---------------------- Forwarded by Mark Koenig/Corp/Enron on 06/06/2000
03:57 PM ---------------------------
Jason Lindauer <jlindauer@Carsongroup.com< on 06/06/2000 03:35:26 PM
Subject: US Officials Dismiss Rumors Of Power Market Price Caps
By Bryan Lee
WASHINGTON (Dow Jones)--Speculation that U.S. regulators would impose
caps on competitive power markets sent several sector stocks into a tumble
But officials with the U.S. Federal Energy Regulatory Commission and the
Department of Energy Tuesday called the speculation unfounded.
"We're not discussing (price controls)," said FERC Commissioner Curtis
"This is the first I've heard of it," said FERC Commissioner William
"I am not aware and have not been involved in any discussion related to
generic application of price caps," Massey said.
A senior Energy Department official dismissed a rumor that Energy
Bill Richardson had asked FERC to consider price caps as a response to
potential power grid outages this summer.
"We have not at all talked about price caps with FERC," the Energy
official said, adding: "We do not intend to get involved in that issue."
The comments came after shares of several companies active in the
natural gas and power sectors took a severe hit Monday in response to
that the regulators would cap power prices, which would limit revenue from
gas-fired generation investments.
Shares of Dynegy Inc. (DYN) dropped 8.6% on Monday, while Enron Corp.
and El Paso Energy Corp. (EPG) saw their stocks fall 4.9% and 5%. Calpine
(CPN) took the hardest fall, losing 12% of its share value.
Wall Street analysts attributed the sell-off to profit-taking and an
reaction to speculation in a Prudential Securities note to investors
the potential for FERC to intervene in competitive power markets.
The June article, written by Carol Coale, a Houston-based analyst with
Prudential, said FERC "is proposing to endorse price caps on electricity to
prevent brownouts and other reliability issues."
Coale warned that this "could significantly limit the profitability" of
gas-fired generation investments by Dynegy, Enron, El Paso and Duke Energy
(DUK), which also saw share values tumble this week.
These companies developing gas-fired power plants could see their
profitability affected "if the FERC were to actually take such action,"
(MORE) DOW JONES NEWS 06-06-00
03:24 PM- - 03 24 PM EDT 06-06-00
"My comments triggered a knee-jerk reaction," Coale said Tuesday.
"It's interesting to see how one small comment gets blown up," she said.
Coale joined other analysts Tuesday in saying investors overreacted, and
suggested that Monday's sell-off might present a good opportunity to buy the
"We do not believe the government is interested in nationwide power price
caps," said James Yannello, an analyst with PaineWebber, in a note to
"We see the recent pullback...as an excellent buying opportunity," Yanello
Coale said the ground was laid for Monday's stock dive when Dynegy issued
press release Friday urging FERC "to resist the temptation to endorse price
The possibility of price caps was raised by Dynegy and others in response
FERC's May 17 notice seeking comments on actions the regulators can take
summer to assure power grid reliability.
While those comments urged the commission against considering price
the mere discussion of capping the steep spikes in power prices during
transmission grid constraints spooked investors Monday.
Massey, the FERC commissioner, noted that the commission has never imposed
price caps on the competitive wholesale power markets its regulations helped
FERC has imposed price caps only in certain markets for "ancillary
the term used for electricity generation necessary to assure grid
"The price caps at the wholesale level are few and far between, and for
most part are very generous," Massey said.
The grid-reliability measures FERC proposed May 17 would allow industrial
generators to sell power into the grid at prevailing market rates, or to get
paid for not using electricity, during a grid-reliability emergency, Massey
Hebert, the lone Republican commissioner who has consistently voted
the FERC majority Democrats in allowing the price caps, said the stock
reaction this week validates his arguments against price controls.
"Investors see their opportunity to earn being inhibited by FERC," Hebert
said. "This is evidence of what I've been talking about. Price controls
consistently inhibit the market."
The stock performance of these companies will continue to be overshadowed
uncertainty until FERC announces its "final decision" on power grid
reliability, Coale said in a followup note to investors Tuesday.
"While we do not see a trend for the FERC to re-regulate the wholesale
electricity market, we do see a trend in its propensity to approve temporary
price caps in certain illiquid markets," Coale said.
-By Bryan Lee, Dow Jones Newswires; 202-862-6647; email@example.com
(END) DOW JONES NEWS 06-06-00
04:27 PM- - 04 27 PM EDT 06-06-00
< Jason M. Lindauer
< The Carson Group
< 156 W. 56th Street, 10th Fl.
< New York, NY 10019
< Phone: (212) 707-0680
< Fax: (212) 265-9813