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Kyoto Spurned Is Mixed Bag for U.S. Firms --- Subsidiaries Abroad Will Have
to Abide by New Emissions Rules The Wall Street Journal, 07/25/01 THE NATION FERC Scrutinizes Charges of Bias in Grid Controller Energy: Davis-appointed panel that heads Cal-ISO violates U.S. law, critics say. Remedies could include scrapping it. Los Angeles Times, 07/25/01 Markets / Your Money Dreary Outlook Batters Stocks Markets: Disheartening forecasts from AT&T, Amazon rattle Wall Street. Dow, Nasdaq post losses for third session. Los Angeles Times, 07/25/01 INDIA PRESS:Enron/MSEB Dispute Clouding Invest - Official Dow Jones International News, 07/25/01 Rocca seeks Centre's intervention in Enron dispute The Hindu, 07/25/01 Houston Energy Firm's Quarterly Income Is Up 60 Percent KRTBN Knight-Ridder Tribune Business News: Houston Chronicle - Texas, 07/25/01 Dynegy's Telecommunications Unit Reports $20 Million Loss Dow Jones Energy Service, 07/24/01 BANDWIDTH BEAT: Bandwidth Trading Isn't Dead Yet Dow Jones Energy Service, 07/24/01 Economy Kyoto Spurned Is Mixed Bag for U.S. Firms --- Subsidiaries Abroad Will Have to Abide by New Emissions Rules A Wall Street Journal News Roundup 07/25/2001 The Wall Street Journal A2 (Copyright © 2001, Dow Jones & Company, Inc.) The U.S. rejection of the Kyoto Protocol appears to give U.S. companies an advantage over their foreign rivals, which would be forced to invest to reduce greenhouse-gas emissions. But longer term, some U.S. companies could find themselves less energy efficient in their domestic operations than their overseas competitors. U.S. multinationals seem resigned to the fact that their operations abroad will need to conform to the Kyoto rules. Few sectors would be as affected by curbs on carbon-dioxide emissions as the auto industry, whose cars and trucks are one of the world's biggest sources of the gas. In Europe, the auto industry, including units of the Big Three auto makers, already has signed a voluntary agreement to cut 25% from 1995 levels of the amount of carbon dioxide that the European industry's new vehicles belch out by 2008. But in the U.S., most major auto makers continue to oppose calls by environmentalists and rising numbers of politicians to force a similar result by toughening the nation's automotive fuel-economy rule. The Kyoto agreement, approved this week by 178 countries, but not by the U.S., at a United Nations convention in Bonn, calls for industrial nations to reduce their emissions to 5.2% below 1990 levels during an accounting period that runs from 2008 to 2012. The accord must still be approved by legislatures of at least 55 countries, representing more than 55% of emissions from the industrialized world. Foreign companies are hollering that they will have to abide by stiffer environmental regulations than their U.S. rivals. "We could be placed at a disadvantage to oil and gas companies operating in the U.S.," said Chris Dawson, a spokesman for Petro-Canada, a Calgary, Alberta, integrated oil company. "The markets must be open, and everyone must be operating on the same playing field." The Bush administration, which faults Kyoto for being too costly for U.S. businesses, has promised to develop its own framework to reduce global warming. Indeed, this week's approval of the Kyoto agreement raises the possibility that a compromise regulatory regime can be worked out. Democrats in Congress say that they will now mount a strong campaign to set up a U.S. regime to regulate carbon dioxide, which could give the U.S. standing to enter the Kyoto accord later. Secretary of State Colin Powell yesterday said: "We are committed to working with all nations of the world to find a consensus in the near future." Although the European Union looks certain to ratify Kyoto, questions remain over the commitment of some other key countries, especially Japan, whose heavy industry could be hurt by Kyoto, especially compared with the U.S. Japan was only dragged into the deal in Bonn after receiving concessions, which reduced the cuts it will have to make in its emissions. A big appeal that led to the original accord was that the parties to it can engage in several types of international emissions trading, a concept promoted for years by the U.S. before it abandoned Kyoto. The U.S. had been expected to be the major buyer of such credits, especially from Russia. Jonathan Pershing, who heads the International Energy Agency's environmental division, estimated that the world trading market in emissions credits would have been roughly $42 billion a year, including the U.S. Computer models, he said, show the withdrawal of the U.S. would shrink the market and also drop the demand price for Russian credits sharply, leaving annual trade among nations at about $3 billion. Mr. Pershing believes U.S. companies may not be able to use the market, at least initially. Later they may, he said, but "maybe at a higher cost" of entry. Some U.S. companies want the U.S. to rethink its position on Kyoto and gain entry for its companies in the emerging market. "It would give us an opportunity to get more mileage out of the capital we have to meet this [climate change] challenge," said Thomas R. Jacob, a senior international adviser for DuPont Co., which operates in 70 countries. DuPont is one of 36 multinational companies that have formed an alliance with the Pew Charitable Trusts to support efforts to curb climate change and to express interest in emissions-trading possibilities. Enron Corp. -- which has a big trading operation, as well as utilities -- expects that Kyoto would offer it business opportunities. Those include, for example, helping companies switch from coal to cleaner-burning natural gas, and helping companies finance pollution-control equipment, said Jeff Keller, Enron's director of environmental strategies. He believes the U.S., eventually, will join the group of signers. Many European companies are already well on their way to meeting Kyoto's targets. "We're way ahead of Kyoto," boasts Pasquale Pistorio, chief executive of French chip maker STMicroelectronics NV. Increased energy efficiency saved the company $40 million last year, he said, and STM has targeted zero carbon dioxide emissions by 2010. STM takes advantage of a Kyoto provision allowing it to plant trees, which reduce carbon dioxide in the atmosphere, in order to offset the company's emissions. In the United Kingdom, big oil companies BP PLC and Royal Dutch/Shell Group were early supporters of Kyoto, and both companies subsequently declared they would hew to the standards of the protocol even before it was passed. To assist in achieving these reductions, the companies separately have set up internal emissions-trading floors, where various company units can trade credits. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. National Desk THE NATION FERC Scrutinizes Charges of Bias in Grid Controller Energy: Davis-appointed panel that heads Cal-ISO violates U.S. law, critics say. Remedies could include scrapping it. RICARDO ALONSO-ZALDIVAR TIMES STAFF WRITER 07/25/2001 Los Angeles Times Home Edition A-17 Copyright 2001 / The Times Mirror Company WASHINGTON -- The Federal Energy Regulatory Commission appears headed for a showdown with Gov. Gray Davis, perhaps as early as today, over political control of the powerful nonprofit corporation that runs California's electricity transmission grid. Responding to an industry complaint that the grid operator lacks required independence, FERC could immediately disband its governing board, which was appointed by Davis. But several observers said Tuesday that such a politically provocative step seems unlikely in the heat of summer. They predicted the commission will find some other way, such as negotiations with Davis, to address its concerns. Most consumers know the California Independent System Operator, or Cal-ISO, as the agency that declares power emergencies and schedules rolling blackouts. But the Folsom-based ISO is more than that: It functions as California's electricity traffic controller, scheduling delivery of power to match shifting demand throughout a service area that covers three-quarters of the state. It is the fifth-largest entity of its kind in the world. Under emergency legislation passed in Sacramento earlier this year, Cal-ISO is now governed by a five-member board appointed by Davis, and there lies the controversy. Power companies have formally complained to FERC that Cal-ISO can no longer be considered an unbiased player in the market, as federal rules require it to be. They point out that the state, through the Department of Water Resources, is now a major power buyer. The industry fears that Davis might one day use his leverage over Cal-ISO to deny access to the California market to sellers that fall from political grace or don't deal with the water department on favorable terms. Senior FERC officials agree that a conflict of interest exists. Previously, Cal-ISO was governed by a board that represented a cross-section of interest groups from industry to consumers. But that arrangement was widely considered ineffective. The issue is scheduled for consideration today at FERC's last meeting of the summer. Agency sources said FERC's five commissioners are considering a wide range of options, from ordering the current ISO board disbanded to postponing a decision altogether. New Board Could Be One Compromise One middle-of-the-road proposal calls for negotiations and arbitration with Davis and other interested parties, with the goal of creating a new Cal-ISO governing board not directly answerable to the governor. "The ISO is not independent," said a senior FERC official who asked not to be identified. "There is ample evidence of that. The governor should not be appointing the board. "We believe the law is on our side," the official added. "But having the law on your side may mean sending federal marshals. To some extent, this has the flavor of a government takeover. Do you kick the doors in and install a new board?" Michael Kahn, a San Francisco lawyer appointed by Davis to head the Cal-ISO board, indicated the state would be willing to negotiate. "Precipitous intervention is not warranted," Kahn said. "We should try to initiate some sort of dialogue to see if this can be resolved otherwise." Added Kahn: "The generators and the marketers don't like the ISO because it is independent of their interests." In a legal brief submitted to FERC in May, the industry declared that it has no confidence in the current setup and warned that doubts about Cal-ISO could crimp needed investment in new power plants. "The establishment of an independent [Cal-ISO] is vital to the long-term resolution of California's energy problems and the stability of the entire Western region," wrote Julie Simon, vice president for policy at the Electric Power Supply Assn. "The continued influx of capital for new or expanded in-state generation, the willingness . . . of out-of-state suppliers to sell into the California market and the ability to seamlessly integrate California's grid with other Western regional transmission organizations will require that [Cal-ISO] function as an 'honest broker.' " But Cal-ISO, she added, "has been transformed from an independent operator of interstate transmission resources to a partisan advocate for the state of California. . . . If the governor is dissatisfied with the [Cal-ISO] board, he can appoint a new board." Consumer advocates say that presents a problem for power marketers such as Mirant Corp., Duke Energy Corp., Dynegy Corp. and Enron Corp., but not for the public. Differing Views on Panel's Role "The ISO is finally operating in the public interest, and it drives these companies nuts," said Mark Cooper of the Consumer Federation of America. "FERC has continually complained that California is supposed to fix its own problem. There is an ISO that appears to be working. So why would anybody want to go and stir this up?" However, Rep. Doug Ose (R-Sacramento) said the close link between the grid operator and Davis has hurt California's credibility in the energy policy debate. "The purpose of that board is to run the transmission grid," Ose said. "You can have a consumer representative, but you've got to have people who have significantly greater experience running electric transmission." Kahn, the Cal-ISO chairman, said the board has not tried to put itself in the place of the professional staff running the grid. "ISO management has been allowed to do what they want. There has been very, very limited interference by the board. If FERC now wants to come in and micromanage the ISO, that would be extraordinary." A veteran Washington energy lawyer said he doubts that FERC will take such a drastic step as dismissing the board appointed by Davis. Although the agency appears to have the legal authority to do so, since federal law supersedes state law, such a move would likely trigger a rhetorical backlash from Davis and a lawsuit by the state. "It is a red-hot issue, and this is the summer peak," said the lawyer, who asked not to be identified. "You can make a pretty good argument that the commission ought to take a crack at negotiating a way out of this." Tension between FERC and Davis is likely to continue for months and spill into other areas. For example, FERC wants the California grid to eventually form part of a regional transmission network governed by a board that represents the entire West. The governor wants the California grid to remain under state control. RELATED STORY Edison rescue: Current rates give utility a little breathing room. C1 Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Business; Financial Desk Markets / Your Money Dreary Outlook Batters Stocks Markets: Disheartening forecasts from AT&T, Amazon rattle Wall Street. Dow, Nasdaq post losses for third session. From Reuters 07/25/2001 Los Angeles Times Home Edition C-4 Copyright 2001 / The Times Mirror Company Stocks tumbled to 14-week lows Tuesday as dour forecasts from industry leader AT&T and new mass layoffs at Lucent Technologies suggested the slump in corporate profits is far from over. Amazon.com also rattled Wall Street when the online retail giant said sales could slow further amid feeble economic growth. The news ignited fears that consumer spending is dropping and could undercut an economic rebound, money managers said. "It's a horrible market," said Rich Levy, head of block trading at CIBC World Markets Inc. "No one's buying into this thing. People are tired of losing money." The Dow Jones industrial average tumbled for the third session in a row, dropping 183.30 points, or 1.8%, to 10,241.12. The broader Standard & Poor's 500 index fell 19.38 points, or 1.6%, to 1,171.65. The technology-laden Nasdaq composite index also dropped for a third straight session, losing 29.32 points, or 1.5%, to 1,959.24, widening Monday's loss of 2%. Tuesday's swoon marked the lowest close for Nasdaq and the S&P 500 since mid-April. Stocks fell broadly across sectors. Only eight industry groups out of 107 tracked by S&P finished the day in positive territory, led by gold--a traditional investment haven in troubled times. More than two stocks fell for every one that rose on Nasdaq and the New York Stock Exchange. Trading was active. Amid the busiest week of the earnings reporting season, companies are unable to predict when profits will turn up again. Troubled telecom giant Lucent posted a loss and said it will cut its work force by an additional 15,000 to 20,000 jobs. Lucent, the most heavily traded stock on the NYSE, fell $1.47 to $6.43--a drop of more than 18%. "When Lucent announces a layoff on top of previous layoffs, it shows there are more recession-type strategies being used for survival purposes," said Ned Riley, chief investment strategist for State Street Global Advisors. Long-distance telephone and cable television giant AT&T said stiff competition and weak prices in the long-distance phone market hurt profit, and warned third-quarter revenue may fall. Its shares fell 59 cents to $19.46. Amazon.com helped lead Nasdaq lower after the online retail giant said sales could slow further. The company posted a narrower-than-expected loss, but its revenue disappointed. Amazon fell more than 24%, or $3.97, to $12.06. Matters weren't helped any by Federal Reserve Chairman Alan Greenspan, who told the Senate Banking Committee that the U.S. economy may not be out of the woods yet. The warning echoed comments he made to the House Financial Services Committee on July 18 during the first part of his twice-yearly testimony on monetary policy. The central banker hinted the Fed was open to the idea of more interest rate reductions to shore up the economy on top of the six rate cuts the Fed has engineered this year. As senators grilled him on economic issues, Greenspan said changes in monetary policy are still able to lift the economy. He also said inflation remains tame. Contrary to money managers' impressions, Greenspan said consumers were still confident about the economy. He noted fallingenergy prices were boosting corporate profits and putting more money into consumers' pockets. Among Tuesday's highlights: * Oil stocks slumped after reporting quarterly results as investors bet this could be their last show of increased profits for some time as energy prices decline. Exxon Mobil, the No. 1 U.S. oil company and a component of the Dow industrials, posted higher earnings, thanks to lofty crude oil and natural gas prices and robust profit from refining. Exxon dropped $1.53 to $40.97. No. 2 oil company Chevron also slid, despite posting better earnings. Its shares fell $2.46 to $85.18. * Utility stocks fell sharply on expectations of lower power prices and falling profit margins. The Dow Jones utilities average lost 3.5% and is down nearly 10% during the last five trading sessions. Among the losers: Enron, down $3.42 to $43.24; Dynegy, off $2.75 to $43; Calpine, off $4.25 to $33.90; and Duke Energy, down $2.06 to $36.88. * Fast food giant McDonald's, another Dow component, gained 62 cents to $28.39 after reporting profit in line with Wall Street's forecasts, even as a strong U.S. dollar and lingering concernsover "mad-cow" disease hurt earnings. * Gold stocks rose on a flurry of interest from disenchanted stock investors. The S&P gold index rose almost 4% as Newmont Mining climbed 94 cents to $20.64 andBarrick Gold gained 33 cents to $15.66. Market Roundup, C6-C7 GRAPHIC-CHART: Daily Diary, Tuesday, July 24, 2001; Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA PRESS:Enron/MSEB Dispute Clouding Invest - Official 07/25/2001 Dow Jones International News (Copyright © 2001, Dow Jones & Company, Inc.) NEW DELHI -(Dow Jones)- The dispute around Enron Corp.'s (ENE) Dabhol Power Co. power project is impeding further foreign investments to India, reports the Financial Express quoting U.S. Assistant Secretary of State for South Asian Affairs Christina B. Rocca. "This ongoing dispute casts a dark cloud over India's entire investment climate," said Rocca. She hopes India's federal government would step in to resolve the dispute between Dabhol and its sole electricity buyer, the Maharashtra State Electricity Board. Enron holds 65% of the 740 megawatt Dabhol project located in the western Indian state of Maharashtra. Since May 29, Dabhol has halted operations because MSEB stopped drawing electricity from its power plant saying the cost of power was "unaffordable". Construction on the 1,444 megawatt Dabhol phase II was stopped mid-June after MSEB refused to honor several of its bills. Website: http//www.financialexpress.com -By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Rocca seeks Centre's intervention in Enron dispute Our Special Correspondent 07/25/2001 The Hindu Copyright (C) 2001 Kasturi & Sons Ltd (KSL); Source: World Reporter (TM) - Asia Intelligence Wire NEW DELHI, JULY 24. The United States today sought the Central Government's intervention in the Enron imbroglio in view of its impact on the bilateral investment climate. The visiting U.S. Assistant Secretary of State, Ms. Christina Rocca said "the ongoing dispute between the Dabhol Power Company and the Maharashtra Government casts a dark cloud over India's entire investment climate." While declining to offer a specific proposal for resolving the dispute immediately, she maintained that it would be difficult for international investors to view India favourably until the issue was resolved in a "reasonable" manner. Ms. Rocca met the Union Power Minister, Mr. Suresh Prabhu, on Monday apparently to discuss the issue. Addressing a meeting organised by the Confederation of Indian Industry (CII), she sought to highlight the three economic areas of special interest to businessmen in both countries. These include the global trade regime, the bilateral investment climate and intellectual property rights. On the investment climate, she said the level of foreign direct investment flows were much lower than they should be by any reasonable international standards. She ascribed much of the problem to Enron from the point of view of U.S. investors. On the multilateral trade regime, Ms. Rocca described the World Trade Organisation ministerial conference to be held in Doha in November as a "terrific opportunity" to launch a new round of trade talks. It would help India move towards an even more export-oriented innovative economy. Beyond dealing with the "built-in" agenda on agriculture and services, Doha offered the prospect of agreement that standard, sound trade rules would apply to electronic commerce. The U.S. official also focussed on the concern over the need for better intellectual property rights in this country which would support India's search for investment in the cutting edge knowledge-based sectors. The new U.S. Trade Representative, Mr. Robert Zoelleck, is expected to discuss most of these issues during his visit here early next month. Ms. Rocca, who welcomed the Indo-U.S. dialogue in the private sector on IPR in the IT, biotech and pharmaceutical sectors, felt problems still remained. She urged India to adopt and enforce a patent law that met all WTO standards on trade- related intellectual property or TRIPs as soon as possible. She insisted that India did not provide product patent protection for medicines and was a significant source of pirated items. It was for this reason that India was on the U.S.T.R.'s Special 301 Priority Watch List. She said there was need for progress in telecom liberalisation and on an open sky civil aviation agreement to give an impetus to the already burgeoning commercial cooperation. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Houston Energy Firm's Quarterly Income Is Up 60 Percent Laura Goldberg 07/25/2001 KRTBN Knight-Ridder Tribune Business News: Houston Chronicle - Texas Copyright (C) 2001 KRTBN Knight Ridder Tribune Business News; Source: World Reporter (TM) Dynegy reported a 60 percent jump in net second-quarter income Tuesday, fueled by strong power and natural gas sales. Investors, however, reacted by lumping Dynegy in with energy stocks that took a pounding in the day's trading. Dynegy's quarterly net income rose to $146 million, up from $91 million a year ago, while diluted earnings per share came in at 43 cents, up from 19 cents. The year-ago earnings per share rose to 29 cents after excluding a special dividend payment. "I couldn't be happier with the way the core business is operating today," Chuck Watson, Dynegy's chief executive and chairman, said during a conference call with analysts. Dynegy beat analyst expectations. Those surveyed by Thomson Financial/First Call projected Dynegy would make an average of 40 cents a diluted share. But investors drove Dynegy's stock down. It closed at $43, off $2.75. Other Houston energy companies got hit, including fellow trader Enron Corp., which closed down $3.42 at $43.24; natural-gas company El Paso Corp., which closed down $4.26 at $47.64; and Reliant Energy's Reliant Resources unit, which closed down $2.25 at $18.35. Parent Reliant Energy only got nicked, closing at $28, down 37 cents. The overall stock market had a down day, with the Dow closing off more than 180 points amid negative news from other corporate sectors. Analysts offered several reasons for the energy sell-off, including concerns over how California's energy conflicts will play out. Energy companies and California failed to settle the state's claims that it is owed billions for alleged power overcharges. The matter rests with the Federal Regulatory Energy Commission, which may take up the issue today. Also, Salomon Smith Barney analyst Raymond Niles on Tuesday downgraded a number of energy stocks, although he remained positive on Enron and Dynegy. Companies mostly or solely focused on electricity generation face more risks when power prices decline, as has been the case recently. Dynegy and Enron don't fit that profile. Jeff Dietert, an analyst with Simmons & Company International in Houston, described Dynegy's quarter as a solid one that "proves that they can make money even when gas and power prices are falling." He added: "From my perspective, Dynegy is in great shape for the second half of this year." The market failed to distinguish between power producers and so-called energy merchants such as Dynegy, said Carol Coale, an analyst with Prudential Securities in Houston. "I guess the big signal is that strong earnings performance doesn't seem to matter in this market here," she said. "The whole message is that strong earnings have very little impact on the sector right now." The sell-off in the face of good earnings left officials at Dynegy frustrated, said Chief Financial Officer Rob Doty, who was expecting the market to be excited by the company's second-quarter performance. Net income for Dynegy's marketing and trading unit rose 111 percent to $150 million in the second quarter, up from $71 million a year ago. Volumes of natural gas and electricity sales in North America increased significantly. Dynegy's online trading operation, Dynegydirect, helped boost those volumes by handling transactions worth more than $11 billion for the quarter. Since its launch in November 2000, Dynegydirect has handled almost $25 billion worth of transactions. Dynegy's newly created global communications segment had a $20 million loss, or 6 cents a share, in the quarter because of development costs and decreased customer demand. Dynegy estimates an annual loss of 13 to 16 cents for the segment, which is focused on broadband marketing and trading. The company hopes that the segment will make money by the second half of next year. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Dynegy's Telecommunications Unit Reports $20 Million Loss By Erwin Seba Of DOW JONES NEWSWIRES 07/24/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Dynegy Inc.'s (DYN) telecommunications unit reported a $20 million loss in the second quarter of this year, executives said Tuesday. During the first six months of the year, Dynegy Global Communications lost a total of $31 million. In a conference call, Dynegy Chairman and Chief Executive Chuck Watson said losses in the second half of the year aren't expected to exceed those of the first half. For the year, telecom losses are expected to bring down corporate earnings per share by 13 cents to 16 cents. "There's been an obvious turndown since Dynegy entered in the market last summer," Watson said. "We can't make a profit until our network is completed." Company officials attributed the loss to the cost of building Dynegy's global telecommunications network. But Watson said the company was in a better position than some of its energy merchant competitors. "We didn't beef up our personnel and assets, so we don't find ourselves in the same position as others," he said. The company has taken some steps to reduce its costs, however. The global communications office in Vienna has been closed and its personnel and operations have been moved to the unit's London office. "We're keeping our head count flat," Watson said of the unit as a whole. Company executives were patting themselves on the back throughout the conference call for the strategy they followed, which is playing well in the depressed telecommunications market. Pat Marburger, president of Dynegy Broadband Trading and Origination, told Dow Jones Newswires that the strategy was intended to reduce the company's capital investment. "We knew getting into it we wanted to invest very little capital, which should give us a cost advantage right out of the chute," Marburger said. As in energy, the company has emphasized alliances with other companies instead of going it alone. For example, earlier this year, Dynegy announced an agreement with Telseon Inc. to use that company's points of presence in 18 of the largest U.S. cities. "We could have done the same thing with $15 million over 18 months time," he said. He also said a $70 million investment in indefeasible rights of use for unlit optical fiber from Level 3 was a good investment, even though the cost of dark fiber has dropped along with bandwidth prices. Although Dynegy has kept its broadband marketing and trading staff small, both Watson and Marburger promised they'll have the people needed to handle the bandwidth market. About 30 people market bandwidth from the Denver office. And another group of less than 10 people trades bandwidth, Marburger said. Most of those trades are for infrastructure, he added. Marburger expects the marketing group to grow to 50-60 people by the middle or end of next year. He also expects the bandwidth market to recover within two years. The entire telecom unit employs about 300 people. The company doesn't expect to reassign employees once the network is complete at the end of this year, Marburger said. Enron Broadband Services (ENE) reassigned employees and Williams Communications (WCG) laid off employees after their networks were completed. "Most of the network is being outsourced," he said. A telecommunications industry analyst said the energy merchants were about the only companies left that can invest in telecommunications. "I think these upfront costs are going to result in some losses," said Rod Woodward of Frost & Sullivan in San Antonio, Texas. "They're able to support those losses with the way they are doing with their energy groups." Overall, Dynegy Inc. reported net income of $142 million on operating revenue of $10.8 billion for the second quarter of 2001, or recurring earnings of 43 cents per share. In the second quarter of last year, the company reported net income of $91 million on operating revenue of $5.7 billion, or recurring earnings of 19 cents per diluted share. -By Erwin Seba, Dow Jones Newswires; 713-547-9214; erwin.seba@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. BANDWIDTH BEAT: Bandwidth Trading Isn't Dead Yet By Michael Rieke Of DOW JONES NEWSWIRES 07/24/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- An official with one of the largest telecommunications carriers laughed last week, saying Enron Corp. (ENE) had been chased out of the broadband business by a $102 million loss for the second quarter. His laughter was probably premature. Enron is cutting expenses in its broadband operation, but so is just about every other company involved in that business, including the official's own employer. At the same time, there are signs that energy companies haven't given up on bandwidth trading. For one, Dynegy Inc. (DYN), Aquila Energy Services (ILA), Koch Industries, El Paso Corp. (EPG), Reliant Energy Inc. (REI), Goldman Sachs Group Inc. (GS), Cable & Wireless PLC (CWP) and Global Crossing Ltd. (GX) have quietly formed a consortium to work at improving connectivity needed for bandwidth trading. Sources at those companies wouldn't confirm they were members of a consortium. They've agreed to keep their work quiet. But other sources said the group has had at least one meeting. Companies like Sphera Optical Networks Inc., FiberNet Telecom Group (FTGX), Universal Access Inc. (UAXS), LighTrade and Nortel Networks Corp. (NT) were invited to the meeting to talk about what they could do to help firm deliveries of bandwidth. Tier-1 carriers - the largest carriers - were excluded, as consortium members want to make it easier to trade in their markets, a broker said. Creating Commodities There's another sign that bandwidth trading isn't dead. Steve Kamman, an equity analyst for CIBC World Markets, said in a research note last week that carriers have started reselling backup circuits to third parties, who buy them as unprotected circuits at big discounts. "We've bought lines like that," said Sushil Nelson, general manager of Aquila Broadband Services, the telecom unit of Aquila Energy Services (ILA). "We do it with the carriers all the time." Fully protected circuits - called Sonet rings - consist of two circuits running between two cities. One circuit carries data, while the other serves as a backup. Since the backup isn't used, it can be resold - as long as the new buyer will accept the risk of getting bumped. Many buyers don't need the full protection of a Sonet ring. Internet service providers and many data users aren't providing critical services, so they can put up with some outages, especially if it means lower prices. Unprotected circuits became a standard offering on international subsea routes this spring, when four large carriers began to offer them in response to demand from customers. An official for one of those carriers said his company started breaking up Sonet rings and selling unprotected circuits on transatlantic routes early last year. Selling the other half of a Sonet ring is a step toward commoditization of capacity, Nelson said. Buyers can build their own lower-priced Sonet rings, Kamman said. For example, if a buyer wanted a protected circuit from New York to Los Angeles, he could buy one unprotected circuit between the two cities, running through Chicago. Because it's unprotected, the buyer gets it at less than half the price of a protected circuit. Then he buys another unprotected circuit between New York and Los Angeles, running though Dallas. Again, he gets a discount. The two unprotected circuits give him almost the same protection of a Sonet ring, but at a lower cost. If he gets bumped off one, he can switch to the other. Alternatively, the buyer can pick up some added revenue by reselling the unprotected circuit he isn't using. Taking Advantage Of Options Such deals take advantage of options embedded in a network, Kamman said. Buyers are taking the risk that they'll get bumped in exchange for a lower price. Such sales are good for the carriers. They've already paid the cost of laying and lighting Sonet ring circuits. If they sell only Sonet rings, half their circuits go unused. Now they can earn new revenue by selling the unused half. Bandwidth trading opens eyes to new ways of doing business in telecom, Kamman said. "It's incredibly cool," he said. "Squeezing (the optionality) out of the networks and turning it into a traded security is going to take some real work. But there's no question at all that (it's) something very real." -By Michael Rieke, Dow Jones Newswires; 713-547-9207; michael.rieke@wsj.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
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