Why One Firm Thinks Enron Is Running Out of Gas
The Street.com, 05/10/01

Enron's Lay: California Power Crisis and Generation
Bloomberg, 05/10/01

Enron's Kenneth Lay on California Power Crisis: Comment
Bloomberg, 05/10/01

USA: UPDATE 1-Cooler weather gives Calif. a break from blackouts.
Reuters English News Service, 05/10/01

Talking Stocks
CNNfn: The Money Gang, 05/10/01

USA: NewPower beats its expectations, reaffirms 2001 view.
Reuters English News Service, 05/10/01

NewPower Has Narrower-Than-Expected 1st-Quarter Loss (Update1)
Bloomberg, 05/10/01






Why One Firm Thinks Enron Is Running Out of Gas
By Peter Eavis 
Senior Columnist
Originally posted at 5:23 PM ET 5/9/01 on RealMoney.com





TheStreet.com, 05/10/01

A small research boutique with a reputation for rigorous analysis is telling 
clients to quickly dump Enron (ENE:NYSE - news), believing that the energy 
trading giant's 2001 earnings will fall well short of Wall Street's 
forecasts. 
Cambridge, Mass.-based Off Wall Street, led by analyst Mark Roberts, thinks 
Enron's 2001 earnings will fall 6 cents short of the consensus estimate of 
$1.79. The firm also believes Enron stock should trade around $30, nearly 50% 
below Wednesday's $59.20. 
The firm's 26-page report, published May 6, highlights Enron's declining 
profitability and increasing leverage and suggests that the company should 
trade on the same sort of multiple as a trading firm like Goldman Sachs (GS
:NYSE - news), which has a 2001 price-to-earnings ratio about half of Enron's 
33 times. OWS also alleges that Enron's earnings quality is poor and that key 
parts of its financial statements are confusing and opaque. 
Houston-based Enron didn't comment by publication time on elements of the 
report that Detox sent the company. An energy analyst who is bullish on 
Enron's outlook says the OWS report contains fundamental misunderstandings 
about the energy market and Enron's business model, but he says the report 
does include some ground-breaking and valid insights. (The analyst's firm 
doesn't give stock recommendations.) 
Economies of Scale
Why care what Off Wall Street writes, compared with, say, analysts at Merrill 
Lynch (MER:NYSE - news)? For one, OWS has an excellent track record. 
Particularly sweet was 2000, when the tech stocks it had bashed came crashing 
down. It has also shown itself to be well ahead of the curve, recommending 
that clients sell e-tailer priceline.com (PCLN:Nasdaq - news) in June 1999, 
when faith in Internet stocks was at its blindest and their prices at their 
most insane. 




Pulling Back
Enron retreats after long rally


Enron, with its domination of a burgeoning energy market, annual revenue of 
over $100 billion and impressive earnings growth, can hardly be ranked 
alongside the likes of priceline. But OWS thinks Enron is set for a 
precipitous drop nonetheless. Why? 
OWS's main beef is that key profitability measures are in decline. Margins on 
Enron's pretax operating earnings (which the company's earnings releases call 
IBIT, or income before interest, taxes and other items) are falling. Total 
IBIT of $795 million in the first quarter amounted to only 1.59% of the $50 
billion in revenue for the period, compared with a 2.08% margin in the fourth 
quarter and 4.75% in the year-earlier period. Revenue in the first quarter 
was nearly quadrupled from the year-earlier period, yet IBIT rose only 27%. 
This shrinkage is due to lower-margin trading income making up an 
increasingly large share of Enron's revenue base. 
OWS thus calculates that for the remainder of 2001 Enron needs to generate an 
extra $2.1 billion in revenue for each additional penny it makes over its 
2000 EPS of $1.47 to reach analysts' expectation of $1.79. 
The energy analyst counters that OWS apparently hasn't grasped how Enron can 
continue to increase earnings even when margins shrink. It does so simply by 
increasing volumes as the energy market balloons in size. In other words, 
margins may decline, but since revenues are so much higher, earnings still go 
up. Illustrating this, first-quarter 2001 EPS of 49 cents was 23% ahead of 
the year-ago figure, even though the IBIT margin shrank by 3.2 percentage 
points. The analyst thinks Enron will make $1.82 per share in 2001. 
Growing On You
In addition, the huge growth in the energy market that has so helped Enron is 
likely to continue for several years, according to the analyst. He notes that 
roughly 75% of the electricity available in the U.S. still isn't traded in a 
market. "Eventually it will be part of a competitive environment, but it'll 
take five to 10 years," says the analyst. And he believes the extreme 
volatility in energy-related commodities that has also benefited Enron will 
exist for longer than OWS projects. 
Still, OWS's point on profitability is bolstered by other profit measures. 
Return on capital (net income as a percentage of equity plus debt) was 6.6% 
in 2000, down on 1999's 6.9% and well below the 2000 returns on capital at 
Duke (DUK:NYSE - news) (11.8%), Dynegy (DYN:NYSE - news) (12.1%) and even 
Goldman (8.9%). 
Even Enron bulls will admit that its financials are hard to follow. For 
example, it doesn't give a gross margin number for its wholesale services, or 
trading, business, which accounts for 96% of revenue. But one area of the 
company's financial statements registered with the Securities and Exchange 
Commission that consistently bugs analysts is the part that describes Enron's 
related party transactions, which are the deals it does with entities that 
have some sort of link to the firm. In fact, one of the related entities that 
Enron has traded with is headed by Enron's CFO, Andrew Fastow. The energy 
analyst comments: "Why are they doing this? It's just inappropriate." 
The reason for maintaining these hard-to-follow related party deals has been 
a source of speculation. But OWS analysis shows how a sales of optical fiber 
to a related party may have been used to goose earnings in the second quarter 
of 2000. Estimated profits from the so-called dark fiber (optical cable 
without the gear to send data over it) transaction allowed Enron to beat 
analysts' second-earnings earnings estimate by 2 cents a share, rather than 
missing by 2 cents. 
How soon before Wall Street follows Off Wall Street on Enron? 

Enron's Lay: California Power Crisis and Generation
2001-05-10 10:31 (New York)

     White Sulfur Springs, West Virginia, May 9, 2001 (Bloomberg) -- Kenneth 
Lay, chairman of Enron Corp., talks with Bloomberg's Dylan Ratigan about the
outlook for the California power crisis, Enron's role in power generation and 
supply, and success of Enron's e-commerce platform. They speak at the Business
Council CEO Summit.

01:20 Outlook for the California power crisis and energy pricing 
02:54 Enron's role in power generation and supply; margins 
00:31 The possibility of legal liabilities related to California

Enron's Kenneth Lay on California Power Crisis: Comment
2001-05-10 12:45 (New York)


     White Sulfur Springs, West Virginia, May 10 (Bloomberg) -- The following 
are comments by Kenneth Lay, chairman of Enron Corp., the world's largest 
energy trader, on the California power crisis. He made the comments in an 
interview on Bloomberg TV.

     On consumer rate increases and the future of Edison
International's and PG&E Corp. The two companies own California's two largest 
utilities, Southern California Edison and Pacific Gas & Electric Co.

     ``The higher rates, which have now finally been approved, which go into 
effect this month, appear to be just about right in order to get the 
utilities, at least So Cal Edison, back on (their) feet and maybe PG&E out of 
bankruptcy. But then again there are so many other pieces to that, from the 
standpoint of restructuring the market where you do have direct access where
consumers can pick their supplier.

     ``Maybe over time, 18 months to two years down the road, even the large 
industrial customers will be able to do their electricity the same way they 
do their gas. They buy it directly from companies that are competitors and 
buy it from people other than the utilities.''

On electricity pricing and generation:

     ``At the same time we need to be pushing very hard on peak pricing this 
summer. We need much higher prices during the peak periods and much lower 
prices during the non-peak periods. We need a more aggressive demand buy-down 
(conservation) program.''

     ``They absolutely need more generation. As you well know throughout the 
90s there were no new power plants built in the state of California. They've 
got to start building power plants in the state of California''

On Enron benefiting from California crisis:

     ``We don't' have any generation in the state of California, though we 
are major suppliers of natural gas and electricity.  Obviously there has been 
a lot of volatility there and it's been a strong market, but we are not well 
served by a market that is that
volatile and unstable. That is why we have been working very hard to see if 
we can come together with other people to see if we can
solve it.
     ``We have benefited somewhat, but keep in mind that we have to buy 
supply to sell supply since we don't have generation in the state. We have to 
pay high prices to buy it and sell it at high prices.''

On the possibility of legal action against power suppliers in California:

     ``We in fact believe there is absolutely nothing we have done that is 
illegal or incorrect in the state of California. This is largely a matter of 
trying to demagogue the issue, trying to distract from the issue of not 
putting into place a comprehensive
plan to solve the issue.''


USA: UPDATE 1-Cooler weather gives Calif. a break from blackouts.
By James Jelter

05/10/2001
Reuters English News Service
(C) Reuters Limited 2001.

SAN FRANCISCO, May 10 (Reuters) - Cooler weather lifted some of the load from 
California's straining power grid on Thursday, sharply reducing the 
likelihood of rolling blackouts, state energy officials said. 
"Generator outages have crept up but the temperatures are cooler so we don't 
expect to have to call for blackouts today," Stephanie McCorkle, a 
spokeswoman for the California Independent System Operator (ISO) said.
The ISO, the agency that manages most of the state's electricity transmission 
grid, ordered two consecutive days of blackouts on Monday and Tuesday as the 
state's power crisis again resulted in critical energy shortages. 
Blackouts were narrowly averted Wednesday, in part because temperatures began 
to fall. Lower temperatures mean a drop in air conditioning, which on hot 
days accounts for about a third of overall electricity demand from the 
state's 34 million residents. 
"Temperatures are especially lower in the (San Francisco) Bay Area and Los 
Angeles, but the inland areas are still really hot," McCorkle said. 
Central Valley cities like Sacramento, Fresno and Bakersfield were all 
expected to see afternoon temperatures Thursday around 88-100 degrees 
Fahrenheit (31-38 C). 
And electricity supplies were still far from healthy. The ISO went to a Stage 
Two alert shortly after 1 p.m. (2000 GMT) when reserves dropped to a 
precariously thin 5 percent of demand - well below the ideal 15 percent 
reserve margin. 
Should reserves drop to just 1.5 percent, triggering a top level Stage Three 
alert, the ISO will call on utilities to start rolling blackouts, cutting 
power to blocks of customers in a bid to avoid collapsing the grid. 
BETTER, BUT NOT GREAT 
ISO operators, locked in a minute-by-minute battle to balance supply and 
demand on the system, said about 13,000 megawatts of generation were offline 
for repair or maintenance Thursday, roughly enough to serve the needs of 13 
million homes at any given moment. 
"That's about 1,000 megawatts more than yesterday," McCorkle said. 
California, the nation's most populous state and the world's sixth largest 
economy, endured two days of rolling blackouts earlier this week, the fifth 
and sixth days so far this year the lights have gone out. 
State energy officials warn the number and duration of these outages will 
likely rise through the summer, depending on how hot it gets, how much 
Californians can conserve, and how much power can be added to the grid 
through the state's accelerated power plant construction program. 
Though blackouts look unlikely over the next few days, the ISO warns May 
remains a tough month, with many power plants shut for maintenance needed to 
put them in top shape for the hot summer months ahead. 
"We're at that point where we can't afford to defer outages any longer. We're 
trying really hard to get as much generation ready and on line for June," 
McCorkle said. 
Another 600 megawatts is shut for financial reasons, the result of the 
state's cash-strapped utilities failing to pay plant owners for the power 
they desperately need. 
ROCKETING PRICES 
Prices in California's volatile wholesale power market have exploded tenfold 
over the past year, the result of failing to keep pace with its citizens' 
rapidly growing power needs and a badly flawed bid to deregulate its 
electricity industry. 
California is currently spending $50-90 million a day buying emergency power. 
On Wednesday, state legislators approved a $13.4 billion bond issue to covert 
this staggering cost. 
Gov. Gray Davis, after months of accusing independent power generators of 
using California's energy crisis to line their own pockets, met Wednesday 
with executives of several of those companies to discuss a way out of the 
mess. 
The four-hour, closed door meeting produced no concrete results, but gave 
Davis an opportunity to ask producers to accept a 30 percent cut in payments 
they are owed by California. 
Enron Corp., Mirant, Reliant, Dynegy Inc. and other merchant generators at 
the meeting reiterated they have done nothing wrong and that their steep 
wholesale prices fairly reflect rising fuel costs and the financial risks 
they bear by continuing to do business in California's volatile power market.

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



Business
Talking Stocks
David Haffenreffer, Christine Romans

05/10/2001
CNNfn: The Money Gang
(c) Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, 
Inc.). All Rights Reserved.

CHRISTINE ROMANS, CNNfn ANCHOR, THE MONEY GANG: You are watching "The Money 
Gang," and we are "Talking Stocks". 
DAVID HAFFENREFFER, CNNfn ANCHOR, THE MONEY GANG: And we are with Charles 
White, from Avatar Associates. We have on the phone, Jack, from Texas. Hi, 
Jack.
ROMANS: Actually, it`s Jeff in Indiana. 
HAFFENREFFER: All right. 
ROMANS: Hi, Jeff? 
CALLER: Hi, I was just wondering what your take on Service Corporation 
International (URL: http://www.sci-corp.com/) was-and if you`d recommend a 
buy? 
CHARLES WHITE, AVATAR ASSOCIATES: This is one where, you know, for the 
longest time, this had been a very dependable stock in the-I guess, deaf care 
services industry. They do have a road out planned here for the financial 
distress that the company has been under. It`s one where as an institutional 
investor, we`ve been avoiding the name, avoiding the sector for a few years 
now. We do look at the sector from time to time, but it`s not something we 
want to get involved in here. 
ROMANS: OK. Let`s go to the phones again now. John, in New York has a 
question. Hi, John. 
CALLER: Hi. With all of the talk about energy today, why aren`t companies 
like Enron (URL: http://.www.enron.com/) and Williams Energy (URL: 
http://www.williamsenergy.com/) doing better? 
WHITE: These are companies where-you know, on the Enron side, and Williams 
side, part of the multiple and part of the valuation that was in them was for 
the telecom services piece of that. And it`s not secret that telecom services 
has been slightly under distress here. It`s not clear how all of the issues 
with California are going to play out and there`s a little bit of uncertainty 
layered on to that. So, that may explain why these stocks haven`t performed 
better. But we think that Enron is still probably a stock you would want to 
have a core position in your portfolio. 
HAFFENREFFER: OK. Our last call of the afternoon goes to O`Neil in Texas. Hi, 
O`Neil. 
CALLER: Hi, thanks for taking my call. My was on Cisco. And, Charles, you 
were here last month, if I remember correctly, on April 10th. And at that 
time you appeared negative on technology but today I see you have been 
recommending Intel-and what do you think of Cisco? 
WHITE: Cisco is-you`re correct, we were fairly negative on tech at that time. 
We`ve moved back to a closer to market weighting as the Fed has gotten more 
aggressive here. But in Cisco`s case, this is a stock that I think longer 
term, you probably do want to be in. But the earnings announcement we saw the 
other day, all of the cloudiness about the outlook for the future, I think 
this is one where you want to wait and watch. You know, try and accumulate it 
on a bad day for the stock in the face of some negative news. But this is not 
one where we can come out and pound the table and say we want to be involved. 
They still have-the sector in general, for networking still has some issues 
to get through. Not as-not like the semiconductor sector. Semiconductor 
sector we think will be quicker to recover. So, that`s why we`re more 
favorably disposed on an Intel or Applied Materials (URL: 
http://www.appliedmaterials.com/) . 
ROMANS: What do you think about EMC? That is our stock of the day today. 
WHITE: That`s one where they do have a very good and solid competitive 
position, although the-it is dwindling a bit. Again, uncertainty in demand. 
If the storage sector is going to work longer term-and we believe it is-you 
can buy the stock today, come back to it in three or four years and be happy 
you bought it today. Unfortunately, there aren`t probably 3 percent of the 
people who are watching this show right now, that have a time frame of three 
to five years. So we think it`s a good holding in the portfolio longer term, 
but we`d say there are probably better opportunities to buy it here if you 
already own some. Add to it on bad days are because longer term, this is one 
of the names that`s a winner. 
ROMANS: OK. Just for the record, your picks are Wal*Mart (URL: 
http://www.wal-mart.com/) , Cummins Engine (URL: http://www.ml.com/) . 
Charles White, Avatar Associates. Thanks so much. 
WHITE: Your welcome. 

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


USA: NewPower beats its expectations, reaffirms 2001 view.

05/10/2001
Reuters English News Service
(C) Reuters Limited 2001.

PURCHASE, N.Y., May 10 (Reuters) - U.S. retail power provider NewPower 
Holdings Inc. posted a first-quarter loss narrower than it expected on 
Thursday and reaffirmed its outlook for the year. 
The company, the parent of The New Power Co., a provider of electricity and 
natural gas to residential and small commercial customers, reported a net 
loss of $50.2 million, or 86 cents per basic and diluted share. The company 
had forecast a loss of 88 to 95 cents a share. Revenues were $126 million for 
the first quarter.
The company forecast a second-quarter net loss of $52 million to $56 million, 
or 89 cents to 96 cents a share, on revenues between $70 and $75 million. 
NewPower reiterated its forecast that 2001 revenues would be between $530 
million and $540 million. The company still expects the net loss for 2001 to 
be between $210 million and $215 million, or between $3.61 and $3.70 per 
share. Analysts had expected a loss of $4.21 a share, according to research 
firm Thomson Financial/First Call. 
"NewPower continues to forge ahead with its growth strategies as demonstrated 
by delivering on key financial metrics, net revenue, gross margin and energy 
delivered," said President and Chief Executive H. Eugene Lockhart.

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


NewPower Has Narrower-Than-Expected 1st-Quarter Loss (Update1)
2001-05-10 16:35 (New York)

NewPower Has Narrower-Than-Expected 1st-Quarter Loss (Update1)

     Purchase, New York, May 10 (Bloomberg) -- NewPower Holdings
Inc., a venture formed last year by Enron Corp., had a narrower
loss than it projected in the first quarter on sales of power and
natural gas to homes and small businesses.
     The loss was $50.2 million, or 86 cents a share. NewPower had
forecast a per-share loss of 88 cents to 95 cents, spokeswoman
Gael Doar said. Revenue was $126 million, more than the company
expected.
     NewPower, which sold shares to the public in October,
competes for sales in Pennsylvania, Texas, Georgia and other
states with deregulated retail-energy markets. The Purchase, New
York-based company expects to have 1.2 million customers by the
end of this year.
     The company sees revenue of $70 million to $75 million in the
second quarter because of lower seasonal demand for power and gas.
It sees a second-quarter loss of $52 million to $56 million, or 89
cents to 96 cents a share, which is better than it expected.
     NewPower still projects a loss of $210 million to $215
million, or $3.61 to $3.70 a share, this year on revenue of $530
million to $540 million.
     NewPower had a fourth-quarter loss of $57.5 million, or $1.02
a share, on revenue of $64.7 million.
     Houston-based Enron, the largest energy trader, owns about 24
percent of NewPower. Enron, which sells power and gas to utilities
and large energy users, is NewPower's biggest shareholder.
     Shares of NewPower fell 47 cents to $9.03. They have fallen
57 percent since the stock sale.