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Enron Mail |
Good Morning,
Attached, please find the latest issue of our Independent Power Weekly. <<IPW062501a.pdf<< <<ROIC_Under_FERC.xls<< Summary: 1. IPPs Fall 10.4% Last week our IPP composite fell 10.4%, underperforming both the NASDAQ (+0.3%) and the S&P 500 (+0.9%). International Power was the strongest performer in the group, rising 1.7%. Shaw Group was the weakest performer, falling 18.1%. 2. Same Old Story--Politics Last week's lackluster stock price performance reflected lingering political and regulatory uncertainties. These concerns were heightened by the FERC's latest order issued on Monday (6/18), calling for expanded price controls in the Western markets. In addition, the subject of retroactive refunds received renewed attention. 3 The Litmus Test: Impact on Forward Earnings, Returns and Growth Rates In our view, the market's litmus test for evaluating these stories must focus on whether any event has taken place that negatively impacts forward earnings, returns or growth rates for the sector. Our analysis of recent events points to an unchanged forward earnings profile for the sector. On that basis, we regard the recent stock price activity as irrational. 4. Significant ROIC Possible Under FERC Plan Under a best case scenario, assuming power prices remain at their maximum allowable levels under a power emergency, we estimate that a new combined cycle natural gas-fired power plant can earn up to a 68% ROIC. Under a more likely scenario, assuming average power prices approximate 60% of the maximum allowable level, such a plant could earn a 25% ROIC. Importantly, 2-3 years ago, power plant developers were predicating their investment decisions on a targeted 12% ROIC. We have attached a spreadsheet containing our analysis. 5. FERC Settlement Conference Begins Today Today a FERC hosted settlement conference will begin, bringing together California power generators and utilities. The goal will be to get the parties to arrive at an agreement on this issue of refunds and the repayment of past receivables. While the possibility of retroactive refunds presents some uncertainties for the IPP's, we believe closure on this issue could be imminent. The settlement conference may bring some resolution to the situation. Regardless, if no agreement is reached, FERC will issue a final decision on this matter. 6. RRI Analyst Meeting on Tuesday On Tuesday (6/26), Reliant Resources will host its first major analyst meeting since its April 2001 IPO. At the meeting we expect management to clarify its longer-term exposure to FERC's expanded price controls. 7. CSFB Hosting Lunch With UK Chief Regulator on Friday On Friday (6/29) at noon, CSFB will be hosting a luncheon with Callum McCarthy, Chief Executive of the UK Office of Gas and Electricity Markets (OFGEM). In his position, McCarthy serves as the chief power and gas regulator in the UK. The luncheon will take place at our offices at 11 Madison Avenue on the 27th floor. Please contact us if you would like to attend. Regards, Neil Stein 212/325-4217 Bryan Sifert 212/325-3906 This message is for the named person's use only. It may contain confidential, proprietary or legally privileged information. No confidentiality or privilege is waived or lost by any mistransmission. If you receive this message in error, please immediately delete it and all copies of it from your system, destroy any hard copies of it and notify the sender. You must not, directly or indirectly, use, disclose, distribute, print, or copy any part of this message if you are not the intended recipient. CREDIT SUISSE GROUP and each of its subsidiaries each reserve the right to monitor all e-mail communications through its networks. Any views expressed in this message are those of the individual sender, except where the message states otherwise and the sender is authorised to state them to be the views of any such entity. Unless otherwise stated, any pricing information given in this message is indicative only, is subject to change and does not constitute an offer to deal at any price quoted. Any reference to the terms of executed transactions should be treated as preliminary only and subject to our formal written confirmation. - IPW062501a.pdf - ROIC_Under_FERC.xls
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