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Enron Mail |
Good Morning:
Attached, please find our FC note discussing the report issued by the FERC ALJ following the refund settlement conference, which concluded on Monday. <<IPPupdate071301.pdf<< Summary: 1. On July 12, Curtis Wagner, the Administrative Law Judge who presided over the recent FERC settlement conference, issued a report presenting his findings and recommendations on next steps. Overall, the report was very much consistent with our expectations. 2. Wagner notes that large refunds are due from the generators. However, he argues that the $8.9 billion amount demanded by the State of California "cannot be substantiated." Rather, ultimate refunds will likely approach and perhaps exceed a mere $1 billion. Further, Wagner indicates that amounts owed to the generators likely exceed any refunds that may be due. As such, cash refunds, which have been demanded by California Governor Gray Davis, cannot be justified. 3. Wagner's recommendations focus less on quantifying refunds due and more on the appropriate methodology and procedures FERC should adopt in arriving at a final decision. In terms of methodology, Wagner argues that with some modification FERC should apply its June 19 market mitigation order, which called for 24 hour floating price caps, on a retroactive basis to October 2, 2000. From a procedural perspective, Wagner recommends that FERC order a 60 day evidentiary hearing to resolve the significant factual disputes between the State of California and the generators and other power sellers. 4. Litmus Test: Impact on Forward Earnings Our view is that the market's litmus test for evaluating recent political and regulatory events must focus on their impact on forward earnings, returns and growth rates. It is important to remember that while the prospect of refunds creates some uncertainty, this issue has absolutely no bearing on the forward earnings prospects for any of the California IPPs-AES, CPN, MIR, NRG, and RRI. 5. CPN and MIR are Best Positioned In our view, Strong Buy rated Calpine and Buy rated Mirant face the least exposure with respect to the refund issue. In the case of Calpine, recent press reports indicate that the company is close to a bilateral settlement with the State of California, which would resolve all outstanding issues with regard to retroactive refunds. We believe this settlement could be forthcoming over the next 2 weeks. Such an announcement would be an important catalyst for the stock. In the case of Mirant, while the company had been involved in the spot market over the past 12 months, the company has reserved about $295 million (75%) against its past receivables. We regard this action as highly conservative, providing MIR considerable downside protection. 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. - IPPupdate071301.pdf
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