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Profiting From the Darkness; California's problems have created a lucrative
opportunity for energy companies. Unfair? Maybe. But don't expect mercy from markets. Newsweek, 05/14/01 Big Energy at the Table; Winning support for your agenda is easy when your allies fill out the administration's top chairs Newsweek, 05/14/01 UK: EMETRA plans weekly website metal auctions. Reuters English News Service, 05/09/01 Talking Stocks CNNfn: The Money Gang, 05/09/01 Business Leader Joins Elite List; Peter Holt to be Honored at Dinner of Champions Business Wire, 05/09/01 INDIA: CMS evaluating options on India LNG project. Reuters English News Service, 05/09/01 The Latest California Power Craze: A Windfall Profits Tax Bill TheStreet.com, 05/09/01 National Affairs Profiting From the Darkness; California's problems have created a lucrative opportunity for energy companies. Unfair? Maybe. But don't expect mercy from markets. By Allan Sloan With Kevin Peraino. SLOAN is NEWSWEEK's Wall Street editor. His e-mail address is sloan@panix.com. 05/14/2001 Newsweek 23 Copyright (C) 2001 Newsweek Inc. All Rights Reserved. When it comes to football, "piling on" a player who's already been tackled is a major penalty that can set your team back a long way. But when it comes to markets, piling on by taking advantage of the weak is called "opportunism," and it can get you a big bonus. Which brings us to California, where piling on enfeebled utilities and customers by power generators and power traders has become a way of life. Thanks to the idiotic way that California deregulated its electricity markets, the generators and traders of power in California have been making a fortune because electricity costs have gone through the roof. Meanwhile, consumers are getting pounded rather than protected, economic instability is spreading throughout the Western United States and some of the utilities that distribute power to customers are getting clobbered. One big utility, Pacific Gas & Electric, has already gone broke and others may soon follow. But while the market has produced a horde of losers--California's wholesale power bill is running at 10 times the level of two years ago--there is a handful of big winners: companies that generate or trade power in the California market. Among the winners: Calpine, whose first-quarter profit quintupled, compared with last year's; Reliant Energy and Williams Cos., whose profits more than doubled; Mirant, up 84 percent, and Dynegy and Duke Energy, whose wholesale power profits doubled and quadrupled, respectively. Enron, the nation's biggest energy trader, had a 75 percent increase in wholesale-services profits, but says little of that was from California. Some of these companies' profits would have risen far more--Mirant's would have quadrupled--had they not taken big earnings hits to cover the risk of not being paid for some of their California sales. If they finally get paid, their profits will be outtasight. You can see why some of these companies' stocks have heated up as California melted down. To be fair, you can't attribute these entire increases to California--but you can be sure California accounts for a good portion of them. There are other, less obvious winners, too. Among them: the unregulated subsidiaries of some companies that own California utilities; aluminum producers that are making more money by closing their plants and selling their power allotments than they would have made by producing aluminum; farms that find it more profitable to resell electricity than to grow crops; and, in general, anyone in the Western United States or Canada with an electron to spare and some way of getting it into California. I'm not saying that these companies are immoral for making a fortune by taking advantage of California's problems. Breaking the law by creating an artificial shortage--which has been alleged, but not remotely proven--would be immoral. Taking advantage of a situation? That's what's known as amoral--having no moral values, either good or bad. It's not nice, but it's perfectly legal, and it's the way market players are expected to act. So when California Gov. Gray Davis said last week that he was planning to have a "heart to heart" talk with California power generators, you just had to laugh. Because when it comes to business, those people have no hearts. They're not supposed to. What created the problem in California is not only deregulation, but a stupid deregulation plan carried out ineptly: the Kilowatt Keystone Cops, as it were. California put a cap on the rates that utilities could charge customers, but until recently, it forced utilities to buy all of their power in the short-term market. The utilities foolishly agreed to this deal. The problem: short-term markets are notoriously volatile. And notoriously ruthless. If there's a small surplus of power, you have desperate sellers trying to sell power, which can't be stored. But if there's a shortage, everyone piles on. Had California utilities been allowed to do the rational thing and buy most of their power in long-term markets, they would have paid more initially, but they and their customers would be in far better shape now. Compounding the problem is that while the state deregulated the wholesale rates the utilities paid for power, they capped the retail rates utilities could charge. Combine that with total reliance on the short-term market and--voila! --you're totally at the market's mercy. And markets have no mercy. In the old days, when utilities were regulated, there was often waste and inefficiency, but power was reliable and utilities cared desperately about keeping the lights on. Now, we have markets that don't care about anything. Someday, markets may give us total reliability at a cheaper price than regulation would. But in the meantime, get used to the piling-on concept. Just hope you end up on top of the pile. Photo: Electrifying returns: What the market will bear Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. National Affairs Big Energy at the Table; Winning support for your agenda is easy when your allies fill out the administration's top chairs By Howard Fineman and Michael Isikoff With Mark Hosenball, T. Trent Gegax and Rich Thomas in Washington 05/14/2001 Newsweek 18 Copyright (C) 2001 Newsweek Inc. All Rights Reserved. If you were in the oil and gas business, it was a meeting that dreams were made of. Nine days before George W. Bush was inaugurated, energy lobbyists gathered at the American Petroleum Institute's offices in downtown Washington. Their agenda: to write a wish list. One participant remembers it fondly. "The tone was, 'OK, what do you guys want? You are going to have the ear of this White House'." In came an easel and a whiteboard, and ideas flowed: looser rules for drilling on federal lands; more drilling for oil and gas in Alaska and the Gulf of Mexico; lower royalty payments for tapping offshore wells. After a while, the mood in the room grew giddy. The man from the wildcatters' association suggested going All the Way. It was time, he said, to rethink the Endangered Species Act. That was a wish too far. But many items on that board--and other lists scribbled by other energy lobbyists in other offices around town--found their way into the recommendations that the president will unveil to the nation next week. The API list, in fact, was forwarded to George Bush's transition team, which sent it to the Interior Department. On March 20, Interior sent many of the same ideas to the Energy Task Force that Vice President Dick Cheney had convened on Jan. 29. To close the loop, key leaders from that API meeting have since been appointed to pivotal positions in Bush's administration--among them J. Steven Griles, an energy lobbyist and the new second in command at Interior, and Thomas Sansonetti, an energy lawyer recently named the top environmental cop at the Justice Department. The two, in effect, will help administer policies they helped to write. If the Bush administration is homecoming weekend for the energy industry, Dick Cheney's task-force report is the pregame tailgate party. Not since the rise of the railroads more than a century ago has a single industry placed so many foot soldiers at the top of a new administration. While the report will recommend an array of what one White House aide advertises as "high-tech, 21st-century conservation ideas," its core will be a call to find and use new sources of fossil fuels, as well as a renewed commitment to nuclear power. What voters need to hear "loud and clear," the president declared last week, "is that we are running out of energy in America." Is there a national "crisis"? California faces rolling summer-electricity blackouts. In New York City, officials are scrambling to add small gas-fired generators to handle peak demand. Natural-gas prices have doubled in the past year. The numbers on signs at filling stations are skyrocketing, and could hit $3 a gallon this summer in the Midwest. In a West Wing interview with NEWSWEEK, Cheney shied away from the C word. "I think the potential is there for it to adversely affect the economy," he said. But voters are using the word. In a NEWSWEEK Poll, 71 percent of those surveyed say there is an "energy crisis" in California; 53 percent agree there now is one in the country as a whole. Given an either-or choice between "protecting the environment" and "developing new sources of energy," those polled selected energy by 52 to 41 percent, compared with a 49-44 ratio just one month ago. There's something to be said for turning to energy-industry alums in this situation--and Cheney, who like Bush is a son of the oilfields, is not shy about saying it. "The fact of the matter is [you get] a lot of expertise with people who have been dealing with these issues for a long time," he told NEWSWEEK. In his own case, he said, his time at Halliburton, the globe-girdling oil-services company, taught him "a hell of a lot about the technology of the business," such as benign new ways to drill in Alaska's Arctic National Wildlife Refuge. But Americans are skeptical of industry motives--and, by extension, of Bush's ties. When asked to name who had contributed "a lot" to the current energy situation, those polled named two sets of villains: the U.S. energy companies (66 percent) and overseas energy suppliers, such as OPEC. Bush himself gets his lowest approval marks for his handling of energy and environmental issues. Democrats, naturally, are pouncing on what they see as a populist hole in Bush's armor. Late last week House Minority Leader Dick Gephardt was stumping in Chula Vista, Calif.; with transmission lines as a backdrop, he vowed to impose new federal caps on electricity rates--an idea Cheney flatly opposes. The administration may well have raised the political risk via the process it used to draft its plan. The Bushies used a secretive, believers-only process reminiscent of another such enterprise: Hillary Rodham Clinton's effort to write a national health-care plan in 1994. Since the group comprises only government officials, White House aides say, it is entitled to keep its deliberations private. Still, industry leaders--who dumped $22.5 million into GOP coffers in the last election--enjoyed constant contact with the task force. Cheney met with a group of utility executives at the Edison Electric Institute, whose president, Tom Kuhn, was a leading Bush fund-raiser. No one has enjoyed better access than Enron CEO Ken Lay, who recently had dinner with his good friend the president. The environmental community, meanwhile, got one mass meeting with the staff a month ago (and the promise of another this week with EPA Administrator Christine Todd Whitman). Efforts to meet with Cheney were rebuffed. Cheney himself confirmed he had not met with a single spokesman for the greens. That dynamic has only fueled suspicions among enviros about what's going on behind closed doors. "They're drumming up a fake energy crisis that doesn't exist," says Phil Clapp of the National Environmental Trust. To be sure, the Cheney report will make many nods in the direction of conservation and renewable resources. Cheney confirmed that it will call for tax credits for both. The plan will herald and encourage the advent of less intrusive, high-tech means for finding and extracting oil and gas and for burning more coal. White House spinners have decided to divide the report into five parts--only two of which will deal with the extraction and the transmission of new sources of traditional types of fuel. The conservation measures will be high tech and optimistically can-do about using Yankee ingenuity to give Americans all the cars and appliances they want while using less electricity from state-of-the-art power plants. But there will be no paeans to the kind of pantywaist, tree-hugging self-abnegation the Bushies think President Carter sermon- ized about a generation ago. "This isn't about not bathing or turning off your lights," said a top Cheney aide. "This is about finding environmentally safe ways to make sure we have the energy we need." That's not enough, environmentalists say, given the rising threat of global warming the green community is convinced comes from burning fossil fuels. "The test of any energy plan will be what it does to limit greenhouse gases," says Fred Krupp of Environmental Defense. The Union of Concerned Scientists, concerned about global warming, says that renewables and conservation could displace 20 percent of traditional electricity demand by the year 2020--and greatly lessen the need for new power plants. Cheney thinks otherwise. In that span, he said, reliance on renewables could indeed triple--a "fairly optimistic" scenario but one that would still meet only 6 percent of total electricity needs. But that estimate does not include imposing tough new mileage standards on SUVs or mandating more efficient appliances. "Part of our task," he said, "is to focus on reality, and reality is not 'Well, gee, we'll conserve our way out, we don't have to produce any more,' or 'Wind and solar will take care of it, so we don't need fossilfuels anymore'." Now comes the hard part: selling the plan to the public and to Congress. Some GOP strategists are sanguine about overcoming environmental concerns. "Nothing like $3-a-gallon gasoline to help make the case," said one. But it's probably not that simple. White House strategists are looking for clues on how best to hawk the package in polls done for them by the Republican National Committee. The surveys show that voters know very little about where energy supplies come from or how they now are distributed in what has become a relatively deregulated marketplace. "Voters out there think that the government guarantees cheap, abundant energy," said one worried Republican polltaker, "and that's not the way it works anymore." Other insiders worry less about the Democrats than the news media, which they regard as addicted to showing videotape of belching smokestacks. "Bush will have the bully pulpit," says GOP consultant Alex Castellanos, "but it's not an easy sell." But sell Bush must. He'll take his show on the road next week, joined by a fleet of cabinet secretaries. They will declare that action is needed after years of Clinton-administration neglect. They will say that there are no quick fixes, and tout their market-based, supply-side, long-term answers. They may use real-world vignettes about energy shortages. (On request, the Natural Gas Supply Association provided the White House some.) But politics is lived in the short term, and Bush late last week suddenly found himself in the role of conservation advocate. He ordered federal facilities in California to turn up thermostats, and pledged that they would reduce electricity use by 10 percent. Cheney, the interview over, hurried to the Cabinet Room for the announcement. It turns out that conservation matters a great deal, at least in California, at least for now. Photo: Inner circle: Cheney presiding over a meeting of the Energy Task Force last week in the vice president's ceremonial office Photo: Inner circle: Cheney presiding over a meeting of the Energy Task Force last week in the vice president's ceremonial office Photo: The outsider: Clapp claims the Bushies may be ginning up ``a fake energy crisis'' Graphic: (Chart) Energy Advocates in the Bush Pipeline (Graphic omitted) Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. UK: EMETRA plans weekly website metal auctions. 05/09/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, May 9 (Reuters) - Metals Internet trading group EMETRA is to host weekly auctions of physical metal on its trading platform, content manager James van Bregt said on Wednesday. As part of the development of its physical platform, EMETRA was due to hold four copper auctions on May 10, but in light of its users' interest, the company has not only increased the number of auctions but has decided to make them a regular feature. "When you see how successful the auctions are and given the amount of interest we've had, this will be a weekly event," said van Bregt. "Our idea was to have four auctions taking place and in fact it was slightly swamped and we're now holding seven. In fact, we've even asked several participants to keep their powder dry until next week," he said. The seven auctions will be for 4,150 tonnes of copper, and one will be a warrant auction. Of the metal to go under the hammer, 500 tonnes will be available in Rotterdam, and another 1,150 in Rotterdam "or parity," van Bregt said. Another 1,500 tonnes will be available in parcels of 500 tonnes in Livorno, Shanghai and Carrollton, Georgia, while 1,000 tonnes will be available in Antofagasta in Chile. The "auction hour" will last from 1300 GMT to 1430 GMT, van Bregt said. "Provided we get a good level of bookings, say if four out of the seven auctions get done, then clearly that tells us that this is the way to do things," he said. EMETRA began trading on its physical platform last October on its website www.emetra.com, with over a million tonnes of liquidity. EMETRA was founded in February 2000 as a joint venture between London Metal Exchange ring dealer MG plc - subsequently bough by U.S. energy and power giant Enron Corp - Internet Capital Group and Safeguard International Fund. Last week, Peter Sellars, company chief executive, said that the company had secured additional funding to develop its physical platform, while putting its derivatives platform on a backburner. EMETRA is currently rolling out warrant trading, copper and aluminium rod trading and the first stage of its documentation centre. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Business Talking Stocks David Haffenreffer, Christine Romans 05/09/2001 CNNfn: The Money Gang © Copyright eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.). All Rights Reserved. CHRISTINE ROMANS, CNNfn ANCHOR, THE MONEY GANG: You`re watching THE MONEY GANG and we`re Talking Stocks. DAVID HAFFENREFFER, CNNfn ANCHOR, THE MONEY GANG: And joining us once again is David Katz from Matrix Asset Advisors. ROMANS: Let`s hit the phones right away. California and Rich, hi there. CALLER: Hi. During the nice run up of the last month, I`d lost a painful amount of money in Enron (URL: http://.www.enron.com/) . I could never figure out what was wrong with this stock. I`d like to know that if you know. And also should I keep it and hope for a recovery or should I terminate and try to get well somewhere else? HAFFENREFFER: This is a familiar story. DAVID KATZ, MATRIX ASSET ADVISORS: Yes. In terms of looking at a stock that has performed poorly and hoping for a recovery, we generally would not do that. We would reassess why you bought the stock in the first place, are the fundamentals of the business strong enough. And if they are, we would stick with this stock as a losing investment. In terms of Enron, it`s been a great performer up until the last month. And, as technology has started to come back and as the market has come back, some of the stock that were leaders there`d been a lot of profit taking. We think that`s the case there. Basically we don`t have a strong opinion on this stock. We think it should trade up over the next year or two because they do have good fundamentals. So we`d stay with it but if the stock were to recover some, we`d take your money off the table. HAFFENREFFER: Another phone call now from Victor in Illinois. Hi Victor. CALLER: Hi. Good afternoon. My question and thoughts - your thoughts on Amgen (URL: http://www.amgen.com/) . KATZ: OK. Amgen is a - one of the most successful biotech companies. They`ve been so successful they`re no longer considered biotech. They`re considered a big drug company. We think that their prospects and their product line are good over the next year but the stock is selling north of 40 times earnings. We`re comfortable holding it. But, since you have a limited basket of money that you can put to work, we think there are better drug companies out there we prefer. We mentioned the Schering-Plough (URL: http://www.schering-plough.com/) earlier or Pharmacia (URL; http://www.pnu.com/) , Upjohn (URL: http://www.pnu.com/) or an Abbott Labs (URL: http://www.abbott.com/) we think, are not as much an upside, but they`ve got a lot less downside. And we think they`ll do real well over time. ROMANS: Let`s go to Missouri now where Roy has a question. Hi, Roy. CALLER: Hello. ROMANS: What would you like to know? CALLER: Hi, I`d like to know the year end of what Procter & Gamble (URL: http://www.pg.com/) looks like for the year and over the next year-and-a-half to two years if it`s a good buy now? or if I even need to mess with it? KATZ: We think it is a good buy now. The stock has been in the Wall Street penalty box for the last year. It`s down from $100 a share or more. They disappointed the Street so much that expectations were so low that they just made the numbers this quarter and all of the sudden the stock`s up $4 or $5. We think they`re slowly getting their act together. We think the stock will do better. Fundamentals are going to improve over the next year and we think the stock can trade back into the high 70s, low 80s. HAFFENREFFER: Last question of the afternoon goes to Charlie right here in New York. Hi, Charlie. CALLER: Hi, David. Thank you for taking my call. I have a question on Ariba (URL: http://www.ariba.com/) and ADC Telecom (URL: http://www.adc.com/) . Would this be a good time as an entry point in these stocks? I have about a one to two-year outlook, in other words, I intend to keep it for at least one or two years. So would this be a good buy at this time? KATZ: OK, in terms of Ariba, it`s a risky Internet stock. We would not get involved with that right now. In terms of ADC Telecom, they`ve also come down about 70 percent. We do think they have good prospects, short-term fundamentals are crummy. We don`t think the stock goes down a whole lot more. And we think the stock could double over the next two years. ROMANS: All right, let`s talk about just your market perception overall and, you know, we`ve taken questions from people about what they want to hear about, but what kind of stocks do you like? what are your big picks? KATZ: One, in terms of market outlook, we think stocks are be higher over the next 12 to 18 months. When earnings are crummy and the Fed is lowering rates, it`s generally a very good time to be buying stocks. We like select technology. Within technology, companies like Compaq (URL: http://www.compaq.com/) , which has been miserable, Hewlett-Packard (URL: http//www.hp.com) , we think is going to do very well over the next year. A smaller company, Adaptec (URL: http://www.adaptec.com/) selling at $11. We think it could be at $20. We like the financials. They generally do quite well when the Fed is easing. Companies like Comerica (URL: http://www.comerica.com/) , FleetBoston (URL: http://www.fleetbankbostonmerger.com/) , Bank of America (URL: http://www.bankamerica.com/) , all very good investments. We like some old economy stocks like a Leggett & Platt (URL: http://www.leggett.com/) or a Sherwin-Williams (URL: http://www.sherwin.com/) and select pharmaceuticals. We mentioned the Schering-Plough, Boston Scientific (URL: http://www.bsci.com/) . So you really want to diversify. Don`t make bets in any individual industries. Don`t make that to any individual stocks. ROMANS: OK. David Katz, good advice, Matrix Asset Advisors, thank you very much. KATZ: Thank you. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Business Leader Joins Elite List; Peter Holt to be Honored at Dinner of Champions 05/09/2001 Business Wire (Copyright © 2001, Business Wire) SAN ANTONIO--(BUSINESS WIRE)--May 9, 2001--The National Multiple Sclerosis Society (NMSS) has announced that it will honor San Antonio Spurs Chairman and Owner Peter Holt at its First Annual Dinner of Champions on Thursday, Sept. 12, 2001. Holt will be presented the Hope Award in recognition of his unwavering support of the NMSS. Serving as dinner chairs of the event will be Tammy and Russ Bookbinder, executive vice president of the San Antonio Spurs. The black tie event will be held at 7 p.m. at The Westin -- La Cantera Resort. A "who's who" list of San Antonio business, political and social leaders are expected to attend. Funds raised will benefit the National Multiple Sclerosis Society -- Lone Star Chapter. Since its inception on a national level 27 years ago, the Dinner of Champions has raised more than $100 million for client programs, MS-related research and individuals living with MS. The honor represents the highest bestowed on an individual by the NMMS Society. Today, 70 major cities, from New York to Los Angeles and Chicago to Houston, honor prominent leaders and top executives on an annual basis. Past honorees include John Chambers, CEO of Cisco Systems Inc.; Peter Coors, CEO of Coors Brewing Company; Arthur Martinez, CEO of Sears and Roebuck; D. Mark Prestige, president of Tom Thumb; Jeffrey K. Skilling, president and CEO of Enron; Ron W. Haddock, president and CEO of FINA; and Tom Sherak, CEO of Twentieth Century Fox. Cumulatively, these honorees represent the most influential cast of corporate, political and entertainment leaders in the world. Peter Holt is a shining example of this award and is no stranger to the fast track of global business. He is a strong proponent of leading by example through his value-based management philosophy. Since becoming the chairman of the board of the San Antonio Spurs in 1996, he has led the team in fund-raising and community outreach programs that range from the United Way to efforts with the Fannie Mae Foundation and the Spurs Drug Free League, which provides a safe place for grade school children to play basketball after school. Holt serves as chairman of the San Antonio Spurs and president and CEO of the San Antonio-based Holt Companies. The Holt Companies got its start in 1933 when Holt's great uncle moved to San Antonio and opened a Caterpillar dealership. When the dealership's territory expanded and other dealerships opened, family members got involved in the business. Today, Holt Companies includes Holt Machinery Company, which includes the original Caterpillar dealership, and the San Antonio Spurs. "Working with volunteers on a community project, with the Spurs players and staff or with the Holt Companies, it's always the same," Holt said. "Treat people fairly and honestly, and the amount you can accomplish with others is far greater than anything you can do by yourself." Holt's sentiments are illustrated not only in his involvement with the MS Society, but also in his long-standing commitment to community service. He is a member of the World Presidents' Organization, sits on the board of the San Antonio Council on Drug and Alcohol Abuse, the United Way of San Antonio and Bexar County and is a trustee of the Palmer Drug Abuse Program. A decorated Vietnam War veteran, Holt ended his two years of service as a Sergeant E5 with a Silver Star, three Bronze Stars and a Purple Heart. The black tie, seated dinner, to be held at The Westin -- La Cantera Resort, is expected to raise several hundred thousand dollars for the National Multiple Sclerosis Society-Lone Star Chapter. Multiple Sclerosis, a disease of the central nervous system, affects an estimated one third of a million Americans. The NMSS, established in 1946, is the world's largest source of MS-related funds, with the exception of the U.S. Government. The Dinner of Champions enables the NMSS to continue its work in providing support services for people with MS and their families, as well as funding research into the cause and cure of this disease. The NMSS spends a larger percentage of revenue on direct services than any other voluntary health organization primarily serving adults. Close to home, the Lone Star Chapter serves more than 1,200 people in San Antonio area. CONTACT: Stevens Group, Houston Melissa Stevens, 800/279-9249 or 713/840-0555 12:20 EDT MAY 9, 2001 Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA: CMS evaluating options on India LNG project. By Suresh Seshadri 05/09/2001 Reuters English News Service (C) Reuters Limited 2001. MADRAS, India, May 9 (Reuters) - U.S. firm CMS Energy Corp said on Wednesday it was disappointed with delays in getting a bankable guarantee for its Indian LNG-based power project and was now evaluating its options. The statement came close on the heels of U.S. energy giant Enron Corp's problems over its Indian unit's $2.9-billion, 2,184-MW project following the state power utility's refusal to honour a commitment to buy all its plant's power. CMS, along with India's Grasim Industries , leads a consortium to build a $1.6-billion LNG-terminal-cum-power plant at Ennore port, north of Madras. "CMS is disappointed in the lack of progress by the Indian government," CMS Energy's director of communications, Kelly M. Farr, told Reuters by e-mail. "We are evaluating our options and will choose a course of action which optimises the value for all of our Indian investments," Farr added. India's Financial Express daily said last month that CMS had written to Prime Minister Atal Behari Vajpayee seeking his intervention for providing a payment security mechanism guaranteed by the federal government, to arrange project funding. In January, India's finance ministry indicated it may scrap a plan to extend sovereign guarantees to three mega power projects, including the Ennore LNG project. The paper said CMS had indicated its impatience with continued delays in providing a guarantee and hinted it may have to pull out of the project in case of any further delay. The 1,850-MW Ennore project has been promoted by the Dakshin Bharat Energy consortium which also includes Germany's Siemens , Australia's Woodside and Unocal Corp . ENRON SHADOW Enron's troubled Indian unit, Dabhol Power Company, finds its nearly complete $2.9-billion, 2,184-MW project embroiled in a controversy over the state power utility's refusal to honour a commitment to buy all the plant's power. The Maharashtra State Electricity Board, which says the power is too costly, has defaulted on monthly payments to DPC for the electricity it has taken, forcing DPC's board to authorise its management to terminate the contract. The CMS-led consortium won the LNG project from the Tamil Nadu state government in 1998 and plans to build a 2.5-million tonnes a year LNG import, storage and regasification terminal. The LNG is to be imported from Qatar's RasGas and the electricity from the power plant will be sold to the federal government-owned Power Trading Corp of India. India opened up its generation sector almost 10 years ago but investment has been scarce as most of the country's power distribution is done by cash-strapped, state-owned utilities. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. The Latest California Power Craze: A Windfall Profits Tax Bill By Christopher Edmonds Special to TheStreet.com 5/9/01 3:17 PM ET "Enough already." That's the message Raymond James' power analyst Fred Schultz has for California and its politicians. As the Golden State faces another day of rolling blackouts, Edison International (EIX:NYSE - news) begs its lenders not to push its utility -- Southern California Edison -- into bankruptcy; Gov. Gray Davis meets with the generators he loves to hate; and the generators face the possibility of a windfall profits tax. Schultz, meanwhile, hopes common sense will soon prevail over the current punitive, political nonsene. He is referring to the recent rash of political action aimed at the profits of generators that sell power into the California market, specifically, the California Assembly's and Senate's moves to impose a windfall profits tax on generators. On Monday, the Senate passed a bill that would require generators to fork over every dollar they charge for power above an $80 per megawatt hour (MWh) threshold to the state in the form of a tax. Unfortunately, it's the California consumer who is left in the dark by the politics of power. The bill would effectively set price caps -- something that is really the purview of the Federal Energy Regulatory Commission, or FERC. The bill now moves to the Assembly, where it appears to have support. In fact, the Assembly is considering its own version of the windfall profits legislation, lowering the threshold to $60 per MWh. Schultz says this action simply highlights the counterproductive nature of California's punitive, political approach to solving the state's energy crisis. "This round of legislative action is defeating, time-wasting and value-destroying," he says. "The initiatives under way, if passed, will ultimately destroy the California power markets as we know them today." He has a point. The problem in California is a lack of electricity supply, a result of a decade of regulatory posturing that discouraged the development of new power plants to meet the surging demand for power from the burgeoning high-tech economy. At the very time California pols should be focused on encouraging new generation, they are proposing policies that actually discourage new development. "California legislators should ask themselves this: Does taxing the sale price for electricity create more electricity supply or less?" Schultz asks rhetorically, invoking a lesson from the Boston Tea Party in his answer. "Less! Samuel Adams must be spinning in his grave right now. How in The Almighty's name is this sort of ass-backward legislation going to create more energy in the state?" And, now some members of the state Legislature say they don't even need the assistance of generating companies to solve the problem -- they'll build the plants themselves. A power company with Davis as the CEO and engineered by members of the legislature, the same group that managed to create the policies that led to the current crisis, isn't terribly comforting. The state needs the help of the generating companies. Companies such as AES (AES:NYSE - news) Calpine (CPN:NYSE - news), Duke (DUK:NYSE - news) Dynegy (DYN:NYSE - news), Mirant (MIR:NYSE - news), NRG (NRG:NYSE - news) and Reliant (REI:NYSE - news) can and will help California solve their supply problems if they are given a chance. Fortunately, few observers believe the windfall tax bill will be enacted and even fewer think such a law would withstand a constitutional challenge. "We do not expect the proposed legislation to be enacted into law," Deutsche Bank Alex. Brown power analyst Jay Dobson told clients on Tuesday. "The law as currently written would provide a major disincentive to both the development of new generating assets as well as the operation of high cost existing assets. This would further exacerbate the shortage of generating capacity in the state at a time when the shortage is likely to seem most acute." Schultz is more direct. "This is warped." Windfall Tax: Dimming for Generators? As rolling blackouts get more frequent, the political hyperbole in Sacramento only will increase. And, with other punitive measures similar to the windfall tax likely to surface, investors are concerned about the impact of such proposals on generating companies doing business in the, er, tarnished state. Alex. Brown's Dobson expects some giddiness in the stocks of generators as temperatures -- both atmospheric and political -- rise. "Although we don't expect the proposed legislation to pass, we do expect the level of 'headline' risk to remain high," he notes. "This will likely lead to more volatility for the generation stocks in the near term." Still, Dobson predicts the "generation sector will outperform" as profits surpass expectations this summer. His favorite names are Calpine, Reliant and AES. He rates all strong buy. His firm has recently provided banking services for Calpine and Reliant. Schultz says Calpine and Mirant stand out in the group, a result of their approach to the California markets. "Calpine and Mirant are reinvesting heavily in California and are in the game for the long haul," he notes. "Unlike the Texas trio [Enron (ENE:NYSE - news), Dynegy and Reliant] that receives a lot of criticism from the governor, both Calpine and Mirant are dealt with favorably and receive the benefit of the doubt in Sacramento. They have dedicated millions of dollars to the development of meaningful power supplies in the state." He rates both strong buy and his firm has not provided recent banking services to either. He also notes that Calpine has long-term power supply contracts that would avoid the punitive measures of a windfall profits tax, and Mirant is "more than adequately" reserved for possible write-offs associated with outstanding receivables for selling power in the state. Davis Meets the Generators The governor has summoned top executives from the generating companies to Sacramento on Wednesday to discuss the current crisis and possible solutions. However, many important players -- including Calpine, Dynegy and Enron -- may not even show up. Many of the generating companies are soured by Davis' refusal to "call off the dogs" in his investigations of possible collusion, price gouging and intentional withholding of generation during periods of high demand. At the same time, Davis is hoping to convince the generators to forgive a large portion of past receivables, to cut prices on long-term power contracts, and to build new low-cost generation. The irony isn't lost on Schultz. "Davis now has a Senate-backed initiative to castrate the earnings stream of wholesale generators should he choose to back such an initiative," he notes. "Who in their right mind would walk into a poker game knowing the deck was rigged against them? Is extortion still a crime?" Maybe this time around, Davis will put his cards on the table. If not, the generators have every right to walk away from the table.
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