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The State Davis' Energy Advisors Draw SEC Attention Probe: Under review is
the possible use of inside information to buy power company stocks. GOP rival of governor requested the inquiry. Los Angeles Times, 07/31/01 Davis' top spokesman bought stock in power firm / Adviser denies conflict of interest The San Francisco Chronicle, 07/31/01 Davis press secretary confirms buying energy company stock Associated Press Newswires, 07/31/01 India's Power Boards Lose $5 Bln as Subsidies Rise, Paper Says Bloomberg, 07/31/01 India To Evaluate Options On Enron Stake Buy Out Offer Dow Jones International News, 07/31/01 INDIA PRESS:Govt Asks Lenders To Bail Out Dabhol Pwr Proj Dow Jones Asian Equities Report, 07/31/01 Report: Indian government orders financial institutions to save Dabhol power project, as Enron wants to pull out Associated Press Newswires, 07/31/01 FIs asked to work out deal for Dabhol completion The Economic Times, 07/31/01 Houston-Area Firms Brace for Onslaught by Code Red Computer Worm KRTBN Knight-Ridder Tribune Business News: Houston Chronicle - Texas, 07/31/01 Calif Gov Spokesman Says He Bought Calpine Stock In June Dow Jones Energy Service, 07/30/01 Functioning In The Bandwidth Market No One Expected Dow Jones Energy Service, 07/30/01 INDIA: India evaluating Enron's offer to quit Dabhol. Reuters English News Service, 07/30/01 California Governor's Spokesman Says He Bought Calpine Stock Bloomberg, 07/30/01 California; Metro Desk The State Davis' Energy Advisors Draw SEC Attention Probe: Under review is the possible use of inside information to buy power company stocks. GOP rival of governor requested the inquiry. WALTER HAMILTON JEFFERY L. RABIN; DARYL KELLEY TIMES STAFF WRITERS 07/31/2001 Los Angeles Times Home Edition B-1 Copyright 2001 / The Times Mirror Company The Securities and Exchange Commission has launched a preliminary inquiry into whether energy consultants advising Gov. Gray Davis used inside information to trade stocks of power companies doing business with the state, a source with knowledge of the matter said Monday. The federal agency began its review late last week, the source said, in response to a request from California Secretary of State Bill Jones. A Republican rival of Davis, Jones charged that stock trading by consultants may have violated federal laws barring buying and selling based on information not available to the public. On Friday, top aides to the governor disclosed that five consultants had been fired for possible conflicts of interest between their official positions and their personal finances. As news of the SEC inquiry spread through the capital Monday, Davis officials were confronted by a flurry of questions about who in the administration owns energy stocks. Financial disclosure records filed by the governor's spokesman, Steve Maviglio, show that he owns between $10,000 and $100,000 in a Texas company he and his boss have accused of making "obscene" profits while California has been "on its knees." Maviglio said he bought the shares in Houston-based Enron Corp. in 1996. "It's not a crime to own energy stock," Maviglio said. He also owns 300 shares of San Jose-based Calpine Corp., which has the largest share of the $43 billion in long-term state power contracts. Maviglio placed the order for the stock on May 31, one day after San Jose's mayor dropped his opposition to a controversial Calpine plant favored by the governor and others. Under the terms of Maviglio's purchase, the transaction was completed about three weeks later when the stock reached $40 a share, a value of $12,000. It has since fallen in value. "I viewed it as a good long-term investment," Maviglio said, adding that he purchased the shares for his retirement account based on publicly available information. The Davis administration has spared Calpine the kind of fierce criticisms that it has leveled at other electricity suppliers, such as Enron. But California's grid operator has identified the company as one of many energy merchants to overcharge the state millions of dollars. The fired consultants also owned shares in Calpine, ranging in value from several thousand dollars to more than $100,000, records show. Another top Davis administration official, legal affairs secretary Barry Goode, disclosed in his economic interest statement that he recently held between $100,000 and $1 million in another out-of-state company accused of multimillion-dollar price gouging. In a statement, Goode said he sold his stock in Williams Co's. a month after he began working for the governor in February. Goode said the shares were supposed to be sold before he went on the state payroll, but his broker failed to do so. In light of the recent disclosures, Secretary of State Jones said the governor must do more to ensure the public that its interest comes first. "The governor should direct all of his staff to immediately file updated conflict of interest statements that reflect current holdings and any activity since their last statement of economic interest was filed," said Jones, who is seeking the GOP nomination for governor. Word of the SEC's entry into California's energy problems comes as the governor faces harsh criticism from lawmakers and others for the quick and broad hiring of highly paid private consultants to guide him through the crisis. In his written request to the SEC, Jones said that recently filed disclosure documents showed that at least one consultant bought and sold shares of two energy companies within the same month, raising "a red flag" about the possibility of insider trading. State law prohibits officials from participating in decisions involving their personal financial interests. The five consultants fired last week were among 11 named in Jones' letter, delivered to the San Francisco office of the SEC last Wednesday. It was not clear which individuals are the focus of the SEC's inquiry, or whether the agency's review would result in any charges. Two of the former traders said Monday that they had not been contacted by federal investigators and knew nothing of an inquiry into possible insider trading. But William Mead, fired Thursday, said it is no mystery why so many of his colleagues owned Calpine stock. Mead said he bought it 2 1/2 years ago and made so much money he recommended it to his colleagues last year, while they all still worked for the now-defunct California Power Exchange in Alhambra. Calpine power was not traded on that exchange, so there was no conflict of interest, he said. Mead and three other energy traders--hired by the state in February and March--were terminated by the Davis administration for allegedly buying power for the state from Calpine while owning the company's stock. Fired traders Herman Leung, Peggy Cheng and Constantine Louie did not list the date of their Calpine purchases on financial statements that the state required to be filed only two weeks ago. "But I'm sure they bought it while they were still at the power exchange, because that's when we discussed it," Mead said. "It was kind of like a hobby. I'm sure it wasn't done with the intent to manipulate." Former trader Elaine Griffin, who also owned Calpine stock and resigned two weeks ago to take another job, said she didn't know she owned energy securities until she checked with her financial advisor July 13, just before leaving her state job. Griffin said she and her husband own about $10,000 worth of Calpine stock in individual retirement accounts managed by their advisor, who bought the stock Feb. 1 without their knowledge, she said, after research found it to be a good investment. "I kind of feel like we've been used for political reasons," Griffin said. "We would have disclosed anything right at first, but they never asked." As a trader, Griffin said she occasionally bought Calpine power for the state, but only at market prices. Meanwhile, two Democratic political consultants, who helped Davis polish his image after the ongoing energy crisis caused his poll numbers to plummet, have agreed to accept no payment for their work as part of an out-of-court settlement of a taxpayer lawsuit. Tom Hiltachk, a lawyer for conservative anti-tax activist Lewis Uhler, said the settlement was reached last Friday after negotiations with lawyers for communications consultants Mark Fabiani and Chris Lehane. "Now they will not receive one red cent," said Hiltachk. "Very simply Mr. Fabiani and Mr. Lehane have agreed to cease all activities for the governor, to accept no payments for their services and to basically get out of the consulting business with the governor." As his part of the agreement, Hiltachk said, Uhler withdrew his lawsuit Monday morning. Uhler had filed a lawsuit against the two consultants and Controller Kathleen Connell in June contending that they should not receive any payments because of a conflict of interest. The two men also did consulting work for financially troubled Southern California Edison, which was seeking help from Davis and the Legislature. Connell, a former Los Angeles mayoral candidate who has been at odds with Davis since he endorsed an opponent, had held up the payments pending the outcome of the lawsuit. Under an agreement with Davis, the men were to have been paid $30,000 a month for six months. Fabiani and Lehane could not be reached for comment. * Times staff writers Nancy Vogel and Virginia Ellis in Sacramento and Robert J. Lopez in Los Angeles contributed to this story. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. NEWS Davis' top spokesman bought stock in power firm / Adviser denies conflict of interest Lynda Gledhill Chronicle Sacramento Bureau 07/31/2001 The San Francisco Chronicle FINAL A.1 (Copyright 2001) Already on the defensive over its energy advisers' financial holdings, Gov. Gray Davis' administration came under fresh attack yesterday when his chief spokesman admitted buying $12,000 worth of Calpine Corp. stock last month. Steve Maviglio, Davis' acting director of communications, denied that his purchase of the San Jose energy company's stock constituted a conflict of interest. He said he would sell the stock if Davis or administration lawyers asked him to. "I invested in a growing California company," Maviglio said. "It's sad when somebody tries to link owning energy stock with a conflict of interest." The revelation came the same day that two high-priced consultants Davis brought in earlier this year to help sell his energy policies to the public agreed not to take any money for the work they have done. Davis was criticized for hiring the two, partly because they had also worked as consultants for Southern California Edison. On Friday, Davis fired five energy advisers for possible conflict- of-interest problems after they helped negotiate state spot-market purchases or long-term power contracts. Four of the five owned stock in Calpine, and the fifth held Enron shares. ON THE DEFENSIVE Maviglio, who had the task of explaining the firings, was on the defensive himself yesterday. He bought the Calpine stock in June after asking his broker to invest in it when shares hit a certain price, he said. He said that showed he had made his decision independently of whatever action he might have taken in the governor's office on any particular day. Calpine's stock has dropped some in the past month. As of yesterday, the 300 shares that Maviglio bought for $12,000 were worth about $11,100. Maviglio said he had spoken out against Calpine as much as other energy companies. He also owns Enron stock that he bought in February 1996 and has disclosed on all forms, he added. "I've called them pirates and gougers and lumped them in with all the rest of the generators," Maviglio said. Secretary of State Bill Jones, an announced GOP opponent of Davis for governor in 2002, said Maviglio should be fired. "These actions are unethical and unacceptable," said Jones, who called on the governor's staff to release updated conflict-of- interest statements. "He had the power to promote Calpine through press releases. That seems to me to be a clear conflict of interest." Calpine sold the state $14 million worth of power earlier this year and has a large share of the $43 billion in long-term contracts for electricity that the state has entered into. Earlier this month, when he threw the ceremonial switch on a new Calpine plant in Pittsburg, Davis singled out the company as being more cooperative with California than out-of-state suppliers that the governor has characterized as gougers. IMAGE-POLISHING The Davis administration tried to put another energy-related controversy behind it yesterday as the two consultants brought in by the governor to burnish his image agreed to forgo more than $50,000 in work they did for the state. Chris Lehane and Mark Fabiani will receive no compensation and will leave the Davis administration immediately, under a settlement in a lawsuit filed on behalf of a national taxpayer rights group. Lehane and Fabiani -- nicknamed the "Masters of Disaster" for their work in getting former President Bill Clinton out of political jams -- started in the governor's office in May and were originally supposed to be paid $30,000 a month. It was later revealed that they had also worked as consultants for Southern California Edison, which is trying to swing a deal with the state to avoid bankruptcy. State Controller Kathleen Connell said she would not pay the two. "It really raises the question in my mind, what is it about conflict-of-interest and other ethical rules that the governor's office doesn't understand?" said Lewis Uhler, president of the National Tax Limitation Committee, which filed the lawsuit. In June, Davis said Fabiani was no longer a communications consultant because his work had been "successfully implemented." Lehane, on the other hand, dropped his contract with Edison and signed a new agreement with Davis. Lehane's new contract required him to work a maximum of 66 hours a month at $150 an hour. His payments were to be capped at $76,000 for work from June 26 to Nov. 20, 2001. 'OUTRAGEOUS EXPENSE' "This was an outrageous expense to taxpayers," Uhler said. "I believe there was a clear violation of conflict-of-interest laws." The consultants decided it was not worth the legal fees to fight the lawsuit, Maviglio said. The two could not be reached for comment. "It's shameful when people have to surrender their jobs in public service because of a lawsuit," Maviglio said. Jones, who filed a complaint with the Fair Political Practices Commission concerning the two consultants, said, "I think it's clear from recent actions by the governor's office that there have been rampant violations of the state's conflict-of-interest laws. Their attempts to mitigate the damage from these violations is too little, too late." Jones said Davis should immediately require all of the consultants hired during the energy crisis to file financial statements. There are 21 advisers involved in power purchasing whom Davis has exempted, he said. All the contractors who are required to file reports have done so, said Maviglio. In a related development, the Los Angeles Times quoted a source as saying the Securities and Exchange Commission has launched a preliminary inquiry into whether energy consultants advising Davis used inside information to trade stocks of power companies doing business with the state. The federal agency began its review late last week, the source said, in response to a request from Jones. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Davis press secretary confirms buying energy company stock By ALEXA HAUSSLER Associated Press Writer 07/31/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SACRAMENTO, Calif. (AP) - Gov. Gray Davis' press secretary recently purchased the same energy stock as five consultants the governor fired last week, he disclosed Monday. Steve Maviglio confirmed that on June 20, he bought 300 shares of stock in Calpine Corp., a San Jose-based power generator that has received about $13 billion in state contracts to supply electricity for up to 20 years. Maviglio's disclosure comes after Davis' office hastily ended the contracts of five consultants who helped negotiate state power contracts and held stock in energy companies. In a related development, an anonymous source told the Los Angeles Times on Monday that the Securities and Exchange Commission has launched a preliminary inquiry into whether the consultants used inside information to trade the energy stocks. About two dozen Davis energy consultants were required to fill out financial disclosure statements after complaints of conflict of interest by Republicans and consumer groups. "When we reviewed them, we found possible violations of the law and took swift action," Maviglio said Monday before Secretary of State Bill Jones issued a press release calling for his termination. Jones, a Republican, is a candidate for the GOP nomination to challenge Davis in November 2002. Maviglio defended his purchase, saying that he "owns several stocks in companies in all fields that are growing and are based in California." Maviglio said Monday that he requested on May 31 to purchase the stock if it dipped to $40 a share, which it did two days after a June 18 ruling by federal energy regulators restricting wholesale electricity prices in California and 10 other states. Maviglio served as Davis' chief spokesman urging the Federal Energy Regulatory Commission to impose price ceilings on electricity wholesalers. He also said he owns between $10,000 and $100,000 stock in Houston-based Enron Corp. He said he purchased the stock in 1997 and has reported it on financial disclosure forms. He said that it is "closer to $10,000." Meanwhile, two energy consultants to Davis have agreed to forgo more than $50,000 in work they did for the state. Chris Lehane and Mark Fabiani will forgo the payments as part of a settlement with a Sacramento-area resident who filed a lawsuit objecting to their hiring, calling it a conflict of interest. Fabiani could not be reached for comment Monday. In the settlement, they admitted no wrongdoing. Lehane issued a statement through the governor's office, calling it "simply not worth the bother to challenge the controller in court." Davis has come under fire for his May hiring of Lehane, former press secretary for Vice President Al Gore, and Fabiani, a deputy campaign manager for Gore's presidential run. They were hired to help shape Davis' response to the energy crisis, and helped craft Davis' aggressive attack on Texas-based energy companies and President Bush. Both also have advised Southern California Edison, which is negotiating for state help in avoiding bankruptcy. Financial disclosure forms showed they have each received at least $10,000 from Edison in the past year. Davis announced at the end of June that Fabiani terminated his contract, and Davis scaled back Lehane's role with the state. State Controller Kathleen Connell then said she would not pay Lehane and Fabiani for any of their work and now the two have agreed they will not fight her decision, Maviglio said. Lewis K. Uhler, the Placer County man who filed the lawsuit, said the settlement "accomplished our objectives." "We wanted to block the egregious use of taxpayer funds for essentially political spinmeisters," he said. Uhler is president of the Roseville-based National Tax Limitation Committee. Maviglio said that Fabiani and Lehane "did good work for the state" and helped the state win victories with federal regulators. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. India's Power Boards Lose $5 Bln as Subsidies Rise, Paper Says 2001-07-31 01:53 (New York) New Delhi, July 31 (Bloomberg) -- India's state electricity boards that distribute power lost 260 billion rupees ($5.5 billion) in the year ended March because of rising subsidies and electricity thefts, the Business Standard reported, citing government figures. Power subsidies, mainly to farmers, rose 12 percent to 370.37 billion rupees last year and made up for half the average tariff of 2.12 rupees a kilowatt-hour. Subsidies have risen 83 percent since 1997. Power costs have risen 41 percent the past three years to 3.03 rupees a kilowatt-hour though the growth in tariffs has been lower at 28 percent, leading to losses, the paper said. Forced to sell subsidized power to farmers and hurt by power thefts, electricity boards are unable to pay power generators. Two U.S. power producers, Enron Corp. and AES Corp., have asked the government to buy out their stakes in local power projects because of unpaid bills. India To Evaluate Options On Enron Stake Buy Out Offer 07/31/2001 Dow Jones International News (Copyright © 2001, Dow Jones & Company, Inc.) NEW DELHI -(Dow Jones)- India will evaluate all options before making a decision on U.S. energy major Enron Corp.'s (ENE) offer to sell its majority stake in the controversial Dabhol Power Co. to the government, a senior Indian Power Ministry official said Tuesday. "We are closely watching all the developments. Enron hasn't formally approached us with an offer. It will be premature to say anything on the issue now. The government will take a stand on the Enron matter only after thoroughly studying all the prospects and consequences," said the official. A spokesman for Dabhol Power Co. said his company has had no contact with the federal government lately. Enron said Saturday the company wanted to sell its stake in Dabhol Power Co. to India's federal government or one of the project's lenders. Enron holds a controlling 65% equity in Dabhol Power Co., located in the western Indian state of Maharashtra. The Dabhol Power Co. plant has a capacity to generate 740 megawatts but is currently not operating because of payment disputes with its sole buyer, the Maharashtra State Electricity Board. MSEB stopped drawing electricity from Dabhol May 29, saying the company's tariffs were "unaffordable." Work on an 85% complete 1,444 MW phase II of the Dabhol project was stopped in mid-June because of Dabhol Power Co.'s financial difficulties. At $2.9 billion, Dabhol Power Co. is the single largest foreign investment in India to date. -By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com -0- 31/07/01 10-09G Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA PRESS:Govt Asks Lenders To Bail Out Dabhol Pwr Proj 07/31/2001 Dow Jones Asian Equities Report (Copyright © 2001, Dow Jones & Company, Inc.) NEW DELHI -(Dow Jones)- India's federal government has directed financial institutions, led by the Industrial Development Bank of India (P.IDB), to work out a package for saving the controversial $2.9 billion Dabhol power project in the western Indian state of Maharahtra, reports the Financial Express. U.S. energy company Enron Corp. (ENE) holds a controlling 65% stake in Dabhol Power Co., which operates a 740-megawatt power plant. The move comes on the heels of Enron's decision to pull out of India's power sector, says the newspaper report. The package is aimed at completing the 1,444-megawatt phase II of the Dabhol project. A sum of $550 million is required to complete the project, of which lenders have agreed to pump in around $320 million. As Enron doesn't want to inject fresh money into Dabhol, the financial institutions will either have to scout for a new investor for the project or pump in the remaining $230 million themselves, the report said. Web site: 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. Report: Indian government orders financial institutions to save Dabhol power project, as Enron wants to pull out 07/31/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. NEW DELHI, India (AP) - The federal government has told financial institutions to pump in more money or find a new investor to save the Dabhol power project, now that U.S.-based Enron Corp. has said it wants out, The Financial Express reported Tuesday. The Industrial Development Bank of India, and other institutions, have been told to work out a package to complete the dlrs 2.9 billion project in western Maharashtra state, the paper said, quoting unidentified officials of the banks and the Power Ministry. Power Ministry officials were quoted as saying that Enron had agreed in principle to finish the project if the dlrs 230 million can be found, and then Enron could sell its majority stake. The project was billed as the world's largest natural gas-fired power plant, able to generate 2,184 megawatts once completed at Dabhol, 335 kilometers (210 miles) south of Bombay. The second phase, to be run on liquefied natural gas, was to be commissioned by the end of the year. Enron, based in Houston, Texas has invested dlrs 875 million in the project - India's biggest foreign investment. Enron said July 28 it wants the Indian government and lenders to buy out its 65 per cent stake. The plant stopped production in May after its only customer, the Maharashtra State Electricity Board, said it was canceling a seven-year-old power purchase agreement. The state also stopped buying power from Enron's two-year-old naphtha plant. The state says Enron's prices are too high and has demanded the contract be renegotiated. The Financial Express said that lenders are ready to pump another dlrs 320 million into Dabhol, but there is a shortfall of an additional dlrs 230 million. The financial institutions will have to find a new investor or provide the money themselves, the newspaper quoted its sources as saying. It also quoted Power Ministry officials as saying it would be difficult to find a buyer until the project is completed. Some of the needed money may be sought from Maharashtra state, which had committed to making payments, the paper quoted Power Ministry officials as saying. The current charges for power are still a matter of contention, however. The paper said Enron had reduced its price demands, after the government offered various tax and customs duty concessions, but the government wants the price for electricity to be cut further. (lak) Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. FIs asked to work out deal for Dabhol completion Soma Banerjee 07/31/2001 The Economic Times Copyright (C) 2001 The Economic Times; Source: World Reporter (TM) FINANCIAL institutions led by Industrial Development Bank of India have been directed by the Centre to work out a package by which the controversial Dabhol Power plant can be completed which in turn could pave the way for the sale of equity by Enron. Enron, which has a $2.9 billion stake in the project has recently announced its decision to pull out of India. This comes barely weeks after the visit of Enrons chairman Kenneth Lay who had then maintained that the 'company is committed to India' and is looking forward to 'positive talks'. The package which will be submitted to a high level committee, which is represented by the finance, power and law ministry and headed by union finance secretary Ajit Kumar. Representatives of the Union power and finance ministry met last week to thrash out the main objectives of the package. According to FI sources, the package which is expected to be finalised shortly will have to have a twin objective of completing the project and finding takers for the power to be generated. The phase II of the project (phase I of which is already operational) requires an additional investment of $550 million to be completed of which $320 million has already been tied up with the lenders. Another $230 million has to be pumped in into the project. Given the fact that Enron is unwilling to pump in any more funds in the project, the FIs will have to look for the additional resources. The required resources can be moped up only through the infusion of fresh investments by a new developer or if the FIs are willing to put in the money themselves. FIs are also holding discussions with MSEB to honour their obligation and pay up the fixed charges of about Rs 95 crore which could then be used for completing the project. Sources said although Enron has decided to call it a day in the Indian power sector, the company is not averse to the proposal of completing this project without any further investments. Experts are of the view that this would make sense even for Enron who could then expect a better price for its equity. On the sale of power and restructuring of tariff, the FIs are holding negotiations with DPC and the various agencies who play a role in contributing to the tariff. While DPC has offered a tariff of Rs 3.59 per unit, the FIs will try and work towards a tariff close to Rs 2.80 per unit. Apart from aspects like working a separate arrangement for the LNG plant, reduction in Customs duty and sales tax on LNG, attempts would be made to also try and reduce LNG prices by asking the suppliers to rework their rates. Official sources indicated that Enrons decision to finally announce its intention to exit from the Dabhol project is likely to lead to some decision this way or the other. The Centre which has till now played a passive role and has left the issue to be resolved bilaterally is now playing a more proactive role and will definitely take every step to avoid litigations at the international lenders level. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Houston-Area Firms Brace for Onslaught by Code Red Computer Worm Tom Fowler 07/31/2001 KRTBN Knight-Ridder Tribune Business News: Houston Chronicle - Texas Copyright (C) 2001 KRTBN Knight Ridder Tribune Business News; Source: World Reporter (TM) Technicians at Reliant Communications and other Internet service providers will burn the midnight oil tonight and well into Wednesday, fighting the rebirth of an Internet worm some say could be the worst threat to the Web to date. The Code Red worm, an online infection first spotted on July 19, is expected to awaken from its dormant state on hundreds of thousands of computers around the world at about 7 p.m. CST today. Tuesday. It will then start flooding the Internet with traffic as it tries to replicate itself, creating the equivalent of an overwhelming number of surfers hitting the Web at once. Dave Power, senior vice president of technology at Reliant Communications, said nearly every Internet service provider is taking the threat seriously and will monitor it carefully as it develops. "At the end of our staff meeting today the message we all left with was, `Be prepared for the siege,'" Power said. Unlike a virus, which spreads when a user opens an e-mail attachment, Code Red is a self-propagating worm that spreads itself without human intervention. When Code Red first showed up earlier this month it infected more than 250,000 systems in just nine hours, security officials say. It tried to shut down the White House's Web server by sending a flood of data requests its way, but officials changed the Internet Protocol address, the numeric reference to a computer's location on the Internet, of the White House site before the attack began. When the worm reactivates Tuesday tonight it could begin spreading more quickly, bringing sporadic but widespread Internet slowdowns and defacing Web pages. The potential threat to Internet service is so severe that several federal agencies and companies, including the FBI and Microsoft, held a joint press conference Monday. "The Internet has become indispensable to our national security and economic well-being," said Ron Dick, head of the National Infrastructure Protection Center, an arm of the FBI. "Worms like Code Red pose a distinct threat to the Internet." Code Red scans the Internet for Web servers, sending a string of code to those machines that takes up residence not in the hard drive but in the buffer memory where it is difficult to detect. The worm targets servers running Microsoft Windows NT and Windows 2000 with Internet Information Server, or IIS, software versions 4.0 and 5.0. The worm isn't likely to infect the computers most people have at home or on their desktops at work, but rather will infect Web servers, the powerful machines kept in air-conditioned data centers that let people view Web sites online. That means any sort of Web surfing, from checking e-mail to buying books online to looking up stock quotes, may be anywhere from significantly slow to nearly impossible. "So the ordinary person using a cable modem or DSL won't be infected, and they don't need to worry about their privacy or confidentiality," said Chris Pick, vice president of product strategy for Houston-based PentaSafe Security Technologies. "But they will notice that some of the Web sites they want to hit are either running slowly or are simply not available." Unlike an e-mail virus, which spreads when a user opens an e-mail attachment, Code Red is a self-propagating worm that spreads itself without human intervention. Code Red scans the Internet for Web servers, sending a string of code to those machines that takes up residence not in the hard drive, but in the buffer memory where it is difficult to detect. The worm targets servers running Microsoft's Internet Information Server, or IIS, software versions 4.0 and 5.0. From within a server Code Red begins scanning a randomly generated list of Internet addresses to find another server to infect. If the infected server's default language is English, all Web pages served by that machine will be defaced with the message "HELLO! Welcome to http://www.worm.com! Hacked by Chinese!" Officials say they have not identified the author of the program, but its name is said to be a reference to a soda made by Mountain Dew that is popular with hackers, and the name is not a reference to "Red" China. Officials say they have not identified the author of the virus, but its name is said to be a reference to a popular soda made by Mountain Dew with hackers and not China. The real problems created by Code Red are not related to security or privacy issues, or even the Web page graffiti, but rather the amount of traffic that will be generated by hundreds of thousands of Web servers sending out data packets searching for other machines to infect. The first 19 days of a month the worm is set up to scan and infect, but from day 20 until day 27 the worm floods a certain Internet address -- in this case the White House Web server -- with information requests causing a denial-of-service attack. The White House changed its Internet address prior to the attack earlier this month and avoided being knocked out, but that didn't kill off Code Red. The worm has been sitting dormant on servers for the past two weeks, but when the date changes from 31st to the 1st, it will begin scanning for new hosts to infect again. A software patch to fix the Microsoft IIS program's vulnerability has been available since June, a few weeks after developers and security experts found the problem. Unfortunately, not enough system administrators and Web masters installed it before the outbreak. "Hacker groups in general are aware of these vulnerabilities, but they can be taken care of relatively easily with just a little vigilance," Pick said. Jeremy Hewlett, security administrator for Reliant Communications, said downloading the software patch should be the first priority for any system administrator. In addition to the Microsoft site, the National Infrastructure Protection Center, www.nipc.gov, and Symantec Co., www.symantec.com cq for both addresseshave information about detecting and removing the worm. Observers say Microsoft products are common targets for virus writers because the software is found running on so many sites and because Microsoft has not always been as attentive to security issues as it could be. "With Windows NT and Windows 2000 they were engineered to work in tandem with a lot of other systems at once, so security was not engineered into the products from the start," Pick said. "They haven't focused on it much in the past but are starting to become more aware of it." Microsoft is known for not testing its products as well as it could either, Power said, which also leads to many post-release patches and updates. "They're not very forthcoming with problems, which is why you'll see most people go to the public and press with issues first," Power said. Microsoft took part in the public warnings about Code Red on Monday and has been providing the patch for free on its Web site for weeks. Hewlett said the staff at Reliant Communications has already cleared its network of the worm but is expecting to work late Tuesday night monitoring incoming attacks from other infected servers. University networks are among some of the likely breeding grounds since schools' Information Technology departments tend to be particularly short-staffed in the summers. "We saw enormous volumes of traffic from the schools last time, but nobody really monitors the university networks for this," he said. While the denial-of-service attack aimed at the White House could have been damaging if it had not been redirected in time, there's nothing stopping a virus writer from setting his or her sights on another target, like a company's Web site. "It could be Enron's site, it could be any other government site, or any part of the net's infrastructure that's vital to the economy," Pick said. "Houston is just as likely as any other city to be infected." Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Calif Gov Spokesman Says He Bought Calpine Stock In June 07/30/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) LOS ANGELES -(Dow Jones)- A spokesman for Gov. Gray Davis purchased shares of Calpine Corp (CPN) on June 20, 2001, he said Monday, but declined to say how many shares he purchased. This is the first time an official in Davis' office has admitted to purchasing shares in energy companies since the state took on the job of buying power in January in lieu of the utilities. As reported, the U.S. Securities and Exchange Commission has been investigating Davis administration officials for more than a month to see if they purchased stock in energy companies using information that was unavailable to the public. Davis spokesman Steve Maviglio said, however, that his stock holdings did not represent a conflict of interest. Maviglio has not been named in the SEC investigation, and says he made his purchases based on public information. "There's no crime in owning energy company stocks," Maviglio said. "My purchase of Calpine was based on information I read in the newspapers." Maviglio also owns between $10,001-$100,000 in Enron Corp (ENE) stock, according to a 2000/2001 financial disclosure form. He said he has owned Enron stock since 1996. Last week, five state energy consultants were fired by Davis' staff for conflicts of interest because they helped California buy power from Calpine, a company in which they owned stock, state officials said. The consultants, who were hired by the state in January, did not file economic interest statements until July, when Secretary of State Bill Jones revealed that the consultants and energy traders held stocks in energy companies they were buying from. Jones said Monday that Maviglio's actions were "unethical, unconscionable and unacceptable." "The Governor should direct all of his staff to immediately file updated conflict of interest statements to reflect current holdings and any activity since their last Statement of Economic Interests was filed," Jones said in a statement. Jones, a Republican who hopes to challenge Democrat Davis next year for governor and who has been highly critical of Davis' handling of the energy crisis, also called for an expansion of investigations. "The SEC, the Attorney General and the Fair Political Practices Commission must now expand their investigations to include all of the Governor's staff in addition to the consultants who are already under investigation," the statement said. Attorney General Bill Lockyer has not yet decided whether he will launch an investigation into the Davis administration, a Lockyer spokeswoman said. The governor's own investments are in a blind trust, meaning a trustee handles Davis' financial affairs and the governor has no knowledge of the investments. "I have always owned mutual funds and have never bought stock in individual companies. That has been my policy since the beginning of my administration," Davis said Monday at a bill-signing event in Los Angeles. State conflict-of-interest laws say that public officials cannot negotiate contracts for companies in which they hold stock, and officials cannot use their positions to influence the state's decisions with respect to those companies. The conflict-of-interest laws apply to all state bodies, including the California Public Utilities Commission and the California Independent System Operator, which runs the state's real-time energy market. The five members of the ISO Board of Governors listed no holdings in energy companies since Jan. 24 on their most recent disclosure forms, signed between Jan. 24-July 24. The board was appointed by Davis in January. Disclosure forms for the CPUC and employees with the California Department of Water Resources, the state's power-buying arm, could not be immediately obtained. SEC investigators said Sunday that a preliminary investigation has revealed that several employees and consultants working directly with Davis on energy issues have purchased "significant" shares of Calpine stock between January and July. Individuals purchased stocks in other energy companies, but invested heavily in Calpine, the investigators said. Nearly half of the state's $43 billion in long-term energy pacts will come from Calpine, according to details of contracts released last month. Some of the contracts were signed as early as February, but Davis had refused to release the details of the supply until a Superior Court Judge ordered the administration to do so in mid-June after news organizations filed a lawsuit. Davis has accused power suppliers of price gouging, and his attorney general hopes to send power company executives to jail. But Davis has spared Calpine the invective, touting the San Jose-based generator as a "California company" helping to keep the lights on in the state. Maviglio has said the governor has praised Calpine because its prices are well below those charged by other generators and because the company has invested in California for the long haul. Calpine is "not attempting to suck every dime out of the state and throw parties in Houston," he said. -By Jessica Berthold and Jason Leopold, Dow Jones Newswires; 323-658-3872/3874; jessica.berthold@dowjones.com, jason.leopold@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. Functioning In The Bandwidth Market No One Expected By Erwin Seba Of DOW JONES NEWSWIRES 07/30/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) HOUSTON -(Dow Jones)- Band-X Ltd., the longest-lived bandwidth exchange, has survived by moving as the market has developed, said a London-based analyst of the London-based company. "Their business model is sound," Ciara Ryan, senior manager in the bandwidth trading department at Arthur Andersen's London office, told Dow Jones Newswires. "They understand the limitations of the market. They didn't try to fix the world overnight." Band-X began trading bandwidth in 1997, two years before Enron Corp. (ENE), announced it was going to be a market-maker in bandwidth trading. But, a company executive said part of the reason for his company's success is it lacks an energy- merchant background. "The difference between gas and bandwidth is you can't store bandwidth," Donald Noonan, vice president of Networks, told Dow Jones. In 2000, the privately held company saw $80 million in bandwidth trades, Noonan said. The company has offices across Europe, Asia and in the U.S. The company also operates a telecommunications minutes exchange and a colocation exchange, which is increasing business as companies seek to gain some return on an investment in a network with rapidly declining profit potential, while others seek to buy or lease what they would otherwise build. "We are constantly seeing the leasing of capacity," Noonan said. But the contract time periods are shifting from the previously common 20-year lease to 1-year or 10- or 20-year contracts, he said. And the company has won favorable reviews from the most conservative part of the market, the carriers, Ryan said. "They have a lot critical mass and lot of support in the marketplace," she said. -By Erwin Seba, Dow Jones Newswires; 713-547-9214; erwin.seba@dowjones.com Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. INDIA: India evaluating Enron's offer to quit Dabhol. 07/30/2001 Reuters English News Service (C) Reuters Limited 2001. NEW DELHI, July 30 (Reuters) - Indian officials said on Monday they were evaluating an offer by U.S. energy firm Enron to sell its stake in troubled Dabhol power project to the federal government. A spokesman for the Dabhol Power Company, in which Enron holds a 65-percent stake, said on Saturday the firm and its partners wanted to sell equity in the project to the federal government or the lenders. "We are assessing the situation. It is too premature to say anything right now," a senior federal power ministry official, who did not want to be identified, told Reuters. He said the federal government had not received any formal offer from Enron to sell its equity in the controversial project. Government sources said that ministry officials were talking to Indian financial institutions to assess Enron's statement. A power ministry official said if the federal government picked up Enron's equity in the project, it could save the government millions of dollars in penalties which it would have to pay if it lost an arbitration case over the project. Apart from Enron, DPC's shareholders include U.S. group General Electric and Bechtel, which own 10 percent each, and a local utility, the Maharashtra State Electricity Board (MSEB), which holds 15 percent. Enron has been locked in a bitter payment dispute with MSEB, which had signed a contract to buy all the power produced by Dabhol, whose first phase of 740 MW was completed last year, and the second phase of 1,444 MW is nearly complete. A BLESSING India's western state of Maharashtra, where the project is located, welcomed Enron's offer to sell its equity in the controversial project, the Press Trust of India reported. "It will be God's biggest blessing for us," the agency quoted the state's Energy Minister Padamsinh Patil as saying in Bombay. It also quoted the head of a negotiating committee, M. Godbole as saying that the panel's next meeting, scheduled after a month, would be cancelled in view of Enron's statement that it wants to exit Dabhol. MSEB and Enron's dispute escalated in April, when the U.S. firm notified the government it was applying to an arbitration court in London to consider its claim for 1.02 billion rupees owed by MSEB for power it purchased in December from DPC. The company also sent a political force majeure notice to MSEB. Such a notice is a contractual clause dissatisfied parties give as a first step towards possibly dissolving a contract. In May, the defaulting utility stopped buying power from Dabhol, saying it was expensive. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. California Governor's Spokesman Says He Bought Calpine Stock 2001-07-30 21:36 (New York) California Governor's Spokesman Says He Bought Calpine Stock Sacramento, California, July 30 (Bloomberg) -- A spokesman for California Governor Gray Davis said bought $12,000 worth of stock in energy producer Calpine Corp. in June as the state was working with the company to open new power plants and buying millions of dollars a day in electricity. Davis spokesman Steve Maviglio purchased 300 shares of Calpine on June 20 after putting in an order on May 31 to buy the stock when it fell to $40, he said. The purchase is being reviewed by the Governor's legal office, Maviglio said. ``These purchases were based on no knowledge of anything, just public information about a growing California company,'' Maviglio said. ``I've informed the governor, the chief of staff and our legal counsel today. I'd be glad to divest myself if that's what required.'' Maviglio also said he owns between $10,000 and $100,000 in Enron Corp. shares, which he said he purchased in 1996. His purchases came to light three days after California officials said they fired five consultants hired to advise California on energy after they disclosed that they owned shares of Calpine. The consultants worked for the Department of Water Resources, which at the time was buying millions in electricity from Calpine and other energy generators. California has spent almost $8 billion buying electricity for its two largest utilities, which have been insolvent since January. Nine energy consultants were ordered by Davis's lawyer Barry Goode last week to sell any energy-company stock they owned, including shares of Enron Corp., Calpine Corp., and Dynegy Inc., after Secretary of State Bill Jones pressured Davis to release details of their holdings. Jones said today in a statement that Maviglio should be fired for the purchases. ``These actions are unethical, unconscionable, unacceptable and heads should role,'' Jones said. ``Mr. Maviglio should be fired immediately.'' Jones has publicly called on Davis to force the 50 consultants hired by the state to disclose their holdings in energy companies. Last week he urged the Securities and Exchange Commission to investigate whether any of the consultants or advisers traded stock based on non-public information. Maviglio said no one in the administration or at the Department of Water Resources had been contacted by the SEC. ``No one's been contacted either here or at DWR,'' Maviglio said. A spokeswoman for the SEC in San Francisco, Helane Morrison, said the agency would not confirm or deny an investigation. Calpine shares are down 6.8 percent since June 20, when Maviglio says he purchased the shares.
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