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Enron Mail |
Offbeat majors help CEOs think outside the box
USA Today, 07/24/01 Enron not to dampen foreign investors interest The Economic Times, 07/24/01 Payment crisis The Economic Times, 07/24/01 India May Allow Generators to Retail Electricity, Paper Says Bloomberg, 07/24/01 Enron Should Be Fined by California Senate, Committee Says Bloomberg, 07/24/01 Enron contempt citation moves forward in state Senate Associated Press Newswires, 07/24/01 Enron=01,s Ken Lay On Energy and Boards=20 Corporate Board Member Magazine, Summer 2001 Offbeat majors help CEOs think outside the box By Del Jones, USA TODAY, July 24, 2001=20 http://www.usatoday.com/money/bcovtue.htm Enron not to dampen foreign investors interest Our Bureau 07/24/2001 The Economic Times Copyright (C) 2001 The Economic Times; Source: World Reporter (TM) THE ENRON fiasco would not dampen the interest of foreign investors who see= =20 India as a long term investment destination, AT Kearney vice president and= =20 managing director of its Global Business Policy Council Paul Laudicina has= =20 said.=20 He felt that the fallout of the Enron controversy would not have major=20 negative implications for foreign investment inflows into India. Laudicina, who is in India on Monday to address several meetings of the=20 businessmen, told ET in an interview that Enron should not be seen as an FD= I=20 dispute.=20 "Infrastructure bottlenecks and bureaucracy are major hinderances to inflow= s=20 on FDI into the country." He added: "Enron should be seen in the context of= =20 Indias need for investments in infrastructure sectors."=20 Laudicina, however, cautioned that it was for the Indian government to ensu= re=20 that the Enron controversy would not result in negative perception among=20 investors who did not "know" the country. "The authorities need to address= =20 the issue frankly instead of putting on false positive face."=20 Further the two parties involved Enron and the government should deal with= =20 the issue in forthright manner.=20 AT Kearney had reported early February that India was one of the four hot= =20 destinations for FDI among the emerging nations, others being China, Brazil= =20 and Mexico. Laudicina felt that the turn of events in the country since the= n=20 would not have negatively impacted the countrys attractiveness to the forei= gn=20 investors.=20 Foreign investors, he felt, were looking for large market size and potentia= l=20 when making an investment decisions. Other important factors were consisten= cy=20 of reforms process, infrastructure and availability of skilled and talented= =20 labour.=20 He added that the government should realise that the FDI environment had=20 become more competitive since the setting in of global slowdown and investo= rs=20 were increasingly more selective about their choice of destinations.=20 India could continue to attract FDI inflows due to its strengths but the=20 government needs to address the investor concerns, Laudicina said.=20 The strengthens notwithstanding, India needs to have a clear road map if sh= e=20 want to accelerate the pace on inflows of FDI.=20 Compared to $40 billion annual inflows to China and $30 billion into Brazil= ,=20 India gets just about $3.5-4 billion annually. Brazil has seen FDI inflows= =20 increase from $2 billion in 1995 to $30 billion in 2000.=20 He also pointed out that India could face increased competition from China = in=20 the coming years when the latter enters WTO. The need of the hour would be= =20 for the government to go out and ensure that investors understand facts abo= ut=20 the country. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.=20 Payment crisis 07/24/2001 The Economic Times Copyright (C) 2001 The Economic Times; Source: World Reporter (TM) AMERICAS AES Transpower wants to be paid for the electricity that it has so= ld=20 in Orissa. Nothing strange about that. Thats how it is in any market. But not in India. Here consumers and state electricity boards routinely=20 collude to gyp power generators of their dues. Till recently, Orissa was=20 brandished as a case study of successful power reforms.=20 It was one of the earliest states to attract private investment in power=20 generation, a pioneer in restructuring SEBs into generation, transmission a= nd=20 distribution companies and one of the few states that had managed to get=20 private investors interested in retailing electricity. Not any longer.=20 A lot of that, it appears, was bunk. Today, the SEB apparently owes AES $45= =20 million. AES wants the money to go into an escrow account where the SEB=20 cannot dip into it when it wants.=20 But escrow accounts and guarantees cant be permanent solutions to the power= =20 crisis, which arises from three related causes political pricing of power= =20 which charges different consumer classes different rates; the ensuing theft= =20 of electricity from low priced connections; and state ownership of utilitie= s,=20 whose employees collude with miscreants.=20 Its easy to get private investment in generation as long as the generating= =20 companies can be paid. The failing Enron project shows that bankrupt SEBs= =20 make bad customers.=20 So, private generators now want to sell directly to paying customers throug= h=20 private distribution networks.=20 But when AES begins to stumble as a private distributor and when states lik= e=20 UP fail to privatise distribution networks because bidders are scared then = we=20 have a bigger problem.=20 That is the collapse of basic administration in states.=20 What good is supplying electricity if consumers refuse to pay and local=20 administrations side with the defaulters rather than the company thats bein= g=20 done out of its legitimate dues?=20 A technical solution pre-paid electricity charge cards has been proposed. B= ut=20 even that will fail if the administration doesnt punish power theft.=20 Only a broad reform agenda that includes administrative reforms in the stat= es=20 will work. Piecemeal solutions wont. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.=20 India May Allow Generators to Retail Electricity, Paper Says 2001-07-24 02:01 (New York) New Delhi, July 24 (Bloomberg) -- India's government may ask parliament to pass a law allowing generators to sell power directly to companies and big housing estates, the Business Standard reported, citing Power Ministry officials it didn't name. Only state electricity boards are now allowed to retail power that the boards buy from state and non-state generators. If generators are allowed to retail power to large buyers, customers would be taxed to help pay for subsidized supplies to villages and rural consumers, the paper said. The Electricity Bill 2001 may be introduced during parliament's five-week session that began yesterday, the paper said. AES Corp., a U.S. power generator, said last week it wants to pull out of a power distributor in eastern Orissa state that's owed $45 million in past-due bills because of power thefts and refusals to pay. Enron Corp., the world's biggest energy trader, and a state electricity board in India's western state of Maharashtra have been quarrelling for seven months over $64 million of unpaid bills. At least five overseas utilities, including Electricite de France, Europe's largest, have pulled out of Indian power projects worth $3 billion over bureaucratic delays, slow deregulation and payment problems. Enron Should Be Fined by California Senate, Committee Says 2001-07-23 21:19 (New York) Enron Should Be Fined by California Senate, Committee Says Sacramento, California, July 23 (Bloomberg) -- Enron Corp., the world's largest energy trader, should face escalating fines levied by the California Senate until it complies with requests for trading records, a legislative committee said. In a report to the full Senate, the Senate Select Committee to Investigate Price Manipulation of the Wholesale Energy Market suggested Enron be fined $1,000 initially. The fine should double each day the Houston-based company fails to comply with document requests, the committee said. ``Enron is and has been an active participant in the California wholesale-energy market,'' the report said. ``The subpoenaed documents are pertinent to the select committee's investigation.'' The committee is investigating allegations that power generators and traders manipulated California's electricity market to artificially boost prices. Enron and other companies have said repeatedly that they acted within the law. ``We were rather surprised by it (the committee report),'' said Enron spokeswoman Karen Denne. ``We've been negotiating in good faith with the committee and had made a good deal of progress in the last week.'' Contempt Allegations The committee has twice found Enron in contempt for failing to supply documents the committee has requested. On July 11, when the committee voted the second time, committee Chairman Joseph Dunn said he wouldn't deliver the contempt report to the full Senate if the documents were turned over. Dunn, a Democrat from Santa Ana, delivered the report Saturday. Enron has agreed to turn over more than 1 million documents to the committee, Denne said. The company doesn't have an agreement on the Senate maintaining the confidentiality of the documents, nor on lawmakers' jurisdiction over documents not kept in California, she said. Before the full Senate votes on the report, it must be taken up by the Senate Rules Committee, said Alex Montgomery, a consultant to Dunn. The committee is likely to take up the issue when the Senate returns from its month-long summer recess in late August. The report's proposed fines are intended to bring Enron into compliance with the document requests, Montgomery said. ``It really is meant not to punish them, but to get them to comply with the subpoena,'' she said. ``We would really prefer not to be in this process.'' On July 11, Enron sued Dunn's committee to quash the subpoena for documents. In the lawsuit, Enron said that federal regulators have sole jurisdiction over wholesale-energy trading and that the committee's subpoena is too broad. Enron will continue to pursue the suit, Denne said today. Enron contempt citation moves forward in state Senate 07/23/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. SACRAMENTO (AP) - A contempt citation against Houston-based Enron Corp. has= =20 been presented to the full Senate by the committee investigating possible= =20 price manipulation in California's energy market.=20 The Senate Select Committee to Investigate Price Manipulation of the=20 Wholesale Energy Market initiated contempt proceedings after the company=20 failed to turn over subpoenaed documents. Enron sued the state July 11 in an attempt to stop the subpoena of its=20 financial and electricity trading records. That suit remains unresolved.=20 The committee delivered a report on the contempt charges to the Senate on= =20 Saturday. The Senate Rules Committee will consider the vote before the full= =20 Senate takes it up.=20 The Senate recessed early Sunday for summer break and won't return until Au= g.=20 20, delaying any action until then.=20 If the Senate approves the report and finds Enron in contempt,it would be t= he=20 first such move since 1929. The Senate could impose sanctions, but here are= =20 no set penalties.=20 The last time the Senate imposed contempt sanctions was 72 years ago, when = it=20 briefly jailed balky witnesses during a committee's investigation of price= =20 fixing and price gouging allegations involving the sale of cement to the=20 state.=20 The state Supreme Court eventually upheld the Senate's right to jail those= =20 who fail to comply with its subpoenas, but determined senators hadn't=20 followed all the proper procedures in the cement sale investigation. Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.=20 Enron=01,s Ken Lay On Energy and Boards=20 Corporate Board Member Magazine, Summer 2001 by Ann Reilly Dowd </contact_us/contact_form.shtml?Ann_Reilly_Dowd< California may have asked for it, says this White House insider, but=20 everybody should be part of the solution=01*including directors who should= =20 ensure their companies have an energy strategy. When Vice President Dick Cheney sought input in formulating a national ener= gy=20 policy, one of the people he listened to most intently was Kenneth Lay,=20 chairman of Enron and a longtime George W. Bush supporter. In 15 years Lay,= =20 57, has turned a traditional pipeline company into an aggressive trader of= =20 gas and electricity and a provider of broadband services. Until the deal=20 bogged down, it looked last year as though video rental giant Blockbuster= =20 would use the Houston outfit=01,s network systems to deliver online movies.= Lay=01, s ambitions for Enron don=01,t stop there. He wants federal regulations rem= oved=20 so the company can build power plants and power lines, which would put it i= n=20 direct competition with utilities. In a conversation with Corporate Board= =20 Member=01,s Ann Reilly Dowd, Lay discussed the energy crunch gripping the U= nited=20 States and what government and boardrooms need to do about it. He also=20 describes how he assembled a board that enabled him to push Enron so far in= to=20 the future. Excerpts:=20 On how real the energy crisis is: We have a genuine energy crisis in=20 California, which will see severe shortages or disruptions over the summer,= =20 and a serious energy problem in most other places. Outside of California, t= he=20 supply/demand balance is very tight, and maybe the infrastructure is being= =20 pushed a little hard. But the energy situation certainly needs attention. I= n=20 many ways, this country has underinvested in energy supply and infrastructu= re=20 for at least 15 or 20 years. We need to start correcting for that.=20 On deregulation: What led to California=01,s energy crisis was not deregula= tion=20 but a very flawed command-and-control regulatory system where most consumer= s=20 don=01,t have any choice. Deregulation is not where you have a fixed price = on=20 the retail side of the market and a floating competitive price on the=20 wholesale side. It=01,s also not where everybody has to buy most of their s= upply=20 on the wholesale spot market. That was very, very dangerous from day one. W= e=20 need to give consumers the benefits of real deregulation.=20 The solution for California=01,s problem has to be in California. Nationall= y, we=20 need to get the rules right as quickly as possible. Part of the problem is= =20 that there has been uncertainty in some states and regions as to what the= =20 rules are. Uncertainty tends to lead to inaction. So we need to go ahead an= d=20 finish up the deregulation process. Mainly, we need to remove barriers for= =20 rebuilding the infrastructure, getting the right-of-way for new transmissio= n=20 lines, and building power plants.=20 We need to distinguish between deregulating the retail and the wholesale=20 electricity market. On the wholesale side, the federal government, mainly t= he=20 Federal Electricity Regulatory Commission, has a great deal of authority. O= ne=20 of our recommendations has been that we need to get larger transmission gri= ds=01* regional, not just state grids. We need those to operate independently of t= he=20 distribution and power generation functions. And we need those larger=20 regional grids to be truly open access and nondiscriminatory. We and many= =20 other people are convinced that would increase the carrying capacity of the= =20 system and help us in the interim as we expand and build out the system.=20 On price caps: I don=01,t hear anyone arguing that price caps would either= =20 reduce demand or increase supply. And many people would argue just the=20 opposite, that they would increase demand and reduce supply.=20 Here=01,s one example. Enron was getting ready to build a peaking power pla= nt in=20 California last October. We already had the site approved, and the turbines= .=20 Then the state imposed price caps, and we had to cancel the project because= =20 we couldn=01,t justify making the investment with the price caps. At least = one=20 other company, CalPine, did the same thing. That means that this summer the= re=20 will be about 1,000 megawatts less power available for the California marke= t=20 than there would have been otherwise. That=01,s about 20% of the estimated = peak=20 shortage that would have been available if there had not been price caps.= =20 Second, price caps tend to allow political leaders to delay making the toug= h=20 decisions necessary to solve the problem. Price caps may camouflage the=20 problem temporarily, but they don=01,t solve it. And to the extent that the= =20 right decisions and action are not taken, the problem just gets worse.=20 On the public backlash against energy companies and their boards: Every tim= e=20 we=01,ve had an energy problem, we get this same reaction. There is always = a=20 discussion of conspiracy or collusion or anticompetitive behavior or excess= =20 profits or whatever. Each time there are investigations.=20 In California, it seems the political leaders are trying to blame everybody= =20 but themselves. They need to face up to the fact that the rules are wrong a= nd=20 led to a drastically dangerous situation. Now we=01,ve got to solve it.=20 First of all, we=01,ve got to get the prices right, so consumers realize we= =01,ve=20 got to use a lot less and suppliers realize we=01,ve got to produce a lot m= ore.=20 We=01,ve got to streamline the process to site and build power plants. We= =01,ve got=20 to do some very significant things from the point of view of reducing deman= d.=20 And we need to open the market for competition. Then this problem will get= =20 solved very quickly=01*a lot more quickly than trying to put on artificial = price=20 caps. Everywhere we=01,ve tried price caps they have led to enormous econom= ic=20 inefficiency and distortions.=20 The way we handle the criticism=01*and Enron=01,s board knows this=01*is by= being very=20 open and proactive, trying to work through solutions rather than pointing= =20 fingers and conjuring up conspiracies. I and others on the Enron team have= =20 been to California to meet with editorial boards and business and political= =20 leaders. We try to educate various groups on what caused the problem and wh= at=20 needs to be done to solve it.=20 On the need for all companies to have an energy policy: Even before this=20 recent increase, it=01,s been our experience that many companies have expos= ed=20 themselves to a lot more price risk in their energy use than they realize. = It=01, s an area that quite often is not as actively managed as, for example, the= =20 balance sheet. There is a lot of attention on interest rates and the=20 portfolio approach with some short-term, some medium-term, and some long-te= rm=20 debt. We usually don=01,t see anywhere near the same sophistication applied= to=20 energy, even though in many cases, companies have a lot more risk exposure = in=20 their energy purchases or procurement than they do in their debt portfolio.= =20 On what boards should push for: I think the kind of questions board members= =20 should be asking are: What is our policy on hedging fuel prices? Did we loc= k=20 in any of our energy prices? If not, why not? What are we doing about the= =20 future? Have we looked at all of our conversion and control equipment and a= ll=20 of our policies and procedures? Are they truly =01&best in class?=018 Are w= e=20 getting advice from companies that are truly world-class in this area?=20 On energy as a corporate asset: Enron has a major business outsourcing ener= gy=20 for large industrial and commercial companies. We go in and evaluate the=20 energy activity, the equipment, the control systems, and the procurement=20 policies. Even before the recent run-up in prices, we had yet to find a=20 well-run business where we couldn=01,t reduce energy usage and costs by 5% = to=20 15%.=20 Most companies, even fairly energy-intensive companies, are not necessarily= =20 world-class at managing their energy activities. It=01,s not a core compete= ncy.=20 It=01,s not where the best and the brightest want to spend much time. It=01= ,s also=20 not a place where many companies want to spend much capital. For all those= =20 reasons, quite often the energy convergence and control equipment may not b= e=20 the latest and most efficient, and companies may not be using best practice= s.=20 We have looked at small companies, which may not be one-tenth or even=20 one-twentieth the size of Enron, that are exposing themselves to more=20 energy-related risk than Enron does worldwide. Usually they don=01,t know t= hat=20 until they get a price spike. Then all of a sudden, it becomes a big factor= =20 in why they aren=01,t meeting their earnings and cash-flow targets. In many= =20 companies, energy is 10% to 20% of operating costs. If suddenly that rate= =20 goes up 50% or 75% and a company is operating on thin margins, the profits= =20 begin disappearing,=20 On how to build a world-class board: At Enron, I went outside and brought i= n=20 a few key directors with a lot of creative ideas to stimulate the board=01,= s=20 thinking. As we had turnover, I kept bringing in new people and,=20 increasingly, people from other countries, who brought specific talents tha= t=20 we thought would be helpful. I also brought in a number of new executives= =20 from different fields and backgrounds to help us jumpstart our effort to=20 build a significant business in the deregulating natural gas markets.=20 It=01,s the old chicken and egg proposition. The top board members want to = be=20 with the top companies. So as you=01,re rebuilding the board, you=01,ve als= o got to=20 rebuild the company. You have to make sure you are bringing in the manageme= nt=20 talent you need and developing and executing the strategy to move the compa= ny=20 in different directions. It all feeds on itself. As the talent base improve= s=20 and the company=01,s success is recognized, it=01,s easier to bring in dire= ctors.=20 The better directors you have, the more success you=01,re going to have in= =20 business.=20 On transforming companies: Our biggest turning point was in the late 1980s,= =20 when we decided to let our new deregulated business compete head-on with ou= r=20 well-established and regulated pipeline business and, in the process, maybe= =20 antagonize some of their customers and suppliers. Clearly we had divisions = in=20 the company where some of the executive team thought that was smart, and so= me=20 thought it was dumb. We all understood it was fairly risky. The main battle= s=20 were internal within the management team. The board was supportive of takin= g=20 that risk.=20 Today our regulated pipelines are still a good business, but certainly that= =20 would never give us the kind of growth and opportunity we could obtain if w= e=20 became truly =01&best in class=018 in operating in the deregulating energy = markets.=20 On the biggest lesson learned: The most important thing is quality of talen= t.=20 That=01,s true both on the management team and on the board. You have to ha= ve=20 good talent to attract more talent.=20
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