AES pullout won't affect privatisation: Prabhu
The Times of India, 08/04/01
Petronet seals LNG chain, inks gas sale MoUs
The Times of India, 08/04/01
ETHICS RULES APPLIED UNEVENLY; POWERFUL ENERGY CONSULTANTS RETAINED POSITIONS WHILE SOME LOWER-LEVEL WORKERS CHARGED WITH CONFLICT OF INTEREST FOR OWNING CALPINE STOCK WERE DISMISSED FROM JOBS BY DAVIS ADMINISTRATION.
San Jose Mercury News, 08/04/01
LITTLE SANDY BILL PASSES IN SENATE
Portland Oregonian, 08/04/01

Weather Derivatives Slowly Expand Beyond Utilities: Spotlight
Bloomberg, 08/04/01



AES pullout won't affect privatisation: Prabhu
Anurag Prasad

08/04/2001
The Times of India
Copyright (C) 2001 The Times of India; Source: World Reporter (TM)

NEW DELHI: Union minister for power Suresh Prabhu on Friday said the withdrawal of US firm AES from Orissa will not hamper privatisation of the power sector being carried out in various states. 
Speaking to Times News Network, Prabhu said: "AES has decided to pull out from only the distribution of power in the state. They are not leaving India or any other project in the state." He also added that the central government is not planning to buy Enron's stake in Dabhol power project.
AES has withdrawn its 51 per cent stake in Orissa's Central Electricity Supply Company. Cesco is one of the four privatised distribution companies in the state. Other three are Wesco, Nesco and Southco. 
Officials of AES, including nominated Cesco MD Roberto Podesta, are reported to have left Bhubaneswar. 
AES Corporation's investment in India includes $10 million in Cesco and Rs 603 crore for its 49 per cent stake in Orissa Power Generation Company. The company has expressed its desire to sell its stake in the distribution company to the government or any other third party. 
AES official said the tariff was not sufficient to meet the electricity cost. Reports say law and order problem and lack of government support to cut off power supply to non-paying customers have also been cited as reasons for the withdrawal. 
However, the company is not willing to leave other power projects in the state which includes OPGC. In May, AES closed down operations at a thermal power station in Banharpali in Jharsuguda district, 395 km from Bhubaneswar, for a week demanding the clearance of outstanding dues of Rs 1,400 crore from the state's Grid Corporation. 
AES is the third US company to have withdrawn from power sector in India. Cogentrix was the first one to pull out from the projects in Karnataka. Last week, Enron had offered to divest its 65 per cent stake in the controversial Dabhol power project in Maharashtra. 
In all the three cases, high tariff rates of electricity being sold by these companies and subsequent non-compliance with agreement terms have been the main reason for the withdrawals. The escrow accounts have also added to the dispute. 
Interestingly, Orissa was one of the first states to have opened its power generation and distribution system to private companies. After privatisation, reports indicate that there has been considerable improvement in distribution of power in the state and reduction in theft.

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

Petronet seals LNG chain, inks gas sale MoUs
Sanjay Dutta

08/04/2001
The Times of India
Copyright (C) 2001 The Times of India; Source: World Reporter (TM)

NEW DELHI: Petronet LNG has signed memoranda of understanding with prospective buyers for liquefied natural gas to be supplied from its proposed Dahej and Cochin terminals. 
"We have signed gas sale MoUs with 18 prospective buyers, sealing the last, and most vital, link in the LNG chain," Petronet chairman SN Mathur said.
While MoUs have been signed with 13 buyers for 25.08 mmscd (million standard cubic metres per day) LNG from the Dahej terminal, five suppliers have signed pacts for 9.34 mmscd of gas from the Cochin terminal. This is nearly equal to the 7.5 mmtpa (million metric tonnes per annum) of LNG that Petronet plans to import from Las Rafan, promoted by the Qatar government. 
Petronet's agreement with Las Rafan has a stiff 'take-or-pay' clause, a global practice for LNG contracts. This had given rise to doubts over Petronet's viability in the absence of gas sale agreements. 
In the meantime, Qatar was pressuring New Delhi for offtake guarantees without which their investors were reluctant to pump in money, oil ministry officials said. This prompted the government to moot `intermediary offtakers', wherein it asked Petronet's four PSU promoters - GAIL, ONGC, IOC and BPCL - to make commitments for the LNG. 
Mathur, however, disagreed. 'Where is the question of intermediary offtakers. There is demand for gas which the promoter firms are unable to meet. What is wrong if they give offtake commitments, after all, Petronet is their company," he said. 
Though Mathur declined to give out the price at which Petronet has contracted the LNG, he said it was competitive and would be about 20 per cent cheaper than naphtha. 
He also expressed confidence that the project would get going by 2004. "We have already awarded through global bidding EPC (engineering procurement construction) contracts for $300 million on lump-sum turnkey basis and assigned shipping contracts at the rate of $ 68,000 per day, which compares favourably against Enron's $98,000 per day," Mathur said.

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

Front
ETHICS RULES APPLIED UNEVENLY; POWERFUL ENERGY CONSULTANTS RETAINED POSITIONS WHILE SOME LOWER-LEVEL WORKERS CHARGED WITH CONFLICT OF INTEREST FOR OWNING CALPINE STOCK WERE DISMISSED FROM JOBS BY DAVIS ADMINISTRATION.
BY CHRIS O'BRIEN, ERIC NALDER AND BRANDON BAILEY, Mercury News

08/04/2001
San Jose Mercury News
Morning Final
1A
(c) Copyright 2001, San Jose Mercury News. All Rights Reserved.

While the Davis administration moved swiftly in recent weeks to dismiss a handful of low-level energy contractors who had apparent conflicts of interest, a group of powerful consultants to the administration has enjoyed far more lenient treatment. 
These consultants earned $50 to $300 an hour for negotiating long-term electricity contracts, mapping energy needs and providing financial and legal advice. Of about 50 people involved in this work, only about half were required to fill out statements disclosing their personal financial interests. And of the five who did report energy investments, only one was dismissed.
By contrast, the state dismissed four people last week who worked in a cramped energy trading room at the California Department of Water Resources; their pay averaged $30 to $45 an hour. These people purchased power on the open market, but they had far less influence than others over how much the state pays for power. 
While the administration is giving the appearance of cleaning house, it is not holding all of its key employees and advisers to a rigorous ethical standard. And the firings have left a sour taste in the mouths of several traders who once considered themselves heroes for helping the state out in a time of crisis. 
''I am pretty much just a pawn,'' said Constantine Louie, 28, while packing his bags at a Sacramento-area motel where he'd been staying for most of the five months he worked for the state. ''It is just political. Somebody has to be the scapegoat.'' 
A spokesman for Gov. Gray Davis disputed that. Press secretary Steve Maviglio said the people who were dismissed had stock in one energy company, San Jose-based Calpine, at a time when they were ''committing state resources.'' But there are conflicting reports on whether they had actually bought power from Calpine. 
Maviglio said higher-ranking consultants and other staffers who owned energy stocks -- including himself at one point -- either weren't in a position to buy from the power suppliers or had disposed of their holdings before they got into that position. 
The governor's staff has said other top advisers, including Wall Street experts Joseph Fichera and Michael Hoffman, weren't required to file disclosure statements. Late Friday, however, Fichera released a letter saying he had no energy investments. Hoffman also disclosed that he had no holdings except for options in an Oklahoma energy trader, the Williams Cos., which hesold at a loss in March. 
Problems arise 
Fueled in part by criticism from one of Davis' political rivals, Republican Secretary of State Bill Jones, the issue is only the latest fallout from an unprecedented energy-buying effort. That program was thrown together in just a few days in January, when the state's major private utilities were teetering on the verge of bankruptcy. 
With few experienced officials on the payroll, the governor's office and state Department of Water Resources turned to a handful of private consulting firms and about 20 individuals who were hired on short-term contracts. 
At the top of the heap are a handful of consulting firms, primarily Navigant Consulting and Electric Power Group. Employees from these two groups analyze energy demands, negotiate long-term power deals and manage the energy contracts. 
Energy-trading experts say these roles are the most critical to determining the price the state pays for power. 
''If you make mistakes on these long-term deals or the analysis, then those mistakes multiply down the road,'' said Steve McAleavy, a director for Search Consultants International, a Houston-based job placement firm that works with energy companies. 
At the same time, the Department of Water Resources has been forced to fill some of the state's needs by buying power on the spot market, and that's where the lower-level traders come in. Experts say there is little these traders can do to affect the price they pay for power. 
Scott Spiewack, a secretary for the Power Marketers Association, said traders at this point call a handful of other traders to see what price they're offering, then pick the best offer. 
Yet, despite having less responsibility and influence on power prices, it's this second group that has received the most scrutiny -- and felt the biggest repercussions -- during the recent controversy about conflicts of interest. 
Of the 26 people in this group, 20 were required to fill out disclosure forms, but not until roughly four months after they were hired. Five of those people owned stock in Calpine -- Constantine Louie, William Mead, Elaine Griffin, Peggy Cheng and Herman Leung. 
After complying with orders to sell their stock, four were dismissed anyway. The fifth, Griffin, resigned to take a new job. The state also terminated its contract with one long-term negotiator, retired Sacramento municipal utility executive Richard Ferreira, who had purchased Calpine stock the previous year. 
One other trader, Bernard Barretto, reported owning Enron stock but was not terminated because the state wasn't buying from Enron on the spot market, Maviglio said. 
''We had reason to believe from our review that the five who were asked not to return had violated the Political Reform Act or were close to it,'' Maviglio said. 
Department of Water Resources spokesman Oscar Hidalgo went further, saying the department terminated contracts with those traders who appeared to have been involved in official transactions with Calpine. But he also said the state was still reviewing all its transactions. 
Three of the six former contractors insist they had no official dealings with Calpine; others couldn't be reached for comment. 
Mead and Griffin both said Calpine wasn't selling power into the spot markets, where they operated. A Calpine spokesman said spot sales were rare, but they occasionally occurred. 
Ferreira says he didn't negotiate any contracts with Calpine. 
Except for Ferreira, the governor has been far more forgiving of revelations about possible conflicts involving top aides, state energy officials or consultants who perform more critical energy-trading tasks. 
This past week, Maviglio disclosed that he owned stock in Calpine, which he subsequently sold. In addition, William Keese, chairman of the California Energy Commission, acknowledged owning stock in companies that had sought plant licenses from his agency. Bruce Willison, a Davis appointee to the California Electricity Oversight Board, owns Enron stock. And Arthur Rosenfield, a member of the California Energy Commission, held 380 shares ofEnron stock. 
None have been asked to resign by Davis. 
Still working for state 
Four other Department of Water Resources consultants reported energy investments; they also remain with the state. 
* Vikram Budhraja, the president of Electric Power Group, reported buying two blocks of Edison International stock, each worth $10,000 to $100,000, on Jan. 17 and Jan. 22 of this year. A few days earlier, on Jan. 11, he also bought stock worth $10,000 to $100,000 in Dynegy, a Texas power supplier that is one of the companies the governor has accused of profiteering. He said he sold all his stock a few days after going to work for the state. 
* Mark Skowronski, a contract negotiator with Budhraja's firm, made several purchases of Edison stock in January and February. He also held stock in Reliant Energy, another major Texas power supplier, but sold that stock in March when he became the state's lead negotiator with Reliant. After first insisting there was no conflict in holding Edison stock, because he doesn't deal with Edison, Skowronski reported selling that stock in July. 
* Ronald Nichols, head of the Navigant Consulting group in Sacramento, disclosed that he bought $10,000 to $100,000 worth of stock in Enron, the giant Texas power marketer, in April. A Department of Water Resources spokesman said Nichols sold that stock last month. 
* Sumner White, a member of Nichols' firm also working for the state, reported one-third ownership of SRW Group, an independent power developer, and said he received $10,000 to $100,000 in income from AES, which owns several California power plants. 
Skowronski, Nichols and White couldn't be reached for comment. But Maviglio reiterated that they weren't dealing with the companies in which they had invested. 
''That's the big difference,'' he said. 
Budhraja, in particular, has been targeted for criticism from Jones, the secretary of state. While Budhraja said he sold his energy stocks Jan. 29, a few days after he went to work for the state, Jones says it appears that Budhraja's second Edison purchase was made three days after he went to work for the state -- just as California was beginning to buy power on the utility's behalf. 
The state's $6.2 million contract with the Electric Power Group indicates that the consulting firm was to begin work Jan. 19. But Budhraja says he didn't start working for the state until Jan. 25 -- after he bought the Edison stock -- and adds that he sold all his energy stock as soon as possible. 
In an interview, Budhraja rejected any suggestion that he knew he'd be working for the state when he made the investments. 
''That's absolutely wrong,'' he said. ''I was sitting in my office the morning of Jan. 25 when a call came'' without warning. ''I basically got in my car and went to the airport to go help out the state.'' 
Louie, the young trader who moved from Southern California to Sacramento, learned he'd been fired by checking his e-mail during a hiking trip in Peru, and he said he feels he was treated unfairly. 
''Perhaps it's like a peace offering'' to Davis' critics, Louie said. ''Like they are actually addressing the issue by terminating four of us . . . that might appease some critics, I don't know.''

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

LOCAL STORIES
LITTLE SANDY BILL PASSES IN SENATE
JIM BARNETT - The Oregonian Scott Learn of The Oregonian contributed to this report.

08/04/2001
Portland Oregonian
SUNRISE
D01
(Copyright (c) The Oregonian 2001)

Summary: President Bush is expected to sign the legislation that adds 2,890 acres of watershed to the Bull Run system 
"While modest in scope, this bill is essential to ensuring that future generations of Portlanders will have the cleanest drinking water available." -- SEN. GORDON SMITH,
WHO CO-SPONSORED THE BILL WITH SEN. RON WYDEN 
A bill that would add 2,890 acres of federal land in the Little Sandy watershed to Portland's Bull Run water supply system passed the Senate on Friday. It now heads to the White House, where President Bush is expected to sign it into law. 
The bill, which had the backing of most of Oregon's congressional delegation, would prohibit logging, road construction and public access on the acreage, securing a southern buffer for the 95,382- acre Bull Run system, supporters said. The two Bull Run reservoirs northwest of Mount Hood supply drinking water to 800,000 people in Portland and suburbs. 
The Little Sandy also serves as crucial habitat for endangered fish and trout runs, supporters said, particularly because Portland General Electric plans to decommission its fish-impeding dam on the river. The bill authorizes $10 million to be spent on watershed restoration in Clackamas County to benefit endangered fish runs. 
"The Little Sandy will be the centerpiece of a very aggressive effort to restore salmon," said Portland Commissioner Erik Sten, who oversees the city's response to the Endangered Species Act. 
Advocates have been trying to secure protection for the Little Sandy since 1994. Forest Service officials once argued that the legislation was unnecessary because the agency already has authority to prohibit logging if it would impair water quality. 
But two of the bill's sponsors, Sens. Ron Wyden, D-Ore., and Gordon Smith, R-Ore., said they wanted to be certain that the watershed -- and Portland's drinking water supply -- would be protected. 
"While modest in scope, this bill is essential to ensuring that future generations of Portlanders will have the cleanest drinking water available," Smith said in a joint statement with Wyden. 
More than a third of timber in the Little Sandy watershed has been harvested, although the Forest Service is not currently logging there, the senators said. Further harvests could risk contamination of Portland's primary water source by reducing a natural southern buffer against fire, erosion and human intrusion, supporters said. 
The acreage covered by the legislation lies within the Mount Hood National Forest. It originally was included for protection by the Oregon Resource Conservation Act of 1996 but was left out before the law was enacted. 
The Senate passed a version of the bill sponsored in the House by Rep. Earl Blumenauer, D-Ore., that amends the 1996 law. The house passed that version last month. 
Earlier efforts to add the Little Sandy acreage to the Bull Run system failed in previous sessions of Congress because they lacked Republican support. 
Scott Learn of The Oregonian contributed to this report. 
You can reach Jim Barnett at jim.barnett@newhouse.com or leave a voice message at 503-294-7604.

Caption: Color photo -- GORDON SMITH 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Weather Derivatives Slowly Expand Beyond Utilities: Spotlight
2001-08-04 09:55 (New York)

Weather Derivatives Slowly Expand Beyond Utilities: Spotlight

     Pollock Pines, California, Aug. 4 (Bloomberg) -- Stuck into
the lawn outside a home near Pollock Pines, California, is a small
rain gauge that might be worth as much as $50 million to
Sacramento's municipal utility.
     During droughts, Sacramento gets less of its electricity from
hydroelectric dams and must pay higher prices for power on the
open market. To ease the pain of high-cost droughts, the utility
entered a five-year contract with Aquila Energy, a trading firm.
Sacramento gets cash when rainfall measured by the backyard gauge
is low, and pays a fee when it's above normal.
     The bets by Sacramento and Aquila are part of the $2.5
billion market in weather derivatives, based on the nominal value
of contracts. Demand for such transactions is expanding from the
U.S. into Europe and Asia as more companies seek to hedge their
exposure to, or speculate on, rain, snow, wind and temperatures.
     ``Ignoring weather risk is becoming more of a problem for
chief financial officers,'' said Scott Mathews, marketing director
at United Weather in Jersey City, New Jersey, one of the two
biggest U.S. weather derivatives brokers. ``From now on, there
will always be a Wall Street analyst out there who will know that
weather hedges could have prevented lower earnings.''
     The four-year-old market began when newly deregulated
utilities could no longer rely on state rate-setting boards to
cushion the impact of excess weather-related costs, said Lynda
Clemmons, president of Element Re Capital Products.

                       Utilities Were First

     At the outset, the contracts were based on degree-day
readings, which measure the difference in temperatures from a
mean, and that utilities use to gauge demand.
     As the market grows internationally, ``we're also seeing
contracts based on simpler measurements of temperatures,'' said
Clemmons, whose company is the weather-risk arm of Bermuda-based
insurance firm XL Capital Ltd.
     The potential impact on earnings from bad weather is a key
reason why the derivatives market is growing, said Ravi Nathan,
weather portfolio manager and head of weather derivatives group
for Kansas City Missouri-based Aquila, a subsidiary of Utilicorp
United Inc.
     ``Every winter we see more utilities involved,'' Nathan said.
``It gets into the chief financial officer's consciousness only
when there's a big hit'' on earnings.
     Weather derivatives are slowly spreading outside of the U.S.
Trading in North America accounted for 95 percent of the world
weather derivatives market in the six-month period ended April 14,
according to a survey by PricewaterhouseCoopers, down from 97
percent a year earlier. Contracts based on degree-days accounted
for nine out of every 10 trades.
     The London International Financial Futures and Options
Exchange is betting that the weather derivatives market will
become broader and simpler, and has started temperature indexes in
London, Paris and Berlin in preparation for an eventual futures
contract.

                          German Utility

     In Germany, Elektrizitatswerk Dahlenburg, a municipal
utility, signed a contract in May that would protect its revenue
at times of high summer rainfall, when local farmers require less
power for pumps to irrigate fields. The contract was the third
known weather derivatives contract in Germany and the first
international transaction for Element Re, which acted as the
counterparty.
     ``This product is still getting started in Germany,'' said
Hans Esser, of FinanzTrainer.com in Dusseldorf, a consultant hired
by Dahlenburg. ``We don't tend to have hot or cold summers here in
Germany but we do have wet and dry summers. Rain had an 80 percent
correlation to electricity sales while temperature was 40
percent.''
     The Dahlenburg transaction will protect revenue equal to 20
percent of the utility's annual profit, Esser said.
     Weather affects profits for retailers, airlines and leisure
businesses as well as utilities.

                       Air Conditioner Sales

     Sears, Roebuck & Co., the largest department-store company,
said July 18 that its second-quarter earnings fell 13 percent as
sales of items such as air conditioners were hurt by cooler
weather and a slowdown in consumer spending.
     Carl Womack, the CFO of Pacific Sunwear of California Inc.,
said sales of the company's surf-orientated, outdoor teen-clothing
can be affected by adverse weather, for example, ``when we're
going into a new season or out of a season.'' For now, PacSun has
``no interest'' in derivatives, he said.
     Companies offering weather risk management are a mixture of
energy companies, such as Aquila, Enron Corp., Hess Energy Trading
Co. and Axia Energy LP, a joint venture between Koch Industries
Inc. and Entergy Corp.
     Insurance companies such as ACE Tempest Reinsurance and
Commercial Risk, a unit of Scor SA, are also offering weather-risk
products. New participants include Dresdner Bank AG, the banking
unit of Allianz AG, and Deutsche Bank.
     Companies such as Aquila, while agreeing to abide by readings
in backyard weather stations, sometimes take steps to assure that
the measurements are accurate.
     Aquila installed $5,000 worth of electronics to enable its
traders in Kansas City to monitor readings at the Pollock Pines
Pacific House station, an official National Weather Service site,
or take their own readings at any time of the day or night. The
kit included electronic temperature and precipitation gauges, a
video camera, motion sensor device and an infrared lamp.
     ``When you're running a huge contract such as this, the risks
are high,'' said Aquila's Nathan.