Message-ID: <27963770.1075851659490.JavaMail.evans@thyme> Date: Fri, 19 Oct 2001 05:42:13 -0700 (PDT) From: neil.stein@csfb.com To: undisclosed-recipients@enron.com Subject: Power Generation Update: Easier Said than Done!---Potential forC alifornia Power Contract Restructuring Is Limited; Initial ReportsMay Ha ve Been Mistaken Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Stein, Neil X-To: undisclosed-recipients X-cc: X-bcc: X-Folder: \Dasovich, Jeff (Non-Privileged)\Dasovich, Jeff\Inbox X-Origin: DASOVICH-J X-FileName: Dasovich, Jeff (Non-Privileged).pst > <> > Good Morning, > > Attached, please find our latest Power Generation Update. > > 1. Governor Seeking to Renegotiate Contracts? On October 18, our IPP > composite traded off 3.6% following reports by the LA Times and Dow Jones > News Wire which suggested that a new initiative was underway by California > Governor Gray Davis to renegotiate the 53 power sales contracts between > various generators and the California Department of Water Resources (CDWR) > arranged during the first and second quarter of 2001. Further, it was > indicated that the Governor will host a press conference today to discuss > this new initiative. > > 2. Initial Reports May Have Been Mistaken Importantly, our contacts in > Sacramento were unable to confirm that such an initiative is underway. > Further, subsequent reports indicated that while the Governor would host a > press conference today, he will not call for any contract renegotiations. > > > 3. Current Stock Prices Assign No Value to the Contracts Out of our > coverage universe, such power contracts with the CDWR have been entered > into by Calpine (CPN, $25.27, Strong Buy), Mirant (MIR, $27.35), and NRG > Energy (NRG, $18.87, Buy). To the extent the IPPs are trading at a 10% > average discount to our estimate of the private market value of their > assets, we do not believe investors are assigning any value to these > contracts. > > 4. California Has Few Legal Options Regardless, while it is possible to > envision contract restructurings that are mutually beneficial to both > parties, it is difficult to envision a scenario where the economics of the > contracts would be dramatically altered. The agreements between the > generators and the state are binding contracts governed by Federal law and > the US Constitution. Simply because power prices have fallen since the > contracts were signed does not give the State the right to renegotiate > their terms. > > 5. CPN and MIR Are Least Vulnerable Given the low cost nature of CPN's > contracts, we believe they face minimal exposure should the state attempt > to renegotiate. In Mirant's case, because its contract is relatively > short-term, we also regard its exposure as relatively minimal. > > Regards, > > Neil Stein 212/325-4217 This message is for the named person's use only. It may contain confidential, proprietary or legally privileged information. No confidentiality or privilege is waived or lost by any mistransmission. If you receive this message in error, please immediately delete it and all copies of it from your system, destroy any hard copies of it and notify the sender. You must not, directly or indirectly, use, disclose, distribute, print, or copy any part of this message if you are not the intended recipient. CREDIT SUISSE GROUP and each of its subsidiaries each reserve the right to monitor all e-mail communications through its networks. Any views expressed in this message are those of the individual sender, except where the message states otherwise and the sender is authorised to state them to be the views of any such entity. Unless otherwise stated, any pricing information given in this message is indicative only, is subject to change and does not constitute an offer to deal at any price quoted. Any reference to the terms of executed transactions should be treated as preliminary only and subject to our formal written confirmation.