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.

 <<Price Caps 4-25-01 quick.doc>>  <<Price Caps 4-25-01 quick.pdf>>


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