Enron, a Giant Bargain
The New York Times, 11/11/01
Dow Breaks Through Pre-Attack Level
The New York Times, 11/11/01
Dealings of Enron emerging
Houston Chronicle, 11/11/01
Demise of Enron a blow to city / As local business pillars crumble, Dynegy a bright spot
Houston Chronicle, 11/11/01
FLYING BLIND / By keeping investors in the dark, Enron lost its way
Houston Chronicle, 11/11/01
Deregulation Not Derailed by California's Meltdown Power: Though many energy firms were scarred in the state's free-market stumble, analysts say they are likely to rebound.
Los Angeles Times, 11/11/01
The Thing Is: Enron
The Independent - London, 11/11/01
USA: Wall Street takes aim at accounting tricks.
Reuters English News Service, 11/11/01
Senate stimulus bill slammed as grab bag of special interests
Houston Chronicle, 11/11/01




Week in Review Desk; Section 4
November 4-10
Enron, a Giant Bargain
By Richard A Oppel Jr.

11/11/2001
The New York Times
Page 2, Column 3
c. 2001 New York Times Company

With its principal business in peril, Enron agreed to be acquired by Dynegy for $9 billion -- one-ninth what it was worth last year. Enron, of Houston, used political muscle and trading-floor savvy to create new markets for electricity and gas and become the nation's dominant energy trader. Yet its refusal to explain its finances caught up to it last month, when investors fled after disclosure of an S.E.C. probe and an unusual $1.2 billion reduction in shareholder equity. After it admitted overstating profits by $600 million, other energy companies began to shun Enron, putting its trading business in jeopardy. Finally, a humbled Enron, out of options, threw itself into the arms of Dynegy, its much smaller crosstown rival. Richard A. Oppel Jr.


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

Money and Business/Financial Desk; Section 3
DataBank
Dow Breaks Through Pre-Attack Level
By MICHAEL BRICK

11/11/2001
The New York Times
Page 15, Column 3
c. 2001 New York Times Company

Stocks posted big gains this past week, pushing the Dow Jones industrial average to its highest close since the Sept. 11 attacks. 
The Federal Reserve's half-point reduction of short-term interest rates on Tuesday, to 2 percent -- the 10th cut this year -- was a big reason for the advance. Investors bought stocks on optimism that the latest cut would finally help stimulate the economy.
Equities got a further lift when reports emerged on Friday that seemed to run counter to the Fed's prediction that the economy would worsen, suggesting an economic turnaround had already started. The University of Michigan's monthly index of consumer sentiment, a widely followed barometer, showed a November improvement in attitudes about finances and the economy. 
For the week, the Dow Jones industrials rose 284.46, or 3.05 percent, to 9,608.00, the first time since the Sept. 11 attacks that the average had closed above its Sept. 10 finish of 9,605.51. The Nasdaq composite index rose 82.75, or 4.74 percent, to 1,828.48. The Standard & Poor's 500-stock index rose 36.21, or 3.34 percent, to 1,120.31. Both the Nasdaq and S.& P. indexes regained their pre-attack levels in October. MICHAEL BRICK

Chart: ''STOCKS IN THE NEWS'' Baxter International NYSE: BAX Baxter said a chemical that it used to manufacture filters for dialysis patients may have played a role in dozens of deaths around the world. The F.D.A. is investigating those deaths. Friday's Close: $47.48 Week's Change: -3.10% EST. '01 P/E: 27.13 Cisco Systems NNM: CSCO For the first time this year, Cisco's revenue increased from the previous quarter. Although it had a loss in the first fiscal quarter, the results exceeded Wall Street's expectations. Friday's Close: $19.20 Week's Change: +11.24% EST. '01 P/E: 86.49 BellSouth NYSE: BLS The regional telephone company said it expected revenue to grow 5 to 7 percent in 2002, compared with sales growth of 8 to 9 percent this year. Friday's Close: $39.02 Week's Change: +3.67% EST. '01 P/E: 17.66 Microsoft NNM: MSFT A federal judge plans to hold separate but related proceedings on the proposed antitrust settlement between Microsoft and the Bush administration. Friday's Close: $65.21 Week's Change: +6.21% EST. '01 P/E: 35.44 Newport News Shipbuilding NYSE: NNS The company agreed to a $2.1 billion takeover by Northrop Grumman, a rival military contractor. Northrop will acquire the outstanding shares for $67.50 each and assume $500 million of debt. Friday's Close: $67.95 Week's Change: -2.09% EST. '01 P/E: 20.75 Dynegy NYSE: DYN Dynegy has agreed to acquire Enron, a rival energy trading company, in a deal valued at about $9 billion. It also includes the assumption of around $13 billion in Enron debt. Friday's Close: $38.76 Week's Change: +15.87% EST. '01 P/E: 18.52 Palm NNM: Palm The hand-held computer maker said that its chief executive, Carl J. Yankowski, had resigned. The departure comes after a year of missteps, including product delays and inventory buildups. Friday's Close: $2.65 Week's Change: +14.22% EST. '01 P/E: -- H. J. Heinz NYSE: HNZ Citing a slowdown in its food-service business, the company lowered its profit targets for the second quarter and for the full fiscal year. Friday's Close: $39.90 Week's Change: -7.66% EST. '01 P/E: 14.98 (Source: Bloomberg Financial Markets) 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

NEWS
Dealings of Enron emerging
TOM FOWLER
Staff

11/11/2001
Houston Chronicle
4 STAR
16
(Copyright 2001)

The Enron name may soon fade away, but the federal securities investigation that helped erode the energy giant's foundation is not over yet. 
The 3 1/2-week-old Securities and Exchange Commission probe into Enron Corp.'s finances is likely drawing closer to answering questions about complex partnerships that wiped out more than $1 billion in shareholder value and almost $600 million in profits.
SEC officials don't discuss their works in progress, but already the results are becoming clear. 
The company admitted that massive accounting errors over the past four years led it to overstate its profits and understate its debts, an admission that no doubt saved the company from some SEC penalties, say observers. 
And the company has gradually distanced itself from its former chief financial officer - considered the architect behind some of the deals - and indicated that other employees were personally involved in the partnerships without its knowledge. But the culpability of Enron's current or former employees, if any, won't be clear for some time. 
On Oct. 17, the day after Enron reported an unexpected third- quarter loss, the SEC began asking Enron questions about two off- balance-sheet partnerships, called LJM1 and LJM2. They were formed to help the company grow without adding additional debt or diluting stock valuations, and were also used to help hedge against the risks in some of Enron's newer lines of business. 
Former CFO Andy Fastow formed the partnerships with the approval of the company's board of directors, attorneys and auditors. His dual role as CFO and managing partner of those two partnerships had the appearance of a conflict of interest, even though Enron insisted that measures were taken to prevent any illegal or unethical behavior. 
The SEC's role in looking at the partnerships isn't to prevent company executives from having conflicts of interest in their dealings, however, but rather to make sure the companies fully disclose those conflicts or any situations that may appear to be conflicts, said John Coates, a professor at Harvard Law school. 
"So although they have a role in determining that all the information in Enron's proxy was correct and that all transactions were reported, they were not responsible for determining whether or not the transactions were done on fair terms," Coates said. 
Item 404 of SEC Regulation S-K requires companies to disclose any transactions where executive officers personally benefit by $60,000 or more. That disclosure should include their direct and indirect interests in the deal, the amount of money or assets they receive through it and other information. 
As in all rules, however, there are certain exceptions. 
If an executive's compensation from a deal is less than 10 percent of the value of the overall transaction, they may not need to disclose all of those details, Coates said. That stipulation could possible give Enron cover for not having previously disclosed the $30 million Fastow earned through the partnerships. 
"But there are times when the companies may have followed the letter of the rules and the SEC still pushes them to fully disclose the details," he said. 
Whether or not Enron needed to disclose previously the investments or profits that a number of other employees made in some of the partnerships is also hard to discern. 
The company said this week that in addition to Fastow, five other employees invested in the deals. Two of those employees - Ben Glisan, a managing director and treasurer of Enron Corp., and Kristina Mordaunt, a managing director and general counsel of an Enron division - were terminated by Enron this week. The other employees, including Fastow and executives Michael Kopper, Kathy Lynn and Anne Yeager, no longer work for Enron. 
The company didn't mention how much those individuals invested or how much benefit, if any, they reaped from the deals. Some of the employees may not even fall under the disclosure rule since it doesn't give a clear definition of what positions are "executive officers." 
The company has gradually distanced itself from Fastow and the partnerships since the problems arose. Shortly after the earnings report last month Lay said he and the board stood by Fastow, but a day later replaced him. 
On Oct. 31, the day Enron said the SEC had upgraded its review of the finances from a simple inquiry to a formal investigation, the company announced that its board of directors had created a special investigation committee of its own. A company spokeswoman stressed that the committee had the power to take disciplinary action against any Enron employee, officer or director who it determines "improperly participated in the transactions." 
In its SEC filing that outlined the partnerships on Thursday, the company said it was aware of the partnerships but required that certain safeguards be put in place and that the transactions be approved and reviewed regularly. 
"Whether these controls and procedures were properly implemented is a subject of the Special Committee's investigation," the statement said. 
At a Friday news conference, Lay said the board was aware of the formation of one of the partnerships but that he was not aware that Glisan and Mordaunt were investing in the partnerships. Lay deflected many of the questions regarding the investigation, saying a conference call would be held next week. 
Shareholders have lined up behind lawsuits against the company, the partnerships, and even the company's law firm, Vinson & Elkins. 
"Disclosure cases and state corporate law cases are all but assured in situations like this," Coates said. "Even if the SEC does very little, the shareholders will still line up."

Photo: The new Enron Corp. building, framed by a curved walkway, is still under construction in downtown Houston. If Dynegy's proposal is approved, the $200 million, 40-story building will be among its new assets in the purchase of its much larger rival. 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

NEWS
Demise of Enron a blow to city / As local business pillars crumble, Dynegy a bright spot
DAVID KAPLAN
Staff

11/11/2001
Houston Chronicle
4 STAR
1
(Copyright 2001)

It seems like only days ago that Enron Corp. was being held up as an example of a company that could see the future. 
The wizards of Wall Street were marveling at the corporation's bold, innovative strategies.
In Houston, high-flying Enron was erecting its new headquarters downtown, a tall and shiny skyscraper, the city's first in more than a decade. 
And now, almost suddenly, Enron is vanishing. 
In the past few months, three pillars of Houston's economy and business leadership have fallen on hard times. Compaq Computer Corp., the centerpiece of Houston's technology image, may be sold. Continental Airlines has laid off thousands as it adjusts to a slowing economy and the aftermath of Sept. 11 in the travel business. 
And only months ago, Houston lost the headquarters of American General as the company was sold to American International Group. 
Now Enron will disappear as it is absorbed by one of its rivals. 
What impact does all of this negative business news have on Houston's image? 
The recent wave of corporate downturns has some experts concerned, but others say that when they look at the big picture they are still optimistic. 
"The fact we have had multiple blows has certainly had a negative effect in the short run," said Barton Smith, director of the Institute for Regional Forecasting at the University of Houston. 
But in the long run, Smith said, a city's future has more to do with its quality of life and the quality of its infrastructure than whether the city has lost or attracted a major headquarters. 
"When Boeing left Seattle, we said, `Poor Seattle,' " Smith said. "(Three months later) Seattle is still growing and still known as a good place to live." 
What is more important in terms of Houston's corporate image and its image in general, Smith said, is "whether it's easy to get around and get to work and how smoothly a businessman can get to Tokyo or London." 
Smith believes Houstonians should be more concerned about other local problems such as getting the city's pollution problem "under control in a rational way." If Houston continues to be known as one of the most polluted cities in America, Smith said, "that will continue to haunt us." 
The demise of Enron is "certainly not good news, nor was Compaq good news," said Steve Klineberg, a Rice University professor of sociology. 
The two companies enhanced the city's image and stature, Klineberg said, in that they signified that Houston was moving out of a 20th- century oil-based economy into a 21st-century economy based on information and technology. 
In terms of image, the Enron news is more damaging within the business community than to the perception of Houston by the world at large, said Steve Currall, associate professor of management psychology and statistics at the Jesse H. Jones Graduate School of Management at Rice University. 
"Enron has very little business-to-consumer activity, and for the average person on the street" it doesn't mean much, he said. 
But it is significant to the business community, Currall said. Enron has been a Fortune 10 company and consistently ranked as one of the most innovative companies in America. "And I think the struggles of Enron (have) a negative impact" in the business community, he said. 
"Houston has benefited from a company like Enron, which has made the city a world headquarters for energy trading," Currall said. "It made us a hub for the development of financial management innovations. 
"It's part of the reason why Enron and Dynegy resonate with the Wall Street gang. They say, `That trading stuff down there is cool.' It's the convergence of highly sophisticated finance and the energy industry." 
Currall said he is delighted that Dynegy is Enron's "suitor" because it keeps the people and operations in Houston. 
"That's great news for Houston," he said. 
Others agreed that the presence of Dynegy in Houston will soften the blow. 
Enron being bought by Dynegy, another Houston firm, is "like a couple of cousins getting together," said Barry Silverman, a marketing and management consultant. 
"In a sense, there is no loss for Houston," said David Crossley, president of the Gulf Coast Institute, a nonprofit group that promotes quality-of-life issues in the area. 
"Who would have thought that a company in Houston was capable of buying Enron?" Crossley said. It makes Dynegy a bigger company and, he said, creates a certain mystique about Houston since both cutting- edge businesses are here. 
David Morris, the managing partner of the Houston office of Heidrick & Struggles, an executive recruiting firm, believes that Houston has been unfairly stereotyped as having a "gunslinger" style of business environment, and he is concerned that "what's perceived as a gunslinging type of accounting at Enron will be underscored once again." 
But what should really be emphasized, Morris said, is Houston's creativity. 
"That Enron took an old-line industry of gas transmission and re- created it into the marketing of gas and trading of gas and hedging of the price for gas - creating different value streams in the same industry - and did it before the rest of the world could grasp it all is pretty amazing, and none of that is going away," he said. 
That point was echoed by Don Henderson, vice president and managing director of Hyatt Regency, Houston, and the recent chairman of the Greater Houston Convention and Visitors Bureau. 
"When you think of New York, you think of the stock market," he said, "and when you think of Chicago, you think of agribusiness. 
"And more and more when you think of Houston, it's energy as a commodity. And it's only going to be stronger with all the mergers and acquisitions because the business of trading energy as a commodity is only going to grow." 
Henderson maintained that Houston is still the envy of much of the country. 
Houston has always been one of the continuously booming economies, he said, and "has bounced back quicker and stronger than any region." 
To offer an example of the city's resilience and appeal, Henderson noted that Hewlett-Packard Chief Executive Officer Carly Fiorina recently stated that the work force of Compaq's Houston campus might increase in size in part because of the city's business-friendly environment compared to what she described as a less friendly business climate in California. 
Silverman maintained that the recent experiences of various local businesses "won't hurt our image at all." 
"In this global economy, you often see companies changing names and headquarters," he said. "It's like a Monopoly game. 
"I bet if I asked 100 people where Microsoft is headquartered, 50 of them couldn't tell me."

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

OUTLOOK
Editorials
FLYING BLIND / By keeping investors in the dark, Enron lost its way
Staff

11/11/2001
Houston Chronicle
4 STAR
2
(Copyright 2001)

Last spring, Enron Chairman Ken Lay told a leadership forum at the University of Houston that his goal was to make Enron the No. 1 company in the world. Six months later, Enron was fighting for its life. In a $7.8 billion stock deal struck Friday, Enron will cease to exist as its operations are folded into rival Houston energy firm Dynegy. 
Enron, in recent years one of Houston's most important corporations, did not reach this pass because its ambitions were too high. Unlike the mythical Icarus, Enron did not fly too near the sun, melting the wax of its wings.
Enron's troubles came because some of its top executives chose to do much of their piloting under cover of darkness. In the process, they lost their way. 
By using several mysterious partnerships to finance projects and shield risk and debt from public scrutiny, Enron's leaders set the stage for the vicious circle in which drops in earnings and investor confidence and creditworthiness followed and exacerbated one another. The deals became so complicated and impenetrable that Enron's directors, who approved them, no longer knew whether the company's revenues and assets were coming or going. 
The Securities and Exchange Commission is investigating Enron's financial arrangements and questionable bookkeeping, and an Enron spokesman says the company now finds it difficult to know the state of the partnerships it owned or controlled. Following months during which Enron's announcements regarding departing executives lacked both accuracy and candor, the company this past week restated its finances back to 1997, subtracting $586 million from its net income and adding $2.5 billion to its debt. Regardless of what the SEC inquiry finds, Enron's revised accounting makes a good case for congressional or regulatory elimination of whatever loopholes allowed Enron to inflate its income and obscure its debt. 
Enron officials say a special board committee is investigating the financial arrangements between former Enron executives and the obscure investment partnerships they managed or controlled. An Enron spokesman said the committee would make public its findings "at an appropriate time." The appropriateness of that time diminishes the further it gets from the present. 
Neither Enron officials nor investors need to wait for the committee's report to conclude that letting executives profit on the side from the partnerships while sticking stockholders with the liabilities was inappropriate. For the sake of Enron, its stockholders and the citizens of Houston, who depend on Enron's contribution to the economy and the civic life of the city, that arrangement must not be repeated. 
Much of Enron's problems stem from straightforward but imprudent or ill-timed investments: a power plant in India, broadband capacity not needed in a collapsing telecommunications market, and a doomed venture into the water business - Azurix Corp. 
Those losses might have been survivable, had Enron not denied its own transactions the transparency it sought for global energy markets.

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



Business; Financial Desk
Deregulation Not Derailed by California's Meltdown Power: Though many energy firms were scarred in the state's free-market stumble, analysts say they are likely to rebound.
NANCY RIVERA BROOKS
TIMES STAFF WRITER

11/11/2001
Los Angeles Times
Home Edition
C-1
Copyright 2001 / The Times Mirror Company

Branded as lawless cowboys by California politicians and consumer advocates, energy merchants rode skyrocketing electricity and natural gas prices to new stock highs during the worst of California's energy crisis. 
But in recent months these energy companies--names such as Duke, Dynegy, Reliant, AES, Mirant, Williams and El Paso Corp.--have seen their fortunes dim as California's electricity meltdown has slowed the pace of deregulation nationwide, power prices have tumbled and the economy has faltered.
Even power plant owners and energy trading operations that have maintained healthy earnings growth have watched their stock performance fade. 
And then there's the Enron Effect. 
Enron Corp., cast as the heavy by California politicians, has suffered the biggest fall of all and has helped to drag down stocks of other energy producers and traders. 
Enron's woes appear to be a special case in that they flow less from its energy businesses than from a loss of investor confidence in the company's complex and shadowy financial structure, with a resulting cash crunch. 
Nonetheless, Enron's detractors are crowing at the rapid decline of the truest believer in electricity deregulation, the movement to take businesses controlled for decades by monopoly utilities and throw open the generation, trading and retail sale of electricity to new competitors. 
But just as Enron is not dead, neither is electricity deregulation, energy experts contend. Though several states have delayed their deregulation plans and some major corporate players are tempering their enthusiasm, other states and corporations press ahead. 
It's a tough new world for energy companies that will bring profit opportunities for some and acquisitions of low-priced players, analysts say. Enron, once the most brash of the energy peddlers, has agreed to be acquired by archrival Dynegy Inc. in a $7.7-billion stock deal. 
Yet when the economy and power prices improve, energy companies will see their prospects gleam again, analysts say. 
"Deregulation is a train that's not going to be derailed. It may be delayed, but it's coming," said Jon Kyle Cartwright, senior energy analyst with brokerage firm Raymond James & Associates. 
"When the economy rebounds, we're going to see higher energy prices again," Cartwright said. "That means that the guys who sell power, the guys who manufacture power--they're going to have very bright futures." 
Less than a year ago, when energy prices were headed for record territory in California and a winter of electricity shortages plagued the state, the favorite whipping boys of Gov. Gray Davis and other politicians were such energy sellers as Enron, AES Corp., Dynegy, Duke Energy Corp., Reliant Energy Inc., Mirant Corp., Williams Cos. and El Paso Corp. 
All are energy companies that own power plants in California or sell electricity or natural gas in the state at prices deemed by state officials to be higher than those a truly competitive market would have produced. The energy companies have denied that they overcharged Californians, and federal regulators investigating the matter have so far ordered only limited refunds of electricity revenues. 
Nonetheless, Southern California Edison Co. and Pacific Gas & Electric Co. lost so much money paying for electricity--costs they could not pass on to customers because of a rate freeze--that they became insolvent. PG&E filed for bankruptcy protection. 
California's near-death experience in electricity markets brought state government into the power business in unanticipated ways when lawmakers passed the landmark deregulation bill in 1996. 
The state became the primary electricity buyer for the big utilities' customers and formed a power authority to build power plants and transmission lines, becoming potential competition to generation companies. State regulators blocked electricity sellers from signing up new retail customers, a program known as "direct access" that is one of the key components of electricity deregulation. 
Players Refocusing on Other Operations 
The energy spectacle in California caused several states to short-circuit deregulation plans or to take a much slower approach that could delay for years the opening of those markets to competition. 
Energy companies also are now contending with lower electricity prices, which have plummeted since the beginning of the year, thanks to lower natural gas prices and temperate weather. And volatility has nearly disappeared, thereby cutting profit potential for energy trading firms. 
The economic downturn will reduce demand for electricity, analysts said, which also will hurt earnings at a range of companies. 
The pain was apparent in third-quarter results. 
"After several quarters of across-the-board strong results, we are now in more of a winners-and-losers environment, as low commodity prices and a weak economy make conditions more difficult," Merrill Lynch energy analyst Steven Fleishman said in a recent note to clients. 
Some big and mid-size players have stumbled, and a few have slowed their headlong rush into unregulated businesses that had until recently held promise for these companies, many of them utilities that branched out. 
A prime example is AES, which generates electricity in California, across the nation and in 26 other countries. AES said third-quarter net income fell 98% because of a sharp drop in profit from its operations in Brazil and Britain. AES reduced its earnings estimates for the year and said it will refocus on its core energy business, look for divestiture opportunities and not invest in any more telecommunications businesses, dropping its hostile $1.37-billion bid last week to take over a Venezuelan telecom firm. 
Reliant Energy said its wholesale energy operation had a 15% drop in third-quarter operating income, blaming lower gas and power prices, plus legal and other costs related to the California electricity crisis. The company's European operations lost $5 million because of lower profit brought about by deregulation in the Netherlands, and Reliant now is considering selling its European businesses. 
Constellation Energy Group, which owns the utility in Baltimore and is building power plants in California and around the country, abandoned plans to spin off its trading operation after it said earnings for the year will come in at the low end of estimates. 
One California firm that appeared poised to benefit from electricity shortages was Chatsworth-based Capstone Turbine Corp., which manufactures micro-turbines that supply power to a small business or a cluster of homes. 
But struggling Capstone said third-quarter revenue dropped by nearly half and its net loss widened by 54% to $12.5 million as California dodged a summer of blackouts and the economy slowed. 
Energy Giant Takes an Unexpected Loss 
The company hired a new chief operating officer and said it would restructure and lay off an undisclosed number of employees. 
The biggest surprise came from Enron, which broke a run of 16 profitable quarters, reporting a $635-million net loss for the third quarter because of a $1-billion charge from failed investments in water and telecommunications. The Houston-based energy giant also revealed that two of its off-balance-sheet investment partnerships, headed until July by its chief financial officer, led to $35million of the losses and chipped $1.2billion off shareholder equity in the third quarter. 
Investors began this month to dump the stock, and Enron's credit rating eroded amid lawsuits, news of a probe by the Securities and Exchange Commission into conflicts of interest and attempts by management to soothe fears. 
Enron Chief Financial Officer Andrew Fastow, who ran the two partnerships, was pushed out and the firm lined up new financing and went looking for new investors. 
Enron has used an opaque grid of off-balance-sheet partnerships to shelter assets and debt to help the company's push into a variety of deregulated markets in recent years. But analysts and investors fear that Enron is hiding money-losing assets in the partnerships; management has been tight-lipped about the purpose and holdings of the investment vehicles. 
Takeover rumors swirled last week around Enron before Dynegy announced the deal Friday, underscoring predictions of general industry consolidation because of low stock prices. 
Some Firms Thriving, but Not Their Stocks 
Some companies are still going strong, although their stocks remain depressed. 
That includes companies on the receiving end of potshots from California's politicians and utility regulators such as Duke Energy, Dynegy, Mirant, NRG Corp. and Williams, as well as San Jose-based Calpine Corp., which was repeatedly praised by Davis for playing a constructive role during the crisis. 
Calpine, for instance, said third-quarter profit and revenue doubled because the electricity producer increased sales by adding power plants. And yet its stock is down 55% from a 52-week high of $58 reached in March. 
"These are the energy merchants that seem to have the best grasp on the market and on risk management," said Chris Ellinghaus, power and natural gas analyst with Williams Capital in New York. Many of these companies are diversified geographically and by the fuel they use to generate electricity and had locked in favorable contracts that protected them when power prices fell this summer, he said. 
ABN Amro utility analyst Paul Patterson said investors have turned away from these companies, even the healthy ones, because the business "isn't as exciting as it used to be." 
"People go on earnings momentum. It's kind of like having your dessert first," Patterson said. "Once the best is over, you lose your appetite." 
One company trying to adapt to deregulation's devolution in California is Commonwealth Energy Corp., which has survived a run-in with the California Public Utilities Commission and the suspension in California of direct access, Commonwealth's primary business of selling electricity directly to consumers and businesses. 
Commonwealth Energy was one of the more than 300 companies that flocked to California to sell retail electricity to the customers of Southern California Edison, PG&E and San Diego Gas & Electric Co. All but about a dozen of the electricity sellers failed, and Commonwealth enjoyed initial success peddling low-priced power from renewable sources. 
But the Tustin-based company and its founder, Fred Bloom, ran afoul of the PUC for faulty billing practices and Bloom's failure to disclose that he had been ordered to stop selling unregistered securities by five states. 
Commonwealth Energy settled the matter by paying about $350,000 and reimbursing customers. Bloom was banished from the firm as part of the settlement, and an all-new management team set about diversifying away from deregulated businesses, said Ian Carter, the company's chairman and chief executive. 
The firm, which recently became registered as a public company but can't sell stock until January, is earning a profit, largely because it has been able to resell contracted energy for more than it paid. 
To maintain its growth, the company is turning away from deregulation and toward providing back-office services for regulated companies, generators and municipalities, Carter said. 
For the fiscal year ended July 31, Commonwealth Energy posted revenue of $183 million, up 84%, and income of $60.5 million, compared with a loss of $8.6 million in the previous fiscal year. 
"We certainly don't consider ourselves a casualty of deregulation or direct access," Carter said, noting that the company still sells electricity to 55,000 California business and residential customers and to cities, including Santa Monica and Palmdale. 
"We realized that we needed to diversify and we needed to do that fairly quickly," Carter said. The company has nearly 40,000 retail customers in Pennsylvania and will be entering Texas, Michigan, New Jersey and Ohio, he said. 
Seven states have delayed their push toward open markets, and some of those that remain on track, such as Texas, have run into unforeseen glitches that delay the process of giving electricity customers choices beyond their traditional utilities. 
Deregulation marches on in power trading and generation. 
The Electric Power Supply Assn., a Washington-based trade group, said last week that competitive power supplies account for slightly more than a third of the nation's generation capacity, up from 8.5% in 1997. Wholesale power trading could approach 7 billion megawatt-hours this year, up from 2.6 billion in 1999, the group said. 
Federal regulators are in the middle of determining how to reallocate control of electricity transmission lines into only a few regional operators, perhaps owned by new for-profit companies other than utilities. 
This process shows that the Federal Energy Regulatory Commission remains determined to open electricity markets despite the problems in California, said Lawrence J. Makovich, senior director of the North American power practice at Cambridge Energy Research Associates. 
"We've got major parts of the electricity business moving backward, and California is the prime example," Makovich said. "But when you look at other places in the country, what you see is a continuing evolution to a much more market-based power situation." 
David Jermain, a principal in the national utility practice of Andersen LLP, said California will remain on the sidelines for years, paying higher prices than those produced by competitive markets. It also must contend with a number of pending lawsuits. 
"California is in for a long-term state of chaotic confusion," Jermain said. "It's such a complicated mess that you're going to have to let the court system play through."

PHOTO: Commonwealth Energy is trying to adapt to deregulation's devolution by diversifying quickly, says Chief Executive Ian Carter.; ; PHOTOGRAPHER: ROBERT GAUTHIER / Los Angeles Times; GRAPHIC: Landscape for Electricity, Los Angeles Times; ; GRAPHIC: Losing Wattage, Los Angeles Times; 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



Business
The Thing Is: Enron

11/11/2001
The Independent - London
FINAL
3
(Copyright 2001 Independent Newspapers (UK) Limited)

To investors who thought utilities were a slow but steady way to watch their money grow, Enron tells a particularly chilling tale of horror. 
Even Friday's news that Enron's much smaller Houston neighbour, Dynergy, may be preparing to mount a $7bn (pounds 5bn) cash and stock bid did not mask the grisly truth. As far as US fund managers are concerned, this is a company that let Wall Street down spectacularly. Dynergy is thought to have waited until then to be sure Moody's did not downgrade Enron's investment grade to junk status.
The misery is doubled by the tempting image of what Enron could have been. At their peak almost a year ago, the shares gave the company a market value of $69bn; on Friday they were worth a tenth of that. 
The market felt there was good reason to push the stock to those heights. Here was a company that had, for many years, appeared to make all the right moves. As the group transformed itself from a dull utility into an exciting mix of energy trading, communications and services, it seemed never to put a foot wrong. "You had such an outstanding and arrogant company," said Roger Hamilton, a senior fund manager at John Hancock, "They were the giant. Everything in the energy industry touched Enron." 
The company even managed to persuade investors its convoluted management structure, which some believe is the root cause of its demise, was a positive thing. "You can't kiss the ass of 24 people," said former Enron chairman Jeffrey Skilling. "And together those 24 people are more likely to have the interests of the shareholders at heart than any one person." 
Unfortunately, behind the scenes, all hell was breaking loose. The last couple of months have given the market a long, embarrassing string of revelations about the company it once cherished. The company has $13bn of outstanding debt, and has found its access to funds extremely limited. Two weeks ago, as a measure of its desperation, Enron had to secure a rescue loan against its 25,000- mile network of gas pipelines. Along the way, details of the group's botched expansion into India have made for supremely depressing reflections on management. Crowning the whole sorry tale, and driving the shares down 80 per cent, was the opening last month of a Securities and Exchange Commission probe into the accounting for some of Enron's partnerships. Last week came the sacking of the group's treasurer and corporate lawyer, and a revision of earnings for the last four years to the tune of half-a-billion dollars. 
Despite it all, Dynergy's bid could be the steal of the century. Until all its troubles are out in the open, Enron may be just a little too grimy for many potential buyers. But even the most bearish analysts can see there are rich pickings from the old Enron empire. Dynergy's big problem is snapping them up before the big boys, including Chevron or Shell, poach the good stuff. 
Leo Lewis

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



USA: Wall Street takes aim at accounting tricks.
By Deepa Babington

11/11/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Nov 11 (Reuters) - Wall Street is starting to refuse to bite the bait on dubious earnings numbers highlighted by corporations in press releases. 
Companies tout profit figures, frequently called pro forma results, that strip out unseemly one-time charges and expenses at record levels - more than $200 billion this year alone. Investors, analysts, and accountants are revolting, and pressure is building to do away with the medley of different profit numbers or at least cut down on it.
Standard & Poor's, a major compiler of earnings and other financial data, now will treat restructuring charges, stock option expenses, and write-downs from ongoing operations as part of a company's operating earnings - items that many companies exclude from their version of operating earnings. 
"In the past, S&P would take a company's special charges at their word," said S&P analyst Robert Friedman, who was involved in the project. "But now we're going to say, 'Hey, wait a minute.'" 
The decision underscores the momentum building on Wall Street to scrutinize corporate accounting. One recent high-profile victim of this movement was Enron Corp. The energy trading company faced a crisis in investor confidence after it became clear it had boosted profits and racked up debt through complex financial transactions known as off-balance sheet deals. 
The deals, which were structured so they wouldn't show up on Enron's balance sheet, caused Enron to chop almost $600 million off earnings for the last four years. The once-mighty company lost $20 billion in market value, and on Friday agreed to be bought by smaller rival Dynegy Inc. 
Investors are scared of such stock market casualties. That's partly why they want to crack down on pro-forma numbers, which often present a much rosier picture of a company's performance because they exclude a whole bevy of costs that drag down the bottom line. 
"Hopefully, this will put pressure on companies to think twice when they put out their financials," said Friedman. 
Tech companies, in particular, conveniently have stripped out everything from inventory write-downs to severance costs from their bottom-line figures and pressured analysts to do the same with their earnings estimates. 
Mobile phone maker Motorola Inc. , for example, reported a third-quarter pro forma loss of $153 million early last month. After including charges for investment impairments, cost reduction activities and additional reserves for its financing of a Turkish cellular operator, however, the company posted a whopping $1.4 billion loss. 
A Motorola spokesman was not available for comment. 
The practice has also made it difficult for analysts and investors to compare the results of one company against its peers as each comes up with its own ideas of what should be included in pro forma earnings. 
"There are so many variants of pro forma that it can cloud comparisons," said David Zion, an accounting analyst at Bear Stearns. 
The proliferation of these reports has also caught the attention of the nation's accounting rule makers, even though they don't have the authority to police press releases. 
The Financial Accounting Standards Board (FASB) two weeks ago said it is pressing ahead with a project that will look at how some closely watched items such as pension fund income should be classified and presented in financial statements. 
Corporate America was not enthused by the idea and several corporations wrote to the accounting body urging it not to go ahead with the plan, said the project's senior manager, Ronald Bossio. 
But fund managers and investors are applauding. 
In a survey of 223 portfolio managers by capital markets firm Broadgate Consultants, nine out of 10 stock pickers said companies need to improve how they report results. FASB needs to come up with one key indicator of financial performance, and companies should abide by it, they basically said. 
If the accounting rule-making body accepted EBITDA, or earnings before interest, taxes, depreciation and amortization, as a key measure, companies ought to calculate it in a consistent manner and display it as a separate item on their statements, almost all managers agreed. 
"I think that pro forma thing is just a way to get around Generally Accepted Accounting Principles," said Debra McNeill, a portfolio manager at Fremont Investment Advisors. "I think there needs to be some guidelines to be set out on pro forma numbers, but it does not necessarily need to be banned.

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


NEWS
Senate stimulus bill slammed as grab bag of special interests
JANET HOOK
Los Angeles Times

11/11/2001
Houston Chronicle
4 STAR
6
(Copyright 2001)

WASHINGTON - Watermelon growers. Filmmakers. Owners of electric cars. Commuters in northern New Jersey. Those are among the people who would benefit from the fine print of a bill, in the Senate on Friday, to boost the languishing U.S. economy. 
The bill, on which a vote is expected this week, would pour about $70 billion into the economy next year, mostly for extended unemployment benefits, health insurance subsidies and tax breaks for individuals and businesses.
But it also includes a panoply of provisions less obviously connected to stimulating the economy - and more clearly designed to win support from specific senators. 
In a last-minute concession to Sen. Robert Torricelli, D-N.J., the bill includes bonding authority for Amtrak to develop high-speed railroads and for a new New York-New Jersey tunnel. More than $5 billion in agriculture subsidies were grafted on to help shore up support of farm-state members. 
The Senate Finance Committee approved the bill Thursday night on a party-line vote, but only after Republicans spent hours slamming it as a hodgepodge of special-interest favors that will do little to strengthen the economy. 
"This is a collage of political giveaways," said Sen. Phil Gramm, R-Texas. 
Sound familiar? That's because Democrats mounted a similar critique of the bill approved by the Republican-controlled House two weeks ago. Democrats argued that the House's $100 billion tax cut bill primarily would benefit some of the biggest corporations in America, including Houston-based Enron Corp. Rep. Martin Frost, D- Dallas, called it a "grab bag of special-interest goodies." 
The mudslinging on both sides illustrates a new line of argument that crops up in debates all over Capitol Hill these days: The best way to attack your opponents is to accuse them of trying to capitalize on the post-Sept. 11 sense of crisis to advance a parochial political agenda. 
Sometimes the critique boomerangs. Rep. J.C. Watts, R-Okla., a member of the House Republican leadership, issued a statement Thursday attacking the Senate Democrats' bill, saying, "The Senate's economic proposal focuses more on the excise tax for rum and other special-interest breaks than creating jobs." 
He was referring to a Senate provision that would extend for one year an existing provision affecting rum imports. The problem with his argument, however, is that the same provision is in the House Republican bill - which Watts supported. 
That's just one of many provisions in both the House Republican and Senate Democratic bills that have little connection to economic stimulus; instead, they extend a slew of tax breaks, routinely approved by Congress, which are about to expire. 
At the White House, spokesman Ari Fleischer said the Senate bill contained "too much spending and not enough stimulus." He lambasted the $220 million in the bill for bison meat, eggplant, cauliflower and pumpkin growers - in essence, a government subsidy for commodities that have "experienced low prices during the 2000 or 2001 crop years." Thirty-four commodities would qualify. 
But Senate Finance Committee Chairman Max Baucus, D-Mont., said aid for the ailing agricultural sector is an appropriate element of a recovery plan. 
"When our national economy declines, rural areas are often among the areas that are hit the hardest and that recover slowest," Baucus said. 
Another industry that could benefit from the Senate bill is the motion picture industry. Like the House bill, the Senate bill allows businesses more quickly to write off their investments in assets whose value depreciates over a number of years. But unlike the House legislation, the Senate bill includes a provision specifying that films are a depreciable asset qualifying for the tax break.

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