Documents Track Enron's Partnerships --- Top Officers Viewed Deals As Integral to Ensuring Growth in Recent Years
The Wall Street Journal, 01/02/2002

Humbled Enron tries to save core business --- Accounting practices thrust into spotlight
Associated Press, 01/02/2002

Shell Game; How Enron concealed losses, inflated earnings -- and hid secret deals. Are criminal charges next?
Forbes Magazine, 01/07/2002

Follow-Through
Forbes Magazine, 01/07/2002

The Disease! It's Spreading!; Enron
Fortune Magazine, 01/07/2002

When 401(k)s are KO'd
Fortune Magazine, 01/07/2002

The Boardroom Follies: In which we meet the non-stockholders, non- attenders, and nonagenarians still among America's corporate directors.
Fortune Magazine, 01/07/2002
One Plus One Makes What?; The accounting profession had a credibility problem before Enron. Now it has a crisis.
Fortune Magazine, 01/07/2002

VOICE OF THE PEOPLE (letter)
Enron's woes
Chicago Tribune, 01/02/2002

VOICE OF THE PEOPLE (letter)
Executive actions
Chicago Tribune, 01/02/2002

You Mean, We Won Something? (Mumia Abu-Jamal, Enron)(Brief Article)
The Nation, 01/07/2002

CFA Largest Ch 11 Bankruptcy Filings Week Ended 12/28
Dow Jones Corporate Filings Alert, 01/02/2002

TXU CEO Ready As New Year Rings In Retail Deregulation
Dow Jones News Service, 01/02/2002

USA: Finance - Small steps seen improving financial health.
Reuters English News Service, 01/02/2002

LME Base Metals Called To Open Dn On Comex Losses, Stocks
Dow Jones Commodities Service, 01/02/2002

US energy cos hoping to sell assets to reduce debts - report
AFX News, 01/02/2002

Master short seller raised flag on Enron: Roberts tags Kodak, Safeway as stocks to avoid
Barron's, 01/02/2002

SPANISH PRESS: Spanish Regulator Suspends Enron's License
Dow Jones International News, 01/02/2002

Enron's Dabhol Power draws suitors: Parent seeks US$1B
Bloomberg, 01/02/2002

GAS AUTHORITY OF INDIA TO BID FOR ENRON'S DABHOL POWER PROJECT
Asia Pulse, 01/02/2002

U.S. set to target earnings deception --- Test case thought likely this month
The Toronto Star, 01/02/2002

J.P. Morgan Chase Sues Nine Insurers In Enron-Bond Case --- Institution Seeks to Quash Demands for Information
The Wall Street Journal Europe, 01/02/2002

J.P. MORGAN CHASE: Objects to insurers seeing Enron details
Chicago Tribune, 01/01/2002
Roll Over, Shakespeare, the Future of Jargon Is Here
The New York Times, 01/02/2002

Commentary: Enron Is a Cancer on the Presidency
Los Angeles Times, 01/02/2002

Career Journal: The Jungle
The Wall Street Journal, 01/02/2002

Dynegy's Reasons for Terminating Merger Were "Mere Pretexts," Says Enron
Securities Litigation & Regulation Reporter, 01/02/2002

Shareholders Claim Enron Directors Made $434 Million in Insider Trading
Securities Litigation & Regulation Reporter, 01/02/2002

American Electric Power buys Enron wind project
The Milwaukee Journal Sentinel, 01/01/2002

Enron hid behind smoke and mirrors
South China Morning Post, 01/01/2002

Letters To The Editor
ENRON PROBLEMS WON'T HOLD NEW POWER DOWN
The Columbus Dispatch, 01/01/2002

The POWER of CHOICE / It is the dawning of deregulation in Texas, allowing consumers to choose their electricity provider - and get a rate reduction as well.
Houston Chronicle, 01/01/2002
Enron: The Lessons For Investors ; Hindsight, shmindsight. There's much to learn when a stock loses $67 billion in value.
Money Magazine, 01/01/2002

Edison Mission/Mirant -2: Deal Included Enron
Bloomberg, 12/31/01

__________________________________

Documents Track Enron's Partnerships --- Top Officers Viewed Deals As Integral to Ensuring Growth in Recent Years
By John R. Emshwiller
Staff Reporter of The Wall Street Journal

01/02/2002
The Wall Street Journal
A3
(Copyright (c) 2002, Dow Jones & Company, Inc.)

As some current and former Enron Corp. officials try to distance themselves from controversial partnerships that played a role in the company's demise, internal Enron documents show top management and directors viewed the partnerships as integral to maintaining the energy-trading giant's rapid growth in recent years.
The documents also reinforce the notion that top Enron officials, including Chairman Kenneth Lay and former President Jeffrey Skilling, were directly involved in the creation and oversight of the partnerships, which were run by former Chief Financial Officer Andrew Fastow. Questions about the partnerships in recent months contributed to a collapse in investor confidence in the Houston-based company, which just a year ago had a market capitalization of over $60 billion. Enron filed last month for Chapter 11 bankruptcy-court protection, which shields the company from creditors while it seeks to reorganize.
An Enron spokeswoman said the company didn't have any comment on the documents. Among these are an internal memorandum from an Enron attorney to Mr. Skilling regarding procedures for monitoring transactions with the partnerships. The documents also include excerpts of minutes from meetings of Enron's board and the board's finance committee.
Enron and Mr. Lay have consistently said that the company's dealings with the partnerships, which involved joint investments as well as asset sales, were aimed at helping the company, were carefully reviewed to prevent conflicts of interest and were adequately disclosed. The partnership dealings are the subject of a Securities and Exchange Commission probe and are being looked into by Congress.
The Enron documents indicate that in mid-1999 the company began using the partnerships to confront changing business conditions.
A document excerpting a June 1999 board meeting cited Mr. Skilling as saying that because of changing accounting rules affecting off-balance-sheet transactions, Enron had been analyzing new types of financing vehicles. Though the document doesn't provide further explanation, the statement would appear to be a reference to a concern at Enron about trying to keep as much debt as possible off the company's balance sheet. Too much debt lowers a company's credit rating, which was a particular worry for Enron, whose vast energy-trading operations relied heavily on its credit standing.
In the June 1999 document, Messrs. Lay and Skilling were identified as being designated by Enron's board to help ensure that the company received fair consideration in one of the early partnership deals.
A draft version of minutes from an October 2000 meeting of the Enron board finance committee cites Mr. Fastow speaking of the need for outside private partnerships to help manage the company's finances so that Enron could "continue to grow." Enron planned to continue making "significant capital investments. . . . some of which would not generate cash flow or earnings for a number of years," the document said.
Out of such needs were born in 1999 the so-called LJM partnerships, which were run by Mr. Fastow. The Enron documents show that an early transaction involved the hedging of the value of an Enron investment in Rhythms NetConnections Inc., a data-communications company. According to one document, Mr. Fastow discussed how Enron could protect the value of that holding through a complicated swap arrangement that also involved Enron stock and a $50 million LJM payment.
In a filing last November with the SEC, Enron said that it had incorrectly accounted for the Rhythms/LJM transaction. As a result, Enron retroactively reduced its reported net income for 1999 and 2000 by about $100 million, or around 5%.
The internal documents show that the board and top management were aware of the possible conflicts of interests in having Enron's chief financial officer running partnerships that eventually did hundreds of millions of dollars of business with the company. One document, labeled as part of a June 1999 presentation to Enron's board, also laid out the huge profit potential in Mr. Fastow's partnership compensation formula, under which he stood to reap as much as half of partnership profits in addition to management fees. Enron has estimated that Mr. Fastow made over $30 million from his partnership activities.
To avoid potential conflicts of interests on Mr. Fastow's part, Enron set up a review procedure for any Enron deals with the partnerships. Among other things, all transactions had to be approved by Mr. Skilling and two other senior Enron officials, according to one of the company documents.
In interviews with several media organizations last month, Mr. Skilling, who resigned as Enron's president and chief executive officer in August, indicated that he wasn't fully aware of all the LJM-related dealings and was also surprised by the size of Mr. Fastow's partnership remuneration. Yesterday, a spokeswoman for Mr. Skilling said that while he was familiar with the structure of the LJM partnerships, "he wasn't aware of or intimately involved with details" of particular transactions. Those matters were "handled at a lower level" of the company, she added.
Mr. Fastow couldn't be reached for comment. But a Fastow attorney has previously pointed to Enron statements that all the LJM transactions were proper and approved by the board and top management.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business
Humbled Enron tries to save core business --- Accounting practices thrust into spotlight
Kristen Hays, Associated Press
01/02/2002

A humbled Enron Corp. will enter 2002 with hopes of emerging from bankruptcy with a viable trading business, once the source of 90 per cent of its revenues.
The once-mighty energy titan came crashing down with dizzying speed in 2001 after investors lost confidence in the accounting behind its core operations.
The company is under investigation by the Securities and Exchange Commission, the House or Representatives energy and commerce committee and the justice department.
On Jan. 10, an auction will be held of 51 per cent of Enron's wholesale energy trading operation. Some Wall Street insiders say bids could be as high as $1 billion (U.S.) for the joint venture Enron has been trying to put together, enabling it to revive its oil, natural gas and electricity trading business.
Enron was born in 1985 when Houston Natural Gas merged with InterNorth, a natural gas company based in Omaha, Neb. In 1989, Enron started trading natural gas commodities and eventually became the world's largest buyer and seller of natural gas.
Later it gained fame by pioneering trading markets in such commodities as weather derivatives, telecommunications transmission capacity, pulp, paper and plastics. But some of these units and overseas investments consistently lost money.
The company buried those losses in its profitable trading business and turned to off-balance-sheet financing vehicles to keep burgeoning debt off its books.
But eventually, the debt and bad investments couldn't be hidden.
On Oct. 16, Enron acknowledged $618 million (U.S.) in third-quarter losses, took a $1 billion charge for losses on bad investments and cut $1.2 billion in shareholders' equity.
Enron filed for bankruptcy in New York Dec. 2 to keep creditors and lawsuits at bay so the company could try to preserve its trading operation. Money-losing assets went up for sale.
Credit rating agencies have promised closer scrutiny of off-balance-sheet financing.
"Enron is an animal all its own," said Credit Lyonnais analyst Gordon Howald. "A lot of companies have not handled their finances as aggressively as Enron has. But one of the fallouts of Enron is that companies are going to have to disclose a lot more than they have in the past."

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Company of the Year
Shell Game; How Enron concealed losses, inflated earnings--and hid secret deals. Are criminal charges next?
Daniel Fisher

01/07/2002
Forbes Magazine
52
Copyright 2002 Forbes Inc.

How Enron concealed losses, inflated earnings--and hid secret deals from the authorities. Are criminal charges next?
Enron Corp.'s spectacular collapse may have shocked employees and investors, who lost tens of billions of dollars. Could it have been a surprise to its top executives or its auditors, Arthur Andersen? The complex side bets and partnerships Enron used left it extremely vulnerable to a drop in its stock price, its bond rating or the value of fiber-optic lines. The plunge of all three doomed the company.
This much is apparent from some internal company documents leaked to FORBES: As early as March 2001 the elaborate network of external partnerships Enron used to hedge against declining values of its assets was starting to melt down. Even as former chief executive Jeffrey Skilling and Chairman Kenneth Lay were selling millions of dollars' worth of shares last spring, an army of lawyers and accountants was shuttling money among partnerships to forestall disaster. They couldn't. Finally, in November, Lay admitted Enron had taken $710 million in losses to unwind the partnerships.
Enron refuses to discuss the workings of these partnerships, beyond the scanty disclosures in the recent 10-Q filed with the Securities & Exchange Commission. But documents laying out how some of the partnerships worked show an ingenious structure designed by Enron's former chief financial officer, Andrew Fastow. The idea was to use the value of Enron's rising stock price to finance a welter of corporations that magically turned balance-sheet losses into gains on Enron's income statement. One round of partnerships formed last year hedged nearly $2 billion in Enron assets.
The partnerships were originally designed to comply with regulation 140 of the Financial Accounting Standards Board. The rule lets companies move financial assets off their balance sheets if they are put into entities that are completely out of the control of the parent company. But Enron skirted the law by having the partnerships issue put options--obligations to buy something in the future at a specified price--on assets that were still on Enron's books.
"It's like somebody sat down with the rules and said, 'How can we get around them?'" says Douglas Carmichael, an accounting professor at Baruch College in Manhattan. "They structured these things to comply with the letter of the law but totally violated the spirit."
Only Enron knows how many such partnerships exist. Carol Coale, an analyst with Prudential Securities in Houston, has identified over 3,000 subsidiaries and partnerships, many of them off-balance-sheet entities. Several were designed to "monetize" assets--sell them to a party unlikely to question the value Enron put on them. Some deals require a complete suspension of disbelief.
In June 2000, for example, Enron sold $100 million worth of "dark fiber," or fiber-optic cables without the electronic gear necessary to transmit digitized information. The "buyer" was a partnership run by Fastow called LJM2 (the acronym reportedly comes from the initials of his wife and children), set up in 1999 to trade assets with Enron. On that deal, Enron booked a $67 million profit, a significant piece of the $318 million gross profit the company reported for the broadband business in 2000. LJM2 later sold $40 million of the dark fiber to what Enron refers to as "industry participants," and the remainder to another Enron-related partnership for $113 million in December. What's curious is that the value of the fiber ostensibly increased 53% between June and December--during the same time that, in open markets at least, the value of dark fiber plunged by 67%. LJM2 reaped a $2.4 million profit from the fiber trade, contributing to the $30 million of undisclosed gains the LJM partnerships delivered to Fastow, according to Enron.

Shouldn't Enron's top management or its auditors have sought the identity of the buyers who so overpaid for the fiber asset? One wonders. And where, by the way, was all this fiber? That $100 million, say a fiber broker and an industry analyst, would have bought at least 33,000 miles of single-strand dark fiber in June 2000--enough to string up three nationwide networks--and considerably more by December. Enron's entire network, presumably consisting of multiple strands, was 18,000 miles at the time, with much of that fiber leased.
The deal went undisclosed at a time when Skilling and Lay were talking up the great prospects for Enron's broadband business. There's something else they neglected to mention. Enron provided what its current 10-Q calls "credit support" to the ultimate buyer, guaranteeing the debt. But if the partnership defaulted, Enron was on the hook for $61 million of the $67 million it booked as profits. Former employees say Enron's broadband business consisted largely of such questionable deals. To win a $20 million broadband services contract from Rice University in Houston, for example, Enron donated $5 million to the school, and Ken Lay's personal foundation kicked in another $3 million. Unreported was the fact that Rice dropped the contract soon after.
The fiber deal finally came to light more than a year after it closed--in Enron's 10-Q for the third quarter of 2001. Some of the most exotic deals remain hidden in the files at Enron and its co-investors, files that disclose a welter of Delaware partnerships that Fastow formed in 2000 among Enron, LJM2 and the so-called Raptor partnerships, which included trusts, limited liability corporations and other entities through which cash, stock and derivatives cascaded.
Code-named after Southwestern animals, these "special-purpose entities" were curious beasts indeed. One of them, Bobcat, was capitalized with 6.3 million shares of Enron stock whose value was protected by a six-month put option, expiring in mid-March of 2001, which Bobcat bought from Enron. The put obligated Enron to buy its shares back at $68 each. Bobcat in turn sold puts back to Enron, protecting it from declines in the value of various assets.
One of the weirdest aspects of these fancy derivatives: When an asset declined in value, Enron was sometimes able to avoid booking the paper loss on the asset at the same time that it immediately counted the payout on the protective put as income. Pure alchemy: Bad investments become profits on the income statement.
When Enron was trading at $80, Bobcat and its cubmates worked like magic. Any losses on derivatives sold to Enron were offset by an increase in the value of their Enron stock. But as Enron shares fell below $68 in mid-March 2001, Raptor deals started to fall apart. While Enron declines to comment on what happened next, present and former employees describe a mad scramble as the company tried to keep the elaborate structure Fastow created. Solvent partnerships had to prop up failing ones, while Enron executives continued to bail out of their employer's stock. Enron ultimately was forced to admit that Fastow's safety net had failed. The $532 million in hedging gains generated by the Raptors was wiped out by $710 million in losses created by their collapse.
At what point did Enron's top executives realize Fastow's edifice was crumbling? SEC attorneys are surely trying to find out.
Pleading ignorance, as Andersen did before Congress, may not work. Market data about falling values for international power plants and dark fiber was readily available throughout the period Enron executives were reporting inflated values and selling some $1 billion in stock. That type of information can be used to establish that insiders sold stock knowing it was overvalued, says Jacob Frenkel, a defense lawyer with Smith, Gambrell & Russell in Washington, D.C. and a former SEC enforcement attorney. "If you intentionally choose to be ignorant," he says, "that can satisfy the question of criminal intent."
With additional reporting by Lynn Cook and Rob Wherry.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Departments
Follow-Through
Rob Wherry, Seth Lubove, & Carleen Hawn

01/07/2002
Forbes Magazine
48
Copyright 2002 Forbes Inc.

January 22, 2001-- Enron Fallout
When we wrote about Calpine Corp. a year ago, the San Jose-based power producer's stock was trading at $47 despite the California energy crisis. But it hasn't been able to withstand the collateral damage resulting from the Enron collapse in November. Investors are taking a second look at Calpine's ambitious plan to build and buy new plants. After a New York Times report comparing the company's "opaque" financial statements with Enron's and a Morgan Stanley analyst's downgrading of Calpine's stock to neutral from strong buy, Calpine shares have fallen to a recent $16. The road ahead for Calpine could be rough. Over the next 18 months it will need $3.9 billion to finish construction projects, refinance debt and support its trading business. Calpine may have to dip into cash reserves to fund $1.8 billion of that amount or, in a worst case scenario, leverage its gas reserves. It may also have to renegotiate a lucrative long-term contract with the inept government of California, which in desperation last spring paid too much. Peter Cartwright, Calpine founder and chief executive, has called the comparison with Enron "ridiculous," and Robert Kelly, president of Calpine's financial subsidiary, insists liquidity is not a problem. --Rob Wherry
May 3, 1999Sinking Ship
In our spotlight on how the federal government subsidized construction of luxury cruise liners, we explained that the Maritime Administration was guaranteeing up to $1.1 billion in loans to American Classic Voyages. Controlled by billionaire Sam Zell, the company used the loans to build two huge ships. In October the floating pork barrel finally sank. Zell's company filed for bankruptcy, blaming the falloff in business after Sept. 11, though it had been bleeding red ink long before the terrorist attacks. Among its liabilities: $211 million owed to the government. --Seth Lubove
December 10, 2001Disconnect
Two issues ago we explored a theory that AT&T drove At Home, a broadband Internet provider it controlled, to bankruptcy as a way to get assets on the cheap. Bondholders pointed to the lowball bid, $307 million, that AT&T had submitted to the bankruptcy court to buy At Home's subsidiary, ExciteAtHome. But in early December AT&T withdrew its bid. It appears it was scared away by threats from At Home creditors to cut off service to more than half of AT&T's 1.4 million cable customers. --Carleen Hawn

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

First
The Disease! It's Spreading!; Enron
Bethany McLean

01/07/2002
Fortune Magazine
Time Inc.
24
(Copyright 2002)

This isn't how it was supposed to work. After Enron declared bankruptcy in early December, the other "energy merchants"--Wall Street's name for companies like Dynegy, Calpine, and Mirant that are engaged in new businesses such as trading power and building unregulated plants--disclaimed any sort of Enronesque behavior. They also downplayed the aftershocks, reiterating promises of big earnings growth and at times discussing how Enron's downfall would actually benefit them.
Benefit? Not quite. Some of the "not-Enrons" have suffered huge stock price declines, with Mirant, the worst performer, losing 43% since late November. And many have had to revamp their balance sheets. First came El Paso, which on Dec. 12 announced plans to sell more than $2 billion of assets, raise money in the equity market, and cut capital expenditures. A few days later Dynegy followed suit. Then came Williams, and finally, on Dec. 19, Mirant joined the better- balance-sheet movement. Unfortunately this newfound religion hasn't always satisfied the suddenly suspicious credit rating agencies. Most notably, Moody's downgraded Mirant's debt to junk status.
Though none have proven themselves to be Enrons yet, the energy merchants do deserve some of this bad rap. They all have huge piles of debt, and like Enron (and the dot-coms before that), they need the continued cooperation of the capital markets to fund their business plans. Last year widespread fears of an energy shortage caused people to throw money at new power plants. And the spiking prices and massive volatility caused in large part by the California crisis created big profit opportunities for traders. Now people are concerned about an energy glut, and prices have fallen sharply. The effects of all that (plus perhaps tougher accounting rules) on profits remain unclear.
Believers in the energy merchants insist that a healthier--albeit slower-growth--industry will emerge from this. "Long-term prospects appear excellent," wrote Goldman analyst David Fleischer in a recent note about Dynegy and Williams. "Disarming the shorts!" said UBS Warburg's Ron Barone about El Paso's restructuring plans. (Note that Fleischer and Barone remained big Enron supporters until almost the last gasp.)
This Wall Street babble won't amount to much; in the end these companies' prospects depend on the enthusiasm of the markets and flawless execution of the restructuring plans. And since those plans rely in large part on asset sales, it's worth asking: If everyone is selling, who's buying?

COLOR ILLUSTRATION: MARTIN KOZLOWSKI
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

FORTUNE Advisor/Investing/Backlash
When 401(k)s are KO'd
Jeremy Kahn

01/07/2002
Fortune Magazine
Time Inc.
104
(Copyright 2002)

Marie Thibaut spent 15 years as an administrative assistant at Enron in Houston. During that time, she dutifully put 15% of her salary into a 401(k) plan, investing the entire amount in the company's rapidly climbing stock. Enron then matched that investment with yet more shares. By the winter of 2000, she had amassed close to $500,000 in stock and options, enough for the 61-year-old divorcee to begin contemplating early retirement. "My children told me I should diversify," Thibaut says. "But all the mutual funds were going down, and I just kept going up." She's not going up any longer. Today, Enron is bankrupt and Thibaut is out of work, a victim of one of the worst corporate collapses in history. Her 401(k) is worth just $22,000.
That sorry tale has been repeated thousands of times at Enron, Lucent, Nortel, and other companies whose stocks have cratered. But despite the punishing market and calls for diversification, workers continue to pour a huge portion of their retirement money into their employer's shares. Benefits consulting firm Hewitt Associates estimates that as of Oct. 31, almost 30% of the $71 billion in assets in some 1.5 million 401(k) plans were invested in the stock of the sponsoring company. At some places the proportion is even higher. Microsoft employees keep 46% of their 401(k) funds in company stock. At Enron, the figure was 62%. To make matters worse, many of these plans, like Enron's, restrict the sale of stock purchased with matching contributions until employees are close to retirement.
Now legislators and pension-reform advocates are saying enough is enough. Senators Barbara Boxer (D-California) and Jon Corzine (D-New Jersey) are sponsoring a bill that would force diversification by prohibiting any one stock from making up more than 20% of a 401(k), reducing the tax breaks for companies that match 401(k) contributions with stock, and limiting to 90 days the period a company can force employees to hold matching stock. Senator Jeff Bingaman (D-New Mexico) also wants to allow companies to provide employees with investment advice without penalty. (Current law makes a company liable for employees' investment decisions if it offers advice, and as a result, few do.)
The legislation won't necessarily pass without a fight. When Senator Boxer attempted to pass a similar bill in 1996, lobbyists-- particularly those from option-reliant Silicon Valley--succeeded in watering her proposal down to the point where it simply barred companies from forcing employees to invest more than 10% of their own contributions in company stock. There's also the issue of companies matching 401(k) contributions with stock. Andrew Liazos, an attorney with McDermott Will & Emery, says if this practice is restricted, many companies may simply provide no match at all. Plus, he asks, isn't telling employees what to do with their retirement funds a bit paternalistic?
Pension-reform advocates say a little paternalism is just what is needed. "It's unrealistic to think that without a new law employees will limit the amount of company stock they buy," says Eli Gottesdiener, a lawyer who is suing Enron and its accountants on behalf of its 401(k) participants. Given what's happened at Enron, it'll be hard to counter that argument this time around.
--Jeremy Kahn

COLOR PHOTO: DAVID J. PHILLIP--AP When Enron collapsed, so did many a nest egg.
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

First; Value Driven
The Boardroom Follies: In which we meet the non-stockholders, non- attenders, and nonagenarians still among America's corporate directors.
Geoffrey Colvin

01/07/2002
Fortune Magazine
Time Inc.
32
(Copyright 2002)

The corporate disaster count seems to be going up, and it's worth asking why. Not that we can tally these things precisely, but think of just the past few months: Enron, the biggest bankruptcy in history, with over $50 billion of shareholder wealth vaporized; Warnaco, another former highflier, with shares that now cost less than a Snickers bar; the U.S. steel industry, which has finally thrown in the towel and admitted it can't survive on its own. Among slightly longer-running disasters, Lucent and Nortel have actually destroyed far more shareholder wealth than Enron, and Xerox isn't far behind--but they've been pushed out of the headlines.
What went wrong? These are all man-made disasters, and when you search for the people to blame, you end up quickly at the board of directors. Somewhere around the last recession (1990-91) it dawned on America's shareholders that when something goes hugely wrong at a company, the buck stops at the board. Thus began a great campaign, still going strong, to improve corporate governance. Its cause is noble, and it has won a lot of victories.
And yet the corporate-governance follies carry on with a surprising amount of vim. To see just how much, stop by a terrific Website at www.thecorporatelibrary.com. For our purposes you'll have to bypass the section that gives you the full text of the employment contracts of hundreds of major CEOs, though I recommend that you check that out later. Right now we're concerned with the state of America's boards, and so we arrive at the site's director screening tool, which answers all kinds of interesting questions about the directors of 1,500 companies.
One of the major problems with directors of public companies is that they sometimes don't own much of the company's stock. Odds are strong they'd try a lot harder if a significant amount of their own money were at stake. So I asked how many directors owned no stock at all in the companies they directed. Answer: 963--and the director screening tool gives you all their names. For example, did you know that Apple Computer CEO Steve Jobs owns no shares of Gap, though he's on the board?
Another problem: too many inside directors. Virtually every board will include the CEO, which makes sense, and maybe the COO if that person is in line to run the show. More insiders than that can give the CEO too much power over a group that is supposedly the shareholders' independent guardian. So I asked how many inside directors are on those 1,500 boards. Answer: 4,218, or about three per board. Not bad, but what's interesting is the details. The major company with the most inside directors seems to be American International Group, the world's most valuable insurance conglomerate, with nine. You can find plenty of others with seven or eight.
Directors who don't go to board meetings aren't worth much, so I asked how many directors missed at least 25% of the meetings in the past year. The answer is 271, including many big-deal CEOs who gave short shrift to their outside boards, such as American Express' Ken Chenault, PepsiCo's Roger Enrico, Oracle's Larry Ellison, and News Corp.'s Rupert Murdoch.
Just for fun, I asked if there were any triple-threat directors: insiders who owned no shares and had attendance problems, even though the board meetings were presumably just down the hall. There were three. You've never heard of them, believe me.
I couldn't resist asking one other question: How many directors are over 90? Answer: nine. America's oldest director appears to be George E. Kane, 96, who was just reelected to a three-year term at Panera Bread, which operates bakery cafes around the U.S. This Strom Thurmond of corporate America serves on the board's audit and nominating committees, and was on the compensation committee until this year. Unlike Strom, he has not promised he won't run again.
I'd love to tell you things were getting better in the boardroom. By certain gross measures they clearly are. Investors are far more interested in directors than they used to be. Many companies are adopting excellent new policies on important matters such as mandatory levels of stock ownership and mandatory retirement ages for directors. Fed-up investors are flexing their muscles far more effectively than before, forcing companies to abandon classified boards--on which only a fraction of the directors are up for election in any given year--and other devices that entrench management at the expense of shareholders.That's all terrific news.
But the more important question is, Are boards getting better as fast as the world is getting tougher? Just barely. We should all support the good-governance campaign of the past decade. What matters most about corporate governance, though, is not whether it's good, but whether it's good enough. Until the disaster count starts coming down, it isn't.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Features/Accounting In Crisis
One Plus One Makes What? ; The accounting profession had a credibility problem before Enron. Now it has a crisis.
Jeremy Kahn

01/07/2002
Fortune
Time Inc.
88
Copyright (c) 2002 ProQuest Information and Learning. All rights reserved.

Where were the auditors? People ask that question after every corporate collapse, and lately they've been asking it with disturbing frequency. At Waste Management, Sunbeam, Rite Aid, Xerox, and Lucent, major accounting firms either missed or ignored serious problems. The number of public companies that have corrected or restated earnings since 1998 has doubled to 233, according to a study by Big Five accounting firm Arthur Andersen. Now, following the stunning bankruptcy of Andersen's own client Enron, that question--where were the auditors?--has become a deafening refrain. "I believe that there is a crisis of confidence in my profession," Andersen CEO Joseph Berardino told a congressional committee investigating Enron's collapse in mid-December. "Real change will be required to regain the public trust."
The full story of the Enron debacle--and what Andersen did or did not do in its audit--will take months to emerge. In the meantime, no one disagrees with Berardino's diagnosis that there's a crisis in accounting--even if his sudden emphasis on industrywide reform springs from a desire to deflect attention from Andersen's own culpability. But the kind of "real change" required is a matter of substantial debate. The government gave the franchise of auditing public companies' financial statements to the accounting industry after the 1929 stock market crash. In the decades since, the accountants have adroitly avoided significant government regulation by arguing that they can police themselves. Now, post-Enron, they're doing it again. The Big Five CEOs issued a rare joint statement outlining how they intend to strengthen financial reporting and auditing standards. "Self-regulation is right for investors, the profession, and the financial markets," the release concludes.
But is it? Accounting's main self-regulatory body, the Public Oversight Board, is a monument to the profession's failures. The POB was created in the late 1970s, when Congress held hearings on a string of audit failures at public companies that had--much like the recent rash--shaken confidence in the major auditing firms. The POB, which has no enforcement power, investigates alleged audit failures and oversees a triennial review process in which the major accounting firms examine one another's procedures. And yet problems persist; arguably, they have grown more acute. "Is accounting self-regulation working? On the face of it, it is not," says Representative John Dingell, the powerful Michigan Democrat who has long sparred with the accounting profession.
In their defense, the auditors note that current accounting methods, many of which were designed 70 years ago, are difficult to apply to today's complex financial transactions. And there is no way, they insist, to prevent sophisticated fraud. The American Institute of Certified Public Accountants (AICPA), the industry's professional association, points out that accountants examine the books of more than 15,000 public companies every year; they are accused of errors in just 0.1% of those audits. But oh, the price of those few failures. Lynn Turner, former chief accountant of the Securities and Exchange Commission, estimates that investors have lost more than $100 billion because of financial fraud and the accompanying earnings restatements since 1995.
Perhaps the most glaring example of self-regulation's deficiency has been accountants' unwillingness to deal with conflicts of interest. Over the years, the major auditing firms have transformed themselves into "professional services" companies that derive an increasing portion of revenues and profits from consulting: selling computer systems, advising clients on tax shelters, and evaluating their business strategies (see chart). In 1999, according to the SEC, half of the Big Five's revenues came from consulting fees, vs. 13% in 1981.
Auditing, meanwhile, has become a commodity. Firms have even been accused of using it as a loss leader, a way of getting in the door at a company to sell more-profitable consulting contracts. "Audit work is a marvelous marketing tool," says Lou Lowenstein, a professor emeritus of finance and law at Columbia University. "You are already there doing the audit. You say their internal controls are no good. Well, who are they going to call to fix it?" But this requires a firm to work for the public (auditing) and management (consulting). "You cannot serve them both," says former SEC commissioner Bevis Longstreth.
This conflict may have played a role at Enron. Andersen received $25 million in auditing fees from Enron last year. That's money Andersen was paid both as Enron's outside auditor, certifying its financial statements, and as its internal auditor, making sure Enron had the right systems to keep its books and working to detect fraud and irregularities. This double duty alone raised a serious potential for conflict. Besides $25 million in accounting fees, Andersen was paid $23 million for consulting services. "If you are auditing your own creations, it is very difficult to criticize them," says Robert Willens, a Lehman Brothers tax expert who disapproves of the accounting profession's recent move into selling aggressive tax shelters. Andersen has not revealed the details of its work on Enron's highly controversial off-balance-sheet transactions, but the accounting firms have never believed consulting fees compromise their objectivity. "They have militantly refused to ever acknowledge the possibility of a problem," Longstreth says.
The major accounting firms say they would not risk their reputations by looking the other way on an audit. And they emphasize that no one has ever proved that consulting caused a bad audit. Then again, the Big Five are very good at getting court records sealed and settling lawsuits before trial without admitting wrongdoing. And what has been established during several high-profile cases against the Big Five is that auditors' compensation is directly linked to their ability to sell consulting services. "I think we had lots of smoking guns," says former SEC chairman Arthur Levitt. Two years ago the accounting industry waged a bitter battle with Levitt over the issue of auditor independence. He had considered asking firms to curtail consulting, but backed off after encountering stiff resistance from the accountants and their friends in Congress. In the end, he settled for a rule forcing public companies to disclose how much they pay their accountants for auditing and consulting. Levitt regrets not doing more. "If I could do it over again, I would insist that corporate audit committees approve in advance any consulting contract," he says.
One might assume that Enron's collapse would finally give the SEC the political cover it needs to impose strict rules segregating auditing and consulting. One might even go so far as to think the accounting profession was in jeopardy of losing its right to self- regulation, and that the SEC should step into the breach. After all, how many chances should one industry get? But there are no signs that either of those things is about to happen. Harvey Pitt, the new SEC chairman, was Andersen's lawyer until taking office in August and, big surprise, he's sympathetic to the accountants' arguments. He has given no indication that he plans to relaunch Levitt's anticonsulting crusade, and he has voiced support for self-regulation.
Pitt does want some reform. He has called for clearer language in financial statements and prompt disclosure of material information. He has instructed auditors to identify the three to five subjective accounting decisions that are most important to a company's financial status. The accountants should then "clearly and concisely" explain those decisions to investors and detail what the effect would be if they used a different accounting treatment. And he would like to speed up the process by which the private-sector Financial Accounting Standards Board (FASB) creates new accounting rules. Worried that Levitt's SEC was too adversarial, Pitt is encouraging companies and auditors to consult with the SEC staff if they have accounting questions. "I'm exceedingly tough on improper behavior," he says. "But I am interested in finding solutions to problems, not just pointing fingers." Pitt says he supports an "effective and transparent" self-regulatory system for accountants that is subject to "rigorous" SEC oversight. But whether that means another incremental increase in the POB's power or the creation of a new self- regulatory organization, he hasn't said.
At the POB, Chairman Charles Bowsher is eager to prove his organization is up to the job of policing the industry. A former U.S. Comptroller General and head of the General Accounting Office, Bowsher is armed with a new charter that gives the POB authority over auditing standards, as well as unconditional funding from the AICPA. (The professional association previously threatened to withhold money when the POB began studying auditor independence violations. The AICPA now says that was a misunderstanding.) Bowsher has expanded Deloitte & Touche's triennial peer review of Andersen to specifically look at issues raised by Enron. But the POB still doesn't have power to enforce recommendations or to discipline firms when they violate guidelines.
None of these changes will make any difference if accountants continue to downplay their job as guardians of the public trust. Many seem embarrassed by their watchdog role and have treated their public responsibility as though it were a burden. Auditing isn't sexy, the accountants whine; it doesn't make them rich. So they've focused on consulting and tried to branch out into corporate finance and even law (heaven help us!). "The industry, from my point of view, has rarely focused on the public interest, only its own parochial business concerns," Levitt says.
It wasn't always so. Once, the industry was led by professionals like Leonard Spacek. Spacek, who died in 2000 at 92, was Arthur Andersen's CEO from 1947 to 1963 and the profession's elder statesman for long after that. He wasn't afraid to rankle the big accounting firms or Big Business. Throughout his career, he pushed to standardize accounting rules so that different companies' financial statements could be fairly compared. He worked to strengthen audit procedures. And although Andersen's forays into consulting began on his watch, he spoke often and eloquently about the auditor's role as a protector of the public interest. "There aren't any Leonard Spaceks in the industry anymore," Levitt laments.
Perhaps Enron's collapse will chasten the profession enough for it to return to bedrock principles. And perhaps another Spacek will emerge to lead it. Maybe then that anguished question--where were the auditors?--will reverberate less often.
FEEDBACK: jkahn@fortunemail.com

COLOR PHOTO: PHOTOGRAPH BY DOUGLAS GRAHAM--CORBIS SYGMA Andersen CEO Berardino: "Real change will be required to regain the public trust." COLOR CHART: FORTUNE CHART/PUBLIC ACCOUNTING REPORT Auditing isn't sexy--or lucrative Share of Big Five revenues by service Consulting Accounting and auditing Tax
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Commentary
VOICE OF THE PEOPLE (letter)
Enron's woes
Dan McGuire

01/02/2002
Chicago Tribune
North Sports Final ; N
14
(Copyright 2002 by the Chicago Tribune)

If the executive shenanigans that brought Enron to its knees are not criminal acts, they should be.
On Nov. 8, Enron was forced to restate its earnings for the past 4 1/2 years, admitting to a near $600 million reduction due to suspect financial reporting. A major factor involves so-called off-balance- sheet deals run by company executives. Enron stock has plunged from $80 to less than a dollar, and the company has since filed for Chapter 11 bankruptcy protection.
Investors, trusting and awed by the company's posted earnings, learned too late of Enron's departure from "generally accepted accounting principles." Many have suffered significant losses. A civil suit charges that employees were encouraged to invest more heavily in Enron stock just before it tanked.
In spite of numerous civil suits and an impending congressional investigation, some experts say that a much higher standard of proof may preclude criminal charges. If so, justice will once again be thwarted. Clearly, somebody--maybe several somebodies--deserves to spend some time in jail. But don't count on it. An old adage says: "If you're going to steal, steal big."

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Commentary
VOICE OF THE PEOPLE (letter)
Executive actions
Bill Marquardt

01/02/2002
Chicago Tribune
North Sports Final ; N
14
(Copyright 2002 by the Chicago Tribune)

I am deeply concerned about the impact management's behavior can have on young people's perceptions. It is clear that certain actions of Enron's senior executives can only be termed disgusting and immoral--maybe illegal, which is yet to be determined. While management has prospered, it has brought financial hardship and anguish to thousands of investors and employees. No wonder there is often so much cynicism about big business in this country.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

You Mean, We Won Something?(Mumia Abu-Jamal, Enron)(Brief Article)
ALEXANDER COCKBURN

01/07/2002
The Nation
8
Copyright 2002 Gale Group Inc. All rights reserved. COPYRIGHT 2002 The Nation Company L.P.

It scarcely seems possible, but two of the staple items on the conversational menu of the left these past years might well be on the edge of disappearance, or at least a change in content. Mumia Abu-Jamal is no longer on death row. Pacifica's wars are amid final settlement. In both instances, it's a good advertisement for pertinacity. Had it not been for those tireless and oft-ridiculed Mumiacs, I doubt US District Judge William Yohn Jr. would have detected those improper jury instructions. Two years ago the Pacifica National Board thought it had the situation under control, and it was only a matter of time before the ultras were cleaned out of their caves in the mountains of Berkeley. But the much-derided left kept at it.
One good feature of Judge Yohn's ruling is that it takes the emphasis off innocence or guilt, which surrenders the basic moral axiom of the anti-death penalty cause, namely, that capital punishment is wrong.
As for Pacifica, the heat is now on those who fought the national board to exhaustion and defeat. Can they produce decent programming and hike Pacifica's dismally low audience figures?
Enron and the Green Seal
The fall of Enron sounds the death knell for one of the great rackets of the past decade: green seals of approval, whereby some outfit like the Natural Resources Defense Council or the Environmental Defense Fund would issue testimonials to the enviro-conscience and selfless devotion to the public weal of corporations like Enron. These green seals of approval were part of the neoliberal pitch, that fuddy-duddy regulation should yield to modern, "market-oriented solutions" to environmental problems. Indeed, NRDC and EDF were always the prime salesfolk of neoliberal remedies for environmental problems. NRDC was socked into the Enron lobby machine so deep you couldn't see the soles of its feet. Here's what happened.
In 1997 high-flying Enron found itself in a pitched battle in Oregon, where it planned to acquire Portland General Electric, Oregon's largest public utility. Warning that Enron's motives were of a highly predatory nature, the staff of the state's Public Utility Commission (PUC) opposed the merger. They warned that an Enron takeover would mean less ability to protect the environment, increased insecurity for PGE's workers and, in all likelihood, soaring prices.
Other critics argued that Enron's actual plan was to cannibalize PGE, in particular its hydropower, which Enron would sell into California's energy market.
But at the very moment when such protests threatened to balk Enron of its prize, into town rode NRDC's top energy commissar, Ralph Cavanagh, Heinz environmental genius award pinned to his armor and flaunting ties to the Energy Foundation, a San Francisco-based outfit providing financial wattage for many citizen and environmental groups that work on utility and enviro issues.
Cavanagh lost no time whipping the refractory Oregon greens into line. In concert with Enron, the NRDC man put together a memo of understanding, pledging that the company would lend financial support to some of these groups' pet projects. But Cavanagh still had some arduous politicking ahead. An OK for the merger had to come from the PUC, whose staff was adamantly opposed. So, on Valentine's Day, 1997, Cavanagh showed up at a hearing in Salem, Oregon, to plead Enron's case.
Addressing the three PUC commissioners, he averred that this was "the first time I've ever spoken in support of a utility merger." If so, it was the quickest transition from virginity to seasoned service in the history of intellectual prostitution. Cavanagh reveled in the delights of an Enron embrace: "What we've put before you with this company is, we believe, a robust assortment of public benefits for the citizens of Oregon which would not emerge, Mr. Chairman, without the merger." With a warble in his throat, Cavanagh moved into rhetorical high gear: "The Oregonian asks the question, 'Can you trust Enron?' On stewardship issues and public benefit issues I've dealt with this company for a decade, often in the most contentious circumstances, and the answer is, yes."
Cavanagh won the day for the Houston-based energy giant. The PUC approved the merger, and it wasn't long before the darkest suspicions of Enron's plans were vindicated. The company raised rates, tried to soak the ratepayers with the cost of its failed Trojan nuclear reactor and moved to put some of PGE's most valuable assets on the block. Enron's motive had indeed been to get access to the hydropower of the Northwest, the cheapest in the country, and sell it into the California market, the priciest and--in part because of Cavanagh's campaigning for deregulation--a ripe energy prize awaiting exploitation.
Then, after two years, the company Cavanagh had hailed as being "engaged and motivated" put PGE up on the auction block. Pending sale of PGE, Enron has been using it as collateral for loans approved by a federal bankruptcy judge.
Enron is best known as George W. Bush's prime financial backer in his presidential quest. But it was a bipartisan purveyor of patronage: to its right, conservative Texas Senator Phil Gramm; to its left, liberal Texas Democrat Sheila Jackson-Lee (who had Enron's CEO Ken Lay as her finance chairman in a Democratic primary fight preluding her first successful Congressional bid; her Democratic opponent was Craig Washington, an anti-NAFTA maverick Democrat the Houston establishment didn't care for). Today some House Republicans want to treat the Enron collapse as a criminal matter, while Democrats have been talking in vaguer terms about cleaning up accounting rules and plugging holes in the regulatory system. The inability of Enron's employees to sell company stock from their 401(k)s while high-ups absconded with millions may doom Bush's promised onslaught on Social Security. There are many morals in Enron's collapse, and the role of that green seal of approval should not be forgotten.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

CFA Largest Ch 11 Bankruptcy Filings Week Ended 12/28

01/02/2002
Dow Jones Corporate Filings Alert
(Copyright (c) 2002, Dow Jones & Company, Inc.)

DJ CFA SOURCE:Bankruptcy

ISSUER: DOW JONES CORPORATE FILINGS ALERT
SYMBOL: X.FFI

WASHINGTON -(Dow Jones)- The following is a list of some of the
largest Chapter 11 bankruptcy filings for the week ended Dec. 28.

Company Court Location Contact
----------- ------------ ----------- ----------
Brake Depot California, San Diego Not available
Systems Inc. San Diego

Cornerstone Internet Manhattan West Caldwell, NJ Schuyler Carroll
Solutions Co. 212-451-2313

Enron Broadband Manhattan Houston Brian S. Rosen
Services L.P. 212-310-8602

Greate Bay Wilmington Delaware Steven Kortanek
Casino Corp 302-552-5503

Heick Die Chicago Chicago Scott R. Clar
Casting Corp. 312-641-6777

Istinhealth Inc. New Jersey, Hasbrouck Mr. Washington
Newark Heights, NJ 201-227-9100

Life Quality Systems Chicago Chicago Robert Benjamin
312-444-1996

Nature's Farm California, Hayward, CA Not available
Products Inc. Northern

Nu Van Technology Texas Northern Mansfield, TX Not available

Presidio Valley Texas Western Presidio, TX Ronald Sommers
Farms Inc. 713-659-3222

Propoganda Films Inc. California, Los Angeles James Donovan
Los Angeles 213-629-4861

Red and Blue Inc. California, San Diego Not available
San Diego

Tradewell Inc. Manhattan New York Mark Thomas Power

212-736-1000

Swan Transportation Wilmington Tyler, TX Not available
(a non-operating
subsidiary of Tyler
Technologies Inc.)

09:00

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

TXU CEO Ready As New Year Rings In Retail Deregulation
By Christina Cheddar

01/02/2002
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES
(This story was originally published Monday.)

NEW YORK -(Dow Jones)- As the clock strikes midnight in the Lone Star State, ringing in the New Year, it is unlikely many will gather to toast their newly-gained right to pick a supplier of electricity.
However, 2002 kicks off an important chapter in history of Texas electricity deregulation, and TXU Corp. (TXU), the state's largest electricity supplier, appears excited about the opportunities retail competition will bring it.
With the transition in Texas, about 75% of TXU's earnings will come from providing energy to customers in a deregulated environment, TXU Chairman and Chief Executive Erle Nye said in an interview with Dow Jones Newswires. The Dallas company has 11 million customers worldwide, with about 2.7 million of those in the Dallas-Fort Worth area and in northern Texas.
Nye said he has been a proponent of retail competition for many years because he feels a deregulated market drives innovation, allocates capital most effectively, and punishes poor performance. Most importantly, costs drop, he said.
According to Nye, on average, TXU customers will see a 14% reduction in their electricity bills compared with last year. Although part of the decrease is due to the effect of lower natural gas prices in the state, the company had promised a minimum of a 6% price reduction, he said.
Under the state's 1999 restructuring law, customers of the incumbent utilities who don't switch energy providers will be assigned to the retail electric provider operated by the utility company. Those customers will pay a set rate for at least three years, or until at least 40% of the utility's customers switch to another electricity provider. Meanwhile, the new electricity providers, may change the prices they charge up to twice year if there are changes in natural gas or power costs.
"Outside our area, we are trying to pick up some customers," Nye said. "We know we will lose some of our current customers. We are hoping there is at least a balance." He declined to more specific about the company's expectations.
As for its earnings outlook, TXU expects it will be able to maintain its 9% to 11% growth rate in the competitive market, Nye said.
For the fourth quarter, Nye said he would be "shocked" if the company was unable to meet the current Wall Street consensus of 67 cents a share reported by Thomson Financial/First Call.
A year ago, TXU earned 61 cents a share.
"We are very comfortable with the consensus," he said.
Despite the imminent start of retail competition in Texas, efforts to persuade consumers to switch electricity providers have been muted so far.
TXU's Nye admits his company hasn't spent much on advertising to consumers, but expects the company to step up its marketing efforts as the year progresses.
TXU is in the process of establishing offices in parts of Texas outside its traditional operating area, and is making an effort to establish "personal contact" in those communities.
TXU also is directly contacting medium-to-small industrial customers that might consider switching electricity providers.
According to Nye, early efforts to get the internal data processing and clearance systems that would allow for a smooth transition to competition operating properly had preoccupied the company during the six-month pilot program.
During the pilot, 5% of Texas residential customers were allowed to try new providers. Despite a slowed start brought on by computer glitches at the state's power grid operator, the Electric Reliability Council of Texas, or ERCOT, the system is said to be ready to begin as planned.
Tony Spare, portfolio manager of Spare Value First and a TXU investor, said the company has been "chomping on the bit for the new business opportunities" presented by deregulation. According to Spare, TXU is an "effective marketer" and its nuclear assets will help the company's price competitiveness.
Spare's view of TXU hasn't changed despite a recent bumpy ride in the utility sector brought on by Enron Corp.'s (ENE) stunning and rapid financial collapse.
In the aftermath of Enron's collapse, TXU's comparatively conservative strategy may be coming into back into vogue.
According to Nye, TXU has always used energy trading as a way to obtain market information.
"We trade around resources," he said, adding that the company's trading activities are limited to its core areas: electricity, gas and telecommunications.
That behavior distinguishes TXU from Enron, Nye said. He cited Enron's aggressive trading practices, its accounting practices, and in inability to take the proper reserves as factors that contributed to Enron's need to file for Chapter 11 bankruptcy protection in early December.
Still, there is no doubt that Enron's troubles have caused credit rating agencies to take a tougher stance toward companies in the sector, and TXU is among those companies receiving more closer scrutiny.
Recently, the two largest credit rating agencies, Moody's Investors Service and Standard & Poor's, affirmed TXU's investment grade status. However, in its review, S&P said TXU must continue its current efforts to reduce its high leverage in the coming year.
Nye declined to say what the company's ideal debt-to-capital ratio is, but he said the company would continue to reduce its debt level. He added, it is essential to have a "strong credit rating ... one to two levels above the investment grade level."
Despite the need to reduce debt, Nye doesn't dismiss the possibility for future acquisitions at the right price.
"We're excited about our prospects for the company," Nye said. As several rival energy merchants begin to shed assets to raise money to reduce debt, TXU will be watching closely to see which assets come up for sale.
"I had said a long time ago that there will be a secondary market (for energy assets). That expectation has come to pass," Nye said. "We're interested in the fact that so many are looking to sell assets."
In addition to Texas, TXU has been active in the Northeast and the Midwest.
In Europe, the company has a presence in the Nordic region, and has been building positions in Germany and the Iberian peninsula.
-By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

USA: Finance - Small steps seen improving financial health.
By Linda Stern

01/02/2002
Reuters English News Service
(C) Reuters Limited 2002.

WASHINGTON, Jan 2 (Reuters) - After a bad year, the financial markets are signaling "Recovery, ho!" But many people don't feel so "recovered" personally.
They may be looking at diminished stock portfolios, flat 401(k)s and stacks of holiday bills. They may be lacking the enthusiasm for yet another New Year's "get-my-finances-fixed" resolution after last year's list turned out so badly.
No matter! It's not the sweeping pronouncements or big market moves that make or break a financial life. It's the little actions that add up to financial stability.
So skip the resolutions and get straight to a simple to-do list that will make you richer by this time next year.
Here it is:
- Get a better credit card. If you pay off your balances every month, you can't do any better than a straight-up cash rebate card. There aren't many out there, but three that have no annual fees and offer cash back on every purchase are the Fleet Titanium Cash Rebate Card (http://www.fleet.com); the National City Cash Builder Platinum Visa (http://www.nationalcity.com) and the American Express Platinum Cash Rebate Card (http://www.americanexpress.com). All three credit various amounts of cash (up to 2 percent of purchases) to your account once a year. If you're a big convenience user, you can accumulate enough cash back on any of these plans to buy your own airline ticket once a year.
- Dump some company stock. If your retirement plan has more than 10 percent of its assets invested in shares of the company you work for, sell the extra and buy something else. You don't want to be overly dependent on one firm for your livelihood and your savings, and if you're confused about this advice, just remember one word: Enron.
- Buy some other stocks, or stock funds. Sure, most investors took a whipping in 2001. But over the long term, stocks still rule and in 10 years you'll be glad you bought now.
- Start a no-brainer IRA. If you make under $53,000 a year joint ($33,000 single), or you work for a company that doesn't offer a retirement plan, you're eligible for a deductible IRA. If you make more than that, you can open a Roth IRA. Either one will allow you to take tax breaks for building money on your own. Establish this account in a low-fee index fund, such as Vanguard's Total Market Index Fund (http://www.vanguard.com) or the Fidelity Spartan Total Market Index (http://www.fidelity.com). For 2002, you're allowed to contribute $3,000, as long as you earn that much in salary. Divide that by 12 for a monthly contribution of $250. When you set up your account, authorize the fund company to deduct that $250 every month from your checking account. That's it, you're done. Readjust again in 2005, when the limits go up to $4,000. Look forward to accumulating $20,518 in five years, $63,344 in ten years and more and more as you continue.
- Refinance and shorten your mortgage. You've already missed the bottom in home loan rates but there are deals to be had. You can get a 15 year fixed rate loan for under 7 percent. If you're currently carrying an 8.5 percent 30 year loan, it will raise your monthly payment by about $80 to downsize to a 15 year loan at today's rates. But you'll be burning that paper 15 years early and you'll save close to $120,000 in interest over the life of the loan.
- Restructure your debt, like a corporation. The rates on second mortgages are way better than the rates on credit cards and most car loans, and the interest on them is typically tax deductible. If you're carrying credit card and car debt, consider getting a home loan that will consolidate it and let you pay it off in a hurry. Ignore this advice if you don't trust yourself to really pay it off in a hurry and keep those other balances at zero. If you don't have that kind of discipline (or cash), at least pay extra amounts toward your credit card with the highest rate until you knock that down to zero.
- Rebalance your portfolio. Chances are that over the last year, the bond portion of your portfolio grew relative to the stock portion. With interest rates near their lows, and probably headed higher (assuming that 2002 recovery), it's a good time to sell off some of those bonds before they head in the opposite direction. Put the money back in stocks until the asset allocation you get back to your original asset allocation.
- Build a bond or CD ladder.zz~ the bond portion of your money on autopilot. Divide the amount of money you have invested in bonds into five chunks. Put the first chunk into a one-year bond, the second into a two-year bond, the third into three-year maturities and so on. Then every year, as your bond comes due, roll it over into a five year bond or certificate of deposit. In five years, you'll have everything invested in five year maturities, earning higher rates than you would with shorter maturities. But you'll get some money back to reinvest every year, reducing the likelihood that all of your money will be tied up long term when rates rise. Once you've built this ladder, you can practically go to sleep.
- Buy some inflation-indexed bonds before there's inflation. The Treasury sells inflation protected securities (TIPS) and I-bonds. They both guarantee a real rate of return above inflation of about 3 percent. Currently, the TIPS (available through www.treasurydirect.gov) are paying 3.5 percent. "That is an extraordinary rate of return," says William Tedford, director of fixed income strategy for Stephens Capital Management in Little Rock. "That's probably as good as they are going to get."
These bonds do hit investors with a heavier than usual tax bill, though, since a portion of the income is taxed annually but not paid out until the bond matures. To avoid that problem consider buying a TIP fund, such as PIMCO Real Return Bond fund or Vanguard Inflation-Protected Securities fund within a tax-deferred account.
(Linda Stern is a freelance writer who covers personal finance issues for Reuters. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern(at)aol.com).

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

LME Base Metals Called To Open Dn On Comex Losses, Stocks

01/02/2002
Dow Jones Commodities Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

LONDON (Oster Dow Jones) LME base metals are called to open lower Wednesday, pressured by sharp losses for Comex copper Monday and another round of stock builds.
The selling began during Asian trade early Wednesday and picked up pace after the LME daily stock report showed hefty stock builds for aluminum, tin and copper which have once again been attributed to liquidation of troubled company Enron's inventory.
However, the selling is likely to be limited ahead of the U.S. Institute of Supply Management Manufacturing index, formerly known as the U.S. National Association of Purchasing Managers Index, due 1500 GMT as dealers search for further indicators of the health of the U.S. economy.
Analysts expect the index to rise to 46 for December from 44.5 in November.
Nickel has eased lower with the rest of the complex but has found strong support from increased short term supply tightness as illustrated by the ballooning of the cash-to-three-month spread from around $70/ton Friday to $270/ton Wednesday.
The three-month contract has so far failed to breach resistance at $5,600/ton but if this can be broken, prices should rally sharply to $6,000/ton.
Aluminum has found light support above $1,330/ton but may have to fall to $1,320/ton before significant buying interest emerges while copper has solid support at $1,440/ton.
Prices for three-month metal in dollars/ton: Wednesday Pre-market (1018 GMT) Change from Thursday PM Kerb Copper 1,445.00-1,447.00 -37.00
Lead 498.00-500.00 -1.50
Aluminum 1,336.00-1,337.00 -18.00
Nickel 5,590.00-5,625.00 -22.50
Zinc 784.00-787.00 -3.00
Tin 3,910.00-3,935.00 -27.50

Currencies at 1021 GMT: Stlg/US dlr: 1.4529
US dlr/yen: 131.41
Euro/US dlr: 0.8993

-By David Elliott, Oster Dow Jones; +44 20 7842 9353;
david.elliott@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

US energy cos hoping to sell assets to reduce debts - report

01/02/2002
AFX News
(c) 2002 by AFP-Extel News Ltd

NEW YORK (AFX) - US energy companies are now looking to sell off assets to lighten their debt-heavy balance sheets, the Wall Street Journal reported.
Prices for electricity and natural gas in the US have plummeted, while investors are fleeing and debt holders are worried about credit exposure caused by Enron Corp's collapse, the WSJ added.
Houston-based Enron, until recently the biggest electricity and natural gas trader, filed last month for protection under Chapter 11 of the federal Bankruptcy Code while it seeks to reorganize.
El Paso Energy Corp said it will sell natural gas fields in the shallow waters in the Gulf of Mexico, as well as gas assets in Oklahoma, Arkansas and Kansas.
It is also putting a 150,000-barrel-per-day New Jersey oil refinery and some coal mines up for sale, according to the WSJ. The company says it wants 500 mln usd for both the refinery and the coal mines.
Valero Energy Corp, an independent refining and marketing company based in San Antonio, said it "would take a look" at the plant. Meanwhile, Valero is closing a 4 bln usd acquisition of Ultramar Diamond Shamrock Corp.
In addition, Atlanta-based Mirant said it intends to sell electricity plants in Massachusetts acquired a few years ago. But "almost anything would be considered for sale, for the right price," says spokesman Chuck Griffin.
TXU Corp is also divesting itself of plants in its home state, to stay below market-concentration limits that are part of a state electricity deregulation plan. TXU is using proceeds to retire debt and pick up assets elsewhere, the WSJ said.
The WSJ added that European companies will be looking to buy individual electricity plants that can make good profits in the deregulated markets of New York, New England, the Mid-Atlantic and California.
Among the likely European buyers are E.ON AG and RWE AG, which recently acquired American Water Works, which owns regulated water utilities throughout the US; Tractebel North America Inc, the energy arm of Paris-based Suez that already is building power plants in Washington and Texas; and the UK's Powergen PLC, which bought LG&E Energy Corp last year.
Among the US companies that could pick up assets are two Houston-based companies -- Anadarko Petroleum Corp and Apache Corp, as well as others including American Electric Power, TXU, Duke Energy Corp, Dominion Resources Inc and Entergy Corp.
bam/cmr

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Financial Post Investing
Master short seller raised flag on Enron: Roberts tags Kodak, Safeway as stocks to avoid
Bill Alpert
Barron's

01/02/2002
National Post
National
FP10 / Front
(c) National Post 2002. All Rights Reserved.

With the righteous anger of hindsight, U.S. senators and journalists have demanded why no one foresaw the failure of Enron Corp. In fact, someone did. And it's in writing. Last May, when Enron shares traded at US$59, Off Wall Street Consulting Group issued a 27-page report debunking the profits claimed by Enron, the Houston energy-trading firm now notorious in any living room that has a TV set.
"We pretty much put our finger on all the problems Enron had," says Mark Roberts, who runs Off Wall Street's research team in an office on a side street of Cambridge, Mass. Enron awarded itself profits, noted Off Wall Street's researchers, by marking its trading positions to "market" prices when no real market existed for the stuff that Enron traded. Related-party dealings with private partnerships also seemed designed by Enron to boost its publicly reported earnings.
Mr. Roberts' prescience wasn't perfect. He never expected Enron to collapse into bankruptcy. When Enron shares slid below Mr. Roberts' downside price target of US$30 -- to US$26 in September -- Off Wall Street recommended that clients close short positions. And when the shares rallied briefly to US$36, Roberts wiped his brow in relief. The shares have since collapsed to just pennies, but clients who followed Off Wall Street's recommendations made handsome profits.
In addition to Enron, Roberts' research boutique supplied 20 other short-sale ideas in 2001 to a clientele of money managers. Over the 12 months ended September, Off Wall Street's recommendations gained 94%.
(Gains on short sales are computed by using the current price as the purchase price; as such, a stock that falls 50% would produce a 100% gain.) In contrast, shorting the Standard & Poor's 500, which fell 22% over the same period, would have produced a 44% return.
The market has since rebounded. But Off Wall Street still seems poised to close the year with a 50%-plus paper return on its research, which Mr. Roberts, who doesn't manage money, sells to clients for a hefty price.
Since 1995, Mr. Roberts' recommendations have outpaced an S&P index short by an average of 31% a year. That's why clients pay heed to his warnings about Eastman Kodak and Safeway Inc.
The Off Wall Street process starts with computer screens, looking for an intersection of a high stock price with a business whose operating numbers bode ill. Such a path often leads right into Wall Street's latest fad.
At the height of the Internet bubble, Off Wall Street's portfolio of short ideas consisted of about two-thirds tech stocks. In the past year, tech names yielded to medical stocks and alternative energy.
Since September, Mr. Roberts has been encouraging investors to steer clear of Kodak. The shares (EK/NYSE) had been holding steady around US$45, as investors took solace that the photography giant could maintain its 4% dividend yield by wringing more cash flow from operations.
But the U.S. consumer market for film, which underlies half of Kodak's sales and operating profits, has been declining at an 11% annual rate as digital photography grows. Kodak is faring even worse, with 19% declines in film volume as it scraps for a shrinking market against Fuji and the private-label offerings of Wal-Mart Stores.
Kodak spokesman Paul Allen told Barron's the company does not comment on analyst research.
In October, Kodak guided down December quarter earnings expectations from about US46 cents a share, to US15 cents. Its shares have fallen to around US$31, but Mr. Roberts believes Kodak could fall to US$22. "We expect the [US$1.80] dividend to get cut," he says, "and the dividend is one of the main props of the stock."
Another of Mr. Roberts' current short recommendations is Safeway (SWY/NYSE), the 1,750- store supermarket chain based in Pleasanton, Calif. He first recommended sale of the stock in April, when it was trading at US$53. Current price: US$45.
In recent years Safeway has justly earned investors' admiration, with sales growth and profit margins that exceeded those of such rivals as Kroger and Albertson's. But Wall Street has been valuing Safeway at 86% of its US$32-billion in year 2000 sales, while valuing Kroger at just 38% of sales.
Looking at Safeway's year 2000 earnings of US$1-billion, or US$2.13 a share, Mr. Roberts noted that 10% came from sales of real estate and investment gains in the supermarket's pension fund. Back out those non-grocery profits, and Safeway's earnings grew just 13% in 2000. In prior years, earnings growth had averaged better than 25%.
Sales have slowed in 2001, based on identical-store sales growth. The likely cause, says Mr. Roberts, has been the arrival of deep discounters Wal-Mart and Costco on Safeway's turf.
Ultimately, Mr. Roberts believes Safeway could fall as low as US$35.
"We strongly disagree with what he [Mr. Roberts] has written," says Safeway spokesperson Melissa Plaisance.
She acknowledges that earnings gains from investing and real estate in 2000 led to tough comparisons in the current year. But those comparisons are now behind Safeway, and it will give investors updated guidance in a conference call Jan. 24.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

SPANISH PRESS: Spanish Regulator Suspends Enron's License

01/02/2002
Dow Jones International News
(Copyright (c) 2002, Dow Jones & Company, Inc.)

MADRID -(Dow Jones)- Spain's electricity market operator has suspended Enron's (ENE) license to operate in the Spanish market, jeopardizing future investments Enron wanted to make in Spain, Cinco Dias reports.
Newspaper Web site: http://www.cincodias.es
-Madrid Bureau, Dow Jones Newswires; 34 91 395 8120

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Financial Post: News
Enron's Dabhol Power draws suitors: Parent seeks US$1B
Ravil Shirodkar
Bloomberg

01/02/2002
National Post
National
FP3
(c) National Post 2002. All Rights Reserved.

MUMBAI - Gas Authority of India Ltd., the country's biggest gas supplier, said it plans to bid for the US$3-billion Indian power plant of U.S.-based Enron Corp., which last month made the largest-ever filing for bankruptcy.
Gas Authority will bid for Dabhol Power Co., Enron's local unit, with a so-called "strategic partner," the state-run company said in a statement. It didn't name the partner.
Dabhol was Enron's biggest investment outside the U.S. as the company sought to expand overseas. Enron put the plant up for sale before it filed for bankruptcy because of a payment dispute with a state electricity board, its sole customer.
Enron wants US$1-billion for its 65% stake. Tata Power Ltd. and BSES Ltd., the two bidders for the stake, have said the price is too high and are negotiating with local lenders who have loaned the project US$1.4-billion.
Gas Authority needs Dabhol's liquefied natural gas facility to feed more gas through its 4,594-km network of pipelines across the country. It gets its supplies from Oil & Natural Gas Ltd., a state-run oil explorer that hasn't made any big discoveries since 1975.
That's forced Gas Authority to look for other sources of gas. It has partnered Indian Oil Corp. and Oil & Natural Gas Corp. to build a five-million-ton-a-year gas plant in India's western province of Gujarat.
Dabhol Power's 5.5-million-ton gas facility was part of a US$2-billion plan to boost the utility's capacity to 2,184 megawatts from 740. Contractors halted work on the plant, saying they hadn't been paid since April last year, leaving the expansion 97% complete. The power plant burned naphtha, a chemical refined from crude oil, and was to switch to gas once the expansion was complete.
The plant was shut in May after Enron gave notice it would cancel a supply contract with the Maharashtra State Electricity Board because it was owed US$64-million in overdue bills. The board stopped paying for Dabhol's power, saying it was too expensive.
Enron last month fired 300 workers in India because of the overdue bills. Dabhol isn't listed among Enron's 17 units that have sought court protection from creditors owed US$31-billion.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

GAS AUTHORITY OF INDIA TO BID FOR ENRON'S DABHOL POWER PROJECT

01/02/2002
Asia Pulse
(c) Copyright 2002 Asia Pulse PTE Ltd.

NEW DELHI, Jan 2 Asia Pulse - State-owned Gas Authority of India Ltd (GAIL) on Tuesday announced its bid for the beleaguered Dabhol Power Project of Enron.
Joining the race with Tatas and BSES, where Reliance are the single largest stake-holder, GAIL has communicated its 'expression of interest' to the company as well as Maharashtra State Electricity Board (MSEB) and Industrial Development Bank of India, the principal financier for the project.
GAIL is understood to be keen on DPC's LNG line and may shortly start talks with other power companies for joining its bid to manage the power project.
GAIL communicated its decision to join the race for acquiring stake in DPC only after securing clearance from the Ministry of Petroleum, a GAIL statement said, adding that the corporation has been mandated to enter the power sector as part of its proposed integration into energy related areas.
GAIL will shortly sign confidentiality agreements with the concerned parties -- IDBI, DPC and MSEB -- for conducting due diligence study of the project.
The estimated time frame for completion of DPC (Phase-II) with ancillary facilities is about 18 months from the time the project was handed over to the new management, GAIL said.
GAIL intends to adopt a broad-based approach while undertaking the due diligence as it has already made an entry into the power sector through equity participation in a gas-based power project in Gujarat.
Meanwhile, the consortium of Indian financial institutions led by IDBI has asked the Centre to announce a package of incentives and concessions to expedite the process of selling stake in DPC where the operations had come to a standstill last year after payment problems with MSEB.
(PTI) 02-01 1659

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business
U.S. set to target earnings deception --- Test case thought likely this month
Kevin Drawbaugh
reuters news agency

01/02/2002
The Toronto Star
Ontario
E07
Copyright (c) 2002 The Toronto Star

The U.S. Securities and Exchange Commission was expected to bring its first enforcement actions soon in two areas - "pro forma" financial results reporting and Regulation FD, or fair disclosure, sources say.
The pro forma case was to have been brought before the holidays, but was delayed. Sources said Monday it will now likely be brought in January. The company being targeted was unknown.
"The SEC absolutely needs to clamp down on pro forma earnings .... There have been some real abuses out there," Lynn Turner, former SEC chief accountant and now a professor at Colorado State University, said in an interview with Reuters.
If the commission were to act soon and forcefully on pro forma reporting and Regulation FD, it would help to answer critics suggesting that SEC chairman Harvey Pitt is "going soft" on enforcement, which securities lawyers said is a "bum rap."
Pressure for the SEC to get tough on corporate reporting has increased in recent weeks since the stunning collapse of former energy trading giant Enron Corp., which cost thousands of people their jobs and much of their savings.
Pitt said earlier this month that pro forma numbers making a loss look like a profit, without explaining clearly how, were likely to be viewed as fraudulent.
In mid-November, he said the SEC was sizing up possible pro forma enforcement actions.
Pro forma results skate around accounting conventions - codified in the Generally Accepted Accounting Principles - either to highlight good results obscured by outmoded conventions or, more often, to hide poor results.
They are sometimes labelled as "core," "normalized" or "adjusted" results. Often they exclude costs related to mergers, stock options, unusual events or other items.
The most frequent users of the pro forma style are technology companies. Among recent issuers of such reports are Computer Associates International Inc., Amazon.com Inc. and Cisco Systems Inc. Reuters research showed 62 companies on the Merrill Lynch technology 100 index reported pro forma results in press releases for the third quarter of 2001.
Pro forma numbers are most often found in reports and press releases intended for consumption by the media and the general public.
Sources said the SEC's New York regional office had been probing four pro forma cases, but records were lost in the Sept. 11 attacks that destroyed some SEC offices. As a result, the case soon to be brought may be new, sources said.
A technology company is widely thought to be the target, although sources said Walt Disney Co. and other major non-tech companies have recently issued pro forma results.
The Regulation FD case expected to be brought soon was not moving as rapidly as the pro forma case, sources said.
Regulation FD - was adopted a year ago. It requires corporations to disclose key information to the public and the financial community at the same time.
It was drafted in response to widespread complaints from small investors that Wall Street insiders were being tipped off on big news hours or sometimes days before everyone else. The law is a regular target of scorn in the financial community.
Pitt has called "unassailable" the law's underlying principle - "that nobody should have an unfair advantage."
No enforcement action has yet been brought by the SEC on the disclosure rule.
"There's been talk that they're going to bring an FD case .... There were some violations," Chuck Hill, director of research at First Call, a market research unit of financial services group Thomson Financial, said in an interview.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Global Finance
J.P. Morgan Chase Sues Nine Insurers In Enron-Bond Case --- Institution Seeks to Quash Demands for Information
By Carol S. Remond
Dow Jones Newswires

01/02/2002
The Wall Street Journal Europe
22
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -- One would think that J.P. Morgan Chase & Co., as one of Enron Corp.'s largest creditors, would want to find as much information as possible about the finances of the now-bankrupt energy trader.
Not so. In fact, as a sure sign that the interests of various Enron creditors have begun to collide, J.P. Morgan Chase filed a motion over the weekend to quash demands for information related to some $2 billion (2.24 billion euros) in Enron-related surety bonds made by nine insurance companies.
J.P. Morgan filed the suit against the insurers after they said that they wouldn't honor about $1.1 billion of the bonds, including $965 million owed to J.P. Morgan earlier this month. J.P. Morgan is now seeking to prevent the insurers from using the U.S. Bankruptcy Court for the Southern District of New York to gather information about whether Enron and J.P. Morgan Chase misrepresented the facts to secure the surety bonds.
Enron filed a similar motion opposing the insurers' demands for further information, claiming like J.P. Morgan Chase that the court should turn down the insurers because they are going on a "fishing expedition."
The insurers are questioning whether forward-sales contracts that they bonded for Enron ever existed. According to court documents, Citigroup Inc.'s Travelers insurance unit and eight other insurers wrote to J.P. Morgan Chase in early December, essentially telling the investment bank that they needed more proof of the forward-sales contracts' legitimacy before they would honor their surety-bond payments.
The other insurers include: Kemper Insurance Co.'s Lumbermens Mutual Casualty Co.; Allianz AG's Fireman's Fund Insurance Co.; Chubb Corp.'s Federal Insurance Co.; St. Paul Cos.'s Fire and Marine Insurance; CNA Surety Corp.'s Continental Casualty Co.; Safeco Corp's Safeco Insurance Co.; Hartford Financial Services Group Inc.; and Liberty Mutual Insurance Co.
All the insurers, with the exception of Citigroup's Travelers, have since filed answers and counterclaims in court, essentially demanding that Judge Arthur J. Gonzalez declares the surety bonds void because Enron and Chase misrepresented the facts surrounding their issuance.
Citigroup's reluctance to stand against J.P. Morgan Chase may be at least partly explained by the fact that both institutions are lead bankers for Enron. Together, they are seeking to set up a $1.5 billion financing package to help Enron back on its feet.
In their separate motions, J.P. Morgan Chase and Enron claim that the insurers' demands for information would impede the court's bankruptcy proceedings. The insurance companies "unabashingly seek to invoke Rule 2004 to further their own interests," J.P. Morgan Chase said in its motion. J.P. Morgan also claimed that the insurers' moves are designed to use the bankruptcy proceedings to further information-gathering efforts in a pending civil litigation.
The J.P. Morgan Chase suit was first filed in New York State Court and then moved to U.S. District Court for the Southern District of New York.
The forward-sales contracts in dispute were made between Enron and two offshore companies, Mahonia Ltd. and Mahonia Natural Gas Ltd., both based in the Channel Islands. Under the contracts, Mahonia was supposed to prepay for the delivery of oil and natural gas from Enron, which would then procure the fuel from an array of producers for delivery to various end-users. The end-users, in turn, were supposed to pay Mahonia for the oil and gas.
The nine insurers bonded Enron's obligation to deliver the oil and gas, but balked when J.P. Morgan Chase asked them on Dec. 7 to honor that commitment, five days after Enron had filed for bankruptcy. The insurers told J.P. Morgan in a letter that day that they have "received credible information that, in fact, there may never have been any producer contracts or end-user contracts. In addition, Enron may never have delivered any oil or natural gas under the forward sales contracts to Mahonia or any other party," according to the letters to J.P. Morgan Chase.
In addition to requesting documentation for the forward-sales contracts, the insurers also asked for an explanation of the corporate relationship between J.P. Morgan Chase and Mahonia.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business
THE TICKER
J.P. MORGAN CHASE: Objects to insurers seeing Enron details
Associated Press

01/01/2002
Chicago Tribune
North Final ; N
2
(Copyright 2002 by the Chicago Tribune)

After demanding payment from insurance companies that backed more than $1 billion worth of oil and gas contracts signed by Enron Corp., J.P. Morgan Chase is trying to prevent the insurers from getting details about the transactions.
The investment bank on Sunday filed an objection to a request made by the insurers, who are refusing to honor $1.1 billion in surety bonds and are asking for access to Enron financial records to determine if energy contracts actually existed. The request was filed in November in U.S. Bankruptcy Court in New York.
J.P. Morgan sought payment of the surety bonds after the collapse of Enron, the Houston-based energy trader that sought protection from creditors under Chapter 11 of the federal bankruptcy code Dec. 2.
J.P. Morgan, one of Enron's largest creditors, said the insurers' request was "a fishing expedition" and would only slow down the bankruptcy court proceedings.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Outlook; Section C
Markets & Investing
Roll Over, Shakespeare, the Future of Jargon Is Here
By HUBERT B. HERRING

01/02/2002
The New York Times
Page 16, Column 3
c. 2002 New York Times Company

FAITH POPCORN has seen the future, and it's a real mouthful.
Take a deep breath and listen in for a moment.
There you are, surfing Cyberia, when some karaoke manager from the bachelor herd barges in (no supreme C.E.O. he, no master of Genghis capitalism). This guy needs an ego audit, you mutter, but you hit the boss key anyway. You're no flexecutive, after all, just a lowly permalance. Your prebuttals fall flat, and he orders you on to a data fast, tosses a message slip on your inflatable, and leaves.
You look at the slip. The woman you had the fight chat with. Definitely cosmetic underclass. Not remotely Pilotable. You toss a lunch lob, and call home to check on your baboon wife and the free-range children.
Whew! Had enough?
And now, in a just world, you'd get a translation. Forget it. (Basically, it would take much too long.) No, you'll just have to read ''Dictionary of the Future,'' by Ms. Popcorn and Adam Hanft (Hyperion, $22.95), for yourself.
(Oh, all right, here are a couple, since they are sort of fun: Bachelor herds are the young men left mateless when older ones grab trophy wives, and baboons are baby boomers with no savings.)
What, exactly, is a dictionary of the future? Apparently, the old model just can't keep up -- with those stuffy, tweedy souls content ''to track the ebb and flow of language'' and open the ivied dictionary gates only to words that have stood the test of time.
Too slow! the authors cry. This is a split-second, rat-a-tat world. We can't wait around to see what words stick. We'll tell you where the language is headed. We're ''linguistic prospectors,'' ''anticipators.''
For this dictionary, dawdlers need not apply. To enter here, words must be white-hot, mere moments from the authors' fiery imaginations. ''Downsizing''? Doesn't make the cut. ''Not new enough.''
This ''joyride through the culture'' does make a nod to what could be serious, lasting phenomena -- like hybrid cars and wind farms. But for the most part it's a breathless effort to be up-to-the-nanosecond fresh.
Between cup and lip, though -- between idea and bound book -- the world economy slipped, making the boom-time ''employer of choice'' and ''pleading economy'' entries decidedly dated.
Then again, ''stock therapy'' and getting ''401-K'd'' are frighteningly timely; think of Enron shareholders. But ''language extinction'' -- that one's too painfully close to home to contemplate.
But wait. Are the authors just kidding around? You might think so, with all those wordplays -- hyber-nation and scarevoyants.
But there's an undeniable earnestness here, a solemnity. (There is a suggestion to read the book ''in a nonlinear sort of fashion.'') And they do put themselves in some heady company, at one point even invoking Shakespeare -- that ''unrepentant serial coiner'' -- to bless their mission of invention.
What fools these mortals be.

Photo
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

California
Commentary: Enron Is a Cancer on the Presidency
ROBERT SCHEER
Robert Scheer writes a syndicated column.

01/02/2002
Los Angeles Times
Home Edition
B-11
Copyright 2002 / The Times Mirror Company

Finally, a reporter had the temerity to question Bush on Friday regarding the ignominious collapse of Enron Corp. run by Kenneth L. Lay, a Bush family intimate and top campaign contributor. Bush expressed concern "for the citizens of Houston who worked for Enron who lost life savings" and added: "It's very important for us to fully understand the 'whys' of Enron."
Sure is, but did Bush never ask "Kenny Boy"--his nickname for Enron's chairman--what was going on?
After all, not only was Kenny Boy one of Bush's major contributors, but it was Lay and Enron that Bush turned to for critical advice on how to further exploit U.S. natural resources.
The media, which had hounded Bill Clinton on his Whitewater connections, have allowed Bush to maintain the fiction that his--and his father's--administration had nothing to do with the debacle that is Enron.
Given the intense interest in the list of those who slept over in the Clinton White House, it's odd that no attention has been paid to Kenny Boy's sleepover in the early years of the senior Bush's White House.
Those early Bush years were crucial for Enron, beginning with the passage of the 1992 Energy Policy Act, which forced the established utility companies to carry Enron's electricity sales on their wires.
At the same time, Wendy Gramm, who served under the elder Bush as chair of the Commodity Futures Trading Commission, allowed for an exemption in the trading of energy derivatives, which, as the Washington Post reported, "later became Enron's most lucrative business."
Once that was accomplished, Gramm, wife of Texas GOP Sen. Phil Gramm, resigned from her government post to take a position on the Enron board. As one of the members of the board's audit committee, she now is expected to be a key figure in the lawsuits and federal investigation revolving around Enron's collapse. Recently, the chief executive of Arthur Andersen, Enron's outside auditor, told a congressional committee that the accounting firm had warned the Enron audit committee of what he termed "possible illegal acts within the company."
Wendy Gramm is also mentioned in a bank lawsuit alleging insider trading as having sold $276,912 in Enron stock in November 1998. Her response is that she sold the stock to avoid the appearance of a conflict of interest, given that her husband was chairman of the Senate Banking Committee.
Yet she was still very much on the Enron board and being rewarded with future stock options when her husband last year pushed through legislation that exempted key elements of Enron's energy business from oversight by the federal government. Phil Gramm had obtained $97,350 in political contributions from Enron over the years, so perhaps he was acting on his own instincts and not his wife's urgings. The exemption was passed over the objection of the Clinton administration.
Wendy Gramm also directs the regulatory studies program at George Mason University, which has received $50,000 from Enron since 1996. Her academic institute is highly influential in arguing for deregulation, conveniently joining her corporate and academic interests.
Unfortunately for true-believer deregulators, the Enron collapse shreds their panacea. Surely no one, least of all Wendy Gramm, who has said she was kept unaware of the company's chicanery in hiding debt and conducting secret private deals to the detriment of stockholders, could argue today with a straight face that Enron was in need of less government oversight.
The fact is that there would be no Enron as we know it were it not for Republican-engineered changes in government regulation that permitted Enron its meteoric growth.
It's true that the corporation had its allies among the Democrats; campaign finance corruption and influence peddling are generally a cover-all-your-bets bipartisan activity. But in this case, the amounts given to Democrats were puny and late, and there's no doubt that Enron rode to power primarily on the strength of Lay's influence with the Bush family. This fact is not mitigated by Enron now hiring Clinton's former lawyer and various top Democratic lobbying groups, except to note that these hired guns have no shame.
The Bush family ties to Kenny Boy Lay are just too intimate and lucrative to ignore.
There also are at least four Enron consultants and executives who hold high positions within the Bush White House, and some of them may be drawn into the investigations that cannot be avoided, despite the distractions of the war on terror.
As John Dean once famously said of the Nixon administration, there is a cancer growing on the presidency, but in this case it's name is Enron, and it won't go away by being ignored.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Career Journal: The Jungle
By Kemba Dunham

01/02/2002
The Wall Street Journal
A13
(Copyright (c) 2002, Dow Jones & Company, Inc.)

[Focus on Retirement, Pay and Getting Ahead]

Tough Sell?
Is it tough for struggling companies to recruit new board members?
Lucent Technologies Inc. didn't bother to fill Paul O'Neill's seat when he became U.S. Treasury secretary last year. The Murray Hill, N.J., telecom-gear maker figured it would be a challenge to recruit someone during the height of its troubles, according to an individual close to the situation. Lucent has been hit hard by the continuing slowdown throughout the telecommunications industry.
The company is just trying to keep the board intact until it names a chief executive, a Lucent spokesman says.
But Enron Corp., the collapsed Houston energy giant, named two new outside directors after its travails became public. "I don't know if I could assign any degree of difficulty," says Mark Palmer, an Enron spokesman. "We were just looking for people who have had experience with these matters and we found two perfect candidates."
Though Enron subsequently filed for bankruptcy protection, its new board members don't have to worry about liability for shareholder suits, says Melanie Cohen, a bankruptcy attorney at Altheimer Gray, a Chicago law firm. "They can't be liable for something that occurred before they got there."
One new Enron director, University of Texas Law School Dean William Powers, says it took him only "two or three days" to decide to join its board. The delay was "more of an issue of time and making sure it was compatible with my duties here" rather than doubts about serving on the company's board, he adds.
Raymond Troubh, a New York financial consultant and Enron's other board newcomer, says he is looking forward to his directorship because "board service of troubled companies is quite fascinating."

Deeper Connection

One woman wants to take networking to a whole new level.
Melissa Giovagnoli, president of Networlding, a Chicago consulting firm, has developed an unusual concept called "networlding." She helps people make "targeted connections" with others who have similar personal values so they can build a safety net that will last longer than a job-transition period.
"Traditional networking becomes ineffective because you keep running through people," she says. "But if you form a connection with someone based on complimentary values, the exchange can be much more dynamic."
Since March, Ms. Giovagnoli has started 25 networlding "circles" in Chicago, with 10 people in each circle. She plans to start others soon in Washington, Indianapolis and California's Silicon Valley. Circle members pay $125 apiece for a year of participation. The fee enables participants to connect with members of other circles both in person and through e-mail.
Ms. Giovagnoli also intends to create formal networlding circles within companies, including Motorola Inc. The Schaumburg, Ill., technology-and-equipment giant has hired her to teach staffers how to network. She intends to implement a circle there this month. An informal Motorola circle already has brought together employees who wouldn't otherwise know each other, says Vesna Arsic, a corporate-marketing-strategy director.
Ms. Arsic says this circle has helped her. "Motorola is in a precarious financial state, but I have less anxiety because I know there are lots of people I can call if I have to," she says.

Fewer Options

The average number of stock options awarded to chief executives plummeted 76% in 2001. So concludes a new study of 50 Fortune 1000 companies whose fiscal years ended during the second or third quarter of 2001. The study was conducted by Executive Compensation Advisory Services, a research firm in Alexandria, Va.
CEOs' options awards dropped from an average of 1,396,006 in 2000 to 335,013 options a year later, the study found. This plunge occurred despite the fact that 25 companies increased the number of options granted their leader compared with the prior year.
On average, the 50 companies awarded their CEOs 8.4% of all options given to employees during fiscal 2001. Among the 28 chief executives who had their bonuses cut or got no bonus during the latest fiscal year, 16 got bigger stock-options awards.
---
E-mail comments to Kemba.Dunham@wsj.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Case Summary
Dynegy's Reasons for Terminating Merger Were "Mere Pretexts," Says Enron

01/02/2002
Securities Litigation & Regulation Reporter
Copyright (c) 2002 Andrews Publications. All rights reserved.

In adversary proceedings filed with the bankruptcy court, Enron Corp. accuses Dynegy of pulling out of the merger between the energy trading giants so it could ensure Enron's fall and slash competition in the industry. Enron also says the alleged material adverse effects used to break the agreement were "mere pretexts" used by Dynegy to gain control of a valuable pipeline. In re Enron Corp. et al., No. 01-3626, complaint filed (S.D.N.Y., 02-DEC-01).
According to the complaint, Dynegy agreed to the merger with its "eyes wide open" and "with full knowledge of Enron's well-publicized financial crises after conducting two weeks of extensive due diligence."
Enron's ability to preserve its energy trading business and avoid bankruptcy protection was dependent on the deal going through, it adds, and Dynegy allegedly understood that credit rating agencies - such as Moody's, Standard & Poor's, and Fitch - only agreed to keep the ratings at above investment-grade level based on Dynegy's assurances that the merger would be completed.
Dynegy is claiming that Enron failed to disclose the acceleration of a debt with respect to a $691 million note that was triggered by a ratings downgrade. Enron counters that the repayment obligation occurred after the merger agreement was executed, and that the downgrade was specifically excluded as a material adverse event under the contract.
Due to Enron's liquidity problems, Dynegy invested $1.5 billion in equity when the agreement was signed in the form of preferred stock in the Enron subsidiary that owns Northern Natural Gas Pipeline.
The preferred stock carries the right to acquire all of the ownership interests under certain circumstances including if Dynegy rightfully terminated the merger agreement. However, Enron says Dynegy had no right to pull out of the deal and that it is not entitled to purchase more stock in the company that holds Northern Natural. Dynegy has also filed its own breach of contract suit in Texas state court seeking to secure control over the entity.
Enron's problems started when it released its financial results for the third quarter in October and announced a non-recurring charge totally $1.01 billion (after taxes). In connection with the early termination of certain financial arrangement, the energy giant also told its shareholders that their equity had been reduced by about $1.2 billion.
Shortly thereafter, the board formed a special audit committee to investigate the company's accounting and the Securities and Exchange Commission began its investigation.
In early November, Enron announced that its financial statements for 1997 through 2000 and for the first and second quarters of 2001 would have to be restated with an aggregate total reduction in net income of about $600 million.
The merger agreement was signed on Nov. 9, 2001, and valued Enron stock at $10.41 per share. However, the share price continued to decline because Dynegy repeatedly told the press that it had a "due diligence out," says Enron, contrary to the agreement and in bad faith, as Dynegy knew that the bad publicity would only hurt Enron's already precarious financial state.
Dynegy undermined the safety net that the merger was supposed to provide for Enron and should pay for the damages it caused, the plaintiff said. Enron lost an enormous amount of credibility with the credit rating agencies due to Dynegy's refusal to support that agreement and contributed to the downgrade that caused the acceleration on the note, the now-bankrupt company says.
Enron is seeking no less than $10 billion in damages from Dynegy as well as a declaration that it breached the merger agreement and has no right to exercise an option to purchase interests in Northern Natural Gas Pipeline.
Enron is represented by Martin Bienenstock, Greg Danilow and Brian Rosen of Weil, Gotshal & Manges in New York.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Case Summary
Shareholders Claim Enron Directors Made $434 Million in Insider Trading

01/02/2002
Securities Litigation & Regulation Reporter
Copyright (c) 2002 Andrews Publications. All rights reserved.

Enron Corp.'s 10 most senior officers and directors conspired to inflate the energy and communications conglomerate's net worth and then took advantage of the false valuation to sell 7.3 million shares of their Enron stock for proceeds of $434 million, according to a shareholders' suit filed in mid-November, just weeks before the company filed for bankruptcy. Abrams et al. v. Enron Corp. et al., No. H-01-3630 (S.D. Tex., 13-NOV-01).
Shareholders Seth Abrams and Steven Frank filed a class action suit in U.S. District Court for the Southern District of Texas against the corporation, the 10 officers and directors, and the Arthur Andersen international accounting and consulting firm. Arthur Andersen's Houston office received $25 million in auditing fees and $27 million in consulting work to cover up Enron's financial improprieties between 1997 and 2001, according to the to suit.
The individual defendants, who are each accused of insider trading, are:
Kenneth L. Lay, chairman of Enron's board of directors and chief executive officer from 1986 until February 2001, who allegedly sold 1.8 million shares of his Enron stock for proceeds of $99.9 million and who also received $14 million in bonuses for 1998, 1999 and 2000;
Jeffrey K. Skilling, the company's president and chief operating officer until February 2001 when he became chief executive officer, who sold 1.1 million shares of his Enron stock for proceeds of $68.2 million and who also received more than $10 million in bonuses for 1998 to 2000;
Andrew S. Fastow, chief financial officer of the company from 1998 until he was fired in October 2001, who sold 561,000 shares of Enron stock for proceeds of $30.4 million;
Richard A. Causey, executive vice president and chief accounting officer of the company, who sold 197,000 shares of Enron stock for proceeds of $13.3 million;
James E. Derrick Jr., executive vice president and general counsel of the company since July 1999, who sold 230,000 shares of company stock for proceeds of $12.6 million;
J. Clifford Baxter, vice chairman of the company since October 2000 and chief strategy officer since June 2000, who sold 577,000 shares of Enron stock for proceeds of $35.2 million;
Mark A. Frevert, chairman and chief executive officer of Enron Wholesale Services since June 2000 and chairman and chief executive officer of Enron Europe from March 1997 to June 2000, who sold 830,000 shares of Enron stock for proceeds of $50.2 million and who also received bonus payments of $4.3 million from 1998 to 2000;
Stanley C. Horton, chairman and chief executive officer of Enron Transportation Services, who sold 738,000 shares of Enron stock for proceeds of $45.5 million and who also received $2.9 million in bonuses for 1998 to 2000;
Kenneth D. Rice, chairman and chief executive officer of Enron Broadband Services since June 2000, who sold 1.2 million shares of Enron stock for proceeds of $74.37 million and who also received bonus payments of $3.9 million for 1998 to 2000; and
Richard G. Buy, executive vice president and chief risk officer of the company since July 1999, who sold 54,874 shares of company stock for $4.32 million.
The complaint alleges that Causey, Lay, Skilling and Fastow signed false Form 10-Ks and Form 10-Qs required by the Securities and Exchange Commission at various times during the class period of Oct. 19, 1998, to Nov. 7, 2001, but that all 10 individual defendants conspired with guilty knowledge to convey false and misleading information through public filings, press releases and other publications to inflate the company stock.
They all directly participated in the management of company, were directly involved in its day-to-day operations at the highest levels and were privy to confidential proprietary information concerning the company and its business operations, the complaint said. As a result of their actions, Enron's stock price rose from $43.43 per share on Jan. 3, 2000, to $83.12 per share by Dec. 29, 2000.
Financial analysts attributed the price rise to the growth and expectations for Enron's Broadband Services Division but unbeknownst to investors, the division was experiencing declining demand and financial losses.
The defendants knowingly falsified Enron's financial statements by eliminating unprofitable and debt-ridden subsidiaries from the statements and they also lied about the success of the broadband efforts, causing Enron's assets to be overstated in 2000 and 2001 by as much as $1 billion, the plaintiffs assert.
In particular, the plaintiffs allege that the individual defendants, with the help of Arthur Andersen's accountants, kept the losses of its subsidiary Joint Energy Development Investments off the books and improperly lent $132 million to a second company, Chewco Investments, so it could purchase JEDI stock for $383 million. (The acronym JEDI is a play on the name of the knights in the Star Wars movies while the name Chewco is a play on Chewbacca, the name of one of the characters in those movies.)
Arthur Andersen falsely represented that Enron's financial statements for 1997, 1998, 1999 and 2000 were prepared and presented in accordance with generally accepted auditing practices and that the accounting company also consented to the incorporation of its false statements in Enron's Form 10-Ks for those years and in Enron's prospectuses for several securities offerings.
The financial house of cards came apart on Nov. 8, 2001, when the company announced that it was restating its revenues for 1997, 1998, 1999, 2000 and the first two quarters of 2001 to correct for errors that inflated the company's net income by $591 million. Following that announcement, the price of Enron's common stock fell from a high of $90.75 during the class period to a low of $8.20 before closing on Nov. 8 at $8.41.
The plaintiffs allege violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 for deceiving the investing public regarding Enron's business operations, management and value to sell more than $2 billion in common stock and other kinds of securities offered during the class period.
The complaint also alleges violation of Section 20(a) of the Securities Exchange Act against defendants Lay, Skilling and Fastow because they had the knowledge and ability to prevent the issuance of false statements or to cause the statements to be corrected but did not do so.
The plaintiffs are seeking class certification, compensatory damages for all class members and attorneys' fees and costs.
Because the company has filed for bankruptcy, that action triggers an automatic stay of this and all other litigation against it.
The complaint was filed by Thomas E. Bilek of Hoeffner & Bilek in Houston; Steven G. Schulman and Samuel H. Rudman of Milberg, Weiss, Bershad, Hynes & Lerach in New York; William S. Lerach and Darren J. Robbins in Milberg Weiss' San Diego office; Paul J. Geller of Cauley, Geller, Bowman & Coates in Boca Raton, Fla.; Fred E. Stoops of Richardson, Stoops, Richardson & Ward in Tulsa, Okla.; and Deborah Gross of the Law Offices of Bernard M. Gross in Philadelphia.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business
American Electric Power buys Enron wind project
From The Associated Press and Bloomberg News.

01/01/2002
The Milwaukee Journal Sentinel
Final
01D
Copyright 2002 Journal Sentinel Inc. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media)

American Electric Power buys Enron wind project
From The Associated Press and Bloomberg News.
Tuesday, January 1, 2002
American Electric Power acquired a 160-megawatt wind-power project in West Texas from a subsidiary of bankrupt Enron Corp. for $175 million. Under terms of the deal, announced Monday, Enron Wind Corp. will operate and maintain the wind-power project.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron hid behind smoke and mirrors

01/01/2002
South China Morning Post
18
(c) Copyright 2002 South China Morning Post Publishers. All Rights Reserved.

Four years ago, Asia was lectured by the West on the deficiencies of its corporate disclosure and accounting regimes.
Witnessing the US$60 billion bankruptcy of Enron last month, the region could be forgiven a moment of schadenfreude.
Dubious accounting and disclosure practices were at the heart of Enron's demise. Evidently, Asia does not have a monopoly in this area.
Texas-based Enron used to be a power firm, pumping gas and electricity to customers in the United States and around the world. Then it transmogrified into a wholly more stylish animal, befitting the spirit of the trendy dotcom in the 1990s.
Real assets were no longer in vogue: the smartest companies, as the Internet revolution demonstrated, made money out of thin air, through the power of their intellect and creativity.
Enron became a purveyor of "energy services", making markets in everything from coal and lumber to bandwidth. The pipelines became incidental. The stock market applauded, and Enron's shares surged from US$20 to US$90 between 1997 and 2000.
As its stock rose, Enron's financial statements became more complex until, it seemed, no one could work out how the company made money anymore.
Those seeking enlightenment were given short shrift by Enron's senior executives. Anyone with the temerity to ask just didn't "get it".
Analysts may have been similarly in the dark, but were not about to stand in the way of a Wall Street darling that delivered the holy grail of smoothly increasing earnings.
Meanwhile, auditors Arthur Andersen continued to sign off on financial statements that showed Enron to be a robust and fast-growing company - until its collapse.
There are lessons in the Enron debacle that reach beyond the US.
Asian investors swept up in the early 1990s by the story of the region's inevitable ascendancy will recognise the mixture of hype and hubris that kept observers from asking the difficult questions and Enron from answering them.
The Asian financial crisis exposed structural weaknesses that caused systemic collapses. By contrast, the fallout from Enron's bankruptcy, while painful to some (particularly employees who had their pensions invested in the company's stock), will be far more limited.
The most far-reaching impact is likely to be felt by the auditing profession. Faith in the integrity of financial statements has been shaken, as admitted by Andersen chief executive Joseph Berardino.
That phenomenon is global. Showing up the deficiencies of balance sheets in Indonesia or Thailand is one thing. But when a giant multinational in supposedly the world's best-regulated market produces financial statements that patently were not worth the paper they were written on, users are entitled to ask: who can we trust?
Still, if the morals of the Enron case are heeded, it will have served a useful purpose.
First, if a company's accounts are too complex to understand, maybe that is because the company has something to hide, rather than reflecting a deficiency of intelligence on the part of investors.
Second, if senior executives treat requests for clarification with disdainful arrogance, perhaps that is because they have something to hide, rather than the questions being foolish.
Third, no rules are perfect. While Andersen's role in Enron is the subject of debate, a company determined to bend accounting rules in its favour will always find a way to do so. But, as the collapse shows, the truth will out eventually, which leads to Moral No 4: if something looks too good to be true, it is. Investors believed in Enron's magic dust because they wanted to.
Scepticism is invariably the first casualty of bull markets. Investors discard it at their peril.
Jake van der Kamp is on leave

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

EDITORIAL & COMMENT
Letters To The Editor
ENRON PROBLEMS WON'T HOLD NEW POWER DOWN

01/01/2002
The Columbus Dispatch
Home Final
06A
(c) Copyright 2002 Columbus Dispatch. All Rights Reserved.

The Dec. 11 Dispatch carried the article "Ohioans stick with electricity companies,'' which stated that "New Power, the only potential central Ohio competitor, is in trouble because Enron, a principal backer, is going bankrupt.''
This statement is factually incorrect and did a disservice to both the New Power Co. and our thousands of electricity and natural- gas customers in Ohio.
Categorically, NewPower Holdings is not in trouble; we are continuing to aggressively acquire new customers and have the liquidity and financial resources to serve all of our customers. Enron Corp. is not our principal backer and, in fact, has put zero dollars into our company. NewPower is a separately held company with its own board of directors. While Enron used to be NewPower's principal supplier of energy, NewPower has canceled all contracts with Enron and is working with 14 other counterparts.
NewPower has publicly stated that we do not expect Enron's bankruptcy to have a material impact on our business or our ability to service our more than 800,000 customers nationwide.
H. Eugene Lockhart
Chairman and chief executive officer
New Power Co.
Purchase, NY

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

NEWS
The POWER of CHOICE / It is the dawning of deregulation in Texas, allowing consumers to choose their electricity provider - and get a rate reduction as well.
NELSON ANTOSH
Staff

01/01/2002
Houston Chronicle
3 STAR
1
(Copyright 2002 Houston Chronicle)

Starting today, deregulation of electricity officially arrives in Texas.
For the first time, consumers in much of the state can chose their electricity provider. And regardless of whether the customers switch or not, they will get a rate reduction as of today.
The combination of a 6 percent cut in the base rate for power - as required by state law - plus the impact of lower fuel costs for generating will bring the total reduction for residential customers in the Houston area to about 17 percent.
Deregulation of electricity is ready to move onto a mass scale after seven years in the planning and seven months of testing, said Terri Waggoner, spokeswoman for the Electric Reliability Council of Texas, also known as Ercot.
"All systems are go," adds Brett Perlman, a commissioner on the Public Utility Commission of Texas.
But don't expect the promotion floodgates to open today, said Janee Briesemeister, senior policy analyst for Consumers Union in Austin.
The telephone calls, mailers and television ads will build up gradually. That's the way it happened in other states. Switching on a broad scale could take as long as three years.
No customer is forced to do anything. "If all goes well, they shouldn't notice anything different with their service," Briesemeister said.
For instance, a customer of Reliant Energy HL&P who decides to do nothing will automatically become a customer of a competitive supplier known as Reliant Energy Residential Services.
Since midsummer, a limited number of residential customers, about 115,000 in the state, have been part of a pilot program to shake out the bugs in the system.
Now that deregulation is officially here, an estimated 4.7 million households in the state are eligible to participate. As of Dec. 17, nearly 20,000 had signed up and were waiting for deregulation to arrive before they switch over, according to officials.
A sizable chunk of Texas is outside the program. Municipal power sysems, such as those in Austin and San Antonio, and rural electric cooperatives are taking a wait-and-see attitude before deciding if they wll opt in to competition.
The nearest parallel is deregulation of long-distance telephone service.
However there is one important difference - the rules are designed to avoid one of the big annoyances of telephone competion, unauthorized switches, better known as slamming, said Terry Hadley, public information officer for the PUC.
You will get a postcard in the mail asking if you did, indeed, decide to switch before anything is done.
In Houston, at least 10 companies will be making their sales pitches to residential customers. The number is even larger when you include companies targeting commercial and industrial users who use more power.
Although there will be a rate decrease for all customers involved in deregulation, it might not show up until the second bill of this year because of meter reading cycles, Briesemeister said.
Similarly, the time it takes to switch from one company to another could be as long as 45 days because of meter reading cycles.
One of the things to watch out for is late payment fees, of up to 5 percent. Until now these charges were not permitted for investor- owned power companies involving residential accounts.
Customers also need to be aware of cancellation fees that may be a part of contracts, she said.
The state's job in this process is to inform electricity customers about such things as electricity facts labels, which like the label on a can of beans, allows an apples-to-apples comparison of costs between companies.
People already know quite a lot about deregulation, said the PUC's Perlman. He routinely asks people in the grocery store, who say they are aware of deregulation and have placed it "on their list of things to do."
There were some glitches in the pilot program, but it was intended as a learning experience, Perlman said.
The measure of success is lower costs, which means that deregulation is already working, said Ercot President and Chief Executive Tom Noel.
Cities ranging in size from Houston and Dallas to Corpus Christi will participate in electric deregulation.
There already have been some disappointments.
Shell, for instance, was an early player and one of the most aggressive but decided it didn't want to be in the electric retail business. The number of customers involved in the pilot could have been larger by another 100,000 or so if Shell hadn't pulled out, Noel said.
Any fears about reliability of service are laid to rest by the state's deciding to keep the distribution system - the lines and poles - regulated, according to Hadley.
Texas planners say they will avoid the fiasco of California where the wholesale electric sales was deregulated but retail prices were capped. When the cost of power surged because there weren't enough electric plants to keep up with demand, electric companies were not allowed to pass on all those cost increases to consumers.
. . .
Dueling to deregulate
A number of companies are expected to try to lure residential customers locally, but others are entering the market. Some of the competitors:
Reliant Energy Residential Services, a division of Houston-based Reliant Resources.
TXU Energy of Dallas, a part of the utility TXU.
Energy America, a part of Houston-based Republic Power, whose parent is Centrica of the United Kingdom.
New Power Co. of Purchase, N.Y., formed by Enron but then spun off as an independent company.
Entergy Solutions of New Orleans, a unit of Entergy Corp.
GEXA Energy, a Houston company formed to compete in the deregulated market.
ACN Energy in McLean, Va., a subsidiary of ACN which has been offering customers a choice for natural gas and electricity since 1998.
Green Mountain Energy of Austin, which emphasizes wind-generated power.
First Choice Power of Fort Worth, affilliated with the Texas-New Mexico Power Co.
Utility Choice Electric, headquartered in Houston, founded by seven energy industry executives.
For more information see www.houstonchronicle.com/electricity.

Graph: Dueling to deregulate (p. 16, text)
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Investing/Word On The Street
Enron: The Lessons For Investors; Hindsight, shmindsight. There's much to learn when a stock loses $67 billion in value.
Lisa Gibbs, Jeff Nash and Nick Pachetti

01/01/2002
Money Magazine
Time Inc.
30
(Copyright 2002)

It seems hard to believe now, but Enron (ENE) used to be the envy of corporate America. In less than a decade, the Houston company transformed itself from stodgy gas-pipeline operation to natural gas and electricity trading powerhouse. Dazzled by sizzling earnings growth, giddy investors bid up Enron's shares 312% in two years to a high of $90.75 in 2000. Then someone turned out the lights. Beset by marketplace woes and management mishaps, the stock already had tumbled 53% when chief executive Jeffrey Skilling stunned investors by resigning last August. After that, the bad news came at hyperspeed: $1.2 billion in shareholder equity zapped by risky hedging deals, a Securities and Exchange Commission probe, a last- chance merger with rival Dynegy called off and, finally, a bankruptcy filing. By the end of November, the stock had plummeted to 26[cents], obliterating $67 billion in market cap--a shocking fall for a company that just last year occupied the No. 7 spot on the Fortune 500.
Perhaps most incredible, however, about the Enron debacle is how long investors hung on to the belief that everything would turn out fine. As recently as MONEY's October issue, our Ultimate Investment Club's Abby Joseph Cohen of Goldman Sachs was calling Enron a "good value." If pros like Cohen got it wrong, how could the average investor have discerned the disaster in time? Sure, hindsight is marvelous. But along Enron's fast track to penny stock, there were red flags for informed shareholders that all was not as it seemed.
Out-of-control valuation. In 2000, investors levitated Enron's stock to a lofty price/earnings ratio of 69 times that year's earnings on the belief that forays into sexy-sounding online energy trading and broadband businesses could sustain supercharged earnings growth. Skilling was telling Wall Street that Enron's broadband biz alone deserved $37 a share, and investors seemed to buy it, despite the fact that the unit was unproved and unprofitable. His outlandish valuation of broadband drew an early "hold" rating from analyst Andre Meade of Commerzbank Securities in March 2000. "An energy company trading at the multiple Enron was," Meade explains today, "should have been cause for eyebrows to be raised."
The lesson? Pay attention to the P/E even after you buy a stock. Whenever the valuation starts to climb, you should stop and question whether the company can sustain the sales and earnings growth expected of it.
Insider selling. In 2000, then CEO Kenneth Lay netted $66.3 million from exercising stock options and selling the shares, while Skilling scored $60.7 million, roughly double the amounts the year before. By the end of June 2001, 16 members of Enron's top management had sold $164 million in shares, reports Thomson Financial Network. While insider sales don't automatically spell trouble for a company-- executives often have valid reasons for raising cash--the selling at Enron was prolific. And the fact that selling persisted even as the stock fell throughout 2001 was a "screaming red flag," says Thomson analyst Paul Elliott. If Skilling and Lay believed the stock was undervalued--as they repeatedly told investors--then why were they cashing in? Executive stock trades are easy for ordinary investors to follow: The Wall Street Journal regularly publishes insider trading tables, and websites such as Yahoo Finance (finance.yahoo.com) list insider trades for each stock.
Obfuscations. Enron's trading business is extremely complex, and analysts admit they didn't always understand what Enron was doing. That said, the company seemed to go out of its way to obfuscate. "I've never seen such complicated disclosures," says Michael Heim, an A.G. Edwards energy analyst. "It was hard to follow the movement of money."
When pushed to reveal more, management was often tight-lipped and unprofessional. During one famous conference call last April, Skilling called an analyst an "asshole" for complaining about the company's failure to provide a balance sheet with its earnings announcement. Prudential Securities' Carol Coale points to rumors in late September of an SEC investigation. "When I asked Enron about an investigation, they said there was no investigation," says Coale. Once it was revealed that the SEC was conducting an inquiry, she says Enron returned to her with a feeble excuse: "They said, 'Well, you didn't ask about an inquiry.'"
The typical investor isn't privy to such conversations, although more and more company conference calls are in fact being opened to the general public. But the larger point (famously stated by Warren Buffett) is this: If you don't understand what a company does, don't invest in it. There's a corollary to that too: If management refuses to fill in holes and keeps investors in the dark, run.
Fishy filings. Investors who read Enron's quarterly SEC filing in the summer of 1999 would have noticed a new entry under the heading "Related Party Transactions." The item noted that Enron was doing business with a private partnership whose general partner was led by a "senior officer of Enron." A proxy filed in May 2000 revealed that the senior officer was Enron CFO Andrew Fastow, and that not one but two partnerships existed.
Possible conflicts of interest--is the CFO looking out for Enron or himself?--should have turned heads. But even professional money managers like those at Janus, enthralled by Enron's opportunities, overlooked the partnerships as the funds built up their stakes. As late as Sept. 28, with Enron at $27.25, Janus owned 41.3 million shares, which it has since dumped.
To be fair, Enron revealed little about the partnerships and their function--to divert from Enron's balance sheet the debt from new acquisitions--as well as the extent to which the companies were in bed together. Besides, back then the stock was going gangbusters and earnings looked great; the partnerships seemed like small potatoes. Even the stock's few critics weren't paying much attention. Recalls Meade of Commerzbank: "It was difficult to see that there were significant liabilities associated with this."
Attitudes began changing after Enron filed its first quarterly report of 2001, which said it was entering into complicated and risky derivatives transactions that involved an $827 million loan to one of the partnerships. Whoa, some analysts said. "You started to see in the footnotes some pretty large sums of money," says Tara Gately, energy analyst for Loomis Sayles funds. "It raised questions, and there were really no good answers."
Yes, this is complicated stuff and, yes, there wasn't enough information, but you don't have to be a big-deal financial analyst to know that the CFO in a side business is smelly stuff.
Executive departures. When the chief executive--someone who spent a decade moving up the ladder and building the company's core energy- trading business--flees after just six months at the helm, you've got a problem. Skilling, 47 at the time, called it a "purely personal" decision. "That was the worst excuse I've ever heard," scoffs John Hammerschmidt, a fund manager at Turner Investments. If top management resigns for unclear reasons, consider selling. Hammerschmidt didn't even hesitate in this case: "As soon as I heard that, I dumped my shares."
One red flag does not necessarily a disaster make. More often it's a succession of little somethings that ultimately tells you: It could get real ugly here. The trick is to put aside your enthusiasm for a stock. That's probably the hardest thing for any investor to do. But as Enron's meltdown shows, the homework isn't over once you buy the stock.
--LISA GIBBS, JEFF NASH AND NICK PACHETTI
POWER FAILURE Enron's shockingly swift tumble from nearly $85 a share to 26[cents] a share.
Troubles at Enron's unprofitable telecom units
CEO Jeffrey Skilling curses at an analyst who demands financial details.
CEO Skilling resigns after just six months on the job.
Enron writes off $1.2 billion invested in soured outside partnerships. Within days, SEC launches probe and CFO departs.
Enron admits it overstated profits by nearly $600 million over five years. Next Enron agrees to be acquired by Dynegy, a company one- fourth its size.
Dynegy backs out of deal; Enron shares fall 85% in a day.
Notes: Weekly closes. Data as of Nov. 30. Sources: Baseline, MONEY research.
The Numbers
Alliance Capital, Janus and Putnam were among Enron's top 10 shareholders at September's end.
According to Bloomberg, 17 out of 18 analysts still had buy recommendations the day after CEO Skilling's exit.
Enron handled more than $336 billion in energy contracts in 2000.
Quote: For those with the energy, the signs were there: This stock was frayed and ready to short.

COLOR PHOTO: NICHOLAS EVELEIGH
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Edison Mission/Mirant -2: Deal Included Enron
Bloomberg
2001-12-31 17:55 (New York)

IRVINE, Calif. (Dow Jones)--Edison Mission Energy said Mirant Corp. (MIR) seeks to terminate a plan to acquire a 50% stake in EcoElectrica LP from both Enron Corp. (ENE) and Edison Mission.

In a press release Monday, Edison Mission, a unit of Edison International (EIX), said it doesn't agree that Mirant has the right to terminate the agreement. Edison Mission said it is reviewing its alternatives.  EcoElectrica is a power project in Penuelas, Puerto Rico. The acquisition agreement was made in July and terms weren't disclosed.

Representatives from Mirant and Enron weren't immediately available.

-John Seward; Dow Jones Newswires; 201-938-5400

(END) DOW JONES NEWS  12-31-01
05:55 PM- - 05 55 PM EST 12-31-01

Sarah Palmer
Internal Communications Manager
Enron Public Relations
(713) 853-9843