Message-ID: <24352782.1075861899012.JavaMail.evans@thyme>
Date: Mon, 26 Nov 2001 07:08:58 -0800 (PST)
From: ets <.nelson@enron.com>
To: robert.hayes@enron.com, robert.kilmer@enron.com, jack.boatman@enron.com, 
	mike.bryant@enron.com, c..alexander@enron.com, 
	stephen.veatch@enron.com, danny.mccarty@enron.com, 
	shelley.corman@enron.com, drew.fossum@enron.com, 
	dave.neubauer@enron.com, kent.miller@enron.com, eric.gadd@enron.com, 
	kevin.hyatt@enron.com, beth.jensen@enron.com, joe.hartsoe@enron.com, 
	stanley.horton@enron.com, dana.gibbs@enron.com, 
	ellen.coombe@enron.com, bill.cordes@enron.com, 
	rod.hayslett@enron.com, phil.lowry@enron.com, gary.smith@enron.com, 
	steve.hotte@enron.com, janet.butler@enron.com, 
	steve.january@enron.com, bradley.holmes@enron.com, 
	donna.scott@enron.com, sheila.nacey@enron.com, lynn.blair@enron.com, 
	rick.dietz@enron.com, ricki.winters@enron.com, 
	lillian.villarreal@enron.com, r..keller@enron.com, 
	steven.harris@enron.com, kimberly.watson@enron.com, 
	kay.miller@enron.com, julie.armstrong@enron.com, d..martin@enron.com, 
	john.shafer@enron.com, teb.lokey@enron.com, 
	bambi.heckerman@enron.com, ellen.konsdorf@enron.com, 
	john.ambler@enron.com, debbie.moore@enron.com, steve.myers@enron.com, 
	robert.sanford@enron.com, dan.cole@enron.com, 
	johan.zaayman@enron.com, keith.miceli@enron.com, 
	habiba.ewing@enron.com, andrea.dulany@enron.com, 
	catherine.culwell@enron.com, carla.galvan@enron.com, 
	galina.seliounina@enron.com, cindy.stark@enron.com, 
	kelly.clark@enron.com, robin.border@enron.com, 
	jon.trevelise@enron.com, brent.brown@enron.com, bob.jacobs@enron.com, 
	susan.ralph@enron.com, steve.comstock@enron.com, jim.coen@enron.com, 
	joe.richards@enron.com
Subject: EGS & Industry Mentions
Cc: gina.taylor@enron.com, ets <.nelson@enron.com>, sarah.haden@enron.com
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Please see today's issue of Gas Daily for a story titled, "As Woes Mount, D=
ynegy Stands by Enron Deal", and this week's issue of Inside FERC for a sto=
ry titled "Pipeline Officials Lay Out Principles of Effective Safety Progra=
m". Due to copyright laws, we cannot copy and send these to you.

Dynegy Seems To Have Options In Enron Deal
By Rebecca Smith and Robin Sidel
Staff Reporters of The Wall Street Journal
11/26/2001
The Wall Street Journal

Options Report
Volatility Fell Slightly in Light Holiday Trading As Enron Calls, Lilly Put=
s Attracted Interest
By Cheryl Winokur Munk
Dow Jones Newswires
11/26/2001
The Wall Street Journal

The Other Instant Powerhouse in Energy Trading
By Louise Lee in San Mateo, Calif.
11/26/2001
BusinessWeek

ALL EYES ON THE ENRON PRIZE If the deal holds, Dynegy will walk away with s=
ome juicy assets
By Stephanie Anderson Forest, with Wendy Zellner in Dallas, and Peter Coy a=
nd Emily Thornton in New York
11/26/2001
BusinessWeek

Circling the Wagons Around Enron=20
Risks Too Great To Let Trader Just Die
By ANDREW ROSS SORKIN and RIVA D. ATLAS
11/22/2001=20
The New York Times=20

CONFUSED ABOUT EARNINGS? You're not alone. Here's what companies should do-=
-and what investors need to know
By Nanette Byrnes and David Henry; With Mike McNamee in Washington
11/26/2001
BusinessWeek

END THE NUMBERS GAME
11/26/2001
BusinessWeek

COMPANIES & FINANCE INTERNATIONAL - Enron still optimistic of averting fina=
ncial meltdown.
By ANDREW HILL and SHEILA MCNULTY.
11/26/2001
Financial Times

Schwab Chief's Main Theme: Diversification
By Lynnette Khalfani
Dow Jones Newswires
11/26/2001
The Wall Street Journal

Enron Pursuing a Cash Infusion Energy: Company is seeking as much as $1bill=
ion as it tries to shore up its endangered acquisition by Dynegy.
From Bloomberg News
11/26/2001
Los Angeles Times

Dynegy Optimistic That Enron Merger Will Succeed - FT
11/26/2001
Dow Jones International News

Dynegy Purchase Prompts Antitrust Concerns, L.A. Times Says
2001-11-26 07:36 (New York)

Enron hopes for infusion of capital: Seeks US$500M as talks of Dynegy merge=
r continue
Andrew Hill and Sheila McNulty
Financial Times
11/26/2001
National Post

Deal still on as Enron shares drop 6%=20
Houston Chronicle - 11/24/01

Analysis: Travails of the Enron Corporation
11/24/2001
NPR: Weekend Edition - Saturday

Dynegy's Right to Enron Pipeline May Be Disputed, Barron's Says
2001-11-24 13:52 (New York)

Accounting Peer Review Gets More Scrutiny
Compiled by Jeff Sommer
11/25/2001
The New York Times

Reckonings
An Alternate Reality
By PAUL KRUGMAN
11/25/2001
The New York Times

Will New York Be Told, Once Again, to Drop Dead?
By ALEX BERENSON
11/25/2001
The New York Times

Dot-Com Is Dot-Gone, And the Dream With It
By JOHN SCHWARTZ
11/25/2001
The New York Times

California Wary of Dynegy Bid to Buy Out Enron Energy: Both companies are p=
rominent players in the state's power market. The move to combine their str=
ength is raising some concerns.
NANCY RIVERA BROOKS
TIMES STAFF WRITER
11/25/2001
Los Angeles Times

Enron's Troubles Could Spur Securities Reforms
James Flanigan
11/25/2001
Los Angeles Times

Hooked On a Fast- Growth Habit; CEOs Reach for Double-Digit Results Despite=
 Downturn, and Some Are Making Costly Mistakes
Steven Pearlstein
Washington Post Staff Writer
11/25/2001
The Washington Post

The Enron scandal
A V Rajwade
11/26/2001
Business Standard

India's Mehta Comments on Birla Group Offer to Buy Enron Stake
2001-11-26 03:42 (New York)

Enron Says It's Still in Talks With Possible Investors for Cash
2001-11-25 17:36 (New York)

FREE AND CLEAR OF ENRON'S WOES
Edited by Sheridan Prasso; By Stephanie Anderson Forest
11/26/2001=20
BusinessWeek=20

COMPANIES & FINANCE UK - Enron seeks survival pact to aid Dynegy's $9bn res=
cue.
By ANDREW HILL and SHEILA MCNULTY.
11/24/2001
Financial Times

USA: Enron employees sue as pension savings evaporate.
By Andrew Kelly
11/25/2001
Reuters English News Service

INDIA PRESS: Aditya Birla May Buy Enron's Dabhol Stake
11/25/2001
Dow Jones International News

Canadian Oil and gas companies on high alert after terror alert
11/25/2001=20
The Canadian Press=20

USA: FERC rule on natgas shipping needs more work-industry.
By Chris Baltimore
11/21/2001=20
Reuters English News Service=20
---------------------------------------------------------------------------=
----------------------
Dynegy Seems To Have Options In Enron Deal
By Rebecca Smith and Robin Sidel
Staff Reporters of The Wall Street Journal

11/26/2001
The Wall Street Journal
A3
(Copyright (c) 2001, Dow Jones & Company, Inc.)

With the stock market telling Dynegy Inc. that energy trader Enron Corp. is=
n't worth even half what Dynegy has offered to pay, analysts and investors =
are paying close attention to the circumstances under which Dynegy could ba=
rgain a lower price or even walk away from the merger deal.=20
Earlier this month, Houston-based Dynegy offered to buy its far larger cros=
s-town rival in an all-stock deal that currently values Enron shares at $10=
.85 apiece, or a total of about $9.2 billion. But in the wake of post-agree=
ment disclosures by Enron that its future earnings are likely to be substan=
tially less than expected, the company's stock has been hammered. In 1 p.m.=
 trading on the New York Stock Exchange on Friday, Enron shares fell 30 cen=
ts to $4.71. The stock is down 94% so far this year and far short of the pe=
r-share takeover price. Dynegy shares rose 64 cents to $40.40.
Although Dynegy and Enron both say they are going ahead with the deal under=
 the terms negotiated, Dynegy does appear to have other options. The agreem=
ent with Enron contains a broad "material adverse change" clause as well as=
 some specific trigger points that could be invoked.=20
Dynegy officials performed "due diligence" throughout the holiday weekend, =
seeking to learn more about the intimate workings of Enron, which has suffe=
red a series of damaging blows. Since mid-October, Enron has disclosed that=
 some of its officers participated in personally enriching deals that moved=
 assets off Enron's balance sheet, for a time, to several private partnersh=
ips. Those deals are now the subject of a Securities and Exchange Commissio=
n investigation. Past treatment of some of those deals has been termed an "=
accounting error" by Enron and it twice has rejiggered its earnings since O=
ct. 16. At one point, Enron restated downwards nearly five years of earning=
s.=20
An Enron spokeswoman said the company was proceeding in the belief that the=
 deal would be completed as agreed. Dynegy spokesman John Sousa said the tw=
o sides are forging ahead although he acknowledged that the walk-away provi=
sions "are broad, by design, to ensure adequate protection for Dynegy share=
holders." Shareholders of both firms must still vote on the merger agreemen=
t.=20
Clauses related to a "material adverse change," also known as a "material a=
dverse effect," have been the focus of much attention among merger professi=
onals this year, due, in part, to the stock market's fluctuations and the e=
conomic slowdown that have caused some buyers to reconsider planned acquisi=
tions.=20
But such clauses rarely are invoked by a buyer or seller because they are c=
onsidered extremely difficult to prove. Both parties typically are reluctan=
t to lay out specific terms for canceling a deal, much the way a bride and =
groom often balk at negotiating a prenuptial agreement since it appears to =
envisage a breakup of the marriage even before it begins.=20
Furthermore, a key court case earlier this year affirmed widespread views t=
hat a buyer can't easily walk away from a merger. In that case, meat-proces=
sing concern Tyson Foods Inc. sought to cancel a planned acquisition of mea=
t-packer IBP Inc. due to a drop in IBP's earnings and a write-down of an IB=
P subsidiary. But a Delaware judge refused to let Tyson cancel the pact, sa=
ying Tyson had been aware of the cyclical nature of IBP's business and the =
accounting issue.=20
In a lengthy June 18 opinion, Delaware Chancery Court Vice Chancellor Leo E=
. Strine Jr. wrote that " . . . the important thing is whether the company =
has suffered a Material Adverse Effect in its business or results of operat=
ions that is consequential to the company's earnings power over a commercia=
lly reasonable period, which one would think would be measured in years rat=
her than months."=20
That interpretation has created ripples in the deal-making community, promp=
ting some transactions to include more details about circumstances under wh=
ich deals can be terminated. Since the Sept. 11 attacks, for example, a han=
dful of merger agreements have specified that future terrorist activity wou=
ld qualify as a "material adverse change," or MAC.=20
A key issue for any firm alleging there has been a material adverse change =
is "whether the new facts go to the guts of the strategic opportunity or is=
 it just a hiccup," says Meredith Brown, co-chairman of the mergers and acq=
uisitions group at law firm Debevoise & Plimpton in New York. He adds that =
a court "may be skeptical" if Dynegy claimed that Enron's post-merger agree=
ment disclosures were a surprise.=20
The Enron-Dynegy merger agreement includes several triggers permitting eith=
er side to seek termination. Enron can quit the deal if it receives a subst=
antially better offer, although it is prohibited from soliciting one. In su=
ch a case, it could be required to pay a $350 million "topper fee" to Dyneg=
y and its co-investor, ChevronTexaco Inc.=20
Dynegy can alter the deal if Enron faces "pending or threatened" litigation=
 liabilities that are "reasonably likely" to cost Enron $2 billion. If thos=
e liabilities hit $3.5 billion "an Enron material event will be deemed to h=
ave occurred," presumably allowing Dynegy to call the whole thing off. In s=
ome situations, Dynegy would be liable for a $350 million fee, as well.=20
Karen Denne, the Enron spokeswoman, said her firm doesn't believe that loss=
es arising from the normal course of business would qualify as a material e=
vent. The liability must result from litigation. Currently, the company fac=
es more than a dozen shareholder suits alleging breach of fiduciary duty by=
 officers and directors, issuing false and misleading reports and other off=
enses.=20
Deal makers who aren't involved in the combination say the steep drop in En=
ron's stock price since the merger agreement was signed wouldn't by itself =
give Dynegy the ability to cancel the pact or force Enron to renegotiate it=
s terms. Instead, they say, Dynegy would likely have to prove that Enron's =
worsening financial condition was an unanticipated event, which could be di=
fficult in light of the company's highly publicized problems and Dynegy's f=
requent statement that it clearly understands Enron's businesses. Still, th=
ere is another standard clause in the merger document that would allow Dyne=
gy to terminate the deal if "any representation or warranty of Enron shall =
have become untrue."=20
Other energy companies have abandoned deals following a widening gap in sto=
ck prices that changed an acquisition premium. Western Resources Inc. of To=
peka, Kansas last week sued Public Service Co. of New Mexico seeking hundre=
ds of millions of dollars in damages after it failed to buy Western's utili=
ties. The lawsuit accused Public Service of breaching its "duty of good fai=
th and fair dealing" and said the New Mexico company tried to "sabotage" th=
e deal as the two companies' stock prices diverged. Public Service denies t=
he accusations.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Options Report
Volatility Fell Slightly in Light Holiday Trading As Enron Calls, Lilly Put=
s Attracted Interest
By Cheryl Winokur Munk
Dow Jones Newswires

11/26/2001
The Wall Street Journal
B8
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -- The options market dozed, as many participants stayed home to r=
ecover from too much turkey and football.=20
The Chicago Board Options Exchange's market volatility index, or VIX, which=
 measures certain Standard & Poor's 100 Index option prices to gauge invest=
or sentiment, remained in a tight range during the abbreviated trading sess=
ion the day after Thanksgiving. It fell 0.53 to 24.79.
VIX typically ranges between 20 and 30. A rise indicates traders and money =
managers are becoming anxious about the stock market; a fall shows investor=
 optimism.=20
Volatility has been dropping from post-Sept. 11 levels in recent weeks amid=
 victories over the Taliban in Afghanistan and interest-rate cuts by the Fe=
deral Reserve and other central banks. VIX ranged between 30 and 40 for sev=
eral weeks following the attacks.=20
Volatility is likely to remain low, said Mika Toikka, head of options strat=
egy at Credit Suisse First Boston. "Typically, going into the Thanksgiving =
and December holidays, we tend to experience a seasonal drift lower in impl=
ied volatility. We would expect the same this year, especially in markets o=
utside the U.S. where volatility is still lingering at high levels," Mr. To=
ikka wrote in a recent research note.=20
The CBOE's Nasdaq Volatility index, or VXN, a sentiment barometer for the t=
echnology sector, fell 1.86 to 50.82 while the American Stock Exchange's Na=
sdaq volatility index, or QQV, dropped 1.03 to 42.74.=20
Elsewhere in the options market:=20
Calls in Enron Corp., the embattled Houston energy and trading company, con=
tinued to trade briskly, with one investor buying 10,000 January 5 calls an=
d simultaneously selling 12,250 January 10 calls.=20
More than 14,800 of the January 5 contracts traded, compared with open inte=
rest of 3,640, as shares fell 33 cents, or 6.6%, to $4.68. These calls cost=
 $1.40 on the American Stock Exchange where most of the volume was traded.=
=20
More than 15,000 of the January 10 contracts traded, compared with open int=
erest of 30,674. These out-of-the-money calls cost 30 cents on the Amex.=20
Eli Lilly & Co.'s December 80 out-of-the-money puts also were popular Frida=
y, as shares fell 91 cents, or 1.1%, to $82.42. Morgan Stanley cut its rati=
ng on the company to neutral from outperform, saying the stock has become t=
oo expensive even with Food and Drug Administration approval of its potenti=
al blockbuster drug Xigris, which treats septic infections. More than 3,000=
 of these puts traded, compared with open interest of 6,427. They cost $1.2=
5 on the CBOE, which saw much of the volume.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09


The Corporation: Acquisitions
The Other Instant Powerhouse in Energy Trading
By Louise Lee in San Mateo, Calif.

11/26/2001
BusinessWeek
96
(Copyright 2001 McGraw-Hill, Inc.)

It's not easy being No. 4. Despite a $35 billion merger completed in Octobe=
r, ChevronTexaco Corp. is still not one of the oil superpowers. Nor, at mor=
e than $90 billion a year in revenues, is it a scrappy little guy. So Chair=
man David J. O'Reilly has been searching for a strategy beyond just drillin=
g for more oil and gas.=20
Now, he may have something: a big stake in the No. 1 energy-trading company=
. Chevron Corp. has owned 26% of Dynegy Inc. since 1996, and with Dynegy's =
planned acquisition of Enron Corp., the top energy trader, ChevronTexaco is=
 making the oil industry's most aggressive push yet into this fast-growing =
business. It plans to eventually pump $2.5 billion into the combined Dynegy=
 and Enron to maintain its 26% stake, and it might raise that share. So, wh=
ile ChevronTexaco's much bigger rivals run small in-house trading operation=
s, energy trading may soon account for more than 10% of ChevronTexaco's ear=
nings. ``Chevron is now positioned to be a leader in the business,'' says a=
nalyst Arjun Murti at Goldman, Sachs & Co.
The deal would certainly dovetail with ChevronTexaco's strategy of becoming=
 a more integrated energy company, with a hand in everything from pumping o=
il at the wellhead to trading natural-gas futures. By acquiring Texaco, Che=
vron picked up, for instance, a big refining-and-marketing business --which=
 should balance out the bad times in oil and gas production, says Eugene No=
wak, an analyst at ABN Amro. ``When crude-oil prices are down, they'll have=
 margin improvements on refining and marketing,'' he says. O'Reilly and oth=
er ChevronTexaco executives declined to comment.=20
Until now, Dynegy wasn't a big deal for Chevron. Chevron purchased the stak=
e for $700 million when Dynegy was still called NGC Corp., and it filled th=
ree of the 14 board seats--positions it will keep. Since then, Chevron has =
sold nearly all its domestic natural-gas production to Dynegy. The stake ha=
s been a good investment: it is now worth $3 billion, ChevronTexaco says.=
=20
Sitting on $2.9 billion in cash as of the end of the second quarter, Chevro=
nTexaco can well afford the Dynegy deal, analysts say. And they expect O'Re=
illy to use some of that to make more buys; the most likely target is a nat=
ural-gas company. Maybe it's not so bad being No. 4.

Illustration: Chart: CHEVRON'S GROWING CASH HOARD=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

The Corporation: Acquisitions
ALL EYES ON THE ENRON PRIZE If the deal holds, Dynegy will walk away with s=
ome juicy assets
By Stephanie Anderson Forest, with Wendy Zellner in Dallas, and Peter Coy a=
nd Emily Thornton in New York

11/26/2001
BusinessWeek
94
(Copyright 2001 McGraw-Hill, Inc.)

As Houston-based Enron Corp. imploded amid a dizzying scandal over its fina=
nces, few would have blamed Dynegy Inc. CEO Charles L. Watson if he had sat=
 back and gloated. After all, Watson had watched as his bigger, brasher cro=
sstown rival sniffed at Dynegy's more cautious strategy, all the while garn=
ering most of the credit for reshaping the energy-trading business.=20
Instead, Watson picked up the phone on Oct. 24 and called Enron Chairman, C=
EO, and longtime acquaintance Kenneth L. Lay to ask how he could help. Lay =
didn't respond immediately, but as Enron's stock continued to plunge and th=
e company faced a cash squeeze, it became clear what the only realistic ans=
wer could be: Bail us out.
So two days later, Lay invited Watson to his River Oaks home near downtown =
Houston for breakfast to discuss a deal. Over muffins and ``a bad cup of co=
ffee'' the next day, Watson recalls, they sketched the outlines, and by 10 =
p.m. that night, the investment bankers were called in. On Nov. 9, Dynegy a=
nnounced that it would pay about $10 billion, plus the assumption of $13 bi=
llion in debt, to buy Enron, which is nearly four times its size. The key t=
o the deal was Dynegy's immediate $1.5 billion infusion of cash to shore up=
 Enron's balance sheet and save its credit rating. The money came from Dyne=
gy's 26% owner, ChevronTexaco Corp.=20
Without that help, Enron--the seventh-largest U.S. company, based on its $1=
00 billion in sales last year--may well have faced bankruptcy. Watson says =
that he never would have imagined such an outcome in his wildest dreams. ``=
I don't think anybody foresaw the problems [at Enron],'' he says. ``It's be=
en incredible to watch.''=20
Watson, 51, has to make good on what may well be his riskiest investment ye=
t. If he can pull it off, the new Dynegy will have revenues of more than $2=
00 billion and $90 billion in assets, including more than 22,000 megawatts =
of power-generating capacity and 25,000 miles of pipeline. It would control=
 an estimated 20% to 25% of the energy-trading market, up from about 6% now=
.=20
That would be sweet vindication for Watson's strategy. Dynegy backs trading=
 operations with hard assets such as power plants, which allows the company=
 to guarantee a supply of electricity to a buyer. In contrast, Enron has wo=
rked furiously to shed power plants and oil- and gas-generating fields, bel=
ieving it could earn higher returns using its trading and technology expert=
ise to tap assets owned by others in markets including steel, pulp, and pap=
er. IRRESISTIBLE BARGAIN. As Enron's stock slid below $9 from its August, 2=
000, high of $90, it became a bargain that Watson couldn't pass up. It woul=
d have taken years for Dynegy to build up a market-making operation to matc=
h Enron's. Its risk-management systems are top-of-the-line. Enron's commerc=
ial-services unit, which manages power supplies for corporate customers suc=
h as Wendy's International Inc., is three or four years ahead of Dynegy's, =
says Steve Bergstrom, president of Dynegy. Watson says he still plans to ge=
t rid of the $8 billion worth of assets Lay had earmarked for sale, includi=
ng the Portland (Ore.) General Electric plant and oil and gas assets in Ind=
ia. For the $1.5 billion, though, if the deal falls through Dynegy will hav=
e the right to Enron's prized Northern Natural Gas pipeline, worth an estim=
ated $2.25 billion. And Dynegy can walk away if Enron's legal liabilities e=
xceed $3.5 billion.=20
Watson firmly believes that Enron suffered from a crisis of confidence, not=
 a meltdown of its core business. Indeed, Enron's wholesale-trading operati=
on earned $2.3 billion last year. Says Watson: ``We know the business. We l=
ooked under the hood, and guess what? It's just as strong as we thought it =
was.''=20
But the trading profits were obscured in recent weeks by Enron's accounting=
 tricks. The biggest danger for Watson is that there are other time bombs t=
icking away. Already, the company has slashed its reported earnings since 1=
997 by $591 million, or 20% of its total, to account for controversial part=
nerships involving Enron officials. The Securities & Exchange Commission is=
 still investigating. ``We believe it will take more than just a couple of =
weeks and a long-term relationship [between Watson and Lay] to do all the n=
ecessary due diligence,'' says analyst Carol Coale of Prudential Securities=
 Inc. Dynegy's Bergstrom counters: ``We're pretty certain that most everyth=
ing of material consideration has been disclosed.'' If not? The massive ear=
nings boost provides ``a high margin of error,'' he says. A WANNABE. Of cou=
rse, regulators may object to the concentration of trading operations. And =
Watson will have to mesh two very different cultures. Enron is known for it=
s intense, even cutthroat entrepreneurial spirit. Dynegy's operations are m=
ore conservative; some compare it to a fraternity. Dynegy's decision to iss=
ue new stock options to some Enron employees may soothe battered egos. It s=
hould help, too, that Lay decided not to take the $60 million golden parach=
ute he could have received in a buyout. As it is, Lay will not have a manag=
ement job with the new company.=20
Dynegy often seemed to be an Enron wannabe, following it into online tradin=
g and commercial services. Still, Dynegy's 361% stock gains last year eclip=
sed Enron's 87% rise, and it rankled some that Lay's execs got more credit.=
 ``Chuck Watson may not have been in the spotlight, but he has always been =
at the forefront of this business,'' says Bruce M. Withers, who sold his Tr=
ident NGL Inc. to Dynegy in 1995. Watson will get more attention next year-=
-he's a 15% owner of the new Houston Texans pro football team. But with his=
 bold takeover of Enron, Watson has ensured that he's off the sidelines for=
 good.

Photograph: DYNEGY'S WATSON He says Enron's core business is strong. But ot=
hers worry that more accounting tricks will turn up PHOTOGRAPH BY NAJLAH FE=
ANNY/CORBIS SABA Illustration: Chart: POWERING UP AT DYNEGY CHART BY LAUREL=
 DAUNIS-ALLEN/BW=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Circling the Wagons Around Enron=20
Risks Too Great To Let Trader Just Die
By ANDREW ROSS SORKIN and RIVA D. ATLAS

11/22/2001=20
The New York Times=20
Page 1, Column 2=20
c. 2001 New York Times Company=20
Officials of Dynegy yesterday weighed whether to seek to renegotiate the te=
rms of the company's agreement to acquire Enron, its Houston rival, while E=
nron and its bankers sought to shore up its finances, executives close to t=
he two companies said.=20
The discussions came as the stock and energy markets continued to register =
doubts about the financial stability of Enron, the energy trading concern. =
Enron's stock fell another 27 percent, even though the company won a three-=
week reprieve from its banks on a $690 million note that would have come du=
e next Tuesday if Enron had been unable to come up with collateral.=20
An executive close to Enron described the loan extension, by J. P. Morgan C=
hase and Citigroup, as a Band-Aid, given the approach of Thanksgiving. ''Pe=
ople are trying to take the time to come up with something for the intermed=
iate term,'' the executive added.=20
The bankers also met with investors, including leveraged buyout firms and t=
wo industrial companies, which might inject up to $2 billion into Enron und=
er arrangements that would protect them from a further collapse in the comp=
any's stock, the executives said.=20
The new investments would be in Enron's Transwestern Pipeline, which links =
natural gas fields in Texas to the California market, they said. The deals =
would be structured like Dynegy's agreement, as part of the merger, to infu=
se $1.5 billion into the Enron subsidiary that owns the Northern Natural Ga=
s pipeline. That arrangement lets Dynegy keep the pipeline even if the merg=
er falls apart.=20
Besides talking with other potential investors, J. P. Morgan Chase and Citi=
group agreed to terms that have each taking a $250 million equity stake in =
such a deal, the executives said. The bankers plan to meet with Enron offic=
ials on Monday to complete the transactions, they added.=20
Karen Denne, an Enron spokeswoman, noted that the company had previously sa=
id it was seeking a further infusion of up to $1 billion in equity. ''We ar=
e not going to discuss the specifics of who we are talking to,'' she said.=
=20
Though investors again manhandled the stock of Enron, which is down 94 perc=
ent this year, the banks, Dynegy and credit-rating agencies all sought to p=
roceed delicately. Executives explained that hasty moves could only deepen =
the crisis of confidence in Enron, wiping out the energy trading operations=
 that only months ago made it one of the nation's most admired and politica=
lly influential companies.=20
Dynegy officials worried yesterday that even talking about renegotiating th=
e merger deal could damage confidence in Enron among investors and other en=
ergy traders.=20
An executive close to Dynegy said that there did not yet appear to be legal=
 grounds on which to break up the deal unilaterally. Nor, he added, was Dyn=
egy prepared to demand that Enron allow the terms of the deal to be changed=
. But he indicated that the situation could change.=20
Ms. Denne, the Enron spokeswoman, said that she was not aware of any attemp=
ts by Dynegy to renegotiate the deal. Dynegy issued a statement saying that=
 its chief executive, Chuck Watson, was encouraged by the steps Enron had t=
aken with its bankers. Mr. Watson said the company was continuing its due d=
iligence on the deal.=20
Dynegy's shares, which rose as high as $46.94 in the days after the merger =
was announced, on Nov. 9, closed yesterday at $39.76, down more than 4 perc=
ent for the second consecutive day.=20
Enron was the most actively traded stock on the New York Stock Exchange, cl=
osing at $5.01, down $1.98. That means the premium that Dynegy would be pay=
ing for Enron has risen to 115 percent.=20
Analysts following Enron's debt said that bankers had little choice but to =
support the company, given that most of Enron's bank debt is not secured. T=
hat means that if bankers pushed Enron into bankruptcy, they would receive =
no better treatment than the holders of more than $6 billion in Enron bonds=
 and other debt.=20
Enron said it was in talks with lenders to restructure $9.15 billion in deb=
t that will come due by the end of 2002. ''If the Dynegy deal closed, that =
would be the best thing for the banks,'' said one analyst following the deb=
t.=20
James B. Lee Jr., vice chairman of J. P. Morgan Chase, echoed that thought =
in a statement issued by Enron. ''We believe the interests of Chase and Enr=
on's other primary lenders are aligned in this restructuring effort,'' he s=
aid. ''We will work with Enron and its other primary lenders to develop a p=
lan to strengthen Enron's financial position up to and through its merger w=
ith Dynegy.'' Along with Citigroup, J. P. Morgan Chase is Enron's lead bank=
, and it is also an adviser on the merger with Dynegy.=20
Another group with the power to push Enron to the brink, the big credit-rat=
ing agencies, continued to step gingerly. The agencies have held Enron's de=
bt rating one step above ''junk'' status, knowing that downgrading it furth=
er would force the company to pay or refinance up to $3.9 billion in debt -=
- effectively rendering Enron insolvent. One rating agency official said ye=
sterday that such a move would roil the entire debt market, adding that it =
was ''patriotic'' to hold off.=20
Still, one rating agency, Fitch, put out a strongly worded commentary yeste=
rday.=20
''If Dynegy steps away entirely from the merger, Enron's credit situation s=
eems untenable, with a bankruptcy filing highly possible,'' wrote Ralph Pel=
lecchia and Glen Grabelsky, the Fitch analysts following Enron. ''Our prese=
nt BBB- rating rests on the merger possibility and continued support of the=
 lending banks, without which Fitch would consider lowering the rating.''=
=20
Analysts and energy executives said that Enron's collapse -- though unthink=
able just weeks ago -- would be unlikely to cause a meltdown in the nation'=
s energy markets. While Enron has been the nation's biggest trader of elect=
ric power and natural gas, many other companies -- including Dynegy -- make=
 markets in those commodities. Analysts say the gradual unfolding of Enron'=
s financial woes this fall has given its trading partners time to unwind de=
als and limit their exposure to Enron.=20
Yet even one of Enron's most stubborn supporters was forced to concede yest=
erday that his confidence had been shattered by the company's problems, inc=
luding the rapid depletion of its cash reserves, restatements that erased $=
600 million in earnings and the surprise disclosure of the $690 million deb=
t.=20
That fan, Goldman, Sachs & Company's energy analyst, David Fleischer, downg=
raded the shares to neutral. Until yesterday, Goldman had kept the stock on=
 its recommended list.



Cover Story
CONFUSED ABOUT EARNINGS? You're not alone. Here's what companies should do-=
-and what investors need to know
By Nanette Byrnes and David Henry=20
With Mike McNamee in Washington

11/26/2001
BusinessWeek
76
(Copyright 2001 McGraw-Hill, Inc.)

In an age when giant earnings write-offs have become commonplace, it's hard=
 to shock Wall Street. But on Nov. 8, Enron Corp. managed to do it. After y=
ears of high-octane growth that had seen earnings surge by up to 24% a year=
, the Houston-based energy company acknowledged that results for the past t=
hree years were actually overstated by more than a half-billion dollars. It=
 was confirmation of investors' worst fears. Three weeks earlier, Enron had=
 announced a big drop in shareholders' equity, sparking fears that its hide=
ously complex financial statements were distorting its true performance. Ma=
nagement pointed to a number of factors, including a dubious decision to ex=
clude the results of three partnerships from its financial statements and a=
 billion-dollar error several years earlier that had inflated the company's=
 net worth.=20
Enron may be an extreme example of a company whose performance fell far sho=
rt of the glowing picture painted by management in its earnings releases, b=
ut it is hardly alone. This year, Corporate America is expected to charge o=
ff a record $125 billion, much of it for assets, investments, and inventory=
 that aren't worth as much as management thought (chart, page 79). Even if =
companies don't go back and restate earnings, as Enron is doing, those char=
ges cast doubt on the record-breaking earnings growth of the late '90s.
Not since the 1930s has the quality of corporate earnings been such an issu=
e--and so difficult for investors to determine. There's more at stake than =
the fortunes of those who bought shares based on misleading numbers. If eve=
n the most sophisticated financial minds can't figure out what a company ac=
tually earns, that has implications far beyond Enron. U.S. financial market=
s have a reputation for integrity that took decades to build. It has made t=
he U.S. the gold standard for financial reporting and the preeminent place =
to invest. It has also ensured ready access to capital for U.S. corporation=
s. That a company such as Enron, a member of the Standard & Poor's 500-stoc=
k index and one of the largest companies on the New York Stock Exchange, co=
uld fall so far so fast shows how badly that gold standard has been tarnish=
ed. ``The profession of auditing and accounting is, in fact, in crisis,'' s=
ays Paul A. Volcker, former chairman of the Federal Reserve and now one of =
the leaders of the International Accounting Standards Board.=20
Sometimes, as in the case of Enron, fuzzy numbers result from questionable =
decisions in figuring net earnings. More often, though, the earnings chaos =
results from a disturbing trend among companies to calculate profits in the=
ir own idiosyncratic ways--and an increasing willingness among investors an=
d analysts to accept those nonstandard tallies, which appear under a variet=
y of names, from ``pro forma'' to ``core.'' (Enron offers its own such vers=
ion. Before investors untangled the importance of Enron's first announcemen=
t, its stock rose briefly because it told investors that its ``recurring ne=
t income'' had met expectations.) The resulting murk makes it difficult to =
answer the most basic question in investing: What did my company earn?=20
Why calculate a second set of earnings in the first place? Because the numb=
ers reached by applying generally accepted accounting principles (GAAP) are=
 woefully inadequate when it comes to giving investors a good sense of a co=
mpany's prospects. Many institutional investors, most Wall Street analysts,=
 and even many accountants say GAAP is irrelevant. ``I don't know anyone wh=
o uses GAAP net income anymore for anything,'' says Lehman Brothers Inc. ac=
counting expert Robert Willens. The problem is that GAAP includes a lot of =
noncash charges and one-time expenses. While investors need to be aware of =
those charges, they also need a number that pertains solely to the performa=
nce of ongoing operations.=20
That's what operating earnings are supposed to do. But because they're calc=
ulated in an ad hoc manner, with each company free to use its own rules, co=
mparisons between companies have become meaningless. ``No investor--certain=
ly not any ordinary investor--can read these in a way that's useful,'' says=
 Harvey L. Pitt, chairman of the Securities & Exchange Commission. The SEC =
is examining whether new rules are needed to clarify financial reports and =
perhaps restrict use of pro formas.=20
What's badly needed is a set of rules for calculating operating earnings an=
d a requirement to make clear how they relate to net income. In the end, in=
vestors need two numbers--a standardized operating number and an audited ne=
t-income number--and a clear explanation of how to get from one to the othe=
r. ``OUT OF HAND.'' A widespread consensus is building to do just that. In =
early November, S&P proposed a set of rules for companies to follow when ta=
llying operating earnings. Only the week before, the Financial Accounting S=
tandards Board, the rulemakers for GAAP, had announced that they, too, woul=
d be taking up this issue. Volcker says the International Accounting Standa=
rds Board is also seeking a uniform definition of operating earnings.=20
``Over the past two or three years, the use of creative earnings measures h=
as grown and grown and grown to the point where it has really gotten out of=
 hand,'' says David M. Blitzer, S&P's chief investment strategist. ``Earnin=
gs are one of the key measures that anybody looks at when they're trying to=
 evaluate a company. If people want to use an operating-earnings measure, w=
e better all know what we're looking at.''=20
Without those standards in place, the gap between earnings according to gen=
erally accepted accounting principles and earnings according to Wall Street=
 is only going to grow wider and more confusing. Look at the variance in ea=
rnings per share calculated for the S&P 500 for the third quarter: It's $10=
.78 according to Wall Street analysts as tallied by Thomson Financial/First=
 Call, $9.17 according to S&P, and $6.37 according to numbers reported to t=
he SEC under GAAP. (S&P, like BusinessWeek, is owned by The McGraw-Hill Com=
panies.)=20
The lack of a standard measure can be costly to those who choose wrong. Use=
 First Call's earnings for the past four quarters and you get a relatively =
modest price-earnings ratio of 23 for the S&P 500. But run the numbers usin=
g GAAP earnings, and suddenly the market has a far steeper p-e of 38.=20
How did we get into this mess? Investors and analysts have been calculating=
 operating earnings for years, and for years, reasonable people could more =
or less agree on how to do it. Then came the dot-com bubble, along with inc=
reased pressure from Wall Street for companies to meet their quarterly earn=
ings forecasts. Suddenly, companies that hadn't turned a profit by any conv=
entional measure started offering ever more inventive earnings variants. Th=
ese customized pro forma calculations excluded a grab bag of expenses and a=
llowed upstart companies to show a profit. ``TOWER OF BABEL.'' Pro forma fo=
rmulas vary wildly from company to company and even from quarter to quarter=
 within the same company, casting doubt on their validity. And these days, =
the gulf between net earnings and pro forma earnings is wider than ever. S&=
P's tallies fall between the two: S&P's numbers are more systematic than pr=
o forma, but they aren't followed widely enough to be a standard. ``Investo=
rs are facing a Tower of Babel,'' says Robert K. Elliott, former chief of t=
he American Institute of Certified Public Accountants (AICPA) and a retired=
 KPMG partner. ``It's not standardized, and the numbers are not audited.''=
=20
That makes it tough to evaluate a company's performance. In the quarter end=
ed on Sept. 30, Nortel Networks Corp. offered shareholders at least three e=
arnings numbers to choose from. By conservative GAAP accounting, the teleco=
mmunications giant lost $1.08 a share. The company also provided two possib=
le pro forma options: a 68 cents loss that excluded ``special charges,'' in=
cluding some acquisition costs and restructuring charges, and a still bette=
r 27 cents loss that further excluded $1.9 billion of ``incremental charges=
,'' such as writing down inventories and increasing provisions for receivab=
les. Wall Street chose the rosiest one.=20
Confusing? You bet. Companies defend their pro forma calculations by pointi=
ng out that they're merely filling a void: Investors are clamoring for a me=
asure that gives them better insight into their company's future. The goal =
is to get to the core of the business and try to measure the outlook for th=
ose operations. ``There are good reasons why there is an emphasis on operat=
ing earnings,'' says Volcker. ``It is an effort to provide some continuity =
and some reflection of the underlying progress of the company.'' Besides, a=
s companies like to point out, they still have to report GAAP earnings, and=
 investors are free to ignore everything else.=20
There's no starker lesson in the shortcomings of GAAP than the $50 billion =
asset write-downs by JDS Uniphase Corp., the biggest charge of the year. Ne=
ar the height of the telecom bull market in July, 2000, the San Jose (Calif=
.) maker of fiber optics topped off a buying spree by acquiring competitor =
SDL Inc. for $41 billion in stock. When the deal closed in February, its as=
sets ballooned from $25 billion to $65 billion. But by then, shares of JDS =
and other fiber-optics makers were collapsing. To bring its acquisitions in=
to line with their new value, the company took charges of $50 billion. Desp=
ite the fact that the bulk of its losses stemmed from stock transactions an=
d involved no cash paid, GAAP required that the charges be taken out of net=
 income. So according to GAAP, JDS lost $56 billion in the fiscal year endi=
ng in June--a staggering figure for a company whose revenues over the past =
five years added up to only $5 billion.=20
Analysts and the company argue that besides not involving cash, the charge-=
off was all about the past, a right-sizing of values that had gotten out of=
 hand. To analyze the company's prospects, they excluded the $50 billion ch=
arge. ``The accounting is not designed to make things look better but to de=
scribe what happened,'' says JDS Uniphase Chief Financial Officer Anthony R=
. Muller, ``and we'll live with the consequences, whatever they are.'' Anal=
ysts make a similar defense. ``My goal is to figure out what the business i=
s going to produce so that we can value the company,'' says Lehman Brothers=
 analyst Arnab Chanda. GLACIAL PACE. Are JDS's pro forma numbers realistic-=
-a fair gauge of JDS's ongoing operations? Right now, it's hard for investo=
rs to judge. And that's the kind of ambiguity S&P and others would like to =
eliminate. In November, S&P circulated a memo on how to standardize operati=
ng earnings. Under the proposal, operating earnings would include the costs=
 of purchases, research and development, restructuring costs (including sev=
erance), write-downs from ongoing operations, and the cost to the company o=
f stock options. It would exclude merger-and-acquisition expenses, impairme=
nt of goodwill, litigation settlements, and the gain or loss on the sale of=
 an asset.=20
When S&P applied roughly that formula to JDS Uniphase, it split the differe=
nce between Wall Street and GAAP. Because of differences in what each group=
 included in their earnings calculations, the results were chaotic. Using G=
AAP, the company lost $9.39 a share. S&P figures it lost $3.19, while the c=
ompany put the loss at 36 cents. Meanwhile, Wall Street says it made 2 cent=
s.=20
The S&P standard may make sense, but it raises the question: Where is the F=
inancial Accounting Standards Board, the group in charge of GAAP? Chairman =
Edmund L. Jenkins says FASB will be addressing the problems. Still, investo=
rs shouldn't expect any improvement soon. The pace of change at FASB tends =
to be glacial. It typically takes four years to complete a new standard. In=
 1996, for example, the board realized that standards on restructuring char=
ges had some big loopholes and it resolved to put the issue on its agenda. =
In June, 2000, the board finally issued a draft of a new standard, asked fo=
r comments, and held a public hearing. In October, 2001, the board said it =
still wasn't ready to put a fix in place. Now, the recession has set off an=
other wave of restructuring charges, and the FASB still doesn't have new ru=
les.=20
The slow pace means the standard-setters sometimes fail to react to sudden =
changes in the market. The most recent failure followed the terrorist attac=
ks on September 11. An FASB task force, unable to come up with a set of rul=
es for separating September 11 costs from general expenses, instead told co=
mpanies that the disaster could not be treated as an extraordinary item. So=
 GAAP earnings include costs stemming from the disaster as part of a compan=
y's general performance. Many companies have nevertheless broken those cost=
s out in their unaudited press releases.=20
Many more are likely to do so in the fourth quarter. Indeed, 2001 is shapin=
g up to be one for the record books. A poor economy and the devastating aft=
ereffects of September 11 have resulted in a slew of unusual charges that a=
re unlikely to recur and that no one could have foreseen. But there's a gro=
wing concern that the earnings fog is providing managers with cover to hide=
 missteps of the past within that vast category of supposedly one-time char=
ges. The temptation will be to take as big a charge as possible now, while =
investors are braced for bad news. Not only can managers sweep away yesterd=
ay's errors, but tomorrow's earnings will look even better.=20
The basic question comes down to what constitutes a special expense--a char=
ge so unusual that to include it in the earnings calculation would be to di=
stort the truth about a company's performance. Usually, big charges fall in=
to a few categories, including charges for laying off workers and restructu=
ring a company, charges for assets that have lost value since they were pur=
chased, charges for investments that have lost value, and charges for inven=
tory that has become obsolete. In a recent study, Harvard Business School p=
rofessor Mark T. Bradshaw found that companies are increasingly calling the=
se charges unusual. That gives them a rationale for excluding them from the=
ir pro forma calculations.=20
Lots of critics disagree, saying such charges are often an inevitable part =
of the business cycle and should be reflected in a company's earnings histo=
ry. They certainly should not be ignored by investors. ``Charges are real s=
hareholder wealth that's been lost,'' argues David W. Tice, manager of the =
Prudent Bear Fund, a mutual fund with a pessimistic bent that's up 17% so f=
ar this year. ``It's money they spent on something no longer worth what it =
was, a correction of past earnings, or a reserve for costs moving forward. =
Whatever the reason, it's a real cost to the company, and that hurts shareh=
olders.'' Without standards, excessive write-offs from operating earnings c=
an obscure actual performance. Without any rules, companies calculate opera=
ting earnings inconsistently in order to put their companies in the best po=
ssible light. Dell Computer Corp. is a good example of this ``heads I win, =
tails you lose'' school of accounting. For years, Dell benefited from gains=
 in its venture-capital investments and was happy to include those gains in=
 its reported earnings, where they appeared as a separate line on the incom=
e statement. But this year, when those gains turned to losses, the computer=
 maker issued pro forma numbers that excluded that $260 million drag. Dell =
spokesman Michael Maher says the company's press releases and SEC filings b=
reak out investment income and give GAAP numbers as well as pro forma. ``In=
 our view, the numbers are reported clearly,'' says Maher. ``It's all out t=
here for the consuming public.'' PAST PUFFERY. Many experts believe special=
 charges are a sign that past performance was exaggerated. What should inve=
stors make of a company such as Gateway Inc.? Two restructuring charges in =
the first and third quarters, minus a small extraordinary gain, totaled $1.=
12 billion, or about $100 million more than the company made in 1998, 1999,=
 and 2000 combined. Which is the truer picture of its performance and poten=
tial? The write-offs or the earnings? Write-offs for customer financing are=
 another example. When Nortel increased its reserves for credit extended to=
 customers by $767 million in September, it effectively admitted it had boo=
ked sales in the past to companies that couldn't pay--in effect overstating=
 its performance in those earlier periods. In addition, Nortel says booking=
 sales and accounting for credit are unrelated issues. Tech companies blame=
 the sharp downturn in their industry for the big write-offs. And these are=
n't isolated examples. Peter L. Bernstein, publisher of newsletter Economic=
s & Portfolio Strategy, found that from 1989 to 1993, 20% of earnings vanis=
hed into write-offs.=20
Big charge-offs can also distort future performance. Critics contend that e=
xcess reserves are often used as a sort of ``cookie jar'' from which earnin=
gs can be taken in future quarters to meet Wall Street's expectations. Or c=
harges taken this year, for example, which is apt to be a lousy one for mos=
t companies anyway, might include costs that would otherwise have been take=
n in future periods. Prepaying those costs gives a big boost to later earni=
ngs. Rules for figuring operating earnings would help, but this is an area =
that will always involve a certain amount of judgment--and therefore invite=
 a certain amount of abuse. ``People are going to write off everything they=
 can in the next two quarters because they're having a bad year anyway,'' s=
ays Robert G. Atkins, a Mercer Management consultant.=20
Part of the lure of big special charges is that investors tend to shrug the=
m off, believing that with the bad news out in the open, the company is poi=
sed for a brighter future. Since Gateway detailed its third-quarter charge =
of $571 million on Oct. 18, Wall Street has bid the stock up 48%, compared =
with a 6% runup for the S&P 500.=20
Often, though, investors should take exactly the opposite message. If, for =
example, part of a restructuring involves slashing employee training, infor=
mation-technology spending, or research and development, the cuts could dep=
ress future performance, says Baruch Lev, a professor of accounting at the =
Stern School of Business at New York University. ``Are these really one-tim=
e events?'' he asks. ``Or is this the beginning of an avalanche?'' Indeed, =
Morgan Stanley Dean Witter & Co. strategist Steve Galbraith has found that =
in the year following a big charge-off to earnings companies have underperf=
ormed the stock market by 20 percentage points. ``LA LA LAND.'' Investors a=
re apt to be faced with more huge write-offs next year, even if the economy=
 doesn't continue to worsen. Why? The transition to a new GAAP rule that ch=
anges the way companies account for goodwill--a balance-sheet asset that re=
flects the amount paid for an acquisition over the net value of the tangibl=
e assets. Under the new rule, companies will have to assess their propertie=
s periodically and decrease their worth on the balance sheet if their value=
 falls. An informal survey by Financial Executives International of its mem=
ber controllers and financial officers found that at least a third expect t=
o take more charges.=20
But figuring out the proper value of those assets is no easy task. Unless t=
here is a comparable company or factory with an established market price, v=
aluing them involves a lot of guesswork for which there are no firm rules. =
``What this is really coming down to is corporations and their auditors com=
ing up with their own tests for impairment,'' says the Stern School's Profe=
ssor Paul R. Brown. ``It's La La Land.''=20
While the tidal wave of special charges is providing cover for earnings gam=
es, it could also be an impetus for change--especially in the wake of the d=
ot-com fiasco. Indeed, there are some signs of a backlash. The real estate =
investment trust industry was a pioneer of engineered earnings, with its ``=
funds from operations,'' or FFO. But now some REITs have begun to revert to=
 plain old GAAP earnings. Hamid R. Moghadam, CEO of San Francisco-based AMB=
 Property Corp., shifted back to GAAP in 1999. ``The reason I don't like FF=
O is very simple,'' says Moghadam. ``One company's numbers look better than=
 another one's even if they had identical fundamental results.''=20
There are other steps FASB could take to improve financial reporting and re=
store GAAP's status. Trevor S. Harris, an accounting expert at Morgan Stanl=
ey, says it could force companies to make clear distinctions between income=
 from operations and income from financial transactions. Lehman's Willens s=
ays companies should provide more information on cash expenses and how they=
 bear on earnings. An easy step would be to require companies to file their=
 press releases with the SEC.=20
At the least, says Lev, companies must clearly explain how their pro forma =
numbers relate to the GAAP numbers. Otherwise, he says, investors ``see num=
bers floating there, and where did they come from?'' In today's environment=
 of unregulated pro forma calculations and supersize write-offs, no questio=
n is more important to investors.

High-Gloss Glossary
Companies are using a variety of accounting practices to put the best spin =
on
their results. Here's what those terms mean:
DEFINING EARNINGS:
NET INCOME
The bottom line, according to generally accepted accounting principles (GAA=
P).
Sometimes called ``reported earnings,'' these are the numbers the Securitie=
s &
Exchange Commission accepts in its filings.
OPERATING EARNINGS
An adjustment of net income that excludes certain costs deemed to be unrela=
ted
to the ongoing business. Although it sounds deceptively like a GAAP figure
called ``operating income'' (revenue minus the costs of doing business), it=
 is
not an audited figure.
CORE EARNINGS
Another term for operating earnings. Neither core nor operating earnings ar=
e
calculated according to set rules. They can include or exclude anything the
preparer wishes.
PRO FORMA EARNINGS
The 1990s term for operating earnings. Popularized by dot-coms, it sometime=
s
excludes such basic costs as marketing and interest.
EBITDA
Earnings before interest, taxes, depreciation, and amortization. The
granddaddy of pro forma, it was initially highlighted by industries that
carried high debt loads, such as cable TV, but has since come to be widely
quoted.
ADJUSTED EARNINGS
A new term for pro forma.
DEFINING COSTS:
SPECIAL CHARGES
A general term for anything a company wants to highlight as unusual and
therefore to be excluded from future earnings projections.
ASSET IMPAIRMENTS
Charges taken to bring something a company paid a high price for down to it=
s
current market value. Many companies are now taking these charges on intern=
al
venture-capital funds that bought Internet and other high-tech stocks at
inflated prices.
GOODWILL IMPAIRMENTS
The same idea as asset impairments except they're used to write down the
premium a company paid over the fair market value of the net tangible asset=
s
acquired. These charges will explode in the first quarter of 2002 because o=
f a
change in mergers-and-acquisitions accounting that eliminates goodwill
amortization and requires holdings to be carried at no more than fair value=
s.
RESTRUCTURING RESERVES
An accrued expense (not usually cash) to cover future costs of closing down=
 a
portion of a business, a plant, or of firings. These are projected costs an=
d
if overstated can later become a boost to earnings as they are reversed.
WRITE-DOWN
Lowering the value of an asset, such as a plant or stock investment. It is
often excused as a bookkeeping exercise, but there may have been a real cos=
t
long ago that now proves ill spent, or there may have been associated cash
costs, such as investment-banking fees.
Illustration: Chart: THE BIG BATH CHART BY ERIC HOFFMANN/BW=20
Illustration: Chart: EARNINGS CHAOS CHART BY ERIC HOFFMANN/BW=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09


Editorials
END THE NUMBERS GAME

11/26/2001
BusinessWeek
130
(Copyright 2001 McGraw-Hill, Inc.)

What did the company earn? That's the most basic question an investor can e=
ver ask. The equity culture that has generated so much growth over the year=
s depends on a clear answer, but getting one has become impossible. Enron C=
orp. just announced that its earnings for the past three years were oversta=
ted by half a billion dollars. How did one of the biggest companies on the =
New York Stock Exchange manage to inflate its earnings by 20% without audit=
ors, analysts, ratings agencies, and the business press (BusinessWeek inclu=
ded) discovering it? In part, blame the breakdown of standardized accountin=
g rules and the anarchy that runs rampant in the financial statements of Co=
rporate America. The U.S. needs a new set of accounting rules that gives a =
clear picture of financial performance. Without integrity in financial repo=
rting, the U.S. cannot hope to remain the preeminent place to invest in the=
 global marketplace (page 76).=20
The dot-com bubble was the first indication that there was something seriou=
sly wrong with accounting standards. Companies without much of a business m=
odel customized their quarterly statements to exclude a grab bag of expense=
s in order to put a positive financial spin on their operations. Wall Stree=
t conspired in this and encouraged big companies to join in. Soon, the meth=
od of calculating earnings began to vary from company to company and even f=
rom quarter to quarter within a company. It is now chaos.
A stricter adherence to accounting rules won't solve the entire problem. GA=
AP, the generally accepted accounting principles, allow all kinds of one-ti=
me expenses and noncash charges. This obscures the performance of ongoing o=
perations. No one can fathom what are true operating earnings because there=
 are no guidelines as to what constitutes an extraordinary expense. The res=
ult is total confusion. Take earnings per share for the Standard & Poor's 5=
00-stock index for the second quarter. Under Thomson Financial/First Call s=
tandards, it is $11.82. But it's $9.02 according to S&P and $4.83 under GAA=
P. How can investors make intelligent decisions?=20
The Financial Accounting Standards Board clearly is failing to do its job. =
It has promised to write a set of rules that calculates operating earnings =
and relates them to net earnings, but it hasn't delivered. The rating agenc=
y Standard & Poor's (owned by The McGraw-Hill Companies, as is BusinessWeek=
) is doing a better job. It recently drew up a definition of ``operating ea=
rnings'' that includes restructuring costs (including severance), writedown=
s from ongoing operations, and the cost of stock options. It excludes merge=
r and acquisition expenses, litigation settlements, impairment of goodwill,=
 and gains or losses on asset sales. This is a beginning that FASB should b=
uild on. The accounting anarchy has to end.


COMPANIES & FINANCE INTERNATIONAL - Enron still optimistic of averting fina=
ncial meltdown.
By ANDREW HILL and SHEILA MCNULTY.

11/26/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Enron said yesterday it was still expecting outside investors to inject $50=
0m to $1bn into the group, as talks continued to avoid a financial meltdown=
 at the energy trading group.=20
Dynegy, whose rescue bid for its Houston rival is crucial to Enron's surviv=
al, spent last week's Thanksgiving holiday and the weekend reviewing Enron'=
s operations and finances.
Dynegy said it remained "optimistic for the potential of the merger to be c=
ompleted, and in the time-frame we originally announced - six to nine month=
s".=20
Enron's fate depends on a delicate, unofficial pact between its lenders, Dy=
negy, and credit ratings agencies, which have resisted downgrading the grou=
p's debt while the deal is pending.=20
If the pact stays in place, at least $500m is likely to be invested in Enro=
n by JP Morgan Chase and Citigroup, Enron's key lenders and advisers. A fur=
ther $500m is being sought from private equity firms.=20
But if Dynegy pulls out of the deal, the cash infusion could be put in jeop=
ardy and the ratings agencies could downgrade the debt to junk, triggering =
debt repayments across a network of partnerships and off-balance-sheet vehi=
cles linked to Enron.=20
Enron confirmed yesterday that it was still seeking additional liquidity fr=
om new equity investors, but would not discuss their identities.=20
Enron's crisis of confidence became more acute last week when the shares fe=
ll from $9 to $4.74 following a regulatory filing that revealed the extent =
of the group's debt burden.=20
Completion of a $1bn secured credit line from JPM Chase and Citigroup, and =
the postponement of a $690m notes repayment due tomorrow were not sufficien=
t to prop up the share price. The bonds also fell to levels consistent with=
 a potential bankruptcy filing.=20
The slide in the share price has encouraged speculation that Dynegy is prep=
aring to renegotiate its all-stock bid, now worth $9.3bn, compared with Enr=
on's market value of $3.5bn.=20
But people close to Enron say renegotiation of the deal would not in itself=
 have any impact on the energy group's finances. Latest news, www.ft.com/en=
ron.=20
(c) Copyright Financial Times Ltd. All rights reserved.=20
http://www.ft.com.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Schwab Chief's Main Theme: Diversification
By Lynnette Khalfani
Dow Jones Newswires

11/26/2001
The Wall Street Journal
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -- More than two months after the Sept. 11 terrorist attacks, many=
 investors remain edgy. But the stock market, after an initial selloff, has=
 shown remarkable resilience.=20
Few observers expect stock-market volatility to subside soon. Still, expert=
s say that now, more than ever, is the time for skittish investors to keep =
their wits about them.
In a recent interview, Charles R. Schwab, chairman and co-chief executive o=
f Charles Schwab & Co., the San Francisco-based online and discount brokera=
ge firm, gave his views on what investors should be doing -- and what mista=
kes they should avoid.=20
Here are some excerpts from the interview:=20
In the wake of the Sept. 11 attacks, how much more risk, if any, do you thi=
nk is in the financial markets? Or do you think it's just that people's per=
ceptions about risk have changed?=20
I've been investing since 1959, and I have to say that, year after year, th=
e risk hasn't changed. The risk is always there. There's risk in investing =
in stocks, bonds and even U.S. Treasuries because of interest-rate [fluctua=
tions]. There's risk in real estate, too.=20
So the question is: How do you handle it? The best way is to diversify. Ove=
r a long period of time, people who diversify their investments do pretty d=
arned well. When they don't . . . sometimes it's fatal. If the only stock a=
n investor owned was Enron . . . or Cisco at 70, that was pretty fatal.=20
What do you say to people who say they're too scared to invest right now? T=
hat because of the threat of terrorism, the anthrax scares, the war in Afgh=
anistan, the recession, and so forth, there's just too much uncertainty in =
the markets?=20
I remember back during the Cuban missile crisis, we all feared the worst. W=
e were all building bomb shelters. It was a scary time. This terrorist thin=
g is no different. It's awful -- particularly for our children. But this co=
untry is so wealthy, in terms of its resources, intellectual capital and th=
e strength of our government.=20
There is no more uncertainty today than in times past. For example, we've h=
ad many recessions. It's not fun, especially when you begin reading about a=
ll these layoffs. In fact, I think the unemployment rate [now at 5.4%] pret=
ty easily might get to 6.5% before it gets better. And it probably won't ge=
t better until March or April. Also, the stock market will go up, hopefully=
 before the economy goes up.=20
There's $2 trillion sitting in money-market accounts. That's a huge resourc=
e and buying power that's definitely available for new investments.=20
What do you think is the biggest mistake investors have made over the past =
two or so months?=20
They let their emotions take over. With the fear that people had, they didn=
't use their rational thinking. They used their emotional thinking. [After =
Sept. 11], they sold at the low, and fear was the driver.=20
Just a year and a half ago, the driving emotion was greed. You're not going=
 to avoid this stuff. So the issue is how you manage through these cycles o=
f fear and greed. Even when I'm fearful of something, I say to myself: "Thi=
s is still the time to invest."=20
My biggest worry right now is that people will give up and say, "I just don=
't want to be in the stock market at all." And it's just the time that peop=
le should be hanging on and keeping a diversified portfolio.=20
Some other mistakes: A lot of people hang on to the stock that was the post=
er child of the last cycle. Or people say, "I'll get back in [the market] w=
hen I see the economy turn around." Well, by the time they see that, it's t=
oo late. They will have missed the whole ride back up.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business; Financial Desk
Enron Pursuing a Cash Infusion Energy: Company is seeking as much as $1bill=
ion as it tries to shore up its endangered acquisition by Dynegy.
From Bloomberg News

11/26/2001
Los Angeles Times
Home Edition
C-2
Copyright 2001 / The Times Mirror Company

HOUSTON -- Enron Corp. said talks are continuing with potential investors f=
or an infusion of as much as $1 billion as the biggest energy trader tries =
to avoid a collapse of its planned purchase by Dynegy Inc.=20
An investment would ease concern that Enron's weakened finances may prompt =
Dynegy to pull out of or renegotiate the terms of the transaction, which is=
 valued at $23 billion in stock and assumed debt.
Enron is seeking an additional $500 million to $1 billion in cash but would=
n't divulge details. "We are not going to discuss the particulars of who we=
 are talking to," Enron spokeswoman Karen Denne said Sunday.=20
Shares of the Houston company fell by 48% in the last three trading session=
s on the New York Stock Exchange. At Friday's closing price of $4.71, the s=
tock sells for less than half the $10.85 that Dynegy is slated to pay in th=
e acquisition. That's a sign investors are skeptical the transaction will g=
o through as planned.=20
Enron is likely to have approached Kohlberg, Kravis Roberts & Co., Blacksto=
ne Group and Carlyle Group for a private equity investment, said industry a=
nalyst David Snow of PrivateEquityCentral.Net.=20
The firms have declined to comment.=20
In a conference call Nov. 14, Enron Chief Financial Officer Jeffrey McMahon=
 said the company is in talks with several private investors and expects to=
 receive $500 million to $1 billion from those sources.=20
On Wednesday, Enron got a three-week reprieve from lenders on a $690-millio=
n note due this week, gaining more time to restructure its finances. Dynegy=
 Chief Executive Chuck Watson said he was "encouraged" by the commitment to=
 extend the note payment as well as the closing of a $450-million credit fa=
cility. He said Dynegy remained committed to the purchase.=20
Enron already received $1.5 billion in cash Nov. 13 from ChevronTexaco Inc.=
 as part of the Dynegy buyout agreement. In return, Dynegy received preferr=
ed stock and other rights in an Enron unit that owns the Northern Natural G=
as Co. pipeline. Under the deal's terms, if Dynegy and Enron fail to merge,=
 Dynegy can acquire the pipeline company.=20
But Barron's reported over the weekend that Dynegy's right to the pipeline =
might be challenged by J.P. Morgan Chase & Co. and Salomon Smith Barney Inc=
., which accepted the asset as collateral for $1billion in loans to Enron.=
=20
Dynegy spokesman John Sousa declined to comment on Enron's attempts to secu=
re financing or whether more cash for Enron is a condition of keeping the m=
erger alive.=20
Enron's dealings with affiliated partnerships have led to a federal investi=
gation of the company, which restated its earnings and saw its credit ratin=
gs cut.=20
The company said in a Securities and Exchange filing a week ago that it has=
 less than $2 billion in cash and credit lines left.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Dynegy Optimistic That Enron Merger Will Succeed - FT

11/26/2001
Dow Jones International News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LONDON -(Dow Jones)- Dynegy Inc. (DYN) remains optimistic, after further re=
view of Enron Corp.'s (ENE) finances last week, that it will be able to buy=
 the company, the Financial Times reported Monday.=20
Dynegy said that it, "remained optimistic for the potential of the merger t=
o be completed, and in the time frame we originally announced - six to nine=
 months," the FT reported.
Critical investment in Enron by J.P. Morgan Chase and Citigroup will procee=
d only if an unofficial pact between Enron, Dynegy, and Enron's lenders and=
 credit rating agencies remains intact, the report said. Investment from th=
ese two is likely to total between $500 million and $1 billion, while Enron=
 continues to look for a further $500 million from private equity firms.=20
The deal suffered a setback last week, when a regulatory filing revealed a =
greater debt burden than some investors had realized. Enron's share price f=
ell following the report, to $4.74 from $9.00.=20
A $1 billion secured credit line from J.P. Morgan Chase and an extension of=
 a $690 million repayment due Tuesday weren't enough to keep the share pric=
e from falling. This led to speculation that Dynegy was considering renegot=
iating its all-stock bid, now at $9.3 billion, compared with Enron's market=
 value of $3.5 billion, said the report.=20
Renegotiating the deal wouldn't have any impact on Enron's finances, unname=
d sources told the FT.=20
But if Dynegy pulled out of the deal altogether, there might be no cash inf=
usion from J.P. Morgan chase and Citigroup. Credit ratings agencies could t=
hen downgrade Enron's debt to junk, forcing partners to repay debts, the re=
port said.=20
-By Sarah Spikes, Dow Jones Newswires; +44-(0)20-7842-9345; sarah.spikes@do=
wjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Dynegy Purchase Prompts Antitrust Concerns, L.A. Times Says
2001-11-26 07:36 (New York)


     Washington, Nov. 26 (Bloomberg) -- California Attorney
General Bill Lockyer is examining Dynegy Inc.'s proposed
acquisition of rival energy seller Enron Corp. for possible
antitrust violations, the Los Angeles Times reported.

     The California Independent System Operator, which manages the
state's electric grid, has asked federal regulators to ban Dynegy
and other major power sellers, including Mirant, and AES Corp.'s
Williams Cos., from selling electricity at market prices in the
state, the Times said.

     Throughout the state's power crisis, Governor Gray Davis and
other officials accused Dynegy, Enron and other power companies of
withholding electricity and manipulating the cost of wholesale
power to gouge consumers, the Times said.

     Enron is negotiating with bankers to restructure $9.15
billion in debt.

     ``I would hope that the people who look at the antitrust
implications would consider this one carefully,'' California State
Senator Steve Peace, a Democrat, told the Times. ``If anything,
Dynegy would be in an even stronger position to be able to
manipulate markets than it was before.''



Financial Post: News
Enron hopes for infusion of capital: Seeks US$500M as talks of Dynegy merge=
r continue
Andrew Hill and Sheila McNulty
Financial Times

11/26/2001
National Post
National
FP3
(c) National Post 2001. All Rights Reserved.

Enron Corp. said yesterday it was still expecting outside investors to inje=
ct US$500-million to US$1-billion into the group, as talks continued to avo=
id a financial meltdown at the energy trading group.=20
Dynegy Inc., whose rescue bid for its Houston-based rival is crucial to Enr=
on's survival, spent last week's U.S. Thanksgiving holiday and the weekend =
reviewing Enron's operations and finances.
Dynegy said it remained "optimistic for the potential of the merger to be c=
ompleted, and in the time-frame we originally announced -- six to nine mont=
hs."=20
Enron's fate depends on a delicate, unofficial pact between its lenders, Dy=
negy, and credit ratings agencies, which have resisted downgrading the grou=
p's debt while the deal is pending.=20
If the pact stays in place, at least US$500-million is likely to be investe=
d in Enron by JP Morgan Chase and Citigroup, Enron's key lenders and advise=
rs. A further US$500-million is being sought from private equity firms.=20
But if Dynegy pulls out of the deal, the cash infusion could be put in jeop=
ardy and the ratings agencies could downgrade the debt to junk, triggering =
debt repayments across a network of partnerships and off-balance-sheet vehi=
cles linked to Enron.=20
Enron confirmed yesterday it was still seeking additional liquidity from ne=
w equity investors, but would not discuss their identities.=20
Enron's crisis of confidence became more acute last week when the shares fe=
ll to US$4.74 from US$9 after a regulator filing that revealed the extent o=
f the group's debt burden.=20
Completion of a US$1-billion secured credit line from JPM Chase and Citigro=
up, and the postponement of a US$690-million notes repayment due tomorrow, =
were not sufficient to prop up the share price. The bonds also fell to leve=
ls consistent with a potential bankruptcy filing.=20
The slide in the share price has encouraged speculation Dynegy is preparing=
 to renegotiate its all-stock bid, now worth US$9.3-billion, compared with =
Enron's market value of US$3.5-billion.=20
But people close to Enron say renegotiation of the deal would not in itself=
 have any impact on the energy group's finances.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09



Deal still on as Enron shares drop 6%=20
Houston Chronicle
By NELSON ANTOSH
Staff
11/24/01

Shares of Enron dropped another 6 percent Friday, as the investment communi=
ty fretted that the acquisition price for the company by Dynegy may be redu=
ced, or the deal might not go through at all.=20
The two sides didn't offer anything new for worried investors.=20
Dynegy stuck to its Wednesday statement that it is working to accelerate re=
gulatory approvals in order to complete the deal as previously announced.=
=20
Dynegy is continuing to take a close look at Enron as part of the due dilig=
ence process, which will involve careful study of Enron 's books, Dynegy sp=
okesman John Sousa said on Friday.=20
On Wednesday, Dynegy Chief Executive Chuck Watson said he was encouraged th=
at Enron had closed a $450 million credit security and received an extensio=
n on a $690 million IOU.=20
Dynegy remains optimistic that the deal can be done, said a source close to=
 the company.=20
Enron spokeswoman Karen Denne said she was unaware of any meetings planned =
between top executives of the two companies this weekend, which could signa=
l alterations to the deal.=20
Enron 's stock, which was the most active on the New York Stock Exchange on=
 Friday, dropped 30 cents to close at $4.71 per share.=20
This made it the worst performing stock in the Standard & Poor's 500 index =
for the week, with a loss of 48 percent for the holiday-shortened period.=
=20
It was a bad week for a stock that has come down from a 52-week high of $84=
.87 on Dec. 28 last year. For the year to date, Enron 's price is off 94 pe=
rcent.=20
More than 40 million shares traded hands Friday. On Wednesday, 116 million =
shares were traded.=20
Analyst Ron Barone of UBS Warburg said the odds of a reduced exchange ratio=
 in the deal were rising.=20
As announced Nov. 9, Dynegy would exchange 0.2685 of its shares for each sh=
are of Enron . According to Barone, 0.15 might be more appropriate.=20
Traders also speculated that Enron might need to issue more stock to stabil=
ize its finances, which would dilute the shares currently outstanding.=20
Dynegy's stock gained 64 cents to close Friday at $40.40 per share, on trad=
ing of 2.1 million shares. For the year to date, Dynegy's price is off 28 p=
ercent.


Analysis: Travails of the Enron Corporation

11/24/2001
NPR: Weekend Edition - Saturday
Copyright 2001 National Public Radio, Inc. All Rights Reserved.

SCOTT SIMON, host: This is WEEKEND EDITION from NPR News. I'm Scott Simon. =
Coming up, recognizing New Yorkers by their lunch orders.=20
But first, trading energy. This week, stock in the Enron Corporation fell l=
ike a 14-pound turkey carcass thrown from a third-story kitchen window--kat=
hunk. Continues a trend over the past few months. Enron shares have plunged=
 more than 90 percent since the departure of the company's chief executive =
and the reworking of some balance sheets resulting in a restatement of inco=
me, about $580 million less than previously reported. Joe Nocera is the exe=
cutive editor of Fortune magazine and a frequent contributor to this progra=
m.
Joe, thank you for being with us.=20
JOE NOCERA (Executive Editor, Fortune Magazine): Thanks for having me, Scot=
t.=20
SIMON: Now Enron, we ought to explain, it's more than pipelines and gas. Ye=
s?=20
NOCERA: It's a lot more--or a lot less, depending on how you look at it.=20
SIMON: A lot less perhaps, yes, now.=20
NOCERA: They've actually shed most of their hard assets when they became a =
trading company, trading energy futures, weather futures, broad band future=
s, a very complicated New Age, modern type company. And for a long time, ev=
erybody really believed in what Enron was. They were the kind of the dot-co=
m of the energy world and were thought to do no wrong. And then, Scott, peo=
ple stopped believing; people stopped having faith and, in particular, peop=
le stopped believing anything management said. This is a case study in what=
 happens when management loses credibility. These guys kept saying, `All th=
e problems are behind us,' and every time they said it, a week later, some =
new problem would crop up. And people started examining their balance sheet=
 and finding all this squirrelly stuff in it. And now basically, if Enron d=
oesn't do this deal that it's negotiated to do with Dynegy, they're going t=
o go bankrupt. It's really an incredible story.=20
SIMON: Explain to us, if you could, what you refer to--and I guess it's a t=
echnical term among economists--`squirrelly stuff.'=20
NOCERA: Yeah, the squirrelly stuff.=20
SIMON: Yeah.=20
NOCERA: Well, the worst that happened was that they had--it turned out that=
 they had all these side partnerships that included Enron officials that we=
re doing billion-dollar trades with Enron, and nobody quite knows why they =
were doing this. Some people believe it was to enrich the officers in quest=
ion, but other people believe that they were doing this to help smooth out =
their earnings. In other words, it was a form of hyping the stocks to keep =
the earnings going up, and they would take their losses--they'd bundle thei=
r losses and they'd throw them in these partnerships so they wouldn't be on=
 the balance sheet.=20
And when this stuff started to emerge in the newspapers, that's when the wh=
eels really started to fall off, and people were saying, `If this is going =
on, what'--I mean, this his terrible in and of itself--`but what else could=
 there be?' And it turns out there've been other things as well.=20
SIMON: Well, you know, I think I understand why now Enron wants the deal wi=
th Dynegy to go through, but what does Dynegy see in this?=20
NOCERA: Well, Enron still does somewhere 25 and 33 percent of all the natur=
al gas and energy futures trade in the United States. It's a huge marketpla=
ce, and Dynegy is a much smaller and more conservative player and, you know=
, by buying Enron, suddenly they became a much, much bigger player. Also, D=
ynegy actually has hard physical assets and, unlike Enron, they wouldn't ju=
st be a middleman on these trades, they would actually be delivering the na=
tural gas. There is something in it for Dynegy. They're buying a very big c=
ompany at for what now looks like $5 a share. It's really incredible.=20
SIMON: And let me ask about this, finally; some Enron employees--a good num=
ber of Enron employees are suing the company, contending, credibly, that th=
ey've been essentially defrauded out of pension money.=20
NOCERA: Right. Their big gripe is that when the thing started to tank, when=
 the stock started to go down, they were unable to move their--get out of E=
nron stock and their pension fund--that Enron actually throws the stock in =
their fund, so they couldn't move out into a different investment vehicle. =
Now they're saying that, you know, they've been defrauded because the stock=
 was fraudulently hyped. And you know what, Scott? When all is said and don=
e, I think they've got a case. I think they're going to be able to, in fact=
, show that much of what Enron did, the reason they did the things they did=
 was to hype the stock. And this is a classic case of what happens when you=
 put the stock in front of the company instead of the company in front of t=
he stock.=20
SIMON: I hate to ask a question like this with just five seconds left, but =
could there be a criminal investigation?=20
NOCERA: Oh, I think there will be. The SEC is already circling around.=20
SIMON: OK, Joe, thanks very much.=20
NOCERA: Thank you, Scott.=20
SIMON: Joe Nocera, executive editor of Fortune magazine, and speaking with =
us from the studios of member station WFCR, Amherst.



Dynegy's Right to Enron Pipeline May Be Disputed, Barron's Says
2001-11-24 13:52 (New York)


     Houston, Nov. 24 (Bloomberg) -- Dynegy Inc. may have a hard
time claiming one of Enron Corp.'s pipelines if their merger
agreement collapses, because the asset has been pledged as
collateral for $1 billion in bank loans, Barron's reported.

     Dynegy has said its initial investment of $1.5 billion in
Enron, using cash from ChevronTexaco Corp., gave Dynegy the right
to acquire Northern Natural Gas Co. if the deal falls through.

     Enron, though, has pledged the assets of its Transwestern and
Northern Natural Gas pipelines to get $1 billion in loans from
J.P. Morgan Chase and Salomon Smith Barney Inc. Dynegy's claim to
the pipeline may be challenged by Enron's lenders if Enron is
forced into bankruptcy, Barron's said.

     Dynegy may also be concerned about Enron affecting its credit
rating, Barron's said. Dynegy, which has a market value of more
than $10 billion and assets worth only $2.5 billion, is listed two
notches above junk status and is on watch for a possible
downgrade, the weekly newspaper said.

     Barron's said renegotiating the purchase in response to a
recent decline in Enron's shares might not make sense because the
company's debt accounts for most of the deal's value, now around
$23 billion.


Money and Business/Financial Desk; Section 3
INVESTING: DIARY
Accounting Peer Review Gets More Scrutiny
Compiled by Jeff Sommer

11/25/2001
The New York Times
Page 8, Column 1
c. 2001 New York Times Company

The accounting industry's watchdog group is examining the industry's ''peer=
 review'' process in light of enormous accounting problems at the Enron Cor=
poration.=20
The group, called the Public Oversight Board, will meet next week to consid=
er whether reviews of audits being conducted by accounting firms adequately=
 safeguard the public interest, according to its chairman, Charles Bowsher.=
 The session comes after revelations by Enron that it had overstated earnin=
gs by nearly $600 million over four years and that it had inflated sharehol=
der equity by $1.2 billion because of ''an accounting error.''
Arthur Andersen has been Enron's outside auditor for more than a decade, an=
d its work has been submitted periodically to Deloitte & Touche for ''peer =
reviewing.'' One such review is being conducted now.=20
Representative John Dingell, a Michigan Democrat, said in a letter to Mr. B=
owsher that no Big Five accounting firm had ever issued a negative report a=
fter a peer review. Mr. Bowsher told Bloomberg News that the Oversight Boar=
d would ask: ''How can you have peer reviews and still have these kinds of =
failures?''

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Editorial Desk; Section 4
Reckonings
An Alternate Reality
By PAUL KRUGMAN

11/25/2001
The New York Times
Page 11, Column 1
c. 2001 New York Times Company

Most Americans get their news from TV. And what they see is heartwarming --=
 a picture of a nation behaving well in a time of crisis. Indeed, the vast =
majority of Americans have been both resolute and generous.=20
But that's not the whole story, and the images TV doesn't show are anything=
 but heartwarming. A full picture would show politicians and businessmen be=
having badly, with this bad behavior made possible -- and made worse -- by =
the fact that these days selfishness comes tightly wrapped in the flag. If =
you pay attention to the whole picture, you start to feel that you are livi=
ng in a different reality from the one on TV.
The alternate reality isn't deeply hidden. It's available to anyone with a =
modem, and some of it makes it into quality newspapers. Often you can find =
the best reporting on what's really going on in the business section, becau=
se business reporters and commentators are not expected to view the world t=
hrough rose-colored glasses.=20
From an economist's point of view, the most revealing indicator of what's r=
eally happening is the post-Sept. 11 fondness of politicians for ''lump-sum=
 transfers.'' That's economese for payments that aren't contingent on the r=
ecipient's actions, and which therefore give no incentive for changed behav=
ior. That's good if the transfer is meant to help someone in need, without =
reducing his motivation to work. It's bad if the alleged purpose of the tra=
nsfer is to get the recipient to do something useful, like invest or hire m=
ore workers.=20
So it tells you something when Congress votes $15 billion in aid and loan g=
uarantees for airline companies but not a penny for laid-off airline worker=
s. It tells you even more when the House passes a ''stimulus'' bill that co=
ntains almost nothing for the unemployed but includes $25 billion in retroa=
ctive corporate tax cuts -- that is, pure lump-sum transfers to corporation=
s, most of them highly profitable.=20
Most political reporting about the stimulus debate describes it as a confli=
ct of ideologies. But ideology has nothing to do with it. No economic doctr=
ine I'm aware of, right or left, says that an $800 million lump-sum transfe=
r to General Motors will lead to more investment when the company is alread=
y sitting on $8 billion in cash.=20
As Jonathan Chait points out, there used to be some question about the true=
 motives of people like Dick Armey and Tom DeLay. Did they really believe i=
n free markets, or did they just want to take from the poor and give to the=
 rich? Now we know.=20
Of course, it's not all about lump-sum transfers. Since Sept. 11 there has =
also been a sustained effort, under cover of the national emergency, to ope=
n public lands to oil companies and logging interests. Administration offic=
ials claim that it's all for the sake of national security, but when you di=
scover that they also intend to reverse rules excluding snowmobiles from Ye=
llowstone, the truth becomes clear.=20
So what's the real state of the nation? On TV this looks like World War II.=
 But though our cause is just, for 99.9 percent of Americans this war, wage=
d by a small cadre of highly trained professionals, is a spectator event. A=
nd the home front looks not like wartime but like a postwar aftermath, in w=
hich the normal instincts of a nation at war -- to rally round the flag and=
 place trust in our leaders -- are all too easily exploited.=20
Indeed, current events bear an almost eerie resemblance to the period just =
after World War I. John Ashcroft is re-enacting the Palmer raids, which swe=
pt up thousands of immigrants suspected of radicalism; the vast majority tu=
rned out to be innocent of any wrongdoing, and some turned out to be U.S. c=
itizens. Executives at Enron seem to have been channeling the spirit of Cha=
rles Ponzi. And the push to open public lands to private exploitation sound=
s like Teapot Dome, which also involved oil drilling on public land. Presum=
ably this time there have been no outright bribes, but the giveaways to cor=
porations are actually much larger.=20
What this country needs is a return to normalcy. And I don't mean the selec=
tive normalcy the Bush administration wants, in which everyone goes shoppin=
g but the media continue to report only inspiring stories and war news. It'=
s time to give the American people the whole picture.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Money and Business/Financial Desk; Section 3
MARKET WATCH
Will New York Be Told, Once Again, to Drop Dead?
By ALEX BERENSON

11/25/2001
The New York Times
Page 1, Column 2
c. 2001 New York Times Company

NEARLY 11 weeks after the worst terrorist attack in history, New York is di=
scovering just how much the rest of the United States cares about the natio=
n's business and financial center.=20
Not much.
Early hopes that the nation would rally to help the city overcome the devas=
tating economic impact of Sept. 11 appear to have been misplaced. Not only =
is Gov. George E. Pataki's ill-advised pitch for $54 billion in federal aid=
 all but dead, apparently the city will struggle to get the $20 billion tha=
t President Bush promised.=20
Yes, many of the city's economic problems are self-inflicted. With a munici=
pal work force of 250,000, New York employs one-seventh as many people as t=
he federal government, excluding the armed forces. To support that bureaucr=
acy, the city has the highest taxes of any local government in America. Dev=
elopment is absurdly difficult, even outside Manhattan. Roads and bridges a=
re a mess.=20
But all of that was true before Sept. 11, and New York somehow made do. In =
fact, a record number of new jobs were created here in 2000, according to S=
teven Malanga, senior fellow at the Manhattan Institute, a conservative pol=
icy group. ''In the last seven or eight years, the city's economy has rebou=
nded in a way that's very encouraging,'' he said.=20
The attacks changed all that. By discouraging people from coming to crowded=
 places like Times Square, terrorism strikes at the heart of New York, said=
 Mitchell Moss, director of the Taub Urban Research Center at New York Univ=
ersity. ''New York's economy is built on interaction,'' he said. The indust=
ries that have suffered most severely are New York's most important employe=
rs: tourism, media, advertising and financial services, which was due for c=
uts even before the attacks.=20
Last month, the city lost 79,000 jobs, a record. The slowdown has blown a h=
ole in city and state budgets, which are precariously balanced at the best =
of times. The Citizens Budget Commission, a nonpartisan fiscal watchdog org=
anization, predicts that the city will face a budget deficit of $4 billion =
next year.=20
Mayor Rudolph W. Giuliani has asked city agencies to cut their budgets by 1=
5 percent. More cuts are coming. Libraries will close earlier. Parks will b=
e dirtier. And city workers, who had been asking for big raises, will have =
to accept layoffs or pay cuts.=20
Even so, the city cannot get out of this hole alone. With taxes already too=
 high, it cannot reach much deeper into its citizens' pockets. And there ar=
e limits to how much it can cut services. A little federal help would go a =
long way toward righting the city's budget gap and restoring confidence in =
New York.=20
Mr. Moss suggests the federal government take two steps to show its commitm=
ent to the city. First, it should help create a hub in Lower Manhattan that=
 would connect transit lines from New Jersey and Long Island with the subwa=
y. Second, it should support ''security zones'' where high-profile securiti=
es firms and media companies could congregate if they wished.=20
For now, at least, it appears that Washington will let New York sink or swi=
m on its own. That decision is foolish for both economic and symbolic reaso=
ns.=20
If New York cannot right itself, the securities firms that are among its mo=
st important employers are as likely to move jobs to London or Hong Kong as=
 Chicago or Atlanta. And if New York's streets grow dirty and its crime rat=
e soars, other countries may question Washington's promises of aid to those=
 that try to deter terrorism. Will a government that does not bother to aid=
 its largest city in the wake of the worst terror attack in history really =
do much for Islamabad or Cairo?=20
''What do we have a federal government for if it's not to give aid to state=
 and local governments, at the level people live and get most of their gove=
rnment services?'' asks James A. Parrot, an economist at the Fiscal Policy =
Institute, a labor-backed research organization.=20
It is worse than unseemly that lawmakers are offering to pass a tax bill th=
at will give billions of dollars to companies like Enron and I.B.M. while r=
efusing to send New York money that that city has already been promised. It=
 is (whisper this word) unpatriotic.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Style Desk; Section 9
Dot-Com Is Dot-Gone, And the Dream With It
By JOHN SCHWARTZ

11/25/2001
The New York Times
Page 1, Column 2
c. 2001 New York Times Company

MARK LEIBOVICH recalled the day in 1999 when he showed up early for an appo=
intment at a Washington dot-com. Mr. Leibovich, a reporter for The Washingt=
on Post, was there to interview the company's executives. ''I got there jus=
t in time to see the C.E.O. himself wheeling a foosball table into the lobb=
y'' to give the impression that the high-tech firm possessed the desired qu=
antum of wackiness that its Silicon Valley counterparts are famous for.=20
That is so over, and so much more over, even, than before. The popular obse=
ssion with the dot-com revolution, fading for more than a year, seems to ha=
ve simply winked out since mid-September, as firemen and warriors have beco=
me the new heroes, and e-commerce's whiz kids are consigned to the cultural=
 boneyard.
Not much more than a year ago, boosters of the New Economy and their true b=
elievers in the press were claiming to have changed all the rules. Not just=
 in tech-fetish magazines like Wired, but in self-styled cultural arbiters =
like New York magazine, which declared the 1990's the ''e-Decade.'' In a 19=
99 cover story, the essayist Michael Wolff -- himself a failed dot-com exec=
utive -- announced a brave new world. ''There is, at the elusive center of =
the e-experience, the fantasy that we might become free of economic laws,''=
 he wrote. ''All it takes to make otherworldly riches is the will and desir=
e.'' It wasn't enough to make money. They had to make history.=20
Now they themselves are history. Each day, the old idols seem to fade furth=
er into the dim past, barely recollected in a country where the languages o=
f ''revolution'' and ''warfare'' are no longer just business metaphors. Thi=
s is the next step after the bursting of the dot-com economic bubble -- the=
 bursting of the cultural bubble, the end of the nerd as a crossover hit, o=
f the I.P.O. zillionaire as role model to college students.=20
The changing of the guard can be seen in little things. Like Henry Blodget,=
 the industry analyst who became famous for predicting early that Amazon.co=
m would reach $400 a share, announcing that he is taking a buyout and leavi=
ng Merrill Lynch at the grand old age of 35.=20
Like the growing wave of books that focus not on the dot-com path to riches=
 but on the wild plunge into the abyss. Having failed to sell their dreams,=
 they are now attempting to sell their failure. A documentary of the rise a=
nd fall of a Silicon Alley company was chronicled in ''Startup.Com'' by Seb=
astian Nokes, released last winter. Books by former dot-com executives are =
arriving in stores. Two of the first are ''A Very Public Offering: A Rebel'=
s Story of Business Excess, Success, and Reckoning'' by Stephan Paternot, f=
ounder of Theglobe.com, and ''Dot.bomb: My Days and Nights at an Internet G=
oliath,'' by J. David Kuo. Another is coming soon: ''Boo Hoo,'' the chronic=
le of the spectacular failure of Boo.com, the luxury fashion site that burn=
ed through $185 million of its investors' cash and had an online life of ju=
st six months, told by its profligate founders.=20
Did we mention that Mr. Blodget is writing a book?=20
For the most part, however, the flood of dot-com failure stories is being m=
et with a national yawn. The tell-all books have bounced around the Amazon.=
com rankings without making inroads into best-seller territory. And why not=
? Because former idols have feet of clay. In ''A Very Public Offering,'' a =
book written as amateurishly as the company was run, did we need the image =
of Mr. Paternot dancing the night away in plastic pants?=20
Ellen DeGeneres's new sitcom, ''The Ellen Show,'' is built around the notio=
n of an executive returning to her hometown after the collapse of her dot-c=
om, but the show sits at the miserable ranking of 93rd for the season -- be=
hind ''Emeril,'' the celebrity chef comedy -- despite Ms. DeGeneres's own c=
onsiderable appeal.=20
To Amitai Etzioni, a sociologist at George Washington University, the count=
ry is experiencing an abrupt cultural shift away from the libertarian, indi=
vidualistic values that were expressed in the celebration of the New Econom=
y and toward more old-fashioned values in the wake of the terrorist attacks=
, when government is not The Problem and people are not The Market. ''There=
's been a sea change,'' he said. The surge in charitable giving and blood d=
onations after Sept. 11, he said, underscores ''the sense that you're willi=
ng to give priority to the common good, to public safety and public health.=
''=20
Paulina Borsook, the author of ''Cyberselfish,'' a critical look at dot-com=
 values published last year, said: ''People really crave a reminder of huma=
n bonds that have to do with sacrifice and fellowship and getting to know e=
ach other over time. It's not about changing jobs every six months and gett=
ing stock options.''=20
In the 90's, college students hoping to emulate Marc Andreessen of Netscape=
 and other geek stars migrated to Silicon Valley or New York's Silicon Alle=
y with thin resumes and visions of Testarossas dancing in their heads. That=
's all changing, said Thomas T. Field, director of the Center for the Human=
ities at the University of Maryland, Baltimore County. ''Many of the young =
adults that I see coming to campus now say they want fulfilling jobs, not j=
ust ways of earning money,'' he said. ''Sounds awfully familiar, when you c=
ome from the 60's generation.''=20
Professor Field suggested that protests over globalism, and the sense of se=
curity that flourished during the boom, made young people more willing to q=
uestion the status quo and to take chances. During the I.P.O. frenzy, he sa=
id, students could not wait to get out of school and begin earning. This ye=
ar, many of his students have chosen to study abroad in China, Nepal, India=
 and Egypt.=20
The country is in dot-com denial, Ms. Borsook said, adding, ''No one wants =
to admit that they were caught up in it,'' an attitude she calls ''I don't =
want to think that I drank the Kool-Aid.''=20
Good riddance, said Thomas Frank, the author of ''One Market Under God: Ext=
reme Capitalism, Market Populism and the End of Economic Democracy.'' The b=
ook is a withering attack on the ideas underlying the selling of the New Ec=
onomy, which he says co-opted hipness and the language of populism to serve=
 greed and gain. The book has come out in paperback with a new afterword. '=
'It's going to take some time for it to sink in,'' Mr. Frank said. ''The Do=
w isn't going to go to 36,000, and the dot-coms aren't going to come back -=
- and a lot of people lost a lot of money.''=20
Though dot-com executives might seem irrelevant these days, the technologie=
s they sold, by and large, are not, pointed out Paul Saffo, an analyst at t=
he Institute for the Future in Menlo Park, Calif. ''People haven't stopped =
using the Internet,'' he said. ''The fact is that it is changing the world,=
 and it has changed the world.'' People now expect to be able to buy a book=
 or make an airline reservation in the middle of the night, ''and it's wash=
ed into the rest of their lives.''=20
Kevin Kelly, who as a longtime editor of Wired magazine helped create the h=
eroic ethos surrounding dot-com entrepreneurs, acknowledged ''it came tumbl=
ing down with the towers.'' But Mr. Kelly insisted that these people would =
rise again. The generation of tyro executives who crashed and burned ''got =
better business education than they could if they had gotten a Harvard M.B.=
A.,'' he said. ''They didn't set out to learn, but, boy, they are much smar=
ter now.'' He predicts that the last decade has been the ''layup'' for a tr=
ue cultural revolution to come -- he could not be specific, and his words m=
ay strike many as more dot-com hyperbole.=20
It takes a special kind of gall for the same people who argued that the ''l=
ong boom'' suspended the laws of economics, and even unraveled the cycles o=
f history, to fall back now on analysis of historical cycles to support the=
ir arguments.=20
But to believe any less goes against the American grain, argued Jason McCab=
e Calacanis, the editor of the now-defunct Silicon Alley Reporter. The dot-=
commer, seen today as a scam artist, will be reborn, he said, smarter and t=
ougher, because he represents optimism itself. ''It's the belief that the f=
uture -- the individual's future and the future of the economy -- are going=
 to be better in five years than they are today.''=20
But still. Take a look at the book ''Radical E'' by Glenn Rifkin and Joel K=
urtzman, which offers ''Lessons on How to Rule the Web'' after the bust. It=
 extols companies that truly understand how to marry the World Wide Web to =
business. ''After five tumultuous years of hype and hysteria,'' the authors=
 promise, ''the real advent of the Web and e-business is now.''=20
One of the book's chief examples of a company that does it right, Enron, ha=
s been in the news a lot lately, though not because of astute exploitation =
of e-commerce. No, Enron -- which trades energy via the Web -- has seen its=
 stock collapse 90 percent.

Photos: The giants of e-commerce, who walked among us, are culturally extin=
ct now with a war on. (Reuters)(pg. 1); NO SURE THING -- Ellen DeGeneres, l=
eft, with Cloris Leachman, in a sitcom about a dot-commer who has moved bac=
k home. The show ranks 93rd. (Monty Brinton/CBS)(pg. 4)=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business; Financial Desk
California Wary of Dynegy Bid to Buy Out Enron Energy: Both companies are p=
rominent players in the state's power market. The move to combine their str=
ength is raising some concerns.
NANCY RIVERA BROOKS
TIMES STAFF WRITER

11/25/2001
Los Angeles Times
Home Edition
C-1
Copyright 2001 / The Times Mirror Company

Dynegy Inc. of Houston has been hailed as a hero on Wall Street, as it ride=
s to deliver cross-town rival Enron Corp. from its self-inflicted ills and =
save energy markets from serious distress through its proposed $9-billion b=
uyout of the world's largest energy trader.=20
But in California, Dynegy has a different image.
Dynegy, co-owner of several Southern California power plants, has been the =
quietest member of the "Big Five" group of energy producers commonly portra=
yed as villains by California politicians and regulators. Gov. Gray Davis a=
nd others have called Dynegy and its fellow energy suppliers "gougers" and =
"pirates" who manipulated the market and charged too much for electricity, =
precipitating California's blackout-studded energy crisis.=20
Partly because of the heightened political sensitivities to all things surr=
ounding California's energy problems, the state is expected to play a centr=
al role in the proposed merger between Dynegy and Enron, antitrust experts =
and others say. The state's Attorney General's office already has begun scr=
utinizing the proposed combination.=20
If it merges with Enron, another favorite Davis target, Dynegy would be a p=
owerhouse in energy trading, electricity generation and natural gas transmi=
ssion. And the combined firm would have a strong presence in California, wh=
ich some find troubling.=20
"I would hope that the people who look at the antitrust implications would =
consider this one carefully," said state Sen. Steve Peace (D-El Cajon), one=
 of the architects of California's failed foray into electricity deregulati=
on, who became a fierce critic of power producers and resellers. "If anythi=
ng, Dynegy would be in an even stronger position to be able to manipulate m=
arkets than it was before."=20
Dynegy agreed on Nov. 9 to buy Enron through a stock swap valued at about $=
9 billion and to inject $2.5 billion into crumbling Enron provided by cash-=
rich ChevronTexaco Corp., the San Francisco-based oil company that owns nea=
rly 27% of Dynegy. But a continuing trickle of disturbing financial disclos=
ures keep slamming Enron's stock price, indicating that investors have thei=
r doubts that the deal will be completed as negotiated.=20
The Enron purchase would hurl Dynegy, which is about a quarter of Enron's s=
ize, into the top ranks of energy merchants.=20
In California's energy world, Dynegy already is a key company. At every sig=
nificant twist in the state energy crisis, Dynegy was there, although not a=
s visibly as some of the other power-plant owners and electricity resellers=
.=20
Enron and Reliant Energy Inc., also of Houston, and Duke Energy Corp. of Ch=
arlotte, N.C., drew particular fire from politicians and consumer advocates=
 during the last 18 months as energy leaped higher. But Dynegy also was acc=
used by the state's grid operator of reaping excessive profit through its e=
lectricity bidding practices and, to a lesser extent, by holding back some =
electricity from its Southern California power plants.=20
In addition, Dynegy signed long-term electricity contracts with the state t=
hat have been singled out by critics for containing potentially lucrative c=
lauses requiring that the state pay emissions costs and other costs.=20
The California Independent System Operator, which runs the long-distance po=
wer transmission grid serving much of the state, has asked federal regulato=
rs to ban Dynegy from selling power at market prices. Cal-ISO has made the =
same request concerning the other major power plant owners: Duke, Reliant, =
Atlanta-based Mirant Inc. and AES Corp. of Arlington, Va., which markets it=
s power through an agreement with Williams Cos. of Tulsa, Okla.=20
"Dynegy has sort of slid by under the radar," said Doug Heller of the Found=
ation for Taxpayer & Consumer Rights, a consumer activist group.=20
"Not only did Dynegy do very well, but particularly its trading and marketi=
ng division did very well over the course of the last two years. It profite=
d wildly."=20
For its part, Dynegy rejects accusations of market manipulation, saying it =
has played a constructive role in the California marketplace, stepping forw=
ard to be one of the first companies to sign long-term contracts with the s=
tate when its need was greatest despite an electricity debt of $300 million=
 owed the company by the state and its utilities.=20
"Dynegy has acted ethically and responsibly in California," said Dynegy spo=
kesman John Sousa. "The fundamental problem in California is that supply di=
d not keep up with demand."=20
"Dynamic Energy"=20
Accused of Overcharging=20
Dynegy was created in 1984 as a natural gas trading operation known as Natu=
ral Gas Clearinghouse to take advantage of the deregulation of natural gas =
prices. Under Chief Executive Chuck Watson, the company has expanded into n=
atural gas processing and distribution and electricity generation, changing=
 its name along the way to Dynegy, a word created by combining "dynamic" an=
d "energy."=20
In California, Dynegy owns power plants capable of generating 2,800 megawat=
ts of electricity through a partnership with NRG Energy Inc. of Minneapolis=
. (A megawatt can supply about 750 average homes with electricity.)=20
The state's big investor-owned utilities were required to sell some of thei=
r power plants by the landmark 1996 deregulation legislation. By the end of=
 1998, the Dynegy/NRG partnership had purchased three large power plants in=
 Long Beach, El Segundo and San Diego and a collection of 17 small "peaker"=
 plants from Southern California Edison Co. and San Diego Gas & Electric Co=
.=20
Under the arrangement between the partnership, NRG operates the power plant=
s and Dynegy markets the electricity from them. It is Dynegy's bidding prac=
tices in selling that power into state markets that put it, along with othe=
r energy producers, on the wrong side of the state grid operator and federa=
l energy regulators.=20
Among the allegations:=20
* In a report released in March, Cal-ISO accused energy producers and resel=
lers, including Dynegy, of overcharging Californians by $6.7 billion betwee=
n May 2000 and March 2001. Power suppliers have denied the allegations. The=
 report also found that Dynegy reaped about $32 million in "monopoly rents"=
 between May and November of last year, or profits beyond what a competitiv=
e market would bear. That was the fourth-highest total for any company note=
d in the report. Enron was ranked sixth, taking $27.9 million in such profi=
ts.=20
* Cal-ISO said Dynegy maximized profits primarily through a practice known =
as "economic withholding," or bidding electricity at prices so high that th=
ey would be rejected, thereby pushing up the price charged for the remainin=
g generation sold into the market. Dynegy also did some "physical withholdi=
ng," Cal-ISO said, meaning that the company withheld electricity supplies t=
o drive up the price.=20
* Dynegy was accused last April in hearings before state legislators of hoa=
rding space on a key natural gas pipeline into California in 1998 and 1999,=
 causing natural gas prices to soar. Dynegy executives testified that the c=
harge was untrue.=20
* When federal regulators ordered $125 million in potential refunds for the=
 first four months of the year, Dynegy's portion was the largest among the =
power sellers named, representing slightly more than one third. Dynegy said=
 its prices were justified by high natural gas prices, emissions costs and =
other factors.=20
Dynegy President Stephen Bergstrom said in April that the company was "unfa=
irly and inaccurately accused of withholding power from the California mark=
et."=20
"As we have repeatedly communicated to California policymakers and regulato=
rs and to industry officials, we remain ready and willing to generate and s=
ell power to any and all buyers at fair and reasonable prices when they are=
 able to provide appropriate assurances that they will fulfill their obliga=
tion to pay for those purchases."=20
A recent report by the state Department of Water Resources backs up Dynegy'=
s assertions that its prices have been in line with the rest of the market.=
=20
During the first three months of this year, after sky-high prices pushed Ed=
ison and PG&E so close to insolvency that the state had to step in and buy =
power for their customers, Dynegy sold power to the DWR at an average price=
 of $239.63 per megawatt-hour for electricity. That was slightly below the =
average of $268.90 per megawatt-hour charged by all sellers.=20
Dynegy portrays itself as a minor player in the California market, represen=
ting about 4% of the state's generation.=20
But Cal-ISO, in asking federal regulators to revoke Dynegy's authority to s=
ell power at market rates, said "Dynegy has profited systematically from th=
e exercise of market power to the significant harm of California's electric=
 consumers and economy." A decision is pending.=20
Officials reviewing the Dynegy-Enron merger will closely review the compani=
es' operations in California.=20
Although Enron owns no power plants in California, it is believed to have l=
ong-term contracts with some generators, although spokesman Eric Thode refu=
sed to detail them.=20
In addition, Enron has a hand in 25% of the energy trades around the nation=
, with a significant portion of that in California. Thode would not detail =
California operations, citing company policy.=20
Finally, Enron controls an undetermined amount of natural gas, which is use=
d to generate about one-third of the state's electricity, through its trans=
western pipeline, which crosses into California, and through natural gas ma=
rketing and trading arrangements.=20
It is those largely unregulated energy trading operations that have many en=
ergy watchdogs worried. They say that middlemen such as Enron and Dynegy ca=
n drive up the price of power by reselling it at higher prices each time.=
=20
A lawsuit filed in May against the Big Five generators by Lt. Gov. Cruz Bus=
tamante, acting as a private citizen, described it this way: "The Dynegy tr=
ading floor, working with the trading floors operated by Williams, Mirant, =
Reliant and Duke Energy is one of the principal tools the defendants used t=
o inflate the price of electricity within their respective markets, as well=
 as throughout the state of California."=20
"These defendants engaged in trading of electricity futures, forwards, opti=
ons and other risk products that had the effect of manipulating and inflati=
ng the price of electricity within their respective markets," the suit char=
ged.=20
"These defendants engaged in 'megawatt laundering,' in which they made trad=
es with the primary purpose of inflating the costs of electricity within th=
eir respective markets."=20
State Is Examining Proposed Merger=20
California Atty. Gen. Bill Lockyer has begun examining what effects such a =
merger would have on California, spokeswoman Sandra Michioku said. The Fede=
ral Trade Commission and the Federal Energy Regulatory Commission also will=
 scrutinize the merger in a process that Dynegy and Enron expect will take =
no more than nine months.=20
Senate Energy Committee Chairwoman Debra Bowen (D-Marina del Rey) said she =
plans to urge FERC to look beyond traditional measurements of how much the =
companies own in the market to examine "inputs" into the market such as gas=
 pipeline capacity controlled by the companies and gas trading by Dynegy an=
d Enron.=20
"It really raises many questions about how the market works," Bowen said.=
=20
Opposition by California could be a severe hindrance to the merger, said Ga=
rret Rasmussen, a lawyer with Patton Boggs in Washington, D.C., and formerl=
y a Federal Trade Commission antitrust investigator.=20
The state, if it chooses, could play as pivotal a role as it has in negotia=
tions over the antitrust settlement between the federal government and Micr=
osoft Corp., he said.=20
"While this administration has been quite tolerant of mergers ... an action=
 by the California attorney general could have a significant chance of succ=
ess," Rasmussen said.=20
Merger Might Reopen Contract Negotiation=20
The proposed merger might give California leverage to renegotiate its power=
 contract with Dynegy, which contains the unusual provision that the state =
would pay for any emission costs that the company incurred, said V. John Wh=
ite, director of the Center for Energy Efficiency & Renewable Technologies =
in Sacramento. Dynegy's large San Diego plant lacks crucial pollution contr=
ol equipment, he said.=20
"The California attorney general needs to carefully examine Dynegy's enviro=
nmental stewardship activities and renegotiate that provision in the long-t=
erm contract," White said. "Dynegy has a Texas, the-least-we-can-do attitud=
e as far as the environment is concerned."=20
David Freemen, the former Los Angeles Department of Water & Power general m=
anager who helped negotiate Dynegy's and other long-term contracts, said th=
at while opportunities to renegotiate may present themselves, the agreement=
s, now maligned as too expensive, were key to stabilizing the electricity m=
arket. Freeman praised Dynegy for its part in that process.=20
"There's a difference between companies that bargained hard with us and rea=
ched agreement--like Dynegy, Calpine and Williams--and those that were reac=
hing for the moon and we didn't reach agreement," Freeman said. "Dynegy kne=
w that they wanted to do business in California, and do it in a businesslik=
e manner."

PHOTO: Enron chairman and chief executive Kenneth Lay, left, and to Chuck W=
atson, chairman and chief executive of Dynegy, announce the companies' prop=
osed merger during a news conference in Houston.; ; PHOTOGRAPHER: Associate=
d Press=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

Business; Financial Desk
JAMES FLANAGAN
Enron's Troubles Could Spur Securities Reforms
James Flanigan

11/25/2001
Los Angeles Times
Home Edition
C-1
Copyright 2001 / The Times Mirror Company

Ultimately, the fall of Enron Corp., the onetime rising star of the energy =
industry, may be remembered as a landmark in the annals of securities law a=
nd shareholder rights.=20
The firm's practices are under investigation by the Securities and Exchange=
 Commission. Enron is the focus of numerous shareholder lawsuits that seek =
to recover damages from the $60-billion plunge in the company's value in th=
e last year.
The Enron case could result in new securities laws, experts say. It also co=
uld result in massive damage awards because of the extent of stockholder lo=
sses. Shares sold at more than $84 apiece a year ago, and at $36 a month ag=
o before the emergence of hidden losses sent the price reeling downward to =
current levels below $5 a share. (The stock closed Friday at $4.71 on the N=
ew York Stock Exchange.)=20
Significantly, two suits against Enron charge that the firm's top executive=
s breached their fiduciary duty of loyalty and prudence by failing to infor=
m Enron employees of dangers to the company's finances while those employee=
s held Enron stock in their 401(k) retirement plans.=20
The firm's troubles raise fundamental questions of what a company owes shar=
eholders in the management and understandable disclosure of its accounts.=
=20
But Enron's predicament also goes to the heart of the U.S. financial system=
, says former SEC Chairman Arthur Levitt. Enron "represents a lack of the k=
ind of disclosure that is fundamental to maintaining confidence in U.S. pub=
lic markets," Levitt says.=20
Enron, technically speaking, disclosed in annual reports and proxy statemen=
ts for 1999 and 2000 the existence of partnerships that in some cases "acqu=
ired debt and certain equity securities of certain Enron subsidiaries." But=
 it did not disclose the significance of the partnerships, nor did it conso=
lidate their transactions in its reports to shareholders and the SEC.=20
Its references to the partnerships were in footnotes to financial statement=
s, written in the arcane legal language typical of such documents. For exam=
ple, disclosure of one partnership, LJM Cayman, read in part: "LJM received=
 6.8 million shares of Enron common stock, subject to certain restrictions =
and Enron received a note receivable and certain financial instruments hedg=
ing an investment held by Enron."=20
Enron entered into at least 33 partnerships, attracting investments from pe=
nsion funds and other investors in return for pledges of Enron stock at a g=
uaranteed value. One partnership held 12 million Enron shares, which at one=
 point were worth more than $1 billion.=20
Yet until this year, Enron treated the partnerships as insignificant to its=
 overall business, and so they were not required to be included in its over=
all accounts.=20
By treating its partnerships as non-consolidated subsidiaries, Enron could =
report lower debt burdens than it actually had, thus strengthening its cred=
it and enabling itself to grow into the largest energy trader in the world.=
=20
Enron became a pioneer of energy trading, a way of using financial techniqu=
es of trading forward commitments in natural gas and electricity to establi=
sh future prices on long-term supply contracts. As the business boomed, Enr=
on's revenue soared, from $20 billion in 1997 to $100 billion in 2000. Thro=
ugh three quarters of this year, the firm was on course to exceed $200 bill=
ion in revenue.=20
But in October, Enron announced that it had lost more than $600 million in =
the third quarter and that it needed to reduce shareholder equity by more t=
han $1 billion due to transactions with one of its partnerships.=20
Then on Nov. 8, Enron restated its accounts back to 1997, acknowledging tha=
t some of its partnerships should have been included in company accounts al=
l along. The restatement resulted in a reduction of reported profit by more=
 than $500 million. Enron's board of directors and auditors had ordered the=
 restatement, the firm said.=20
The stock price fell further, lawsuits ensued and Enron sought refuge in a =
merger with Dynegy Inc. Enron's financial position and stock price have wea=
kened since the merger announcement Nov. 9., so the Dynegy deal may go thro=
ugh at a reduced price, says analyst Stanley Foster Reed, who runs MergerCe=
ntral.com, an online information service.=20
But the question remains of how such a large, significant company could col=
lapse with so little advance notice.=20
Enron was a prominent company, not least because of Chairman Kenneth Lay's =
connections to the White House as formal energy advisor to the first Bush a=
dministration and as informal advisor to the current Bush administration.=
=20
The firm had more than 20,000 employees before recent layoffs, and it had m=
illions of investors through the holdings of pension funds such as the Cali=
fornia Public Employees' Retirement System, the college teachers retirement=
 plan TIAA-CREF and major mutual funds. Yet for all its prominence, Enron's=
 disclosures about its business were inadequate. "Disclosure" sounds like a=
 technical term, but it is the principle behind the laws passed in 1933 and=
 subsequent years to regulate securities markets and protect the public.=20
Companies issuing stock to raise financing from public investors are requir=
ed to disclose accurate and complete information about their business and t=
o have accounts certified by independent public accounting firms. The SEC, =
created in 1933, could not stop a company from issuing stock, but it could =
make it disclose all relevant facts about risks in its business.=20
The laws were written in the midst of the Great Depression, which followed =
the 1929 stock market crash. They were designed to remedy abuses such as th=
e case of Charles Mitchell, head of City National Bank (a predecessor firm =
of today's Citgroup), who sold his own company's shares short--that is, he =
bet on their price declining--just before the crash, without informing othe=
r shareholders. Before securities laws, Mitchell had no legal requirement t=
o disclose his activities; once the laws were passed, all top managers and =
directors of public companies had such legal, fiduciary duty.=20
The Enron case probably will lead to new laws regulating investments in sub=
sidiaries, experts say. The SEC staff has contemplated such regulations in =
the past but never made them law.=20
And the fallout from Enron could lead to tighter restrictions on firms putt=
ing their stock in employee retirement accounts. Also, it could lead to tig=
hter regulations on statements by top managers on the condition of the busi=
ness.=20
"This will be a case, with major issues of concealment from shareholders," =
says San Francisco attorney Steven Siderman, who is preparing a class-actio=
n lawsuit against Enron and Arthur Andersen, Enron's accounting firm.=20
Enron executives gave no indication of the company's troubles as late as Au=
gust, when Jeffrey Skilling, president and chief executive for only six mon=
ths, abruptly resigned. In response to questions of trouble in the company,=
 Skilling said, "There's nothing to disclose. The company's in great shape.=
"=20
Lay, who stepped back into the top post, told employees in August that Enro=
n's business was strong. "We've got a lot of great stuff going on and we're=
 not getting credit for it in the marketplace, but we will," Lay said.=20
However, both Lay and Skilling had been selling Enron stock for more than a=
 year at that point, Lay cashing out more than $140 million in stock option=
s and Skilling more than $60 million in options.=20
Meanwhile, employee 401(k) accounts, heavily laden with Enron stock, were f=
rozen this year because the firm changed account managers. Employees were s=
tuck as the stock plummeted.=20
The principle behind securities laws is that management of a public company=
, with so many employees, pensioners and other institutions depending on it=
, is a public trust.=20
The charge in the lawsuits being filed against Enron is that the firm, its =
executives and directors betrayed that trust.=20
Everyone is entitled to a fair trial, and Enron and its executives will sur=
ely have many days in court in the months and years to come in which to def=
end against the charge of betrayal of shareholders and employees.=20
The Enron case will be a landmark.=20
*=20
James Flanigan can be reached at jim.flanigan@latimes.com.

GRAPHIC: Restated and Mostly Reduced, Los Angeles Times;=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09


Financial
Hooked On a Fast- Growth Habit; CEOs Reach for Double-Digit Results Despite=
 Downturn, and Some Are Making Costly Mistakes
Steven Pearlstein
Washington Post Staff Writer

11/25/2001
The Washington Post
FINAL
H01
Copyright 2001, The Washington Post Co. All Rights Reserved

At this point, they almost can't help themselves -- it's become an addictio=
n for the top executives of Corporate America.=20
Delivering double-digit earnings growth year after year is no longer simply=
 what corporate re-engineers call a "stretch goal" for an organization, or =
a rare achievement to be celebrated. It's become a mandate, a benchmark, a =
test of corporate manhood, an expectation hard-wired into the corporate cul=
ture -- a narcotic that company leaders reach for the way most people reach=
 for an aspirin.
Never mind that the economy is contracting, or that prices are falling and =
profit margins are getting squeezed, or that most industries are unlikely t=
o grow more than 5 percent a year even after the recovery is here. The name=
 of the game these days is boosting the stock price, and the surest way to =
do that is to promise -- and deliver -- double-digit profit growth to Wall =
Street's cadre of analysts and money managers.=20
It's not just in the tech and telecom sectors, where the inflated growth ex=
pectations first took root. The addiction to double-digit growth has spread=
 across the corporate landscape to firms in older, mature industries desper=
ate for the "growth company" moniker that qualifies them for Wall Street's =
highest reward: a stock price equal to 20, 30, even 40 times their expected=
 annual earnings.=20
In the 1990s, "we went through a period of extraordinary high growth in pro=
fitability, and both managers and stock analysts have unthinkingly come to =
the conclusion that that was the norm," said Michael Jensen, a professor of=
 finance at the Harvard Business School. "Top-level management came to beli=
eve they could get a big company to grow 20, 30, 40 percent year after year=
 -- it was insanity. And in the process of trying to make that real, rather=
 than acknowledging it was a transitory phenomenon, more than a few wound u=
p destroying shareholder value rather than enhancing it."=20
Jensen said that it is now common for Wall Street earnings expectations to =
be the starting point for corporate budgeting and strategy-setting rather t=
han the result of it. "Nothing could be more irresponsible," he said.=20
James Paulsen, chief investment strategist at Wells Capital Management in M=
inneapolis, says this fascination with high growth rates peaked in 1999, at=
 the height of the stock market boom, when only 50 stocks in the Standard &=
 Poor's 500-stock index -- the hottest 50 growth companies -- actually went=
 up in value. In fact, these nifty 50 went up so much so that they lifted t=
he overall market indexes with them. The other 450 stocks declined.=20
"At that point, investors were only paying for growth," Paulsen said. "Divi=
dends, good cash flow, reliability -- they all meant nothing."=20
"If you were just growing at a stodgy 8 or 9 percent a year, you were negle=
cted, ignored," said Jeremy Siegel, finance professor at the Wharton School=
 of Management at the University of Pennsylvania. "You couldn't get good va=
luations."=20
In desperation, boring old electric utilities refashioned themselves into "=
merchant energy companies," while highly profitable pork producers added ne=
w product lines in order to be viewed as ready-to-eat food companies. And p=
erfectly good retail companies threw millions of dollars into misguided Web=
 ventures.=20
With the dot-com bust and the broader stock market collapse over the past y=
ear, many executives, investors and analysts claim to have learned their le=
sson and reduced expectations for growth. But according to Siegel, Paulsen =
and other experts, expectations remain unreasonably high by historical stan=
dards. Many of those executives, investors and analysts believe business to=
 be in a temporary lull before the "norm" of double-digit growth reasserts =
itself sometime next year.=20
"Most people's expectations are still way too optimistic," said Bill Miller=
, the legendary manager of Legg Mason's Value Trust, a $12 billion mutual f=
und.=20
David Nadler, chairman of Mercer Delta Consulting, says this "tyranny of gr=
owth" continues to lead too many companies to expand too quickly, make ill-=
advised acquisitions or diversify out of their areas of expertise. "The exp=
erience on that is that their shareholders wind up paying dearly for those =
mistakes," he said.=20
Indeed, many of the celebrated corporate crackups of the past year -- think=
 of Conseco Inc.'s costly foray into manufactured-home financing, Providian=
 Financial Corp.'s debacle with sub-prime credit card lending, Freightliner=
 LLC's truck glut and the record $50 billion write-off of acquisition costs=
 by JDS Uniphase Corp. -- came about as a result of companies trying to pus=
h earnings growth to the limit.=20
Corporate executives certainly have plenty of incentive to play the growth =
game, whether consciously or unconsciously. Most have multimillion-dollar c=
ompensation packages that include bonuses, stock and stock options, all tie=
d directly to growth in earnings and share price. And a rising stock price =
gives them a valuable new currency -- currency that can be used to buy shor=
t-term earnings growth through mergers and acquisitions and to offer valuab=
le stock options when recruiting top management and technical talent.=20
The stock option has a particularly pernicious impact, according to David M=
orrison, vice chairman of Mercer Management Consulting Inc. and co-author o=
f "The Profit Zone." Options become more valuable as the price of the compa=
ny stock rises above the point at which the options are issued. On the othe=
r hand, if things go bad, it doesn't matter how much the price of the stock=
 goes below the "strike price" -- the value remains zero. As a result of th=
is asymmetry between upside potential and downside risk, says Morrison, it =
is common for executives to take bigger risks with their companies than the=
y otherwise would have.=20
Ego also plays a role. Chief executives who deliver year after year of doub=
le-digit earnings growth wind up being lionized in business books, on magaz=
ine covers and on cable-TV news shows. They are invited to serve on other c=
orporate boards and to speak at investor conferences organized by celebrity=
 analysts. Their boards of directors give them wide latitude in running the=
 company.=20
By contrast, CEOs who don't have a good growth story to tell, or can't deli=
ver on it, risk finding themselves in early retirement.=20
Jeff Garten, dean of the Yale School of Management, recently interviewed 40=
 of the leading corporate chief executives for a new book, "The Mind of the=
 CEO." And more often than not, Garten said, the executives told him off th=
e record that while they knew the expectations about earnings growth are of=
ten unreasonable and unsustainable, they had no choice but to participate, =
or risk being dismissed as someone who simply "doesn't get it."=20
"The system penalized anyone who didn't play the game," Garten said. As a r=
esult, executives find themselves on a treadmill -- always in a desperate s=
earch for ways to deliver the next increment of growth that will justify th=
e unrealistic earnings expectations in which they themselves were complicit=
.=20
Analyst William Steele said he has seen it time and again in the consumer p=
roducts sector that he follows for Bank of America Securities Inc., as comp=
anies that had always been "solid singles hitters" suddenly started swingin=
g for the fences.=20
"What you've seen is companies making ill-advised acquisitions, abusing the=
ir balance sheets [by taking on too much debt or issuing too much stock] an=
d under-investing in their brands," said Steele.=20
Take the case of Freeport, Ill.-based Newell Co., which for more than 30 ye=
ars had enjoyed steady earnings growth by buying up underperforming housewa=
res companies and "Newellizing" them -- bringing in new management, cutting=
 costs, scrapping unprofitable products, consolidating distribution and win=
ning more space on retail shelves. But by the late 1990s, after 75 acquisit=
ions that included Calphalon cookware, Levelor window blinds and Rolodex ca=
rd files, the number of good turnaround prospects had dwindled. And with gr=
owth in sales of consumer products slowing to single digits, Newell executi=
ves needed something that would keep them in double-digit territory.=20
That something, they thought, was Rubbermaid, for years one of the most res=
pected companies among executives and investors, but one that had stumbled =
badly beginning in 1996. It was far and away Newell's biggest acquisition, =
bought with newly issued Newell stock valued at $5.8 billion, a 50 percent =
premium over Rubbermaid's market price at the time.=20
The Rubbermaid deal closed in the spring of 1999, and Newell Rubbermaid's f=
inancial performance has declined ever since, a reflection not only of the =
slowing economy but of problems within the company itself. Total profits fo=
r the combined firm are barely higher than they were before the acquisition=
, and because of the debt taken on and new shares issued to finance the pur=
chase, the best measures of financial performance -- earnings per share and=
 return on assets -- have both declined. After the company repeatedly faile=
d to meet the quarterly sales and growth target it had promised Wall Street=
, chief executive John J. McDonough was fired in October of last year.=20
Given that history, the current economic uncertainty and continued weakness=
 in quarterly earnings, one might think that Newell's new executive team wo=
uld steer clear of making grand promises to Wall Street. But in June, after=
 barely six months on the job, the new chief executive, Joseph Galli Jr., t=
old Wall Street analysts that a restructuring program he had instituted wou=
ld allow the company to post a 15 percent earnings increase in 2002. At $26=
, analysts say the stock price now reflects an expectation that Newell Rubb=
ermaid will meet this double-digit growth target.=20
In an interview last week, William T. Alldredge, Newell's chief financial o=
fficer, explained that the 15 percent growth target for next year was reaso=
nable because the company's profits this year, against which next year's wi=
ll be compared, are so depressed. Going forward, however, he acknowledged t=
hat growth rates would be closer to 10 percent than 15 percent, and they wo=
uld come from squeezing more profit out of existing brands rather than thro=
ugh acquisitions.=20
"I'm not sure we see the enormous upside potential that we once did," said =
Alldredge, who insisted, nonetheless, that Wall Street should continue to v=
alue Newell Rubbermaid as a "growth company."=20
To this day, "old-fashioned" chief executives such as Warren Buffett remain=
 puzzled as to why executives still can't resist the urge to promise invest=
ors any particular level of earnings growth, given all the uncertainties of=
 running a business. In the annual report to shareholders of his Berkshire =
Hathaway Inc. in February, he noted that only a handful of companies have e=
ver been able to sustain 15 percent earnings growth for more than a decade.=
 Such promises, he said, not only spread "unwarranted optimism" among inves=
tors, he said, but "corrode" behavior by top executives -- in some cases be=
havior so corrosive that it spills over into deceptive accounting. As it tu=
rns out, the chief executives of Sunbeam, Xerox, Waste Management and Enron=
 all lost their jobs in recent years after major-league earnings overstatem=
ents were uncovered during their watch.=20
(Buffett's Berkshire Hathaway is a significant investor in The Washington P=
ost Co., which, like Berkshire, provides no earnings guidance to Wall Stree=
t investors.)=20
James Johnson, the former chairman of Fannie Mae, has heard all these criti=
cisms, and can even add a few of his own. But he said that for every compan=
y that overpromised and overreached, there were others where the focus on e=
arnings growth has led to breakthrough innovations, successful new corporat=
e strategies and big gains in productivity.=20
"It's what makes American capitalism so unique -- and so successful," said =
Johnson, whose ability to deliver on a promise of double-digit earnings gro=
wth in every year but one led to a dramatic increase in Fannie Mae's stock =
price during his tenure. It also made Johnson a very rich man.=20
"It's a tricky balance," said David Winters, president and chief investment=
 officer of Mutual Series Fund Inc., a New Jersey-based mutual fund. "You d=
on't want companies to be sleepy, or set the bar so low that they can easil=
y step over it. But you don't want companies that overpromise and underdeli=
ver."=20
Certainly no chief executive took the goal of posting double-digit earnings=
 growth each year more seriously than John F. Welch Jr., who recently retir=
ed as chairman of General Electric Co. On Jack Welch's watch, division mana=
gers who failed to contribute to the corporate goal were routinely fired or=
 had their divisions sold off. And critics have charged that the unrelentin=
g pressure led, on occasion, to accounting gimmicks and questionable busine=
ss practices -- a charge Welch repeatedly denied.=20
Yet according to Noel Tichy, a professor at the University of Michigan Busi=
ness School, it was the demand for double-digit earnings growth year after =
year that forced managers of GE's old-line manufacturing divisions to get i=
nto the growing and profitable business of servicing and financing the turb=
ines and medical equipment they made.=20
"I don't know when it would ever be the right decision not to try to grow f=
ast," said Tichy, co-author of a book titled "Every Business Is a Growth Bu=
siness." And even while acknowledging that companies have been known to do =
dumb things in the pursuit of earnings growth, the good ones don't.=20
"If you don't have goals that force executives to stretch themselves and th=
eir organization, you don't optimize performance," Tichy said.=20
Business guru James Collins disagrees. In a new book, "Good to Great," Coll=
ins argues that the companies that sustain really high growth rates over lo=
ng periods of time are those that don't set growth as an explicit goal. Rat=
her, Collins says, the best companies operate less out of some corporate br=
avado than a determination to understand their business and their success a=
nd to capitalize on that understanding.=20
"Great companies don't come about because the CEO wants to be a celebrity o=
r please the share-flippers, and certainly not because he or she wants to h=
it the top targets on the compensation plan," Collins said last week. "The =
common thread among the CEOs of the truly great companies is that their amb=
ition is to build something that can outlast themselves. The growth comes a=
s a byproduct of that."=20
Harvard's Jensen said that the only way to lick Corporate America's growth =
addiction is for more executives to muster the courage to stand up to Wall =
Street and begin setting realistic expectations for their companies. Such a=
 strategy might occasionally require a CEO to tell investors that his compa=
ny's stock is overvalued -- a truly novel idea in today's environment, wher=
e executives almost reflexively complain that their share price is too low.=
 And it might require executives at some companies to make clear that their=
 stock may be inappropriate for growth funds and hedge-fund managers.=20
"Companies generally get the shareholders they deserve," said Miller, Legg =
Mason's money manager.=20
But Norman Augustine, the retired chairman of Lockheed Martin Corp., warns =
that "standing up to Wall Street" may not be as easy as it sounds.=20
"We all sit around complaining about the short-term mentality on Wall Stree=
t and the fund managers who say they'll dump our stocks if we don't show do=
uble-digit earnings growth every quarter," Augustine said. "And then the ma=
nager of our own corporate pension fund comes in and says, 'We have two fun=
ds that didn't do well for us this quarter, so I dumped them.'=20
"And there it is," Augustine said. "We have met the enemy, and it is us!"


http://www.washingtonpost.com=20
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

The Enron scandal
A V Rajwade

11/26/2001
Business Standard
10
Copyright (c) Business Standard

Enron has always been recognised by other companies as best practice in ris=
k management. It put in systems to manage risks on a real-time basis and ha=
d very strong management." James Lam, founder of eRisk, a consulting firm.=
=20
As an occasional teacher and more regularly a student of the subject of man=
agement of price risks, I have been an admirer of Enron's elaborate disclos=
ure of its risk management practices. And yet, in a cascade of events over =
a period of just three weeks from mid-October, it lost two-thirds of its sh=
are value, became the subject of a US Securities Exchange Commission (SEC) =
investigation, and was taken over by a rival a third in size. (Latest repor=
ts create some doubt about whether this will go through.) What went wrong?
No, the events had nothing to do with Dabhol. Indeed, if, for us in India, =
Enron will always be associated with the controversial power project, elsew=
here it is likely become a case study for students of accounting, finance a=
nd general management. (On second thoughts, even its Indian adventures woul=
d make an excellent case study!)=20
But first, a recount of what happened. After announcing on October 16, with=
out much explanation or transparency, that it has taken a charge of $ 1.2 b=
illion against equity, Enron's share price started tumbling. Apparently, th=
e charge was the result of some financial transactions, and the SEC launche=
d an investigation. The chief financial officer (CFO), who was directly inv=
olved with the transactions, the company's treasurer and a couple of other =
senior officials were sacked.=20
Perhaps most damagingly, Enron revised its accounts from 1997 onwards, redu=
cing profits by about $ 600 million and increasing debt by a somewhat simil=
ar amount. As a result, Enron's credit rating was downgraded.=20
It seems the root problem was not in its basic business of power and gas tr=
ading, but in its investment activities controlled by the CFO. These compri=
sed private equity, and Enron's share in each of the investee companies was=
 kept artificially below 50 per cent to avoid consolidation of accounts. To=
 this end, outside investors were brought in and assured of equity in Enron=
 itself, should the value of the investee company(ies) fall below agreed th=
reshold(s).=20
All this was done to keep the losses in investments off-balance sheet, and =
mitigate their impact on reported profits. Many other US corporations inclu=
ding J P Morgan Chase, which had large private equity investments, have suf=
fered on this score (see World Money October 15). Enron wanted to avoid thi=
s and, last year, paid its since-dismissed CFO $ 30 million for his creativ=
e accounting genius.=20
Incidentally, those enamoured of US GAAP and its alleged superiority over t=
he rest of the world should note that all these gimmicks were blessed by th=
e company's auditors one of the Big Five firms, which was paid $ 25 million=
 as audit fees and $ 27 million for other services by Enron last year.=20
The restatement of the accounts from 1997 onwards became necessary as the E=
nron management/board and the auditors were forced, on review, to admit tha=
t at least some of the transactions should have been on, rather than off, b=
alance sheet. Details of all the transactions in question are yet to come o=
ut, but what has come out is bad enough.=20
But this apart, a billion dollar hit for a company of the size ($ 300 billi=
on) or cash flow ($ 3 billion) of Enron is, by itself, hardly a death warra=
nt. But it turned out to be just that for Enron.=20
Perhaps because it was too arrogant? Perhaps also because its accounts lack=
ed transparency and their opaqueness ensured that investors' confidence was=
 always somewhat fragile?=20
But there are two other points worth noting: the professionalism of equity =
analysts and whether the event restores somewhat the balance between tradin=
g and producing. As for the first, the professional analysts were surely aw=
are of the opaqueness of the accounts,but few questioned the management agg=
ressively on the subject. Perhaps the stock was too glamorous and typified =
the spirit of the times trading assets was what the "masters of the univers=
e" did, not the boring old business of producing oil or power or cars. The =
Enron management itself was proud of the way it operated in its principal a=
ctivity of trading in power and gas, with Skilling, the former CEO, claming=
 that "we are on the side of angels. We are taking on the entrenched monopo=
lies. We are bringing the benefits of choice and free markets to the world.=
" (The quotation is from an interview in BusinessWeek, prior to Skilling's =
inglorious exit from Enron a couple of weeks before the bubble burst).=20
For the analysts, there was also safety in numbers. Skilling claimed that "=
Enron's operations are built around the integration of modern financial tec=
hnologies and physical technologies", bringing derivatives theory to tradin=
g in power and gas! Obviously, the fate of Long Term Capital Management has=
 not led to more sober management of trading risks.=20
Surely the role of "markets" should be to reduce the distance, and cost, be=
tween producer and consumer? One does feel that there is something perverse=
 in a society that values, in terms of compensation, the trader (don't forg=
et this is just a euphemism for the speculator) over the producer whether i=
n the bond, currency or power and gas markets. The markets and, indeed, gre=
ed obviously have a role to play, but surely the pendulum needs to swing a =
little bit to the left?

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09



India's Mehta Comments on Birla Group Offer to Buy Enron Stake
2001-11-26 03:42 (New York)

     Mumbai, Nov. 26 (Bloomberg) -- Jaywantiben Mehta, India's
union minister of state for power, comments on reports of Aditya
Birla Group, which owns Grasim Industry Ltd., the nation's third-
biggest cement maker, bidding for Enron's stake in Dabhol Power
Co.

     Enron wants to sell its 65 percent stake in Dabhol Power,
India's biggest foreign investment, at cost. The project is mired
in a tariff dispute over $64 million in bills that haven't been
paid by the Maharashtra State Electricity Board, its only
customer, for eight months.

     ``One more bidder will increase competition, which is
welcome.

     ``Any step in the national interest is good.

     ``Cheap energy is always in the national interest since we
want to increase electricity generation and sell it at a
reasonable price.

     ``I can't comment on the time-frame of buying out the Enron
stake until the legal wrangles are solved. Once that's cleared,
then we will try and clear the proposal quickly.''

--Gautam Chakravorthy in the Mumbai newsroom (91-22) 233-9027


Enron Says It's Still in Talks With Possible Investors for Cash
2001-11-25 17:36 (New York)

Enron Says It's Still in Talks With Possible Investors for Cash

     Houston, Nov. 25 (Bloomberg) -- Enron Corp. said talks are
continuing with potential investors for an infusion of as much as
$1 billion, as the biggest energy trader tries to avoid a collapse
of its planned purchase by Dynegy Inc.

     An investment would ease concern that Enron's weakened
finances may prompt Dynegy to pull out of or renegotiate the terms
of the transaction, which is valued at $23 billion in stock and
assumed debt.

     Enron is seeking an additional $500 million to $1 billion in
cash but wouldn't divulge details. ``We are not going to discuss
the particulars of who we are talking to,'' said Enron spokeswoman
Karen Denne.

     Shares of the Houston company fell by 48 percent in the past
three trading sessions. At Friday's closing price of $4.71, the
stock sells for less than half the $10.85 that Dynegy is slated to
pay in the acquisition. That's a sign investors are skeptical the
transaction will go through as planned.

     Enron is likely to have approached Kohlberg, Kravis Roberts &
Co., the Blackstone Group and the Carlyle Group for a private
equity investment, said industry analyst David Snow of
PrivateEquityCentral.Net. The firms have declined to comment.

     On a conference call Nov. 14 Enron Chief Financial Officer
Jeffrey McMahon said the company is in talks with several private
investors and expects to receive $500 million to $1 billion from
these sources.

     On Wednesday, Enron got a three-week reprieve from lenders on
a $690 million note due this week, giving the company more time to
restructure its finances. Dynegy Chief Executive Chuck Watson said
he was ``encouraged'' by the commitment to extend the note
payment, as well as the closing of a $450 million credit facility.
He said Dynegy remained committed to the purchase.

     Enron already received $1.5 billion in cash Nov. 13 from
ChevronTexaco Inc. as part of the Dynegy buyout agreement. In
return, Dynegy will acquire preferred stock and other rights in an
Enron unit that owns the Northern Natural Gas pipeline.

     Barron's reported over the weekend that Dynegy may have a
difficult time walking away from the deal because its right to the
pipeline might be challenged by J.P. Morgan Chase & Co. and
Salomon Smith Barney Inc., who accepted the asset as collateral
for $1 billion in loans to Enron.

     Dynegy spokesman John Sousa declined to comment on Enron's
attempts to secure financing or whether more cash for Enron is a
condition of keeping the merger alive.

     Enron's dealings with affiliated partnerships have led to a
federal investigation of the company, which restated its earnings
and saw its credit ratings cut.

     The company said in a Securities and Exchange filing a week
ago that it has less than $2 billion in cash and credit lines
left.

--Mark Johnson in the Princeton newsroom (609) 750-4662


FREE AND CLEAR OF ENRON'S WOES
Edited by Sheridan Prasso=20
By Stephanie Anderson Forest

11/26/2001=20
BusinessWeek=20
Page 16=20
(Copyright 2001 McGraw-Hill, Inc.)=20
Back in Enron's heyday, one of its rising stars was Rebecca Mark. Nicknamed=
 ``Mark the Shark'' because of her ferocious ambition, she made her name in=
 the early '90s building the energy giant's international operations, inclu=
ding the now-troubled Dabhol power plant in India. Once rumored to be a suc=
cessor to Enron CEO Ken Lay, she resigned from Enron in August, 2000, after=
 two years of heading Enron's ailing water company spin-off, Azurix .=20
These days, as Enron struggles to stay afloat, Mark-Jusbasche (who hyphenat=
ed her name with that of her husband of two years) is watching the action f=
rom the sidelines. And she'd like to keep it that way. ``I'm very surprised=
 and saddened by [what has happened at Enron], and I wish them all the best=
,'' she says. Beyond that, Mark-Jusbasche, 47, is not much interested in ta=
lking about Enron, which is being acquired by a small rival after a spectac=
ular Wall Street flameout. Mark left Enron with millions of dollars worth o=
f Enron shares, although she says she has sold them since.=20
Mark-Jusbasche spends most of her time serving on advisory boards, both at =
Yale and Harvard business schools, as well as the school where her 16-year-=
old twin sons from a previous marriage are sophomores.=20
In her spare time, she seeks out opportunities for investing. Currently, Ma=
rk-Jusbasche is considering alternative-energy and water-technology compani=
es. A farm girl from Missouri, she has one investment focus that's especial=
ly dear to her heart: looking into expanding her cattle ranches. She now ow=
ns 15 acres in New Mexico. ``I'm doing things that are fun, interesting, an=
d important to me--family and community,'' she says. Sure beats being anywh=
ere near Enron.

COMPANIES & FINANCE UK - Enron seeks survival pact to aid Dynegy's $9bn res=
cue.
By ANDREW HILL and SHEILA MCNULTY.

11/24/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Crisis-hit Enron is seeking to extend its survival pact with its key lender=
s long enough to be rescued by Dynegy, the rival energy group.=20
Dynegy said it was "continuing with confirmatory due diligence" for its all=
-stock rescue bid. The offer is still worth $9.3bn ( #6.5m), even though En=
ron's market capitalisation has halved this week to $3.5bn.
Enron's survival is crucial to the smooth running of the electricity and po=
wer markets, where it claims to be the principal in 25 per cent of all tran=
sactions.=20
Enron sought to allay fears that Dynegy might change the terms of its offer=
, or withdraw.=20
Withdrawal of the rescue bid would call into question Enron's credit rating=
s, which remain one notch above "junk" status. Ratings agencies held off do=
wngrading Enron two weeks ago, because such a decision would trigger repaym=
ent of debt issued by off-balance-sheet partnerships that Enron used to sup=
port its rapid expansion over the past two to three years.=20
Even so, the terms of recent credit lines extended to Enron suggest lenders=
 already regard the company as a non-investment grade risk. The bonds are t=
rading as though the company is heading for a Chapter 11 bankruptcy filing.=
=20
Glen Grabelsky of Fitch, the rating agency, said there were two possible ou=
tcomes for Enron: "One is that the transaction goes through; and the other =
is that the viability of this company is in question."=20
Enron's shares fell to $4.74, a further 5.4 per cent drop, in a shortened s=
ession of trading yesterday morning in New York, as investors continued to =
express concern about Dynegy's commitment to the deal.=20
John Olson, vice president of research at Sanders Morris Harris, the Housto=
n-based investment banking and securities firm, said: "With Enron trading a=
t 4 bucks and change it might make sense for them to go into bankruptcy and=
 salvage this thing the right way."=20
Observers close to Enron say Wednesday's decision by JP Morgan Chase and Ci=
tigroup to finalise a $1bn secured credit line, and the deferral of a $690m=
 repayment of notes due next Tuesday, have reduced the pressure on the grou=
p. If Dynegy were to renegotiate the terms of its deal - and that may depen=
d on legal clauses within the original merger agreement - that would not af=
fect Enron's financial situation, they say.=20
As well as negotiating with its lenders through the weekend, Enron is also =
seeking further investments from JP Morgan Chase, Citigroup and private equ=
ity firms in an attempt to shore up confidence. www.ft.com/enron.=20
(c) Copyright Financial Times Ltd. All rights reserved.=20
http://www.ft.com.

USA: Enron employees sue as pension savings evaporate.
By Andrew Kelly

11/25/2001
Reuters English News Service
(C) Reuters Limited 2001.

HOUSTON, Nov 25 (Reuters) - After climbing utility poles in all kinds of we=
ather for 35 years, Roy Rinard was hoping to retire in a few years, but tha=
t was before the collapse in Enron Corp.'s stock price devoured his retirem=
ent savings.=20
"I'm basically wiped out," said Rinard, 54, who works for Portland General =
Electric, an Oregon utility company acquired by the Houston-based energy tr=
ading giant in 1997.
"I'm right back to ground zero and I'll have to go on working as long as I =
can," said Rinard, who suffers from arthritis and a lung condition that lea=
ves him short of breath.=20
Encouraged by Enron's then-strong performance and the company's bullish vie=
w of its future prospects, Rinard moved all of the money invested in his 40=
1(k) retirement account into Enron stock earlier this year.=20
But it proved to be a costly decision as the value of his account fell from=
 $470,000 a year ago to around $40,000 today.=20
Rinard now hopes a lawsuit filed in U.S. District Court in Houston will rec=
over at least some of his money.=20
The suit, filed on behalf of Enron employees by Seattle-based law firm Hage=
ns Berman, alleges that Enron breached its fiduciary duty by encouraging it=
s employees to invest heavily in Enron stock without warning them of the ri=
sks of doing so.=20
Enron's stock, which peaked at $90 in August 2000, closed at $4.74 on Frida=
y, after falling sharply in recent weeks amid a series of damaging financia=
l disclosures.=20
A broadly similar suit filed by the Keller Rohrback law firm, also Seattle =
based, alleges that another Enron employee, Pamela Tittle, lost $140,000 on=
 Enron stock held in her retirement account.=20
According to that suit, the Enron retirement savings plan had assets worth =
$2.1 billion at the end of last year, including $1.3 billion, or 62 percent=
 of the total, in Enron stock.=20
DOUBTS EMERGE ABOUT DYNEGY DEAL=20
Enron, a former Wall Street favorite, agreed to be bought out earlier this =
month by smaller energy trading rival Dynegy Inc., but continuing problems =
at Enron have caused some analysts to question whether the deal will be com=
pleted.=20
Doubts have also been expressed about a planned sale of Portland General to=
 Northwest Natural Gas .=20
Hagens Berman plans to seek class-action status for its suit and says 21,00=
0 Enron employees could be eligible to join it.=20
The suit alleges that Enron "locked down" 401(k) retirement accounts on Oct=
. 17, preventing employees from changing the investments they held in their=
 accounts until Nov. 19.=20
During that period Enron reported its first quarterly loss in four years an=
d took a charge of $1.2 billion against stockholders' equity as a result of=
 off-balance-sheet deals that would later come under investigation by U.S. =
regulators.=20
In that time, Enron shares fell from $30.72 at the close of trading Oct. 16=
 to $11.69 on Nov. 19.=20
Enron spokeswoman Karen Denne said employees' access to the accounts was bl=
ocked as part of a previously planned change in the administration of the r=
etirement plan and that the measure was in effect from Oct. 26. to Nov. 19.=
=20
Steve Lacey, a 45-year-old emergency repair dispatcher who has worked for P=
ortland General Electric for 21 years, said the measure came at a time when=
 bad news about Enron was flying thick and fast, driving the stock price do=
wn at a dizzying pace.=20
"We couldn't take our money out of Enron stock into another portfolio. Basi=
cally they had us locked down to where we had no say over our own future," =
he said.=20
Lacey declined to quantify his own losses but said he and many of his colle=
agues had invested most of their retirement funds in Enron stock because it=
 had performed better in the past than the other investments available unde=
r the Enron plan.=20
Denne said Enron employees were normally able to choose among 18 different =
investment options, but Enron's matching contributions were always made in =
the form of its own stock.=20
Lacey said he felt sorry for older colleagues at Portland General who had s=
uffered a heavy financial blow just before they were due to retire, adding =
that he was only beginning to realize how serious the consequences could be=
 for himself.=20
"My goal was to have an extremely comfortable retirement and that may be a =
little clouded now," he said.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09

INDIA PRESS: Aditya Birla May Buy Enron's Dabhol Stake

11/25/2001
Dow Jones International News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- India's Aditya Birla group is considering acquiring=
 Enron Corp.'s (ENE) stake in Dabhol Power Co., reports the Economic Times.=
=20
Dabhol is a 2,184-megawatt joint venture power plant located in the western=
 Indian state of Maharashtra. It is a unit of U.S.-based energy company Enr=
on.
The newspaper says the group is exploring the possibility of submitting an =
expression of interest with Indian financial institutions to buy Enron's st=
ake in Dabhol.=20
Officials from Aditya Birla weren't available for comment, the report says.=
=20
Enron holds a controlling 65% stake in Dabhol. Costing $2.9 billion, the po=
wer project is the single largest foreign investment in India to date. News=
paper Web site: www.economictimes.com=20

-By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dow=
jones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09


Canadian Oil and gas companies on high alert after terror alert

11/25/2001=20
The Canadian Press=20
Copyright (c) 2001 The Canadian Press. All rights reserved.=20
VANCOUVER (CP) _ Canadian oil and gas companies are on high alert after bei=
ng warned that Islamic terrorists loyal to Osama bin Laden may be planning =
to blow up energy installations and pipelines in North America.=20
The warning, issued last week by the American Petroleum Institute, said ``s=
uch an attack would allegedly take place in the event that either bin Laden=
, or Taliban leader Mullah Omar, are either captured or killed.''=20
The alert was distributed to select officials of utility companies througho=
ut North America by the institute, the industry's official voice.=20
It said the information ``that Osama bin Laden may have approved plans to a=
ttack natural gas supplies'' is currently ``uncorroborated,'' pending furth=
er FBI checks.=20
But it advised utility companies that ``the planning that went into the Sep=
t. 11 attacks strongly suggests that terrorist cells are already establishe=
d inside the U.S. and may simply be awaiting instructions to strike.''=20
``Failing to strike a high-profile blow against targets on American soil wi=
ll raise the question of Taliban and al-Qaida legitimacy in their global fi=
ght against the United States.''=20
The institute did not identify the source of the information nor potential =
targets. It is understood the RCMP have been notified of the alert.=20
B.C. Gas spokesman Dean Pelkey said it has received the alert and will ``st=
ay vigilant.''=20
The priority, he said, is pipeline security.=20
``Some additional precautions have been taken but I do not want to go into =
any details,'' Pelkey said.=20
A security analyst, who asked not to be named, said measures taken by Canad=
ian utility companies are likely to include restricting access to sensitive=
 areas, a high-profile presence with guards and closing off areas such as a=
bove-ground wells and pipeline junctions.=20
Aerial surveillance of pipeline routes and installation of remote-sensing d=
evices may also be part of the plan.=20
``Generally, underground pipelines and storage facilities are difficult to =
target,'' he said.=20
``What is key when you are dealing with Islamic terrorists is to prevent th=
e use of suicide bombers and car bombs to attack above-ground installations=
.''=20
In addition to B.C. Gas's hundreds of kilometres of gas pipelines and stora=
ge facilities, security has also been stepped up at B.C. Hydro's 29 dams, f=
our thermal plants and 1,825 kilometres of major transmission lines.=20
Even before last week's alert, the Alberta government formed a ministerial =
security task force to enhance security at energy production and transmissi=
on facilities.=20
The facilities include Edmonton's Refinery Row, Fort Saskatchewan's petroch=
emical and chemical projects and the pipeline network.=20
That includes the collector point at Empress, Alta., east of Calgary near t=
he Saskatchewan border, the petrochemicals plants at Joffre, Alta., east of=
 Red Deer, and Fort McMurray's oilsands project.


USA: FERC rule on natgas shipping needs more work-industry.
By Chris Baltimore

11/21/2001=20
Reuters English News Service=20
(C) Reuters Limited 2001.=20
WASHINGTON, Nov 21 (Reuters) - The Federal Energy Regulatory Commission's (=
FERC) proposal to loosen scheduling rules for natural gas pipeline shippers=
, meant to boost competition and supplies, could have the opposite effect, =
some companies and industry groups told the agency this week.=20
FERC proposed the changes last month to enhance competition on the U.S. int=
erstate natural gas pipeline grid by allowing gas shippers to make same-day=
 changes to their schedules to meet changing supply and demand.=20
The changes are supported by the American Gas Association, which represents=
 U.S. gas producers.=20
FERC stepped in after the Gas Industry Standards Board (GISB), the industry=
's self-regulating rulemaking body, failed to reach consensus on the issue.=
=20
Current GISB standards require pipeline operators to wait at least a day be=
fore changing their preset shipment schedules, which slows the market's abi=
lity to react to changing conditions, FERC said.=20
Instead, FERC proposed allowing pipeline shippers to make same-day changes =
in schedules.=20
The agency's comment period on the proposal, which ended on Monday, produce=
d a mixed reaction from pipeline operators and industry groups.=20
The Electric Power Supply Association (EPSA) warned FERC in a written filin=
g the change could reduce the flexibility of electric generators to obtain =
natural gas supplies.=20
The trade group, which represents independent power generators and marketer=
s, asked FERC to limit pipeline operators' authority to change schedules to=
 give power plant operators greater supply certainty.=20
A group representing pipeline owners also expressed concern.=20
The Interstate Natural Gas Association of America said the new rules could =
"increase market volatility and thereby could reduce flexibility and reliab=
ility for other parties." The pipeline group asked FERC to clarify some lan=
guage in the rule to allay concerns.=20
A Dynegy Inc letter to FERC also warned the rule could degrade reliability.=
=20
An Enron Corp. subsidiary agreed the changes could increase flexibility and=
 competition, but raised concerns that newly available capacity might not b=
e offered equitably to market participants.=20
Enron and El Paso Corp. , which owns one of the largest U.S. pipeline syste=
ms, asked FERC to hold a technical conference on how the changes would be i=
mplemented.=20
Williams Cos Inc. , which owns gas production and pipelines, said it favore=
d the measure but asked FERC to give industry enough lead time to change th=
eir systems to accommodate it. The company also asked FERC to "grandfather"=
 existing capacity arrangements to exempt them from the requirements.=20
Gas producers said they welcomed the proposed change in pipeline scheduling=
 rules.=20
The American Gas Association, which represents major gas producers, said th=
e measure would boost competition in the U.S. natural gas market. The chang=
es would also "better ensure continued reliability of natural gas service, =
enhance daily balancing abilities and make more capacity available on the i=
nterstate grid," the group said.
