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Executive Pay
Business Week, 04/16/01 WORLD BUSINESS BRIEFING: ASIA ENRON PAYMENT DISPUTE The New York Times, 04/11/01 Markets / Your Money Cold Weather Fuels Utility Earnings Energy: Natural gas and power producers are expected to continue to outshine the market. Los Angeles Times, 04/11/01 Energy Cost Study Critical of Public Agencies Too Power: DWP is among three government-run producers cited as driving prices up. Spokesmen deny any market manipulation. Los Angeles Times, 04/11/01 UK: ANALYSIS-French power trading market starts to emerge. Reuters English News Service, 04/11/01 BRAZIL: INTERVIEW-Brazil's Copel prime privatisation target. Reuters English News Service, 04/11/01 Renegotiate both phases of Dabhol: Godbole panel Business Standard, 04/11/01 Executive Pay APRIL 16, 2001 Business Week SPECIAL REPORT While the CEO gravy train may be slowing down, it hasn't jumped the rails. In 2000, despite weakening returns, U.S. company chieftains bagged on average a princely $13.1 million Joseph M. Magliochetti watched helplessly last year as his market crumbled. The CEO of auto-parts maker Dana Corp. (DCN ) saw North American heavy-truck production tumble, the Big Three Detroit auto makers scale back production, and demand for replacement parts weaken. Despite his best efforts, sales at the Toledo company fell 6%, profits plummeted 44%, and Dana's stock lost more than half its value, turning most of Magliochetti's stock options into so much worthless paper. By almost any measure, Magliochetti was still rewarded handsomely. The Dana board gave him the $850,000 salary it had promised him in December, 1999, based on strong sales and profits for that year, and an option grant to bring him in line with his peers. But it stripped him of his bonus and stock grant, awards that had brought him a cool $1.8 million in 1999. The board cited his failure to beat goals for net income growth and return on invested capital. In all, Magliochetti's pay in 2000 came to $948,363, down 63% from 1999, making him one of only a handful of top executives to bring home less than $1 million. That's right: In setting Magliochetti's pay, the board in effect said: "The company failed to prosper, and we're holding you accountable." Makes sense, right? Not in the world of executive compensation. In fact, Dana's actions are extraordinary compared with the way most corporations responded to sluggish performance in 2000. While shareholders got hammered, many compensation committees scrambled to cushion their chief executives from feeling any real pain, granting massive blocks of new stock options in some cases and in others forgiving corporate loans. The average CEO, riding a still-hot market for top management talent, earned a stupendous $13.1 million last year, according to the results of BusinessWeek's 51st annual Executive Pay Scoreboard, compiled with Standard & Poor's Institutional Market Services, a division of The McGraw-Hill Companies. Cash compensation for the CEOs at 365 of the largest U.S. companies increased 18% in 2000, while total pay increased 6.3%. That far exceeds the 4.3% pay hike that salaried workers got last year, and it widens still further the yawning gap between the boss and the rank and file. As usual, compensation committees handed out perks like candy. Retirees were showered with the standard gifts: lucrative consulting jobs, company cars, and hefty pensions. John F. Welch of General Electric Co. (GE ), who is set to retire at the end of the year, got a pay package valued at $122.6 million in recognition of his "20 years of outstanding service as CEO." And you didn't have to leave to be generously rewarded. Apple Computer Inc.'s (AAPL ) Steven P. Jobs landed the mother of all bonuses after three years of working for free: his own $90 million jet, a Gulfstream V. IN TEARS. But while the CEO gravy train hasn't run off the rails, it is slowing down. The increase in total compensation was the smallest in five years, and 2000 was the second consecutive year of slower executive pay growth. The reason had little to do with anything decided by boards of directors, though: The same market crash that had investors in tears made many executives' stock options worthless. An analysis by compensation consultants Pearl Meyer & Partners Inc. found that the five hardest-hit lost a total of $62 billion in paper wealth. And with far fewer executives able to cash in, overall CEO pay growth slowed. Still, there was some evidence that more boards, like Dana's, were toying with the notion that CEOs should suffer along with their shareholders. Last year, 26% of CEOs saw their cash compensation decline, compared with 19% in 1999. Schering-Plough's (SGP ) Richard Jay Kogan, Whirlpool's (WHR ) David R. Whitwam, and Texas Instruments' (TXN ) Thomas J. Engibous all lost portions of their bonuses. All of which raises an interesting question: Will compensation committees wield a carrot or a stick as they meet to calculate CEO rewards in 2001? Some boards are building tough performance goals into future stock and option awards, raising the possibility that some big-name executives who don't meet the goals could walk home with much less this year. With the Nasdaq more than 50% off its high by the end of last year, and the Dow Jones industrial average and Standard & Poor's 500-stock index both well off their high-water marks, many options will take months, maybe years, to recover. And if corporate profits continue to slide, few companies will be able to justify giving out big bonuses for great performance in 2001. Says Peter Chingos, head of the executive compensation practice at consultants William M. Mercer Cos.: "We're seeing a more conservative movement in compensation increases, largely because of what happened with stock prices. I don't think this is going to go away overnight." For now, though, pay cuts remain theoretical for most CEOs. The 20 highest-paid earned an average $117.6 million, up from $112.9 million in 1999. The biggest pay package went to John S. Reed, the former co-CEO of Citigroup (C ). Reed, who left the firm in April after a power struggle with co-CEO Sanford I. Weill, brought home $293 million, almost entirely by exercising options. As a group, the 20 highest-paid CEOs were almost evenly divided between Old Economy and New. Among those making repeat appearances: John Chambers of Cisco Systems (CSCO ), Welch of GE, and Michael D. Eisner of Walt Disney (DIS ). Some hard-hit companies caved in when it came time to get tough with their underperforming CEOs. Walt Disney Co., for example, gave CEO Eisner a salary increase, 2 million stock options in Disney Internet Group valued at $37.7 million, and an $11.5 million bonus--after three years in which net income fell by more than half from $1.9 billion in 1997 to $920 million. Other executives exchanged worthless options for new ones, or benefited from repricings. At Compaq Computer Inc. (CPQ ), which saw shares tumble by nearly half last year, Michael D. Capellas had a $5 million loan from the company wiped off the books. He borrowed the money, which will be forgiven over three years, to buy Compaq stock. Still others, stuck with huge tax bills from unprofitable options exercises, had those transactions canceled. The Internet service provider now known as Telocity Delaware Inc. did that for 75 employees, including a director and six top executives. The company declined comment. INCENTIVES. Still, after years of paying lip service to the idea of pay for performance, at least a few companies took extraordinary steps last year to link the two. At Coca-Cola Co. (KO ), CEO Douglas N. Daft was granted $87.2 million in restricted shares--but he will get the full amount only if he manages to increase earnings per share by 20% a year for five years, a task analysts say may be difficult, if not impossible. Coke compensation committee Chairman Herbert A. Allen said that management considers the goals "aggressive but realistic," adding, "we'll see in five years." Staples Inc. (SPLS ) CEO Thomas G. Stemberg got 100,000 restricted shares, worth $1.4 million, which vest in 2005--or earlier if earnings goals are met. Says Stemberg: "Our philosophy is one of low pay combined with strong equity rewards." Of course, low pay is a relative term: Stemberg also took home nearly $1 million in salary and bonus. His $2.4 million total pay, while down 27% from 1999, was hardly a pittance. Lawrence J. Ellison, CEO of Oracle Corp. (ORCL ), took that low-pay philosophy even further. After watching his paper wealth decline by nearly $10 billion, to $41 billion, in 2000, according to Pearl Meyer, Ellison opted to eliminate his salary and bonus through 2004 and take a huge option grant--20 million shares--that is supposed to last him for the next three years. And at Tyco International Ltd., CEO L. Dennis Kozlowski needs to beat tough earnings goals to exercise 900,000 options he was granted last year. But he's not worried. "I have all my eggs in this basket," Kozlowski says. "But I'm watching this basket real closely." Those were the exceptions. Overall, the link between CEO pay and company performance remained fuzzy. The top spot for shareholder return relative to pay went to David M. Rickey of Applied Micro Circuits Corp. (AMCC ), who delivered a giant 4,751% for a mere $4.5 million in pay from 1998 through 2000--in marked contrast to last year's winner, David S. Wetherell of CMGI Inc. (CMGI ), who was paid $1 million less and delivered returns nearly three times as good. Rickey also sold millions of dollars' worth of stock in December and January, and the stock has since lost 80% of its value. At the bottom of the performance heap, Charles B. Wang of Computer Associates International Inc. (CA ) earned $698.2 million from 1998 through 2000 and produced a dismal shareholder return of -63%, making last year's loser, Eisner of Walt Disney, look like a bargain. Eisner was paid $60 million less from 1997 through 1999 and earned 28% for shareholders during the same period. CA says Wang helped increase shareholder value 901% in the 1990s. He also agreed to return more than 20% of his 1998 pay--2.7 million shares, or $150 million, according to the company--to settle shareholder lawsuits over a special grant of stock to Wang and other top company executives. CA was among several companies that said their CEOs were worth every penny of their pay. Some complained that it was unfair to count options exercises as compensation, as BusinessWeek does, since most were granted several years earlier. Others said CEOs don't realize options riches unless all shareholders benefit from a soaring stock. Another criticism was that our performance criteria are too narrow, in some cases not reflecting outsized shareholder returns or a company's profit growth. At American Home Products Corp. (AHP ), where former CEO John R. Stafford topped the list of companies with the worst return on equity relative to pay, spokesman Lowell B. Weiner said our analysis is distorted by the heavy costs related to lawsuits filed over the Fen-Phen diet drug controversy. During the same period, AHP logged a 75% return to shareholders. Says Weiner of the analysis: "It makes us look bad, and in reality we've got a lot of good stuff going on." Compensation consultants say the growing gap between pay and performance is partly the result of companies' using new measures to gauge performance. By using comparisons such as earnings per share and return on equity, a CEO whose stock is going to the dogs can still sometimes come out ahead in pay. Case in point: CMGI. The Internet incubator more than doubled Wetherell's bonus, to $481,400, on the strength of operating income--even though the company ended its 2000 fiscal year in July with a $1.3 billion net loss and with the stock down 18%. CMGI says Wetherell was underpaid compared with his peers and deserved the boost based on the prior year's performance. Says Scott Olsen, leader of the executive compensation practice at consultants Towers Perrin: "If the board likes a CEO, it's likely to do whatever it takes to keep him." But rewarding a CEO when the stock is plummeting presents its own set of dilemmas. For one thing, option grants have to be bigger: A $10 million grant costs a company only 100,000 shares when the stock is trading at $100, but 5 million shares when it's trading at $2. And few institutional investors are willing to put up with that kind of dilution. A showdown is brewing over the issue. This year, institutional investors have filed more than 50 shareholder proposals targeting executive pay that will be voted on at annual meetings. At the same time, top executives who have been burned by the market are starting to demand tangible rewards in the here and now: more cash, bigger bonuses, and other perks to offset the risk of options. In a booming economy, options were the incentive of choice because gains could be astronomical, and they belonged to the executive whether he stayed at the company or left. Now there's a new favorite: restricted shares, which typically vest after several years provided the executive remains employed at the company, and are safer than options because they always retain at least some value. A few years ago, says consultant Olsen, executives would hold out for the biggest option grants possible. Cash and bonuses were viewed as positively dowdy. "I don't hear as many people saying that now," Olsen says. When the economy and stock markets were roaring, CEO pay rocketed along as well. Now that the longest expansion in U.S. history has ground to a halt, though, few companies seem eager to transfer the pain to executive paychecks. If anything, the market for top-flight CEOs is as tight as ever, says Patrick S. Pittard, CEO of executive search firm Heidrick & Struggles International Inc., as troubled companies seek would-be saviors. "It has never been more expensive," he says. Still, if shareholders continue to suffer the kinds of market losses dished out in the first quarter, even the thickest-skinned boards may have a hard time upping the pay for underperforming CEOs in 2001. In that case, look for the gravy train to creak to a halt. The Top-Paid Chief Executives...And 10 Who Aren't CEOs The Top-Paid Chief Executives... 2000 SALARY LONG-TERM TOTAL & BONUS COMPENSATION ******* PAY ---------------MILLIONS---------------- 1 JOHN REED* $5.4 287.6 293.0 Citigroup 2 SANFORD WEILL 19.9 204.9 224.9 Citigroup 3 GERALD LEVIN 11.2 152.6 163.8 AOL Time Warner 4 JOHN CHAMBERS 1.3 156.0 157.3 Cisco Systems 5 HENRY SILVERMAN 7.6 129.1 136.7 Cendant 6 L. DENNIS KOZLOWSKI 4.2 121.2 125.3 Tyco International 7 JACK WELCH 16.8 105.8 122.6 General Electric 8 DAVID PETERSCHMIDT 0.7 106.9 107.6 Inktomi 9 KEVIN KALKHOVEN** 0.7 106.2 106.9 JDS Uniphase 10 DAVID WETHERELL 1.2 102.5 103.7 CMGI 11 JOSEPH NACCHIO 2.8 94.6 97.4 Qwest 12 DOUGLAS DAFT 4.4 87.3 91.7 Coca-Cola 13 W.J. SANDERS III 6.6 85.1 91.6 Advanced Micro Devices 14 STEVE JOBS 90.0 0.0 90.0 Apple Computer 15 LAWRENCE ELLISON 0.2 75.0 75.2 Oracle 16 PHILIP PURCELL 13.5 60.6 74.1 Morgan Stanley Dean Witter 17 LOUIS GERSTNER 10.1 63.5 73.6 IBM 18 STEPHEN CASE*** 2.2 71.2 73.4 AOL Time Warner 19 MICHAEL EISNER 12.3 60.5 72.8 Walt Disney 20 JEFFREY SKILLING 6.5 66.0 72.5 Enron ...And 10 Who Aren't CEOs 1 RAYMOND LANE**** 3.2 230.7 233.9 Oracle 2 JEFFREY RAIKES 0.6 144.8 145.5 Microsoft 3 KENNETH LAY 8.7 132.1 140.8 Enron 4 RONALD LEMAY 1.0 127.4 128.4 Sprint FON Group 5 DAN PETTIT***** 0.4 121.3 121.6 JDS Uniphase 6 KENNETH ODER 0.7 85.9 86.7 Safeway 7 JEFFREY HENLEY 2.2 76.3 78.5 Oracle 8 RAY STATA 2.0 68.3 70.4 Analog Devices 9 MARK SWARTZ 2.2 59.4 61.6 Tyco International 10 ROBERT HERBOLD 1.0 56.8 57.8 Microsoft * Retired Apr. 2000 ** Resigned May 2000 *** 18 months of compensation due to fiscal year change **** Resigned July 2000 *****Retired Sept. 2000 ******* Includes exercised options, restricted shares, and long-term incen- tive payments; does not include the value of unexercised option grants Data: Execucomp, provided by Standard & Poor's Institutional Market Services, a division of The McGraw-Hill Companies Business/Financial Desk; Section W WORLD BUSINESS BRIEFING: ASIA ENRON PAYMENT DISPUTE By Celia W. Dugger 04/11/2001 The New York Times Page 1, Column 1 c. 2001 New York Times Company The financial woes of the Dabhol Power Company in India, 65 percent owned by the Enron Corporation, have deepened with the government of India's refusal to pay the $22 million that the company says it is owed under its contract with the Maharashtra State Electricity Board. Both the state and central governments had guaranteed that they would pay the bills for the huge power plant if the electricity board failed to do so, but are refusing on the ground that the company owes a penalty for a technical failure to meet other contractual terms. The dispute now goes to a conciliation panel, and, if that fails, to arbitration in London. American diplomats have warned that the government's failure to live up to the guarantee could endanger future foreign investment in India. The Dabhol project is the largest foreign investment ever made in India. Celia W. Dugger Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Business; Financial Desk Markets / Your Money Cold Weather Fuels Utility Earnings Energy: Natural gas and power producers are expected to continue to outshine the market. Reuters 04/11/2001 Los Angeles Times Home Edition C-4 Copyright 2001 / The Times Mirror Company Despite the front page news of California's two financially troubled utilities, the lion's share of U.S. utility companies will have strong first-quarter results as cold weather created favorable dynamics for both natural gas and power producers. "A vibrant and volatile natural gas market, combined with strong electricity and heating demand in the Midwest because of cold weather, led to very favorable power and gas dynamics well beyond the California market," said James Yannello, analyst with UBS Warburg. Utility earnings will provide a beacon to investors amid a stormy sea of profit warnings and are expected to continue to outshine the overall market into 2002, analysts said. "Overall we expect everyone to do very well. For the most part, those who have extra power to sell in wholesale markets or have wholesale trading operations will do quite well," said Paul Patterson, analyst with Credit Suisse First Boston. "Dynegy Inc. [ticker symbol: DYN] did very well in its Midwest generation portfolio given how cold it was in the first quarter," he said. Lower winter temperatures helped push average spot natural gas prices for the quarter to $6.45 per million British thermal units (mmBtu) versus the $2.46 averaged in the first quarter of 2000. This winter was 24% colder than last year, which was unseasonably warm. Enron Corp. (ENE), North America's biggest buyer and seller of electricity and natural gas, also is seen reporting sterling quarterly results. The Houston-based company's Web-based trading system, EnronOnline, completed its first full year of operation in 2000, executing about $336 billion of trade. "It would be very difficult for Enron not to have a strong quarter," Yanello said. Wholesale merchants and traders PPL Corp. (PPL), Entergy Corp. (ETR), Exelon Corp. (EXC) and Wisconsin Energy (WEC) all will post solid results, Patterson said. (All of these stocks rallied Tuesday, helping to drive the Dow Jones utility average up more than 3%.) Already Pennsylvania-based PPL said it expects earnings this year and in 2002 to meet or beat estimates while New Orleans-based Entergy has said it expects to best first-quarter analyst estimates by 10 to 15%. Market research firm First Call/Thomson Financial says while estimates call for earnings of the S&P 500 as a whole to fall by 8.6% for the first quarter, it expects utility profits to grow 11%. "I suspect that the utilities will be beating estimates by more than usual based on the last four quarters," said Chuck Hill, director of research. (BEGIN TEXT OF INFOBOX / INFOGRAPHIC) Power Surge Utility stocks have rebounded on reports that the nation's cold winter will result in strong first-quarter results for many power companies--the problems of California's utilities notwithstanding. Dow Jones utility average, weekly closes and latest Tuesday: 386.57, up 12.78 Source: Bloomberg News GRAPHIC: Power Surge, Los Angeles Times; Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Metro Desk Energy Cost Study Critical of Public Agencies Too Power: DWP is among three government-run producers cited as driving prices up. Spokesmen deny any market manipulation. ROBERT J. LOPEZ; RICH CONNELL TIMES STAFF WRITERS 04/11/2001 Los Angeles Times Home Edition A-1 Copyright 2001 / The Times Mirror Company Government-owned utilities, including the Los Angeles Department of Water and Power, were influential in driving wholesale electricity prices to levels that helped ignite California's exploding energy crisis during the summer and fall, according to public and confidential records. For months, Gov. Gray Davis, legislators and consumer advocates have chiefly blamed a few private power companies for throwing the state into darkness and economic chaos. But they are just part of the equation. A confidential document obtained by The Times names power providers that have allegedly manipulated the electricity market. While the document does identify out-of-state merchants criticized for gouging, it also discloses for the first time the extent to which public entities allegedly have maximized profits in the volatile spot market. The document--which decodes the identities of unnamed suppliers in a recent state study--singles out three government-run agencies as consistently trying to inflate prices. They are: the DWP, the federally owned Bonneville Power Administration in the Pacific Northwest and the trading arm of Canada's BC Hydro in British Columbia. Like a number of privately owned generators, these three producers offered power at a range of high prices and, sometimes, in large amounts when the state was most desperate. They also helped saddle California's three largest utilities with billions of dollars in debt--leading one, Pacific Gas & Electric, to seek bankruptcy protection last week. The study by the California Independent System Operator, or Cal-ISO, analyzed thousands of hours of bidding practices for 20 large suppliers in the spot, or "real-time," market from May to November. The study accounted for factors such as rising production costs, increased demand, periods of scarcity and profits that would be earned in a healthy, competitive market. Money earned above that was called excess profits. No entity--public or private--earned as much in alleged excess profits as British Columbia's Powerex, the state records show. "They were the most aggressive bidders," said Anjali Sheffrin, author of the coded study. "They had the most amount to bid and the most freedom to bid it in," said Sheffrin, who did not discuss any companies by name. The Canadian agency reaped $176 million in alleged excessive profits--several times the amount collected by all but one of the private generators. Second on the list was Atlanta-based Southern Co. Energy Marketing, now called Mirant, which collected nearly $97 million in alleged inflated earnings. BC Hydro and Mirant--along with the DWP and other producers--say they played by the rules established under California's flawed deregulation plan and did not exploit the state's troubles. But BC Hydro officials acknowledge that they did anticipate periods of severe power shortages and planned for them by letting their reservoirs rise overnight and then opening them to create hydroelectricity, which could be produced inexpensively but sold for a premium. "It was the marketplace that determined what the price of electricity would be at any given time," said BC Hydro spokesman Wayne Cousins. "We helped keep the lights on in California." And the rates low for their own customers. During the past year, BC Hydro has stashed hundreds of millions dollars in a "rainy day" account to ensure that it has among the lowest rates in North America. Los Angeles' Department of Water and Power, although eighth on the list of alleged profiteers, was among those singled out for seeking high prices during periods of high demand that helped inflate costs across the entire spot market, where emergency purchases are made. This, according to state documents, was accomplished by offering power at incrementally higher prices that would rise substantially with even modest increases in demand. The strategy also helped prop up prices, keeping them from falling. The DWP's average hourly bid, or asking price, for electricity ultimately bought topped such private sellers as Reliant Energy of Houston and Tulsa-based Williams Cos., two major players in the national energy market. In addition, the DWP submitted other bids at far higher prices that could pay off handsomely with even small bumps in demand, the report said, referring by code to DWP and four other suppliers. "The data shows they clearly exercised market power to inflate prices further at higher load conditions." DWP General Manager S. David Freeman called the report's findings "outrageous," insisting that the utility never tried to inflate prices. "These charges go under the heading there is no good deed that goes unpunished in this state," Freeman said, noting that DWP power helped avert more blackouts across the state. He did acknowledge, however, that the agency has charged high prices for surplus power at the 11th hour but said that was only because it cost more to produce. "We have consistently charged [Cal-ISO] our cost, plus 15%," he said. "It's not as though we're up there peddling a bunch of power to jam it down their throats." Freeman said that when his staff reviewed the coded report, they never took it personally. "If you're innocent," he said, "you don't look at the criminal file." Yet another public agency criticized for its behavior in California's deregulated market was the U.S. government's Bonneville Power Administration, a nonprofit agency that sells wholesale electricity produced at 29 federal dams in the Columbia-Snake River basin. Bonneville actually bid slightly lower than the DWP, records show, but reaped millions more in alleged excessive profits, apparently because it supplied greater amounts of power during the period studied. Bonneville was in the top five accused of taking excessive profits. Bonneville officials say some of its profits are used to pay back federal construction loans and fund an internationally recognized salmon recovery program. Stephen Oliver, a Bonneville vice president, said his agency did not act improperly and has asked Cal-ISO for detailed information on how it reached its conclusions. He said the grid operator often came to Bonneville pleading for last-minute electricity and offering to pay high prices. "From our point of view, we bid what we had when we had it and we operated precisely within the terms of their rules," Oliver said. Those rules--and the bidding practices criticized by Cal-ISO--so distorted the market that Aquila Power Corp. of Missouri, which tried to act responsibly, has bailed out. It offered the lowest average hourly price of any supplier studied--slightly more than $8 per megawatt-hour, compared to Mirant's $138, the highest. But the spot market, as initially designed, made sure that all suppliers offering power received the highest price paid in any hour. The result: Aquila collected $171 an hour for power it was willing to sell at a single-digit price. "They weren't the culprits," said Cal-ISO's Sheffrin. "Someone else drove that up." Aquila spokesman Al Butkus said the company pulled out of the California market because it was too unpredictable. Although the company made money, he said, it also could have lost because of possible downward swings. "We looked at it and we didn't feel very comfortable with what we saw," he said. The market has since been adjusted to prevent high bids from setting the price for everyone. But Sheffrin said it hasn't made much difference because the overall prices are still excessive. "We're saying the patient is sick," Sheffrin said of California's electricity market. "It needs help [and] may die." (BEGIN TEXT OF INFOBOX / INFOGRAPHIC) Top 10 in Profits The California Independent System Operator says that a total of $505 million in extra profits was reaped by power suppliers from May to November 2000 in California's volatile spot market. The alleged excess profits were generated by high bids and high-volume sales during periods of peak demand. * British Columbia Power Exchange: $176.2 million Southern Co. Energy Marketing (renamed Mirant): $96.8 million Reliant Energy Services $35.5 million Dynergy Electric Clearing House $32.1 million Bonneville Power Administration $30.0 million Enron Energy Services $27.9 million Duke Energy Trading $18.4 million Los Angeles Dept. of Water and Power $17.8 million Sempra Energy Trading $14.9 million Pacific Corp. $13.6 million Source: Public and confidential government records GRAPHIC: Top 10 in Profits, Los Angeles Times; Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. UK: ANALYSIS-French power trading market starts to emerge. By Stuart Penson 04/11/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, April 11 (Reuters) - Undeterred by reams of red tape and the dominance of state utility Electricite de France, a group of energy companies is quietly creating a market for trading wholesale power in France. "More and more companies are looking at the French market and would like to do more trades there," said Morten Helle, a power trader at Germany's HEW . Buoyed by success trading the liberalised German power sector and helped by the auctioning of access to the UK-France interconnector cable, utilities are prising their way into France and building up liquidity in a previously closed market. The planned launch of a power bourse in Paris in July is expected to further boost liquidity. Free trading in power across Europe is hotting up as energy markets open up to competition in line with a European Union Directive on liberalisation. But France lags behind other markets as the government drags its heels in moving towards full competition, hindering new entrants and preserving EdF's grip on the generation market. EdF controls about 95 percent of French power generation. In a step towards opening its market, the company plans to make 50 terawatt hours a year of its output, about 10 percent, available to competitors later this year. EIGHT MAIN PLAYERS SO FAR A core of about eight companies regularly trade power in France, with several more on the periphery, traders said. Regular participants include TXU Europe , Enron , HEW , RWE , the Endesa /Morgan Stanley trading alliance, Electrabel and TotalFinaElf , traders said. They added Swiss utilities are also active. EdF annnounced last month it is about to start trading in the French market through its London-based unit EdF Trading. "We are seeing about 30 deals a week," said a trader for a U.S. energy company, who declined to be named. Most deals involve short term physical contracts for delivery to the French grid, defined by the grid operator RTE as "exchange of blocks" trades. Traders said they have yet to settle on standard contract terms. French oil giant TotalFinaElf, which recently did its first power deal in France, said day ahead and monthly deals are common. "There isn't a trade every day and you can't trade calendar year contracts but you can do 25 megawatt deals for two or three months forward," TotalFinaElf's Gas and Power Trading Manager Etienne Amic told Reuters. Many of the trades revolve around import and export deals, although limited cross-border interconnection with France's neighbouring markets limit volume. Traders said the auctioning through competitive tenders of capacity in the UK-France subsea electricity interconnector cable, which started recently, had sparked more interest in the French market. GRID OPERATOR RTE SETS TARIFFS The cost of moving power to and from France's borders is set out in tariffs published by grid operator RTE, based on a flat "postage stamp" system. Not all deals involve cross border transaction. Some companies, such as Spain's Endesa, have bought generation in France and therefore have a natural long position in the market against which to trade. Endesa trades under a joint venture with investment bank Morgan Stanley. "But overall there's a scarcity of uncommited power available to trade in France," said Amic. Over-the-counter prices in France are similar to German levels, traders said. "I would say on the day ahead, prices range from flat on Germany to a premium of 0.4 euros a megawatt hour," said one. Traders said signing the various contracts with RTE needed to start trading the market was often a lengthy process. "You have to sign a balancing management agreement and import/export agreements, and then everytime you want to deal with a new counterparty you have to notify RTE," said a trader. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. BRAZIL: INTERVIEW-Brazil's Copel prime privatisation target. By Walter Brandimarte 04/11/2001 Reuters English News Service (C) Reuters Limited 2001. SAO PAULO, April 11 (Reuters) - Brazil's Copel power company, a giant integrated electricity generation, transmission and distribution utility, is a role model for the sector and its privatisation should spark great interest, Copel's president said. Ingo Hubert, Finance Secretary of southern Parana state who is also president of Cia Paranaense de Energia (Copel) said when the company goes on the auction block later this year, competition should be stiff. Copel serves nine million people in Brazil's fifth richest state. It has 18 power plants with an overall capacity of 4,550 megawatts (MW) and has 4,200 miles (6,700 km) of transmission lines. It is the owner of Parana's wholesale electricity market, and at the same time has mighty generation units. "That's where the great investors' interest comes from. Actually, Copel today is what most (power) companies will be five years from now," Hubert said in a recent interview. "Without generation, distributors become California," Hubert said referring to an acute power crisis in the U.S. state, where many power distribution companies suffered huge losses due to a hike in natural gas prices. "So, integration is the solution." He said constantly rising demand for energy in Parana, which even surpasses the national power market's annual growth of 4.5 percent a year, had helped Copel close 2000 with a profit of 430 million reais ($201 million). And privatisation would only improve things: "We see that the model of the power sector is incompatible with state companies, which remain small, cannot acquire new bases for operation...do not have access to capital markets as other firms do." Parana state government announced licensing for consulting firms to evaluate the company earlier this year, effectively kicking off the firm's privatization process. The sale should take place in the second half of this year and analysts estimate that the government's stake - 31 percent of the company capital which includes 59 percent of voting stock - is worth at least 1.4 billion reais ($654 million). Although the government has not yet chosen consultants to evaluate Copel and create a privatisation model, some points are already clear for the government. The company will be sold off in one chunk of shares with all the core business units in generation, transmission and distribution. "There is an understanding that privatisation in one bloc boosts the value of the company. This is the decision, unless modeling proves otherwise, which I think is difficult." However, 23 non-core units of Copel, including in telecommunications and sanitation, are not up for grabs. Those other assets are united under the roof of one company in the Copel holding. Hubert noted that he was keeping in touch with many interested companies, local and foreign, but singled out Belgium's Tractebel , that already has holdings in the region and is interested in an expansion. Other big hitters that may be interested in buying Copel are Electricidade de Portugal , AES Corp , Duke Energy and Enron Corp. . Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Renegotiate both phases of Dabhol: Godbole panel Our Regional Bureau Mumbai 04/11/2001 Business Standard 1 Copyright © Business Standard The much awaited interim report of the Maharashtra government-appointed Madhav Godbole committee has recommended that both phases of the Enron -promoted Dabhol power project be renegotiated. It has also recommended that the rate of return be linked to a fixed rupee-dollar exchange rate as this would bring down tariffs. The report was submitted to Chief Minister Vilasrao Deshmukh today morning. In an attempt to preserve confidentiality, only five copies of the report have been prepared, political sources in the state said. The copies would be submitted to the CM, deputy chief minister, energy minister, minister of state for energy and the chief secretary. The Godbole committee was constituted by the Maharashtra government to review the Dabhol power project in the state following criticism that the power produced was bleeding the MSEB. It is reliably learnt that the committee was split on certain recommendations. The basic bone of contention was the various concessions and waivers granted to the Dabhol project. The committee is also believed to have stated that it was not empowered under the Commission of Enquiry Act or the Evidence Act to get all the documents pertaining to the project as well as summoning all the people, whose submissions would have made a real difference. Rumours abound in political circles that the committee had blamed certain politicians responsible for bringing the power project to the state. However, the committee was divided on the issue but ultimately decided not to name any politician, sources said. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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