-----Original Message-----
From: 	"Russo, Brian" <Brian.Russo@ubsw.com>@ENRON   On Behalf Of "Abramson, Barry" <Barry.Abramson@ubsw.com>
Sent:	Monday, November 26, 2001 7:37 AM
To:	undisclosed-recipients:;@ENRON
Subject:	Electric Utilities:  Weekly Update

KEY POINTS
*	On the basis of the group's extremely low relative valuation, we continue to recommend the electric utility
group.  The electric group's P/E based upon 2002 estimated EPS is now only 10.8x, compared with a 2002 P/E for the S&P
500 of 24.5x.  The relative P/E ratio has dropped to just 0.44x, near its all-time low of 0.40x and well below the
25-year historic normal relative P/E range of 0.60x to 0.80x.
*	The high relative yield of 5.0% on the average electric utility stock also should provide good support against
any major downward move, in our opinion.  The relative yield on utility stocks is more than double the yields available
to small investors in cash equivalents such as money market funds.
*	The fully-regulated transmission and distribution utilities (T&D) appear to have stopped outperforming the
utilities that have a large merchant energy exposure.  The lower-risk, higher-yielding T&D stocks had been going up for
most of the past few months while the utilities with merchant energy had been falling.  Now it appears that the rotation
into the T&D stocks has ended, at least for now.
*	Last week, we added PPL Corp. (PPL-$35.80, rated Strong Buy)[2] to our Global Top 10 List of utility stocks.
The major reasons for adding PPL to the Global Top 10 List were the stock's very low relative P/E ratio, its fleet of
low-cost unregulated generating plants and its above-average earnings growth potential.  We also believe it is likely
that PPL might take actions to improve its very low stock price, such as a dividend hike and a common share buyback.  In
addition, at PPL's current low relative valuation, we believe it is an attractive takeover target.  There are four other
U.S. utility stocks on our Global Top 10 List-Dominion Resources (D-$59.96, rated Strong Buy)[2], Duke Energy
(DUK-$37.64, rated Strong Buy)[2], TXU Corp. (TXU-$45.87, rated Strong Buy)[2] and American Electric Power (AEP-$42.39,
rated Buy)[2].  The rest of our Global Top 10 List includes El Paso Energy (EPG-$49.73)[14] of the U.S., Suez-Lyonnaise
and Lattice Group of Europe, and Tokyo Electric Power and Chubu Electric of Asia.
*	The Federal Energy Regulatory Commission (FERC) issued an order last week that changes the basis upon which FERC
will allow large utilities to sell wholesale power at market-based rates.  FERC's order is designed to reduce the
possibility that a large company could exert market power in a particular region.  FERC stated that if power sellers are
found to be "pivotal to their region" and if the sellers are not participating in a FERC approved regional transmission
organization (RTO), then the sellers could lose their right to charge market-based rates.  Sellers that are "pivotal to
their region" have generating units that must run to meet the region's electric load.  FERC applied these new rules
immediately to three large utilities-American Electric Power, Entergy Corp. (ETR-$36.95, rated Hold) and Southern
Company (SO-$23.50, rated Hold)[2].  FERC stated that all three of these large utilities are not now currently members
of a FERC approved RTO.  AEP, ETR and SO have lost the authority to make sales at market-based rates except for sales
that take place in regions where the grid is controlled by a FERC-approved RTO.  The three companies have been given 15
days to respond by FERC.  Under the new rules, FERC can order refunds and can order these companies to revert back to
cost-based rates.
*	It is possible that FERC is using this directive to strongly influence the rapid formation of FERC-approved
RTOs.  Some of the larger U.S utilities have been reluctant to join large RTOs and have tried to form their own RTOs in
which they would be the dominant member.  In the long run, we expect FERC to prevail and we expect all U.S. utilities,
large and small, to form RTOs that have FERC approval.  We think that the loss of the ability to sell wholesale power at
market-based rates, even if only for a short period of time until the company achieves compliance with FERC's RTO goals,
is a strong enough incentive for large utilities to move faster to join large RTOs.
*	We lowered our EPS estimates for Edison International (EIX-$14.20, rated Buy)[2,10] after the company held a
conference call last week at which time it gave new earnings guidance for 2001 and 2002.  We lowered our 2001 EPS
estimate from $1.75 to $1.30 and reduced our 2002 EPS estimate from $2.00 to $1.60.  It appears that EIX's major
emphasis over the next 1 to 2 years will be to improve its balance sheet and regain its financial health, and therefore,
earnings growth does not appear to be a major objective.
*	We reduced our 2002 EPS estimate on Cinergy Corp. (CIN-$30.87, rated Strong Buy) from $2.95 to $2.85.  Lower
forward power prices for 2002 and the weakness in the local economy are likely to hurt 2002 earnings.
*	TXU announced two major asset divestitures in the United Kingdom last week.  TXU plans to sell its U.K. electric
distribution business and its 50% interest in 24seven to London Electricity for $1.87 billion.  TXU also announced an
agreement to sell its 2,000 MW West Burton power station to London Electricity for $523 million.  We think that both of
these moves are positive steps for TXU.  (Additional details can be found in the following section of this report.)
*	Utility stocks lagged the overall market last week.  For the four trading days last week, electric utility
stocks were virtually unchanged, with an average gain of only 0.1%, compared with an increase of 1.0% for the S&P 500.
IPP stocks had a bad week, with an average decline of 3.1%.


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