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----- Original Message -----=20 From: Jack Belcher <mailto:jbelcher@chemweek.com<=20 To: David Holt <mailto:dholt@chemweek.com< ; steve blalock <mailto:sblalock= @calpine.com< ; Joe Parks <mailto:jparks1@houston.rr.com< ; Michael Nix <ma= ilto:menc@earthlink.net< ; Chris Pendergraft <mailto:cpendergraft@calpine.c= om< ; Jimmy Glotfelty <mailto:Jimmy.Glotfelty@hq.doe.gov< ; David Lynch <ma= ilto:dlynch1@txu.com< ; Chris Giblin <mailto:cgiblin@reliant.com< ; Michele= ne Graham <mailto:mgraha1@txu.com< ; Matt McManus <mailto:mcmanusmt@state.g= ov< ; Matt Manley <mailto:matt.manley@neg.pge.com< ; marty allday <mailto:m= artin.allday@elpaso.com< ; Ben Dillon <mailto:bdillon@ipaa.org<=20 Sent: Thursday, April 04, 2002 1:12 PM Subject: Fw: Shares of Independent Power Producers and Traders Fall =20 ----- Original Message -----=20 From: IssueAlert@SCIENTECH.COM <mailto:IssueAlert@SCIENTECH.COM<=20 To: ISSUEALERTHTML@LISTSERV.SCIENTECH.COM <mailto:ISSUEALERTHTML@LISTSERV.S= CIENTECH.COM<=20 Sent: Thursday, April 04, 2002 1:29 PM Subject: Shares of Independent Power Producers and Traders Fall <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09 <http://secure.s= cientech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/C= orner_TR.jpg<=09 =09 <http://secure.scientech.com/rci/wsimages/ia_banner02.gif<=09=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.sciente= ch.com/main/ad_redirect.asp?URL=3Dhttp://wwwenergyjobsnetwork.com/home.asp?= code=3Dscien<=09 <http://secure.scientech.com/main/ad_redirect.asp?URL=3Dh= ttp://wwwcisconference.org<=09=20 <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 =09 <http://secure.scientech.com/rci/wsimages/rbellrgb100border.jpg.jpg<; <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_TR.jpg<=09 =09 SPONSORS <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientech.= com/main/ad_redirect.asp?URL=3Dhttp://wwwthestructuregroup.com<;=20 <http://secure.scientech.com/images/spacer.gif<; INFORMATION PRODUCTS <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientec= h.com/rci/details.asp?ProductID=3D1050< <http://secure.scientech.com/specia= lpages/Generation_Technology_IAs.asp< <http://secure.scientech.com/images= /spacer.gif< <http://secure.scientech.com/specialpages/Generation_Technolog= y_IAs.asp< <http://secure.scientech.com/images/spacer.gif<; CONFERENCES <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientech= .com/images/spacer.gif< Transmission:Operation and Planning ConferenceApril 4-5, 2002Wyndham City C= enter HotelWashington, DC <http://secure.scientech.com/main/ad_redirect.asp= ?URL=3Dhttp://wwwsrinstitute.com/cr219<; <http://secure.scientech.com/imag= es/spacer.gif< Burning PRB Coal:Risk ManagementStrategiesApril 9-10, 2002The Brown HotelLo= uisville, KY <http://secure.scientech.com/main/ad_redirect.asp?URL=3Dhttp:/= /wwwwesterncoalcouncil.org/events< <http://secure.scientech.com/images/sp= acer.gif< Metering/BillingCRM/CISAmericasApril 29-May 2, 2002The HyattNew Orleans, LA= <http://secure.scientech.com/main/ad_redirect.asp?URL=3Dhttp://wwwmetering= .com/events/mam2002/< <http://secure.scientech.com/images/spacer.gif<; <ht= tp://secure.scientech.com/specialpages/New_Rate_Card.asp< <http://secure.= scientech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 April 4, 2002 Shares of Independent Power=20 Producers and Traders Fall=20 By Robert C. Bellemare Vice President=20 <http://secure.scientech.com/images/spacer.gif<; [News item from Reuters] Renewed concerns over accounting irregularities an= d heavy debt burdens took their toll on the power sector on Wednesday, send= ing shares of independent producers and traders falling. The downturn was t= riggered by disclosures in The Wall Street Journal (WSJ) of a financing arr= angement used by Dynegy Inc. (NYSE: DYN) which prompted unwelcome compariso= ns to Enron as well as an inquiry by the Securities and Exchange Commission= (SEC) into energy trader and pipeline operator Williams Cos. (NYSE: WMB).= =20 Analysis: Just when the market conditions appeared to be stabilizing for th= e recently hard-hit independent power producers (IPPs), more unwanted bad n= ews has once again plagued this sector. In addition to Dynegy and Williams,= companies such as Calpine, Mirant and AES have had significant news in the= past week as the companies make moves to weather the storm of business los= ses, lowered credit ratings, softening energy commodity prices, and questio= ns of accounting practices. Let's take a look at the latest developments fo= r these companies.=20 Dynegy shares closed at $28.79 per share, down by about 4 percent, as the m= arket reacted to a WSJ article concerning Dynegy's use of off-balance-sheet= transactions designed to cut tax bills and address a growing gap between c= ash flow and net income. Project Alpha, as it was called, was blessed by Dy= negy's former auditor, Andersen, and current auditor PricewaterhouseCoopers= . Dynegy was quick to try and distinguish this transaction from the type of= business practices that Enron engaged in. Dynegy spokesman John Sousa emph= asized, "The primary drivers of this transaction were that it provided us w= ith a long-term source of physical gas supply and a significant tax benefit= ." Sousa also pointed out that no related parties were involved, Dynegy sto= ck was not used to back the loans, and the transaction was disclosed in Dyn= egy's financial reports last year. In 2000 the company reported "unrealized= gains" of $354 million generated by valuing derivative contracts, increasi= ng the gap between its profit and cash flow. Trading companies include the = estimated value for "derivative" contracts they use for future buying and s= elling of commodities in net income as "unrealized gains." A special purpos= e entity (SPE) was formed in April of last year with a $300-million loan fr= om Citigroup Inc. The SPE entered into gas trades with a partnership called= DMT Supply LP, in which Dynegy held a stake. According to Dynegy, during t= he first nine months of operation, DMT bought gas from the entity at below-= market prices and resold the gas at a profit. But during future years of th= e project scheduled to end in 2006, DMT will buy gas at above-market gas pr= ices, generating unrealized losses. By arranging transactions in this manne= r, Dynegy was able to lower its 2001 tax bill by $80 million. But according= to WSJ, higher values were being assigned to derivative contracts than tho= se assigned to cash transactions which creates a "disconnect" between repor= ted net income and cash flow that investors could notice.=20 Williams shares also dropped by 4.5 percent on Wednesday to close at $23.08= per share on news from WSJ, which reported that the SEC is looking into th= e company's third-quarter results. In reaction, Williams clarified that it = had received a request in early February from the SEC for additional inform= ation concerning the company's 2001 third-quarter results but was told afte= r a review that no financial adjustments were needed. Williams' spokesperso= n Jim Gipson said, "We received an informal, confidential request for infor= mation by the SEC in early February about our third-quarter 10Q. They asked= a couple of questions, we responded in writing, they called back in seven = days and said no amendment to the third-quarter results was required." Gips= on emphasized that, "We are not aware of any unresolved or open issues at t= he SEC." Williams reported a third-quarter net income of $221.3 million, up= from $176.5 million, or 27 cents a share, earned in the same quarter one y= ear ago. The quarter included a one-time charge of $71 million for the comp= any's investment in former subsidiary Williams Communications Group. On Mar= ch 7, Williams announced it had taken a $2.1-billion charge in the fourth q= uarter to account for its contingent liability on Williams Communications. = Williams reported a loss of $477.7 million for the fourth quarter.=20 Calpine shares were down 6.26 percent yesterday apparently in reaction to n= ews that Moody's had downgraded Calpine's unsecured debt from Ba1 to B1, al= ong with a negative ratings outlook. Approximately $12.4 billion of long-te= rm debt instruments are affected. This follows a March 29 report, when the = company disclosed that it will restate 2001 earnings after the company disc= overed that emission-reduction credits it had purchased last year were not = actually available. In a press release, Calpine said 2001 earnings would be= lowered by $11.5 million after tax from the $659.6 million reported on Jan= . 31. The restatement will drop 2001 diluted earnings per share after extra= ordinary items by 3 cents a share, to $1.87.=20 Moody's sited several reasons for the ratings downgrades including Calpine'= s high leverage, limited financial flexibility, and substantial ongoing cap= ital expenditure requirements to complete its reduced build-out program. Ca= lpine's debt is expected to grow over the coming year as the company contin= ues its development of committed projects. While Calpine's total electric s= ales are expected to increase as it completes additional plants, it is expe= cted to be selling into unfavorable market conditions. Moody's anticipated = that lower spark spreads (the difference between electric and fuel prices) = will lower in the near term. Moody's warned that the negative outlook refle= cts the possibility of additional downgrades should Calpine's liquidity pos= ition further deteriorate or its cash flow fall below expectations. Calpine= plans to fund completion of 22 gas-fired power projects and 2 project expa= nsions during 2002 and 2003. Moody's also assigned a Ba3 rating to Calpine'= s $2 billion of senior secured credit facilities. According to Moody's, the= Ba3 rating reflects the benefits and limitations of Calpine's collateral p= ackage. A portion of the collateral package consists of Calpine's equity in= terests in Saltend and nine U.S. power plants. A principal part of the coll= ateral package is Calpine's natural-gas properties, which may be subject to= fluctuation in value based on changes in reserves and gas prices. Moody's = claims a portion of these gas reserves is not proven.=20 Mirant also continues to experience hard times. Its shares were down 6.21 p= ercent to close at $13.60 per share. Although yesterday's downturn may have= largely been driven by the overall downturn in the sector, Mirant has been= involved in several interesting announcements this week as it continues to= try to shore up its balance sheet. On April 1 it was reported that Mirant = has put its Kogan Creek power station and Wilkie Creel coal mine in Queensl= and up for sale. Queensland's government-owned CS Energy, currently 40-perc= ent owner of Kogan Creek, is reported to be a potential buyer, as are MIM a= nd Macarthur Coal. In a separate transaction announced on March 27, Cleco a= greed to buy Mirant's 50-percent interest in a 725-megawatt power plant the= companies are building in northeastern Louisiana. The merchant power plant= is owned by a joint venture between the two companies. Cleco said it would= assume Mirant's $19.5-million equity commitment and pay $48 million to ret= ire Mirant's project debt. Cleco said it would finance the buyout with a co= mbination of new common stock and debt.=20 AES has also fallen on tough times. Although the company's stock was up yes= terday to close at $8.96 per share, the company continues to struggle. Earl= y this week, AES sent a shockwave through the U.K. market when it announced= its decision to put its 363 MW Fifoots Point coal-fired power plant locate= d in Wales into receivership. The recommissioning of Fifoots in late-1999 w= as funded with a $214.5-million loan arranged and underwritten by Deutsche = Bank. Richard Hill, joint administrative receiver at KPMG in London, who is= charged with selling the asset, says Fifoots has some GBP80 million of non= -recourse bank debt obligations as well as other liabilities that have yet = to be fully determined. Similar to the U.S. market, wholesale prices in the= U.K. reportedly have collapsed by 30 percent after the launch of last spri= ng's new bilateral trading system. Accordingly, one report claims at least = a dozen project loans are either in technical default, have broken their co= venants, or are very close to not meeting their coverage ratio.=20 In other AES-related news this week it was announced that GE would be purch= asing AESGener's 40-percent stake in the Servicios Integrales de Generacion= de Energia Electrica (Sigen) services company for an undisclosed amount. G= E already owned 60 percent of the joint venture. AESGener, controlled by AE= S, posted losses of Pesos $5,027mil in 2001 compared to a profit of Pesos $= 2,275mil in 2000. Operating results were down by 12.5 percent to Pesos $70,= 241mil on sales declining 23.8 percent to Pesos $347,009mil. The performanc= e of AES' Argentinean subsidiaries TermoAndes and InterAndes, and selling o= ff the subsidiaries Central Puerto and Puerto Ventanas imposed losses. Rece= ntly appointed AESGener Chairman Roberto Morgan commented that the company = will continue to divest in non-electric assets and assets not based in Chil= e.=20 The fallout of the Enron debacle, lowered credit ratings, and weak commodit= y prices are providing a 1-2-3 blow that has many energy companies on the r= opes struggling to make the bell. The companies are aggressively working to= put up a defense by shoring up their balance sheets through asset sales, p= ostponing or canceling projects and taking necessary write-offs. But as qui= ckly as these companies' fortunes have nosedived, they can rise once again.= Such is the fickle nature of the commodity world.=20 An archive list of previous IssueAlert articles is available at www.scientech.com <http://secure.scientech.com/issuealert/<;=20 _____ =20 "I am an avid fan of your newsletter. You have a terrific team!"=20 Matt T. Aizawa First Vice President Senior Equity Analyst Merrill Lynch Japan _____ =20 "I've been wanting to send you a note to say how much I appreciate the many= excellent articles you, and what must be quite a good staff of writers, pr= ovide us on the issues facing our industry.=20 The articles are thorough and timely and give us a quick analysis of curren= t topics. You and your associates have come a long way in the past year or = so in providing value.=20 I share the information with my staff and they also appreciate the material= you provide.=20 Thanks again."=20 Jay S. Pifer, President Allegheny Power=20 _____ =20 "We at RAG American Coal Holding appreciate the timely energy industry upda= tes that we are receiving from Scientech. Your efforts are refreshing and a= step up from the daily trade publications that we normally receive. Our in= dustry can only benefit from your efforts."=20 Thanks, Ronald W. Haley Vice President, Trade=20 _____ =20 We encourage our readers to contact us with their comments. We look forward= to hearing from you. Nancy Spring <mailto:nspring@scientech.com< Reach thousands of utility analysts and decision makers every day. Your com= pany can schedule a sponsorship of IssueAlert by contacting Jane Pelz <mai= lto:jpelz@scientech.com<at 505.244.7650. Advertising opportunities are also= available on our Website.=20 _____ =20 Our staff is comprised of leading energy experts with diverse backgrounds i= n utility generation, transmission and distribution, retail markets, new te= chnologies, I/T, renewable energy, regulatory affairs, community relations,= and international issues. Contact consulting@scientech.com <http://consult= ing@scientech.com< or call Nancy Spring at 505.244.7613.=20 _____ =20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. 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