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Enron Mail |
Elizabeth & Janice:
I put on the fax to you two articles from today's WSJ that I thought you would have some interest in if you have not seen the Journal today. 1. I am assuming that the ENA Credit folks are all over the issues pertaining to the effect of the high wholesale prices on IOU counterparties that do not have the ability to pass on such higher costs to their retail customers, in most cases because the IOU distribution companies are subject to a rate freeze under their deregulation laws or, in some other cases, because they no longer have "power purchase" or fuel adjustment type adders in their tariffs to be able to pass through such added expenses, but I thought I would just pass this article along since it is clear that the rating agencies are going to start scrutinizing these situations very closely. As you well know, this issue has been highly publicized in the CA situation, where I believe PG&E and SoCalEd have incurred "losses" on the difference between their wholesale power purchases and the amount they are allowed to sell that power for at retail. That amount has been reported to be over $7B which if the situation continues as it is going will likely wipe out a substantial (if not all) of the companies' shareholder equity. Of interest is that the CA utilities have not yet taken these "losses" for financial statement purposes since they are holding out the hope of a rate recovery, a fact that the capital markets are starting to focus on. From our standpoint, as you know, this is not just a CA problem. Similar, though not as dramatic wholesale power spike, problems exist in other parts of the country--for example, in New England because of the increase in gas prices (and in the Northwest). Thus, as we are contracting with various IOU counterparties (even the straightforward T&D companies (i.e., those without generation) that traditionally were looked at as very safe from a credit perspective, we will need to be mindful (and perhaps get up to speed) on the state regulatory rules applicable to the recovery of wholesale power purchase prices by the those utilities, particularly since those counterparties could be adversely affected by deals other than ours. 2. The second article discusses Constellation's contract to purchase of the Nine Mile 1 and 2 nuclear interests from some of the co-owners of those plants. You will note that there also is a 10-year buy-back PPA between Constellation and the selling IOUs. We will obtain a copy of the PPAs to see if there is anything of particular interest vis-a-vis the questions I spoke about the other day with Janice--but my guess is that, since the buyers are IOUs, the PPAs will look more like the Pilgrim, Clinton and Oyster Creek PPAs that Janice and I spoke about that are fairly "stripped down" and don't reflect many of the provisions we typically would want. I'll follow up with Janice on this. John "This e-mail, including attachments, contains information that is confidential and it may be protected by the attorney/client or other privileges. This e-mail, including attachments, constitutes non-public information intended to be conveyed only to the designated recipient(s). If you are not an intended recipient, please delete this e-mail, including attachments and notify me by return mail, e-mail or by phone at 212 424-8125. The unauthorized use, dissemination, distribution or reproduction of the e-mail, including attachments, is prohibited and may be unlawful. John Klauberg LeBoeuf, Lamb, Greene & MacRae, L.L.P. 212 424-8125 jklauber@llgm.com
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