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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: James D Steffes X-To: Mark Palmer, Karen Denne, Steven J Kean, Janel Guerrero, Linda Robertson, Jeff Dasovich, Susan J Mara, Alan Comnes, Ray Alvarez, Christi L Nicolay, Sarah Novosel X-cc: X-bcc: X-Folder: \Jeff_Dasovich_Oct2001\Notes Folders\Notes inbox X-Origin: DASOVICH-J X-FileName: jdasovic.nsf A note from CSFB on implications from FERC order. No real "new" news for sector. Indicates market had already priced the info into the stocks. Jim ---------------------- Forwarded by James D Steffes/NA/Enron on 06/19/2001 07:49 AM --------------------------- From: Chip Schneider/ENRON@enronXgate on 06/19/2001 07:34 AM To: Richard Shapiro/NA/Enron@Enron, James D Steffes/NA/Enron@Enron, Michael Tribolet/ENRON@enronXgate cc: Subject: FW: FERC Order: Neutral Implications for the IPPs; Focus on CPN, NRG and ORN -----Original Message----- From: "Sifert, Bryan" <bryan.sifert@csfb.com<@ENRON [mailto:IMCEANOTES-+22Sifert+2C+20Bryan+22+20+3Cbryan+2Esifert+40csfb+2Ecom+3E +40ENRON@ENRON.com] On Behalf Of "Stein, Neil" <neil.stein@csfb.com< Sent: Tuesday, June 19, 2001 6:30 AM To: undisclosed-recipients:;@ENRON Subject: FERC Order: Neutral Implications for the IPPs; Focus on CPN, NRG and ORN Good Morning, Attached, please find our FC note on the implications of the June 18 FERC order for the IPPs. <<IPPupdate0601.pdf<< Summary 1) As expected, on June 18, 2001, the Federal Energy Regulatory Commission (FERC) issued an order extending the scope of its California market mitigation plan. Overall, the order was very much in-line with our expectations. 2) Minimal Impact on Sector; Recent Valuation Compression Presents Attractive Opportunity While we view unfavorably the imposition of any form of price controls, we believe the expansion of the FERC's current market mitigation plan will have a minimal impact on the Independent Power Producers with California exposure-AES, CPN, MIR, NRG, and RRI. Our reasons are as follows: 1) The bulk of their capacity is sold forward, making price controls irrelevant; 2. The FERC's methodology is benign; and, 3) Valuations already reflect political uncertainty and normalized power prices. 3) Focus on CPN, NRG and ORN In this situation we would highlight Calpine (CPN, Strong Buy), NRG Energy (NRG, Buy) and Orion Power (ORN, Buy). CPN has the least political risk of any of the California IPPs. NRG is the best relative valuation play in the sector at 13.5x 2002 EPS. ORN, which owns no assets in the West, is ideal for investors seeking to avoid any exposure to this issue. 4) Background In its original plan, which took effect on May 29, the FERC imposed a floating cost-based wholesale power price cap in California during periods of stage 1, 2 and 3 emergencies. This would entail any period when capacity reserves fall below 7.5%. 5) The June 18 order expands upon the original market mitigation plan in 2 key ways: 1) This order extends the floating price cap mechanism to the other 10 Western states beyond California and 2) The order extends the floating price cap mechanism to apply to all hours of the day, not simply stage 1, 2 and 3 power emergencies. 6) Settlement Conference Scheduled for Late June The FERC also announced that it will hold a settlement conference later this month, bringing together the California utilities and the power generators. The goal of the conference will be for these parties to arrive at a settlement on 2 key issues: 1. Retroactive refunds by the generators related to past power sales to the utilities; and, 2. Payment for past power purchases by the utilities from the generators. Resolution of these key issues would be a major positive and would remove a major overhang for the sector. We eagerly await additional details on the upcoming conference. 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. - IPPupdate0601.pdf
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