Michael,

I think that Keynes was right on the money.
He had great insights into the forward markets.

By  the way, what are your thoughts about CA?


Vince



From: Michael SCHILMOELLER/ENRON@enronxgate on 01/04/2001 02:33 PM
To: Stinson Gibner/HOU/ECT@ECT, Vince J Kaminski/HOU/ECT@ECT
cc:  
Subject: Henwood Stuff and Thoughts about Valuation

Did you guys get this?

I was too interested in the conversation to interrupt with comments about
risk/return & valuation of assets for utilities.  I thought I would mention to
you, however, that when decisions are quantified, utilities usually use
classical decision analysis, i.e., von Neuman utility curves.  If the decision
is for unregulated assets or impacts shareholders directly, it is the
President's curve; if the decision would be covered in rates, it is the
customers' curves or equivalently the PUC's curve.

I think if I were going to approach valuation in commodities where the
assumptions of Black/Scholes do not apply, I would start with the CAPM for
large industries in an area, use pro formas to translate this to utility
curves for the input commodities, and add the utility curves.

Another issue:  The factor that explains why Enron is lowest bidder is its
role in the market.  In the 1930s, Keynes argued that if most market
participants with long position were hedgers, futures prices would be higher
than spot; if they were speculators or traders, future prices would be lower
than spot.  Traders must be compensated for holding the risk; hedgers
(including utilities and consumers) are willing to pay a premium for the
certainty.  Consequently, Enron traders have bigger bid/ask spreads and lower
bid prices.

Just some random thoughts,
Michael


-----Original Message----- 
Date:  01/04/2001  10:41 am  (Thursday)  
From:  "Heather Mason" <hmason@hesinet.com>
To:  HQ3.EM5(Michael Schilmoeller)

Mark Your Calendar-Tuesday January 23, 2001 Downtown Houston Hyatt Hotel

Henwood will be hosting a comprehensive ERCOT Symposium on Tuesday,  January 
23, 2001. A team of Henwood regional power market specialists will be 
presenting the latest analysis and 
information to assist you in preparing for the new ERCOT Restructured Power 
Market, in addition to an anlysis of the issues now playing out in the WSCC 
markets.   Coffee and registration will 
begin at 9:30 AM  and the program will run until 3:00 PM.  Lunch and snacks 
will be provided.  

Agenda topics include:

* What will be the critical-success factors for qualified scheduling entities 
operating in ERCOT's new wholesale & retail markets?
* How will market restructuring impact mid to long-term wholesale prices?
* What is the outlook for new generation?
* What are the impacts of upcoming emission regulations on ERCOT's generation 
resources?
* What are the new analytical tools available to capture market uncertainty 
impacts to your supply contracts and generation assets?
* What are the restructuring lessons learned from the California experience 
and the implications to ERCOT?

In conjunction with this Program, Henwood will have a demonstration room 
available to present its latest software applications and e-business 
solutions. A nominal $75 registration fee is required 
to reserve a space in the workshop.

For more information or to reserve your spot, please contact Heather Mason at 
Henwood: hmason@hesinet.com or 916/569-0985.



About Henwood: Henwood offers integrated business solutions, strategic 
consulting, and innovative e-Business applications to meet the challenges of 
the restructured energy markets throughout 
North America, Australia, and Europe, serving clients that include eight of 
the ten top utilities in North America, in addition to energy services 
providers and power marketers.