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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: IssueAlert@SCIENTECH.COM X-To: ISSUEALERTHTML@LISTSERV.SCIENTECH.COM X-cc: X-bcc: X-Folder: \MHAEDIC (Non-Privileged)\Haedicke, Mark E.\Inbox X-Origin: Haedicke-M X-FileName: MHAEDIC (Non-Privileged).pst <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09 <http://secure.s= cientech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/C= orner_TR.jpg<=09 =09 <http://secure.scientech.com/rci/wsimages/ia_banner02.gif<=09=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.sciente= ch.com/specialpages/Multi_Client.asp< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 =09 <http://secure.scientech.com/rci/wsimages/will100border_copy.jpg< <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_TR.jpg<=09 =09 <http://secure.scientech.com/images/spacer.gif<; <http://www.thestructu= regroup.com< <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientech.= com/specialpages/Strategic_Planning.asp< <http://secure.scientech.com/ima= ges/spacer.gif< <http://secure.scientech.com/rci/details.asp?ProductID=3D90= 9< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 November 13, 2001 Updates on Enron / Dynegy Merger, SCE Rescue Plan and Muni Vote in San Fran= cisco By Will McNamara Director, Electric Industry Analysis [Today's column includes analysis on three separate news items.]=20 EnronOnline and Dynegydirect to Merge=20 [News item from Energy Info Source] Online energy trading EnronOnline will = merge with smaller rival Dynegydirect after its parent company Enron Corp. = agreed to a $9-billion takeover by Dynegy Inc. The integration of the two p= latforms will take about six to nine months, Dynegy said. In the meantime, = the two will continue to operate separately. On both EnronOnline and Dynegy= direct, traders can only deal with Enron and Dynegy, respectively.=20 Analysis: This is the first step in what may ultimately be a challenging in= tegration of the various businesses between Dynegy and Enron. Although the = merger makes sense for both companies, especially considering Enron's finan= cial instability and its limited options at this juncture, it must be ackno= wledged that the two companies have very different corporate cultures, and = the process of conjoining those different cultures may be a major task. The= companies have developed two distinct approaches to online trading, as ill= ustrated by their independent electronic exchanges. Although it will be int= eresting to see how the separate exchanges become conjoined and assimilate = their two separate customer accounts, one thing that EnronOnline and Dynegy= direct have in common is that they rely on principal-based transactions.=20 It is important to note that Enron gained the first-strike advantage when i= t developed EnronOnline, the first electronic-trading exchange, well ahead = of its competitors. Dynegy later followed this trend and created Dynegydire= ct about a year later. The latest available information indicates that Enro= nOnline has recorded transactions that exceed $590 billion in notional valu= e. Since its inception in November 2000, Dynegydirect has recorded $33 bill= ion in notional transactions. Enron trades various commodities on EnronOnli= ne, led by electricity and natural gas, but also including bandwidth and pa= per. EnronOnline is a proprietary trading exchange. In other words, in ever= y transaction that takes place on EnronOnline, Enron participates as either= a buyer or a seller.=20 Dynegydirect was launched in October 2000, a year after EnronOnline became = operational. Dynegydirect is much smaller than EnronOnline, although it is = growing. The exchange recorded nearly $10 billion in transactions in the th= ird quarter. Like EnronOnline, Dynegydirect is also principal-based. In oth= er words, Dynegy is a participant in all of the transactions, either as a b= uyer or a seller. Unlike EnronOnline, which is completely online, Dynegydir= ect allows customers to conduct their transactions with Dynegy over the tel= ephone. It is important to note that Dynegy strategically became involved i= n two different kinds of online trading. The first is the proprietary, one-= to-many format on Dynegydirect, in which Dynegy participates in all transac= tions as either a buyer or a seller. The second venue is an anonymous, many= -to-many format in which Dynegy participates along with multiple buyers and= sellers. This operation takes place on TradeSpark. Dynegy had previously i= nvested $25 million in eSpeed, the trading systems developer that created t= he infrastructure on which TradeSpark operates.=20 As a whole, the online trading market appears to be riding the wave of a ma= jor growth spurt. A study conducted by AMR Research showed that 600 energy-= trading exchanges existed in April 2000. This number grew to 1,500 by Septe= mber 2001. A separate report conducted by Forrester Research indicates that= online trading in wholesale markets increased 750 percent from 1999 to 200= 0. The same report projects that online trading volume will continue to gro= w, leaping from a $400-billion market in 2000 to a $3.6-trillion market in = 2005. Without question, the combined force of Enron and Dynegy will gain a = market edge in many sectors of the energy industry, including the online tr= ading market.=20 SCE Allowed to Proceed with Rescue Plan=20 [News item from Energy Info Source] A federal judge on Nov. 9 refused to de= lay a settlement between Southern California Edison (SCE) and state regulat= ors designed to allow the utility to recover $3.3 billion of its debts and = to keep it from bankruptcy. U.S. District Judge Ronald Lew said delaying th= e deal, as requested by a consumer group, would risk harming the state's se= cond-largest utility, its creditors and the public. Judge Lew, who approved= the settlement on Oct. 5, called the arguments for a stay advanced by cons= umer group The Utility Reform Network (TURN) "repetitive" and "without meri= t."=20 Analysis: This is a victory for SCE in the painstaking process of establish= ing a rescue plan for the utility with the state of California. Two weeks a= go, a federal appeals court had temporarily blocked a settlement between SC= E and state power regulators that would keep electric rates at record highs= for the next two years. The 9th U.S. Circuit Court of Appeals granted TURN= two weeks to argue against the settlement. The settlement would help SCE, = the state's second-largest utility, pay more than half of its estimated $6-= billion debt by continuing to charge Edison customers higher rates imposed = last May. The judge's decision now has blocked any additional counter claim= s by TURN, at least on the current judicial level, and it appears that SCE = is free to move forward with its CPUC-endorsed rescue plan.=20 It is important to note that the original settlement deal between SCE and t= he state of California emerged out of negotiations that had taken place bet= ween SCE and the CPUC in an effort to resolve previous litigation. SCE had = sued state regulators at the CPUC after they refused to allow the utility t= o raise rates and recover billions of dollars it had spent buying power on = behalf of customers at soaring prices in the wholesale market. SCE's lawsui= t argued that the regulators broke federal law and unconstitutionally took = its property by not letting it bill customers for the full cost of their el= ectricity. At the present time, SCE's total debt is marked at about $6.35 b= illion in power procurement-related liabilities due to state law that prohi= bited it from recovering the high costs of wholesale electricity through re= tail electric rates. Under the agreement reached between SCE and the CPUC, = SCE would be allowed to pay down about $3 billion of its back debt of $6.35= billion.=20 In exchange for being protected from bankruptcy proceedings, SCE agreed to = a rate freeze and a promise by utility executives to not pay shareholders a= dividend until the debt is paid off. SCE's rates were raised by approximat= ely 42 percent in 2001 and will remain frozen through 2003 unless the utili= ty pays off its debts sooner. In exchange, SCE agreed it would use cash on = hand and any revenue beyond what it needs to cover operating expenses to pa= y off its old debts; pay no dividends on its common stock through 2003 or u= ntil its back debts are fully paid; and drop a lawsuit against state regula= tors claiming the CPUC had violated federal law by failing to raise retail = rates to reflect the underlying cost of wholesale power. From its perspecti= ve, officials at Edison International (the parent company of SCE) expressed= confidence that the settlement deal would allow the utility to accumulate = enough cash and gain financing by the middle of the first fiscal quarter of= 2002 to pay its debt to banks, bondholders and power generators.=20 Tally of Absentee Ballots Changes San Francisco Municipalization Vote=20 [News item from Reuters] Two ballot measures aimed at establishing a public= power system in San Francisco and unplugging utility Pacific Gas & Electri= c Co. have gone down in defeat, officials said on Nov. 12.=20 Analysis: The tally of absentee ballots in the Nov. 6 municipalization vote= in San Francisco changed at least part of the outcome in this election. As= noted in a previous IssueAlert, Proposition I, which sought to set up a Mu= nicipal Utility District in San Francisco and neighboring Brisbane, was def= eated. However, originally it was believed that the separate measure known = as Proposition F, which would have established a Municipal Water and Power = Agency in San Francisco alone, had passed by a slim margin. Upon counting t= he absentee ballots, the San Francisco Department of Elections announced th= at this measure was defeated by a scant 533 votes.=20 Obviously, Pacific Gas & Electric Co. is quite pleased with the revised out= come of this election. In response to the finalized vote, representatives f= rom the utility said, "This outcome affirms that there is no strong sentime= nt in favor of the takeover of PG&E's distribution system in San Francisco.= " There may be some validity to this statement, considering that one could = argue that with the bankruptcy of Pacific Gas & Electric and the recent Cal= ifornia energy crisis, conditions could have favored a pro-municipalization= vote, and yet the measure still failed. However, let's not forget that it = was defeated by only 533 votes, which indicates that the issue regarding th= e establishment of a public power system in the area is far from over.=20 The defeat of the municipalization issue in San Francisco can be attributed= to several factors. First, it must be acknowledged that PG&E Corp., the pa= rent company of bankrupt Pacific Gas & Electric, spent about $1 million on = advertising to defeat the measure. However, arguably voters responded to cl= aims by Pacific Gas & Electric Co. that the municipalization plan was unrea= listic. The utility claimed that a (MUD) Municipal Utility would be ill-equ= ipped to handle the complex electricity infrastructure that Pacific Gas & E= lectric has managed for years, and that a city-run bureaucracy would not be= able to compete with big league energy players. In addition, the new MUD w= ould have to purchase Pacific Gas & Electric's transmission assets and also= buy wholesale power without the benefit of long-term contracts, which repr= esent two hefty investments that would end up costing consumers in the long= run.=20 An archive list of previous IssueAlert articles is available at www.scientech.com <http://secure.scientech.com/issuealert/<;=20 _____ =20 We encourage our readers to contact us with their comments. We look forward= to hearing from you. Nancy Spring <mailto:nspring@scientech.com< Reach thousands of utility analysts and decision makers every day. Your com= pany can schedule a sponsorship of IssueAlert by contacting Jane Pelz <mai= lto:jpelz@scientech.com<at 505.244.7650. Advertising opportunities are also= available on our Website.=20 _____ =20 Our staff is comprised of leading energy experts with diverse backgrounds i= n utility generation, transmission and distribution, retail markets, new te= chnologies, I/T, renewable energy, regulatory affairs, community relations = and international issues. Contact consulting@scientech.com <http://consulti= ng@scientech.com< or call Nancy Spring at 505.244.7613.=20 _____ =20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let u= s know if we can help you with in-depth analyses or any other SCIENTECH inf= ormation products. If you would like to refer colleagues to receive our fre= e, daily IssueAlert articles, please register directly on our site at secur= e.scientech.com/issuealert <http://secure.scientech.com/issuealert/<;.=20 If you no longer wish to receive this daily e-mail, and you are currently a= registered subscriber to IssueAlert via SCIENTECH's website, please visit = <http://secure.scientech.com/account/<; to unsubscribe. Otherwise, please se= nd an e-mail to to IssueAlert <mailto:IssueAlert@scientech.com<, with "Dele= te IA Subscription" in the subject line.=20 _____ =20 SCIENTECH's IssueAlert(SM) articles are compiled based on the independent a= nalysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's Iss= ueAlerts are not intended to predict financial performance of companies dis= cussed, or to be the basis for investment decisions of any kind. SCIENTECH'= s sole purpose in publishing its IssueAlert articles is to offer an indepen= dent perspective regarding the key events occurring in the energy industry,= based on its long-standing reputation as an expert on energy issues.=20 Copyright 2001. SCIENTECH, Inc. All rights reserved. <http://infostore.consultrci.com/spacerdot.gif?IssueAlert=3D11/13/2001<;
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