We've been working with this company for a long time. As a matter of fact its been almost two years. It has undergone all of the org changes on our side and was handed to my group in the 4th quarter of 2000. There have also been numerous changes in their organization. The crazy markets in California finally got them to transact with us for a 5yr power and gas deal about 60 days ago. We did a fixed priced all in retail rate for them as they really wanted price and budget certainty. They spend about $50mm/ yr on gas and power. There has been a lot of concern by the street about the impact of power prices on the gaming industry. As a matter of fact, Bear Stearns issued a report specifically highlighting the streets concerns about rising power prices in the gaming industry and the adverse effect on EPS/
We are currently trying to close the second part of this deal which involves a demand-side management program. In essence we estimate that we would invest about $20-22mm in capital (thru off-balance sheet operating leases) to reduce their demand and provide them with about $27mm in nominal savings over the next 10 years. This translates into guaranteed savings to them $2.8mm/yr for the first 5 years and then $2.6mm/yr for the back 5 years.
We are trying to close this portion of the deal by the end of the week. It creates great value for both companies.
Between Park Place and Harrah's we are in a great position to sign-up the other big gaming players, such as MGM/Mirage and Mandalay Bay. As a matter of fact we sponsored an event in Vegas last week where we had all of the top people from these companies.
The Issue and the reason for your call:
Tom Gallagher, who is the CEO of Park Place and recently joined them from Hilton Hotels earlier this year, is not convinced the he should do the demand side management program, despite support from his CFO, Scott LaPorta and his head of Operations, Mark Dotson. A call from you addressing the issues outlined below, I think, would help put this one over top. In particular, I think the first point is his greater concern.
He lives in California and has seen all of the "bad" press about Enron and is concerned about what he is reading and whether or not he wants to get deeper with Enron. In essence, hearing from you about what is really going on in California and that we are on the side of Angels in essential. It is also nice for him to know that if things do go wrong, he can call someone like you.
He doesn't understand why his in-house team can't do the demand side program themselves. This as you know, is the classic issue of insource vs outsource. Since it has taken so long to get to this point, he is a bit concerned that it will take us another 18 months to get consumption reduction projects going. We have done all of the necessary due diligence, priced and valued the opportunity and are ready to pull the trigger across all of his 9 facilities. We are the ones responsible for identifying, designing and executing. We clearly have the expertise, scale and technical capability that he just doesn't have in-house or they would have done this already. Again, just hearing from you, at a high-level, should help convince him why he should look to us vs his in-house people. We are also going to have him reference Art Coppola, CEO of Macerich to re-affirm why they decided to turn over demand side management to Enron.
His number is 702-699-5100. The 1-on-1 call from you would really help. He is meeting with his management committee tomorrow to make the go/no-go call on this.
Thanks so much and let me know if you have any questions. I will be in Chicago tomorrow working on our deal with City Airports, but my assistant Sharon Dick, can reach me if you have any questions. She is at 3-6761.