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Enron Mail |
THRIVING UNDER SUSPICION El Paso will be sitting pretty even if it has to p=
ay fines BusinessWeek, 08/06/01 Dabhol jeopardy The Economic Times, 08/03/01 Petrobras tries to prevent BG accessing Brazil-Bolivia pipeline - report AFX News, 08/02/01 The Corporation: STRATEGIES THRIVING UNDER SUSPICION El Paso will be sitting pretty even if it has to p= ay fines By Stephanie Anderson Forest in Houston, with Christopher Palmeri in Los An= geles 08/06/2001 BusinessWeek 72 (Copyright 2001 McGraw-Hill, Inc.) Market manipulator. Poster child for California's energy woes. Member of th= e Texas cabal shaking down West Coast consumers. As the Golden State's ener= gy debacle picked up speed this spring, El Paso Corp. suddenly found itself= cast in the role of Public Enemy No. 1. State and federal regulators are i= nvestigating charges that El Paso used its control of a key pipeline to sha= rply boost the price of natural gas flowing into the state. El Paso says it= certainly didn't manipulate the market and blames higher prices on Califor= nia's unique energy problems. Still, investors have reacted to the possibil= ity of millions of dollars in fines--and now quickly falling natural gas pr= ices--by knocking the company's stock down 33% this year.=20 All the headlines about legal troubles, however, are obscuring how well har= d-charging Chief Executive William A. Wise, 56, has positioned El Paso in t= he rapidly mutating energy business. Ironically, El Paso was left holding t= he excess California pipeline capacity only because a big customer had deci= ded in 1995 to dump it. That blow nearly sank El Paso and sent Wise off on = a diversification strategy that has taken the company from a sleepy little = regional outfit to one of the biggest players in the energy bonanza. Housto= n-based El Paso grew from $2.9 billion in revenues in 1995 to $21.9 billion= in 2000, and will pass $50 billion this year. Its earnings of $652 million= last year reversed a $255 million loss the year before. In the process, El Paso has become North America's largest pipeline company= and the nation's fourth-largest energy outfit, with a hand in everything f= rom natural gas exploration and production, to wholesale power and gas trad= ing, to power generation. It is also pushing to become a major player in th= e growing market for liquefied natural gas. On July 25, El Paso reported a = 40% increase in second-quarter income, to $413 million, on sales of $13.4 b= illion. The stock price, however, remains in the doldrums, hovering around = $48 a share. Falling prices have hurt much of the sector: Rival Enron Corp.= is off 48% this year while Dynegy Inc. is down 23%.=20 Even if the company is forced to cough up a big fine--and no one is specula= ting how big that fine could be--many analysts and investors doubt that wil= l crimp Wise's diversification push. ``El Paso is the biggest and best-posi= tioned [company] to take advantage of the nation's natural gas supply crunc= h,'' says Donald Coxe, chairman of Harris Investment Management Inc. in Chi= cago, which owns El Paso shares.=20 Wise really had no choice but to branch out. In the mid-'90s, Pacific Gas &= Electric Corp. and other utilities were paying millions of dollars for cap= acity they couldn't use because overbuilding had led to a huge pipeline glu= t. With the blessing of friendly state regulators, PG&E and others gave up = their pipeline rights, with PG&E returning 1.14 billion cubic feet a day of= capacity to El Paso. In one stroke, that erased $125 million of El Paso's = annual revenue. FRUGALITY AND LUCK. Wise worked quickly to put El Paso back= on a firm footing. He slashed $100 million in costs, in part by laying off= more than a third of El Paso's employees, freezing executives' pay, and ta= king no salary himself for three years. He also negotiated a $60 million se= ttlement with PG&E and the other utilities for dumping the capacity. By las= t year, the situation had shifted 180 degrees. As demand jumped and Califor= nia faced skyrocketing energy costs, that same pipeline space had become a = precious commodity. And El Paso was in the driver's seat as the state's lar= gest gas supplier. ``That's what's so ironic now. The capacity that everybo= dy's complaining about in California was basically the capacity that PG&E g= ave back,'' says H. Brent Austin, El Paso's chief financial officer.=20 More important, Wise, who declined to be interviewed, set out on an aggress= ive new strategy to diversify away from California--which had delivered 75%= of El Paso's revenues before 1996. Wise had spent his entire career at El = Paso, joining in 1970 out of the University of Colorado School of Law and t= aking over the CEO's post in 1990. His shopping spree began in 1996 when he= scooped up Tenneco Inc.'s pipeline business. The $4 billion deal tripled E= l Paso's size and gave it the only coast-to-coast natural gas pipeline. In = all, Wise has snapped up some $35 billion worth of acquisitions in five yea= rs, including his biggest, the $24 billion purchase in January of Coastal C= orp. That substantially boosted El Paso's exploration and production operat= ions, expanded its capacity to some 60,000 miles of pipeline nationwide, an= d added oil refining to the company's mix. Along the way, El Paso also has = bought interests in some 44 natural gas-fired power plants across the count= ry. BALANCE OF POWER. Today, such nonregulated businesses as natural gas ma= rketing and trading operations, exploration and production, and the power p= lants account for more than 60% of El Paso's earnings before interest and t= axes, vs. 8% in 1996. Analysts say the new El Paso's ``wellhead-to-wire'' o= perations give it a big advantage over Enron, Dynegy, and other competitors= at a time when the power industry is rapidly changing and clean-burning na= tural gas is growing in popularity. Meanwhile, its wide-reaching stable of = assets means it doesn't have to rely on high natural gas prices, which have= dropped roughly 70% nationwide since the beginning of the year.=20 But it's that very mutifaceted structure that may have landed El Paso in ho= t water in California. State regulators allege that the company's pipeline = unit, El Paso Natural Gas, rigged a pipeline-capacity auction last year in = favor of its energy-marketing affiliate, El Paso Merchant Energy Group. Reg= ulators charge that the two wholly owned units passed secret information be= tween them that helped the merchant group's bid. Federal hearings on this c= harge are to begin on Aug. 2. Ralph Eads III, the merchant group's presiden= t, counters that ``the pipeline [unit] didn't have any say-so over whose bi= d it took, it just said whose bid was the highest. Our bid was the highest.= There are [Federal Energy Regulatory Commission] rules that govern the beh= avior between our pipeline and our marketing affiliate. And we are very scr= upulous in observing those rules.''=20 In their second allegation, authorities claim that the company withheld pip= eline capacity into California to jack up prices illegally; a judge's rulin= g is expected in October. Regulators note that spot prices for natural gas = in Southern California spiked to more than double national spot rates. ``A = big reason for the increase in consumers' electricity bills is because El P= aso manipulated prices at the California border,'' alleges Harvey Y. Morris= , the state utilities commission attorney arguing the case before FERC.=20 Eads denies El Paso withheld capacity. Instead, the company blames the runu= p in natural gas prices in Southern California on an unusually hot summer l= ast year and a cold winter this year, low reserves, rising electricity dema= nd, and a now-inadequate pipeline system into the state. In any case, Eads = says, El Paso didn't fully benefit from rising prices because the merchant = group shipped 95% of its gas under fixed-price contracts as a hedge against= a possible price drop. ``As prices went up, we lost money,'' says Eads. ``= If we were smart enough to manipulate the market, we would have been smart = enough not to have hedged.''=20 Maybe so. Either way, given the company's smart transformation over the pas= t five years, El Paso seems well-prepared to ride out whatever twists Calif= ornia has in store for it. Illustration: Chart: SUPPLY SQUEEZE OR MARKET FORCES? CHART BY ALBERTO MENA= /BW Photograph: RAW POWER: An El Paso natural gas plant in New Mexico=20 Photograph: EADS: Defending El Paso in Washington PHOTOGRAPH BY RICH PEDRON= CELLI/AP/WIDE WORLD=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Dabhol jeopardy Girish Kuber 08/03/2001 The Economic Times Copyright (C) 2001 The Economic Times; Source: World Reporter (TM) We are committed to India. We are not in any discussion right now on sellin= g the plant... -- Kenneth Lay, Chairman, Enron, after the companys annual m= eeting in Houston on May 2, 2001.=20 BARELY a couple of months after pledging the company`s commitment towards I= ndia when Kenneth Lay last week expressed Enrons desire to get out of the t= roubled Dabhol Power Company. But it evoked hardly any reaction in Maharashtra or among industry watchers= as Enron International had already announced its corporate strategy of wan= ting to pull out of developing countries and Lays statement that it wants t= o leave the Konkan coast was seen as a yet another move by the company to b= ully the government.=20 So a combative union power minister Suresh Prabhu retorted that ``Enron is = not the only US company operating in India.=20 There are at least six other US companies currently operating in the power = sector in India. Although AES has recently expressed reservations about ope= rations in Orissa it wants to invest in other states.=20 Enron watchers are of the view that it is difficult for MSEB and the US ene= rgy major to get rid of each other. Enron has 20-year contracts for 2.1m to= nnes a year of LNG for use in its power plant, with Oman LNG and Abu Dhabi = Gas Liquefaction Company, and Lay admitted that Enron might prefer to seek = other buyers.=20 And its been getting increasingly difficult for the company to launch into = yet another round of tiring renegotiations with the state government, an ex= ercise it has done twice in the past.=20 However, the most crucial question is: Where are the buyers? The Maharashtr= a government has tried to pose the entire controversy as an issue which can= be solved only if the centre steps in either by bailing it out or by allow= ing a central power utility like NTPC to buy it.=20 If Enron prefers to pack up, the state has already steered clear of its res= ponsibility of finding a new buyer.=20 The states energy minister Padmasinh Patils view that Enrons departure ``wi= ll be Gods biggest blessing for us, underlines the states intransigent stan= ce.=20 However, Madhav Godbole, the man who is heading the Enron renegotiation pan= el, when asked to comment, was realistic in judging the situation. Realisin= g Enrons game plan Mr Godbole indicated that ``the next meeting (of the ren= egotiating committee) will not be necessary now.=20 He knew that if Enron were really serious about its withdrawal plan it woul= d stay away from the next meeting. And if it really did so, the job of the = committee becomes much easier.=20 Vinay Bansal, chairman MSEB, who single handedly brought the US energy majo= r to its knees, was cautious in his reaction.=20 ``Since we have rescinded the PPA with Enron, we have no locus standi on th= is issue, he said. However, is MSEB interested in buying out Enrons state i= n the project? And does MSEB have the required financial muscle to buy out = Enrons equity. ``Its too early to react, said Bansal.=20 The Godbole committee will be meeting soon internally to decide the future = course of action, Godbole said. Vinay Mohan Lal, the states energy secretar= y hinted that considering the Enrons desire, the state might submit an inte= rim report.=20 What it means is that if the company sticks to its stand on the issue, the = committee may release its report unilaterally, obviously blaming the compan= y for the failure of the talks.=20 Godbole said the committee, which has been set up to renegotiate the PPA si= gned between the US energy major and MSEB would have to review the entire s= ituation after DPC made a public announcement about its desire to exit and = sell the plant to the union government or the lenders.=20 Enron had said that the best approach to resolve the protracted dispute bet= ween DPC and MSEB was to sell its entire stake in the project to the centre= or the lenders and that any sale would need to be on terms of providing co= mplete recovery of capital costs and related expenditures.=20 The Centre has asked FIs led by the IDBI to work out a package in this rega= rd. The package is to be submitted to a committee chaired by the finance se= cretary Ajit Kumar.=20 However, the centre has ruled out any possibility at this stage of a buyout= by a central utility. In fact Prabhu said, ``We are not going to allow a c= ompany like NTPC or PTC to buy out such equity. The state government and En= ron have to try and resolve their issue.=20 According to Patil, power ministers of four states have evinced interest in= purchasing power generated from DPC, provided the tariff per unit was belo= w Rs 2.50.=20 Madhya Pradesh was willing to buy 100 mw, Karnataka 300 mw, Delhi 150 mw an= d Haryana 100 mw. The state was not in a position to absorb power from phas= e II of the project and there was an urgent need for the centre to interven= e in the project. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Petrobras tries to prevent BG accessing Brazil-Bolivia pipeline - report 08/02/2001 AFX News © 2001 by AFP-Extel News Ltd SAO PAULO (AFX) - Petroleo Brasileiro SA unit Gaspetro is trying to prevent= BG Group PLC from accessing the Brazil-Bolivia pipeline, newspaper O Estad= o de Sao Paulo reported citing market sources.=20 The report said that Gaspetro sent a threatening letter to BG last week. BG Brazil president Luis Carlos Costamilan did not deny nor confirm that he= received the letter; but Petrobras press office confirmed it sent a letter= , denying however that the letter contained threats, O Estado said.=20 Petrobras said that it reminded BG that in the shareholders' agreement in T= ransportadora Brasileira do Gasoduto (TBG) -- the company which operates th= e pipeline -- a clause stipulates that a shareholder cannot be detrimental = to any other shareholders.=20 Petrobras owns 51 pct of TBG, while BG has a minority stake, along with Tot= alFinaElf, Enron Corp, Royal Dutch/Shell.=20 The ANP oil regulator has already ruled in favour of BG, and granted BG tra= nsport quotas for 2001 and 2002.=20 BG recently signed a supply contract with Cia de Gas de Sao Paulo (Comgas),= a company its controls through a consortium formed with Royal Dutch/Shell.= =20 jmp/an/ For more information and to contact AFX: www.afxnews.com and www.af= xpress.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09
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