Message-ID: <5516044.1075840902218.JavaMail.evans@thyme> Date: Thu, 26 Apr 2001 10:53:00 -0700 (PDT) From: ray.niles@ssmb.com Subject: FERC Acts to Impose Temporary Price Caps in West Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Niles, Ray X-To: X-cc: X-bcc: X-Folder: \ExMerge - Kitchen, Louise\'Americas\Regulatory X-Origin: KITCHEN-L X-FileName: louise kitchen 2-7-02.pst FERC Acts to Impose Temporary Price Caps in West * QUICK COMMENTARY; ELABORATION PLANNED IN A LATER NOTE * Late last night the Federal Energy Regulatory Commission ("FERC") acted to impose "temporary" wholesale power price caps in the western United States. * The cap affects the "real-time" market, which we estimate is only 5% of the total wholesale market; it is set to expire in one year from May 1 * This is a near-term negative for Power Producers and Energy Merchants, a dramatic example of "headline risk". The political risk of re-regulation has stepped up, in our view, reducing the multiple investors will pay for earnings * In terms of earnings, ironically, the effect may be somewhat positive, albeit small (only 5% of market is affected). Caps are likely to increase volatility, benefiting Energy Merchants, and sustain high power prices for a longer period of time, benefiting Power Producers, by reducing the incentive to build new plants. <> <> Raymond C. Niles Power/Natural Gas Research Salomon Smith Barney (212) 816-2807 ray.niles@ssmb.com s - Price Caps 4-25-01 quick.doc - Price Caps 4-25-01 quick.pdf