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Enron Unit Must Honor Pact With California Schools (Update1)
Bloomberg, 04/11/01 Judge orders Enron to deliver electricity to universities Associated Press Newswires, 04/11/01 WSJ.COM: Rumors? Firms Ponder How To Announce Layoffs Dow Jones News Service, 04/11/01 U.K. Wind Power Gears Up For The Great Leap Offshore Dow Jones Energy Service, 04/11/01 INDIA: Enron names Australian conciliator for India project. Reuters English News Service, 04/11/01 Chile's Enersis Weighs Building Electric Plants In Brazil Dow Jones International News, 04/11/01 U.A.E.'s Dolphin May Supply Natural Gas to India, Agency Says Bloomberg, 04/11/01 PG&E's Peter Darbee (Transcript of Interview) Bloomberg, 04/11/01 Enron Unit Must Honor Pact With California Schools (Update1) 2001-04-11 16:30 (New York) Enron Unit Must Honor Pact With California Schools (Update1) (Adds comment from judge, details of hearing starting in third paragraph.) San Francisco, April 11 (Bloomberg) -- An Enron Corp. unit must provide electricity to California universities under an existing contract, U.S. District Judge Phyllis J. Hamilton ordered. Enron Energy Services Inc. had agreed to provide energy and related services to the University of California and California State University, said Douglas R. Young, a lawyer for the universities. The company cut off the schools on Feb. 1, and transferred the accounts to PG&E Corp. and Edison International utilities, Young said at a hearing today in San Francisco. The schools say they want to keep the contract with Enron, because it is more reliable than the utilities. Both utilities are burdened with billions in power-buying debt, and Pacific Gas & Electric Co. has filed for bankruptcy. The utilities' customers have been subjected to rolling blackouts amid power shortages in the state. ``Enron did not have the right to return the university systems to the utilities,'' Hamilton said. She granted the universities' preliminary injunction, forcing Enron to honor the contract for now. Enron and the universities announced the four-year contract in 1998, valuing the agreement at $300 million to $500 million in electricity sales. Cal State would save $1.5 million a year through the contract, they said, and U.C. would save $2.4 million. The Switch Enron lawyer A. William Urquhart said the company didn't cancel the contract; it just switched the source of supply to the utilities. Enron said it will file an immediate appeal with the 9th U.S. Circuit Court of Appeal in San Francisco. During the hearing, Urquhart said Enron had a ``responsibility to its shareholders'' to make financially prudent decisions. At most, the universities have suffered some economic damage, which would not entitle them to enforce the contract, Urquhart said. California Attorney General Bill Lockyer, who filed a ``friend of the court'' brief in the case, said that Enron's duty to its shareholders ``seems to be to rip off California consumers.'' Enron is saying ``we don't want to sell power at the prices we promised,'' Lockyer said. ``We continue to believe that we're acting in the best interests of our clients,' Enron Energy Services spokeswoman Peggy Mahoney said after the hearing. Lawsuit The universities sued Enron in March, seeking to enforce the four-year contract. The schools also said in court documents that buying from utilities would render obsolete new electricity meters that help them conserve. The universities have installed meters to collect data on consumption, helping them reduce power bills. Those $1,500 meters can't be used on the ``bundled'' systems like the utilities' and would have to be removed, said Charles McFadden, spokesman for the University of California. Enron says that it has offered to continue to provide all campuses with the metering, billing and related services under the agreement. Judge Hamilton ordered the universities to post a $1 million bond. The routine order assures Enron's losses will be paid, if the energy company prevails in the case. Judge orders Enron to deliver electricity to universities By DAVID KRAVETS Associated Press Writer 04/11/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SAN FRANCISCO (AP) - Saying that Enron Energy Systems Inc. may be in breach of contract, a federal judge Wednesday ordered the Houston company to abide by its agreement to sell cheap power to the state's public universities. Enron was attempting to get out of delivering power for the final year of a four-year deal with the California State University and University of California systems. Enron, which buys power from producers and sells it on the market, said the contract would cost the energy concern $12 million a month because of skyrocketing wholesale power prices. Enron said the state should free Enron from its obligation and taxpayers should pick up the tab. "It's our economic interest to provide a service with the least amount of dollars we can provide it for," Enron attorney A. William Urquhart said. He later described the case as being "all about money. It's all about money." Enron said it would file an emergency appeal to the 9th U.S. Circuit Court of Appeals in San Francisco to overturn U.S. District Judge Phyllis Hamilton's ruling in the suit brought by the state's two university systems. Appearing in federal court, state Attorney General Bill Lockyer argued that Enron wants out of the contract so it can engage in a "marketing game" with the universities' promised power and sell it on the open market for 10 times more than what the electricity cost Enron. He said lawmakers may have "left the keys in the car" when they approved California's failed energy deregulation scheme that has prompted the energy crisis, "But it is still theft to steal the car." The judge issued a temporary injunction against Enron, forcing it to continue providing service as the suit brought by the universities proceeds. When the judge issued the order, she also said there is a likelihood Enron will lose the suit. "I am persuaded, in the end, there is a very strong likelihood of success on the breach of contract claim," the judge said. UC's annual electric bill is about $87 million and its natural gas bill is about $26 million. CSU annually pays about $40 million for electricity and $20 million for natural gas. The case is UC Regents vs. Enron Energy Systems Inc., 01-1006. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. WSJ.COM: Rumors? Firms Ponder How To Announce Layoffs By Stephanie Miles 04/11/2001 Dow Jones News Service (Copyright © 2001, Dow Jones & Company, Inc.) WSJ.com NEW YORK -(Dow Jones)- When British technology publisher Future Network PLC announced a broad restructuring that would result in 350 layoffs, few employees were surprised. For a week, workers had been glued to an industry-gossip site. "Everybody was waiting, expecting to be fired," says Scott Laine, who was laid off from a job in sales for Revolution magazine, published by Future's U.S. subsidiary Imagine Media. Managers were watching the message boards, too. So, when Future announced the restructuring in February, it sent a short companywide e-mail with the press release attached. The company also sent out two more detailed letters, from Future's chairman and chief executive respectively, explaining in more detail the circumstances surrounding the layoffs. But instead of beaming them electronically, the U.S. unit printed out color paper copies and placed them on employees' desks, in an effort to keep the note from being quickly posted online or cleanly photocopied. "Why make it easy?" says Nancy O'Neill, then president of Imagine Media. O'Neill stepped down as president at the end of March. Leaks are nothing new. But the "post once, read anywhere" nature of Internet rumors has forced companies to make much quicker decisions about when to release information about layoffs to employees and the public, and what exactly to say. Companies, for a variety of reasons, are often stuck saying "no comment," only to confirm the layoff rumors later on. Worse, a scramble to respond to investor and press inquiries can sometimes result in embarrassing reversals. Wake-Up Calls The Web-consulting industry is among the most closely scrutinized sectors on Web rumor boards, and companies are under constant pressure to respond. It's no accident: Consulting firms have been going through wrenching downsizings due to a slowdown in demand for Internet projects. After rumors popped up online last month, consulting firm Razorfish Inc. (RAZF) confirmed to several press organizations that it was offering a "voluntary termination plan" to an undisclosed number of employees. But a little more than a week after the reports of the voluntary plan, postings on Vault.com message boards were abuzz with reports of early morning wake-up calls. "Woke me from a sound sleep," wrote one anonymous poster at noon Saturday. "Anybody else get jousted (sic) out of bed?" Other cryptic notes followed, and a note on Sunday spelled it out: "They didn't get as many people to volunteer as they wanted to, so from now on it's involuntary." Melissa Kramer, a Razorfish spokeswoman, confirmed that the company called an undisclosed number of employees at home Saturday to tell them they no longer had jobs, and sent them packages confirming their involuntary termination. She says the voluntary plan hadn't drawn as many people as hoped. Kramer says the activity on the message boards had no effect on how layoffs were carried out, either in terms of how affected employees were notified or the timing of the announcement. In general, companies have a lot of latitude in deciding what information to release. Aside from releasing quarterly earnings reports, public companies are required to disclose news that is material to their operations. But when it comes to layoffs, the requirements laid out by the Securities and Exchange Commission are fuzzy. "It's a fact-specific situation," says John Heine, an SEC spokesman, explaining that the SEC expects companies to report any material changes in the company's outlook in its quarterly and annual reports. Severance pay and other layoff-related expenses will show up in quarterly reports as restructuring charges, but "there isn't a specific [SEC] rule that I can point you to that deals with layoffs," Heine says. Business Decision Unless the job cuts are so large that local or federal authorities are required to be notified under plant-closure or other laws, publicly held companies are generally under no obligation to confirm the number of layoffs, specific firings, or other work-force changes, experts say. Disclosing job cuts is often "less of a legal determination than it is a business decision," says Richard Rowe, a corporate attorney and partner with Proskauer & Rose LLC in Washington D.C. Another issue is timing. Some companies issue a press release announcing cuts right away, others wait to release the news with their quarterly earnings reports, while others refuse to even comment. (Dow Jones & Co., publisher of The Wall Street Journal, recently said that it is laying off an undisclosed number of employees at WSJ.com. The company said it will provide more details in its quarterly report slated for this week.) The decision depends often on how the company thinks layoffs will play with investors and surviving employees. For Old Economy industrial firms, cuts are often seen as effective way to slash overhead costs. But in the beleaguered Internet sector, layoffs often are viewed as a harbinger of future troubles. For example, defunct e-tailers eToys Inc. and Garden.com Inc., which traded on the Nasdaq Stock Market, both disclosed broad layoffs about three months before the companies shut down altogether. If the jobs cuts "are enhancing shareholder value, that's really good news for a publicly traded company," says John Kroen, executive vice president at investor-relations firm Dresner Corporate Services. "As long as it doesn't signal the end." Adding to the pressure on companies facing layoffs are new rules about disclosure. While the Internet has loosened companies' control of information, the new Regulation FD, which prohibits selective disclosure of information, largely limits companies' dissemination options. News can't be filtered through analysts or large investors as in the past, so for the most part, companies have to either make a public statement or stay mum. Take Amazon.com Inc. (AMZN). In January, rumor site DotComScoop.com predicted that the e-tailer was about to announce widespread layoffs, but Amazon declined to comment publicly, citing a policy of not commenting on speculation or rumors. Days later, in its fourth-quarter earnings report, the company announced that it was firing 1,300 workers and closing a distribution facility. Amazon didn't return calls seeking comment. When EMC Corp. (EMC) fired several hundred workers in February as part of an annual review, word leaked out on investor message boards run by Yahoo! Inc. (YHOO). Although the storage maker maintains that the job cuts were a routine course of business, the company's shares fell as rumors hit the Internet. In years past, EMC didn't publicly disclose what it termed performance-based firings, according to Mark Fredrickson, vice president of corporate communications. This time, however, the company decided to confirm the firings in the press in order to make clear that the job cuts weren't related to the state of the economy or the technology sector. "I think it attracted attention because of the environment," he says, adding that the company didn't consider the cuts, of roughly 3% of EMC's 24,000 employees, of material importance to investors. "Two years ago, in the midst of the high growth which we were enjoying, this would not be news." But sometimes, being proactive in the face of rumors can help change the tone of coverage. "It's better to put your words out there yourself then have them cut and pasted back at you," says Elliot Sloane, president of Sloane PR (www.sloanepr.com), a public- and investor-relations firm. Last month, for instance, energy company Enron Corp. (ENE) publicly denied rumors that it was planning layoffs in its broadband Internet unit, rumors that had helped to send its stock to a 52-week low. The company had recently terminated a video-on-demand partnership with Blockbuster Inc. (BBI). But in a conference call that reiterated the company's 2001 earnings outlook, the company explained that third-party contracts for broadband capacity had eliminated some of the need to build its own network. An undisclosed number of employees had been redeployed as a result, the company said, but the rumors of layoffs were false. The stock rallied, reaching $59.40 at 4 p.m. that Friday, up from a low of $51.51 Thursday morning. Circling the Wagons Still, many executives resist issuing any comment on layoffs or work-force shifts. "The majority of the CEOs I've dealt with want to keep it as much in-house as possible," says Dresner 's Kroen. "It's rare that you find a CEO who wants to tell as much as possible. They have to be pushed to air their dirty laundry." While top executives huddle to put the final touches on layoff plans and discuss how much information to release publicly, employees can face days or weeks of waiting for the ax to fall. Message boards can get very crowded. At Imagine, O'Neill says, "I wish we could have done something different [to avoid] a period of anxiety where people were searching for anything that's a scrap of news." But British financial disclosure rules governing parent Future Networks dictated the timing of the announcement, she says. As a result, the official news came out nearly a week after rumors first surfaced on the Web. In the meantime, so many co-workers were piling onto F____edCompany.com that one participant piped in: "Hi, since everyone here seems to be from Imagine, I lost my bathroom key and entry card yesterday. If anyone finds it, could they please post here?" Write to Stephanie Miles at stephanie.miles@wsj.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. U.K. Wind Power Gears Up For The Great Leap Offshore By Geoffrey T. Smith Of DOW JONES NEWSWIRES 04/11/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) LONDON -(Dow Jones)- Ten years ago, Peter Edwards, a dairy farmer in Delabole, Cornwall, sold his herd to raise the money for what was then the U.K.'s first wind farm. It was uncompetitive and did nothing to lessen the country's dependence on fossil fuels. All in all, it was not the most convincing vision of the future. Today, you would think most U.K. farmers would willingly change places with him. As livestock farming staggers from one crisis to the next, wind farming goes from strength to strength, passing a notable landmark last week when the U.K.'s Crown Estates issued seabed leases for 13 offshore wind farm projects to established generating companies more traditionally associated with fossil-fuel burning. These projects could attract up to GBP1.6 billion in investment and lead to the installation of 1,500 megawatts of generation capacity around Britain's coast by 2004. That would meet the electricity needs of 1.1 million households, according to estimates by the British Wind Energy Association. The projects - seven in the Irish Sea and six in the North Sea - represent the first concerted effort in the U.K. to raise the contribution of renewable energy sources, other than hydropower, in the overall energy mix. Until now, the prime contribution of wind to the U.K.'s energy sector has been to blow the emissions of coal and gas-fired plants across the North Sea to Norway, affecting the environmental consciousness of both countries accordingly. For the wind industry, going offshore is somewhat like inventing Henry Ford's assembly line. If the engineering is robust enough, it will revolutionize the economics of the sector. Huge economies of scale beckon: larger numbers of more powerful turbines, driven by higher wind speeds. It also goes a small part of the way to addressing wind power's major drawback, its unpredictability. Offshore wind are more constant than onshore. The days when such projects were the preserve of companies on the fringe of the energy sector, let alone dairy farmers, are long gone. Among those to be awarded leases were arms of numerous established U.K. generators such as Innogy PLC (IOG), Powergen PLC (PWG), Scottish Power PLC (SPI) Enron Corp (ENE) and TXU Europe (TXU). All of these will be forced, by the government's Renewables Obligation, to source an amount probably not less than 5% of their supplies to renewable sources of energy by 2003, rising to 10% by 2010. A system of tradable 'green certificates' will be set up to enable them to trade any surplus of renewable power they have on the open market with suppliers who can't meet the Obligation by themselves. Wind farms have flourished even more in countries where the political consensus has allowed a more aggressive subsidizing of the technology, such as Germany and Denmark, which had installed capacity bases of almost 5,500 MW and 2,280 MW respectively at the end of last year, according to estimates by analysts at Dresdner Kleinwort Wasserstein. Crown Estates and the BWEA are currently in negotiations over a second round of licenses for larger sites but a spokeswoman for Crown Estates said there is no timetable for awarding these leases yet. In contrast to Germany and Denmark, the emphasis of U.K. policy-makers for the last 10 years has been squarely on bringing prices down, rather than making energy greener. This has tended to work against renewable sources such as wind, whose generation costs have been traditionally higher than those for conventional sources such as coal, natural gas and nuclear power. However, as Alison Hill, communications manager at the British Wind Energy Association, points out, the generation costs of existing onshore facilities have fallen from around 11 pence a kilowatt-hour for first-generation technology to between 1.9-3.5 pence a kilowatt-hour today. By comparison, base loads for the coming winter currently trade at around 2.1-2.2p/KWh in what is arguably the world's most competitive and deregulated electricity market. She notes that a pilot project off Blyth in north-east England is currently generating at between 5p-6p/KWh. If offshore technology can improve at anything like the same rate as onshore technology has done, the need for any form of subsidy may not be long-lived. "If we can just get capital grants to offset the initially higher cost, they should be enough to bring these projects into a competitive position on the open market," Hill says. The existing stock of subsidy for wind in the U.K. is a mere GBP49 million, is not much compared to the GBP1.6 billion investment to be expected from the first round of offshore farms, and less than half of what the U.K. government doled out to its domestic coal industry last year. But even if generating costs fall to a level where wind power can compete with fossil fuels, there are other ways in which it may increase the cost of electricity to consumers. Investment in electricity grids will probably have to rise to ensure that they are robust enough to deal with large and sudden surges in power supply, and such investments are generally financed by fees levied on all grid users. Equally, a bigger share of intermittent power may lead to greater volatility in the 'balancing market', the market segment in which the grid operator matches demand and supply on a second-by-second basis. The U.K.'s Office of Gas and Electricity Markets reckons that under the New Electricity Trading Arrangements, balancing shouldn't account for more than 10% of the overall market, but it is also the highest-priced market segment, and prices have been uncomfortably volatile since NETA was introduced two weeks ago. Neither regulator, grid operator nor traders right now would relish the thought of exposing it to a factor which would heighten that. Even so, they may still prefer it to being a dairy farmer in Cornwall. -By Geoffrey T. Smith, Dow Jones Newswires; (+44 20) 7842 9260; geoffrey.smith@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA: Enron names Australian conciliator for India project. By Maria Abraham 04/11/2001 Reuters English News Service (C) Reuters Limited 2001. BOMBAY, April 11 (Reuters) - U.S. energy giant Enron has named a former Australian state chief justice to act as conciliator in a dispute over unpaid bills involving its controversy-ridden power project in western India. India said on Tuesday it would enter conciliation with Enron after the multinational's Indian unit, the Dabhol Power Co (DPC), sent a "political force majeure" notice to the Maharashtra State Electricity Board (MSEB). Such a notice is a contractual clause unhappy parties give as a first step toward possibly dissolving a contract. In March, Enron invoked a counter-guarantee of the Indian government after the state utility failed to clear its bill of 1.02 billion rupees ($21.91 million) for December. Last week, Enron, which owns 65 percent of Dabhol, notified the government it was applying to an arbitration court in London to consider its claim for the 1.02 billion rupees. The DPC spokesman said that "Sir Laurence Street, the former Chief Justice of New South Wales, has been appointed as conciliator for DPC". He said the government had said it would name a conciliator within a week to sort out the dispute involving the $3-billion project at Dabhol, the biggest foreign investment in India. Both the conciliators would then appoint a third person and the three-party panel would begin the conciliation process. Should the panel fail to resolve the issue, the two parties would then enter into arbitration, the spokesman said. The conciliation is the latest step to resolve the long-running confrontation between the Houston-based company and the Maharashtra government over unpaid bills. It comes at a time when India is struggling to attract foreign investment to meet a growing hunger for power. Dahbol has come under fire because of the relatively high cost of its power. Critics object to it charging 7.1 rupees per kilowatt hour versus 1.5 rupees charged by other suppliers. Politicians have called for a renegotiation of Dabhol's contract and a re-examination of whether the facility's second phase, which now is being built, should be completed. Also on Wednesday, the state government said the report of a committee set up to examine all aspects of the Enron project would be put before the legislative assembly on Thursday. The committee, chaired by former bureaucrat Madhavrao Godbole, is expected to submit its final report next month, state energy minister Padamsinh Patil told Reuters. ($1=46.56 Indian Rupee). Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Chile's Enersis Weighs Building Electric Plants In Brazil 04/11/2001 Dow Jones International News (Copyright © 2001, Dow Jones & Company, Inc.) SANTIAGO -(Dow Jones)- Chile's Enersis SA (ENI) is studying the possibility of building two electricity generation plants in Brazil, one in the state of Ceara and another in the Rio de Janeiro area, local paper El Diario said Wednesday. Enersis CEO Enrique Garcia told El Diario each facility would be designed to initially produce between 300 and 350 megawatts of electricity, beginning in 2004. Garcia estimated that $700 million in investment would be required to build both facilities. Garcia added that Enersis is still interested in acquiring existing generation facilities in Brazil, which is expected to experience a possibly severe electricity supply shortage in coming months. Garcia confirmed that Enersis is particularly interested in participating in government privatization auctions of generators Companhia Energetica de Sao Paulo (E.EPL), or Cesp, and Companhia Paranaense de Energia (E.CPE), or Copel. Enersis executive Rafael Miranda recently said Enersis will also evaluate the possible purchase of Brazil's Electrogen, which is now controlled by U.S. company Enron. Enersis is owned 64% by Spain's Endesa SA (ELE). Company Web site is http://www.enersis.cl -Andrea Welsh, Dow Jones Newswires; 562-460-8547; chile@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. U.A.E.'s Dolphin May Supply Natural Gas to India, Agency Says 2001-04-11 11:00 (New York) Doha, Qatar, April 11 (Bloomberg) -- Dolphin Energy Ltd., a venture of the Abu Dhabi government, Total Fina Elf SA and Enron Corp., said it has held talks on supplying natural gas to India through undersea pipeline, India Abroad News Service reported. ``We are currently in India to listen and find out the security issues and the country's needs to secure cheap and clean energy fuel,'' said Ghanim Alazdi, a Dolphin project manager, IANS reported. Dolphin has signed an accord with Qatar to develop its North Dome field, the world's largest natural-gas deposit, and build a pipeline under the Persian Gulf to the United Arab Emirates, Oman and eventually Pakistan. A separate pipeline from Oman could cross the Arabian Sea to India, Alazdi said. India needs to import natural gas to service its population of more than 1 billion. Plans for an overland pipeline from Iran have been blocked by Pakistan, which lies along the route and has fought three wars with India. Dolphin is working with the state-owned Gas Authority of India Ltd., Alazdi said. Dolphin has already agreed to sell 1 billion to 1.5 billion cubic feet of gas per day to Pakistan. Oman's government has said a pipeline from its territory to India would cost about $10 billion, too expensive to recoup costs. The U.A.E. Offsets Group, an arm of the Abu Dhabi government, controls 51 percent of Dolphin. Total and Enron split the rest. India has signed a contract to buy 5.5 million tons of gas a year starting in 2003 from Qatar's Ras Laffan Liquified Natural Gas Co., which is 70 percent owned by Qatar, with Exxon Mobil Corp. holding the remainder. The gas will arrive at the port of Dahej in Gujarat State. Liquefied natural gas, or LNG, is cooled to a liquid form to allow for transport in ships. PG&E's Peter Darbee (Transcript of Interview) 2001-04-11 17:17 (New York) ****THE FOLLOWING IS AN UNOFFICIAL TRANSCRIPT.**** BLOOMBERG L.P. DOES NOT GUARANTEE THE ACCURACY OF THIS TRANSCRIPT. San Francisco, April 11 (Bloomberg) -- The following is a transcript of a Bloomberg interview with Peter Darbee, chief financial officer at PG&E Corp. The reporter is Su Keenan. KEENAN: JOINING US NOW FROM SAN FRANCISCO IS PETER DARBEE. HE IS THE CHIEF FINANCIAL OFFICER FOR PG&E CORPORATION, WHICH IS THE PARENT COMPANY OF PACIFIC GAS & ELECTRIC. AND WHAT HIS COMPANY'S REASONING BEHIND THE MOVE TO FILE FOR BANKRUPTCY IS ONE OF THE THINGS WE'RE GOING TO ASK HIM, AS WELL AS WHAT'S NEXT. LET'S TALK ABOUT THE REASONING FOR FILING, NOW EDISON COULD HAVE GONE THIS ROUTE BUT DECIDED NOT TO. WHY WAS IT THE RIGHT MOVE FOR YOUR COMPANY? DARBEE: WELL, SU, THERE WERE A NUMBER OF FACTORS THAT WE CONSIDERED. THE FIRST IS THAT THE CALIFORNIA PUBLIC UTILITIES COMMISSION WAS COMING OUT WITH ORDER AFTER ORDER WHICH DE- POSITIONED US AND PUT US IN A WORSE POSITION VIS-A-VIS BOTH OUR CREDITORS AND OUR SHAREHOLDERS, SO THAT WAS THE FIRST FACTOR. THE SECOND FACTOR WAS THAT THE STATE WAS NOT CLEAR WITH US REGARDING THE ONGOING LIABILITY THAT MIGHT BE PASSED THROUGH TO US FROM THE INDEPENDENT SERVICE OPERATOR, AND THEREFORE, WE WERE FACED WITH A LIABILITY THAT LOOKED LIKE IT WAS INCREASING BY $300 MILLION PER MONTH. AND LASTLY, AS WE REVIEWED WHERE NEGOTIATIONS WITH THE STATE WERE GOING, WE COULD NOT SEE SUBSTANTIAL PROGRESS, AND LIKELIHOOD IN THE NEAR TERM THAT WE WOULD BE ABLE TO ACCOMPLISH A SUCCESSFUL DEAL WITH THE STATE OF CALIFORNIA. SO ALL OF THOSE FACTORS CONSIDERED, WE MADE THE DECISION THAT WE WERE BEST SERVED IN THE BANKRUPTCY COURT. KEENAN: I KNOW IT WAS A TOUGH DECISION. LET ME ASK YOU, DO YOU HAVE ANY REGRETS AS YOU LOOK BACK AT THE FLAWED DEREGULATION PLAN THAT WAS PUT TOGETHER BACK IN THE MID-1990'S? ANYTHING THAT YOU WOULD HAVE DONE OR DESIGNED DIFFERENTLY? DARBEE: WELL THE BIGGEST POINT THAT WE BELIEVE FIRMLY SHOULD HAVE BEEN PURSUED WAS LONG-TERM CONTRACTS. WE ARGUED VIGOROUSLY THAT ALL OF THIS POWER THAT WE CONSUME EVERYDAY SHOULD NOT BE PURCHASED IN THE SPOT MARKET OR THE DAY-AHEAD MARKET. I TRULY BELIEVE THAT IF WE HAD BEEN PERMITTED, AS WE WANTED TO, TO ENTER INTO 10-YEAR CONTRACTS AT THE TIME WE WERE FORCED TO SELL OUR POWER PLANTS, CALIFORNIA WOULD NOT BE IN THE POSITION THAT IT WAS TODAY. KEENAN: ALL RIGHT, NOW PG&E CHAIRMAN ROBERT GLENN WAS SAYING AS LATE AS 1998 THAT THE LONG-TERM TREND OF PRICES IS DOWN AND THAT'S WHAT HE'S BASING THE BUSINESS ON. WHAT DIDN'T HE SAY? DARBEE: WELL I THINK THE LONG-TERM VIEW WAS THAT POWER PRICES, UNDER COMPETITION, WOULD COME DOWN, AND I STILL BELIEVE THAT THAT'S THE CASE. WHAT HAPPENED WAS, CALIFORNIA WENT THROUGH A PERIOD OF UNPRECEDENTED GROWTH. OUR POWER DEMANDS INCREASED BY ABOUT 30% AND AT THE SAME TIME, THERE WASN'T SUBSTANTIAL CONSTRUCTION OF NEW POWER PLANTS. AND THESE TWO PATTERNS OF SUPPLY AND DEMAND CAME TOGETHER IN A TERRIBLE COLLISION. WE FIRST EXPERIENCED LAST JUNE, WHEN THE TEMPERATURE WENT UP VERY SUBSTANTIALLY AND WE HAD SOME VERY BIG SPIKES IN THE THERMOMETER. KEENAN: ENRON, SOUTHERN, AND OTHERS -- THEY DIDN'T SUFFER QUITE THE SAME COLLISION. DO YOU KNOW WHY? DARBEE: WELL, THEY ARE NOT UTILITIES. HERE IN CALIFORNIA, ENRON IS REALLY NOT IN THE UTILITY BUSINESS. AND THEREFORE, THEY WEREN'T SUBJECT TO THE REGULATIONS THAT WE WERE, WHICH FROZE RATES AT A RETAIL LEVEL OF ABOUT 5 1/2 AND 6 CENTS A KILOWATT HOUR AND LET WHOLESALE PRICES RISE UP TO 30 CENTS AND MUCH HIGHER THAN THAT PER KILOWATT HOUR SO THEY WEREN'T IN THE POSITION TO GET CAUGHT IN THE BIND AS WE WERE AS A RESULT OF THE REGULATION WE WERE UNDER. KEENAN: NOW SINCE THE DEREG, YOU GUYS HAVE SHIFTED ABOUT $4 BILLION FROM THE UTILITY TO THE PARENT COMPANY. HOW MUCH OF THAT ASSET SHOULD REALLY BE HELPING THE UTILITY NOW? DARBEE: WE BELIEVE NONE. ABSOLUTELY NONE. WHAT HAPPENED IS WE WERE REQUIRED TO SELL OFF OUR POWER PLANTS, AND JUST TO ENCOURAGE US TO DO SOMETHING, WE WERE ASSIGNED A PUNITIVE RATE OF 6.77% RETURN ON OUR EQUITY TO ENCOURAGE US TO DO THAT AS QUICKLY AS POSSIBLE. THE PUBLIC UTILITY DID NOT WANT US TO HOLD ONTO THAT EXCESS CASH. THEY WEREN'T ABOUT TO GIVE US A 12% RETURN ON IDLE CASH BALANCES THAT WERE SITTING THERE, AND SO WE WERE ENCOURAGED TO PASS THOSE ONTO OUR SHAREHOLDERS. THE BULK OF THAT MONEY WENT TO REPAY DEBT AND CAPITAL GAINS TAX ON THOSE ASSETS AND THERE WAS A RESIDUAL AMOUNT THAT WENT TO PAY DIVIDENDS, AS WELL AS BECAME AVAILABLE FOR INVESTMENT IN OUR NATIONAL ENERGY BUSINESS. KEENAN: ALL RIGHT. WE HEAR YOU ON THAT ONE. PETER DARBEE, WE'RE GOING TO HAVE TO LEAVE IT THERE. HE IS AGAIN, THE C.F.O. OF PG&E. ***END OF TRANSCRIPT***
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