Message-ID: <27388641.1075848044365.JavaMail.evans@thyme> Date: Tue, 27 Mar 2001 02:01:00 -0800 (PST) From: jeff.dasovich@enron.com To: skean@enron.com, richard.shapiro@enron.com, james.steffes@enron.com, karen.denne@enron.com, mpalmer@enron.com, paul.kaufman@enron.com Subject: Good Enron/Calpers Story in Sac Bee Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Jeff Dasovich X-To: skean@enron.com, Richard Shapiro, James D Steffes, Karen Denne, mpalmer@enron.com, Paul Kaufman X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_3\Notes Folders\California X-Origin: KEAN-S X-FileName: skean.nsf ----- Forwarded by Jeff Dasovich/NA/Enron on 03/27/2001 09:58 AM ----- Jean Munoz 03/26/2001 10:11 AM To: , cc: Subject: Enron in Sac Bee FYI, in case you haven't already seen this: CalPERS has big energy tie By John Hill Bee Capitol Bureau (Published March 26, 2001) When Californians complain about energy outlaws romping through the chaotic electricity market, carting wagonloads of money to Texas, one name often tops the list: Enron Corp. But at least one pretty sizeable wagon full of cash has not gone home to energy moguls in 10-gallon hats, but rather to retired California government workers on pensions. For eight years, Enron has had an unusual investment partnership with the California Public Employees' Retirement System, the fund that administers retirement and health benefits to more than 1 million past and present public employees. Most recently, the two agreed in 1998 to pony up half a billion dollars each for business ventures in energy companies, including Enron subsidiaries -- although not the one that markets electricity in California. CalPERS and Enron have, on average, doubled their money each year. That makes the Enron deal one of the pension fund's most lucrative. CalPERS owns stock in thousands of companies, including high-performing electricity generators and lagging utilities. But Enron is one of fewer than 10 companies involved in this kind of venture with the pension fund. "Enron is one of our oldest and closest relationships here in the alternative investment area," Barry Gonder, a CalPERS senior investment officer, told a CalPERS committee last October. "And as you all know, it's a highly innovative and successful company." All true, but in California, Enron has been a major player in the electricity market, and the company and its chairman, Kenneth Lay, a prominent supporter of President Bush, have become lightning rods for high-voltage rage. "Lay pockets millions every year into his personal account and now he wants us to pay him more," a Sacramento resident asserted in a letter to The Bee last month. " ... The power companies are reducing power to drive up prices and put more money in the pockets of people such as Lay." Enron has been making scads of money -- profits were up 34 percent in the fourth quarter of 2000. But the company won't say how much of this comes from California, and minimizes the importance of this market. Despite the hostility toward Enron, no one has asked CalPERS about the arrangement, said spokeswoman Patricia Macht. Even if it did cause an outcry, CalPERS doesn't make investment decisions based on the popularity of the companies. Even when CalPERS divested itself of tobacco stocks recently, it justified the decision by citing lawsuits and regulatory actions that could sour the investments. In fact, Macht said, CalPERS is barred by its fiduciary responsibility to its members from applying social filters that are not in keeping with their financial best interests. "It's a slippery slope," she said. "If we do it for energy now, what's to say a month later, a legislator or interest group who has a beef against a single company" might also demand that CalPERS sell its stock. At the October meeting, CalPERS committee sessions didn't address Enron's role in the electricity crisis. State Controller Kathleen Connell, however, asked Andy Fastow, Enron's chief financial officer, how power shortages affected Enron's profits. "How does Enron benefit from that, and what can you do to maximize this fuel energy shortage, not only now but as we move into the future?" Connell asked. She was unavailable for comment Thursday and Friday. Consumer advocates said they were surprised to learn of the CalPERS connection to Enron. "I guess it's nice that some folks on retirement income get a soft landing because they were thrown into cahoots with marauders," said Nettie Hoge of the Utility Reform Network in San Francisco, an advocacy group. But she added, "It's a short-term return for a bargain with the devil." The CalPERS relationship with Enron goes back to 1993, before California even embarked on its ill-starred energy deregulation experiment. At the time, the energy sector was out of favor with investors. CalPERS figured that the reputation masked some good opportunities, and decided to start putting money in energy, said Gonder, the CalPERS investment officer. CalPERS needed a partner that understood the industry. Enron was an obvious choice. Enron had its own reasons to hook up with CalPERS. The company did not respond to requests for comment. But in the October CalPERS committee meeting, Fastow said that Enron has been investing about $7 billion a year in the energy and communications industries. "So we need a lot of capital," he said. Cal- PERS, with assets of $165 billion, is one of the biggest pots of money around. Enron could have issued stock for the investments. But as a public company, it has to worry about showing quick returns, Fastow said. A pension fund, he said, could provide "more patient money." As it turns out, CalPERS patience has not been tried. In the initial 1993 deal, Enron and Cal-PERS both kicked in $250 million. By the time CalPERS cashed out five years later, it had earned an average yearly return of 23 percent. "We said, 'It's working for both of us, so let's continue,'" Gonder said. In 1998, the two created a $1 billion fund to invest in oil and gas, coal and electricity companies -- everything from oil rigs to high-tech electricity meters. About $38 million of CalPERS money went to Enron Energy Services, which sells natural gas and electricity to industrial and commercial customers and helps them figure out better ways to keep down their energy use and costs. Three years later, CalPERS sold the investment back to Enron for about $124 million, for a profit of $86 million. Another investment did even better. In 1999, the partnership put up $80 million to buy some New Jersey cogeneration plants, which produce both electricity and steam. A mere four months later, a 49 percent interest in the plants, which cost the partnership $39.2 million, was sold to another company for $150 million. Each partner has invested about $300 million so far, with an average yearly rate of return of 100 percent. The remaining money in the partnership is expected to last another seven or eight years.