time CalPERS
cashed out five years later, it had earned an average yearly return of 23
percent.

"We said, 'It's working for both of us, so let's continue,'" Gonder said.

In 1998, the two created a $1 billion fund to invest in oil and gas, coal
and electricity companies -- everything from oil rigs to high-tech
electricity meters.

About $38 million of CalPERS money went to Enron Energy Services, which
sells natural gas and electricity to industrial and commercial customers and
helps them figure out better ways to keep down their energy use and costs.
Three years later, CalPERS sold the investment back to Enron for about $124
million, for a profit of $86 million.

Another investment did even better. In 1999, the partnership put up $80
million to buy some New Jersey cogeneration plants, which produce both
electricity and steam. A mere four months later, a 49 percent interest in
the plants, which cost the partnership $39.2 million, was sold to another
company for $150 million.

Each partner has invested about $300 million so far, with an average yearly
rate of return of 100 percent. The remaining money in the partnership is
expected to last another seven or eight years.