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Enron Mail |
Dave, I still believe that the most flexible model that provides high ROCE
and has growth not constrained by capital is the one being employed by Enron. I think the cash on cash returns on these Genco's in the short run will be good; however, I think it will be difficult for these companies to move quickly to react to market opportunities given their need to protect their long position (not unlike our friends in the oil & gas producing sector). The returns and value provided by these companies will be primarily be based on the timing of new production and their asset base and they will realize (on a relative basis) very little from the trading. It is not a bad model just a different one. Either way, they will be a strong bid for assets given their story to Wall Street. Regards Delainey ---------------------- Forwarded by David W Delainey/HOU/ECT on 08/14/2000 08:33 AM --------------------------- David Haug@ENRON_DEVELOPMENT 08/10/2000 10:17 PM To: Greg Whalley/HOU/ECT@ECT, David W Delainey/HOU/ECT@ECT cc: Subject: Assets and Trading What do you guys think of the conclusion here re the need for large asset portfolios? - - -DLH ---------------------- Forwarded by David Haug/ENRON_DEVELOPMENT on 08/10/2000 10:14 PM --------------------------- Shawn Cumberland 08/10/2000 11:41 AM To: David Haug/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Subject: Assets and Trading David: This is a very intersting article for you to consider when the management considers what businesses Newco should include. This article suggests that a combination of physical assets and trading are best. That may be true for US and Europe markets, but maybe not for lesser developed countries. Shawn Analyst: Koch Venture Adds Value To Entergy-FPL Merger By Bryan Lee 08/10/2000 Dow Jones Energy Service (Copyright © 2000, Dow Jones & Company, Inc.) OF DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- The trading venture between Entergy Corp. (ETR) and Koch Industries will get a big boost from the utility's planned merger with FPL Group (FPL), marrying trading floor expertise with a commanding array of power plant assets. So says Diane Borska, director of the utilities and energy practice at Cambridge, Mass.-based Fuld Inc., a consulting firm specializing in "competitive intelligence." In April, Entergy and Koch formed a joint venture to trade electricity and natural gas. The Koch joint venture is "the real killer thing about this merger," Borska said in an interview, in which she elaborated on her observations in a "white paper" analyzing the Entergy-FPL transaction. Once completed, the merger will put the combined company at the vanguard of competitive energy companies seeking convergence between physical assets and trading floor and risk management expertise, Borska said. Many companies are strong in trading floor and risk management expertise, but lack physical assets they can leverage in competitive electricity markets, Borska observed. On the other hand, utilities are rich in physical assets, but lack trading floor expertise, she said. In the past, "the people who have excelled have not necessarily had physical assets," Borska said. But in the future, "the people who are going to dominate are going to have both huge national asset portfolios and top-tier trading and risk management expertise," she said. "It's not going to one or the other." Koch has been in the top 20 in terms of trading energy. But adding the tremendous portfolio of power plant assets involved in the Entergy-FPL merger will undoubtedly bump Koch's trading into the top 10 or top five, Borska predicted. The stock transaction valued at $7 billion will bring together 48,000 megawatts of power generation capacity, creating the nation's largest electric utility company with 6.3 million customers. Included in that staggering generation portfolio are 10,000 megawatts of so-called "merchant" power plants, which solely sell wholesale energy into competitive bulk-power markets, rather than serve a retail customer base. These competitive-market merchant plants are geographically dispersed in a complementary way, distributed among five regional power market hubs in the Northeast and mid-Atlantic, Southeast, Midwest, Gulf South and Western states, Borska noted. The two companies' existing development pipeline would triple the existing 10,000 megawatts merchant generating capacity, and plans call for growing the business into a 70,000-megawatt merchant-plant portfolio, Borska noted. "Additions to the fleet will come from additional nuclear power plant acquisitions and from green-field development of gas-fired plants," Borska noted in her white paper analysis of the transaction. The companies will be able to piggy-back onto Koch's 10,000-mile network of pipelines to supply their planned gas-fired power plant additions, Borska noted. The merger, when combined with the access to gas supply and trading-floor expertise of Koch, should cause investors to re-examine the higher valuations given pure-play generation companies compared to generation-rich combination companies, Borska said. AES Corp. (AES) and Calpine Corp. (CPN) have huge market valuations, but aren't known for engaging in "large, deep trading," she said. "Their ability to fully leverage their assets in the marketplace has been limited," Borska said. The Entergy merger with FPL, when considered in light of the Koch joint venture, "raises the bar for a Calpine or an AES" to gain the capability to leverage their significant physical assets, Borska said. Other energy companies, such as Dynegy (DYN) and Duke Energy (DUK), marry significant generation assets with trading floor sophistication, Borska conceded. But they aren't on the same scale or geographic scope as the Entergy-FPL-Koch combination, she said. -By Bryan Lee, Dow Jones Newswires; 202-862-6647; bryan.lee@dowjones.com
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