SSB Electrical Equipment Analyst Power Supply/Demand Outlook

*	Jeff Sprague, SSB's Electrical Equipment analyst, has an interesting
perspective on the supply/demand balance for power.  His forecast is based
on GE's order book for turbines, which we think is an excellent source of
info.
*	Jeff points out that no orders have been canceled so far.
*	Although there are slight differences in our estimations of new
plant builds (his is higher) and reserve margin (his is higher), we think
this info. supports our view.  On the margin, new plant builds exceed
demand, and reduce the tightness in the market, as measured by reserve
margins.  We think there will be downward pressure on power prices and spark
spreads in this environment.

I've also attached Jeff's comments below, which he sent to his clients,
vis-a-vis the Electrical Equipment sector and GE in particular, as well as
our recent PC6 report, for reference.  Any questions, please call. - Ray

 <<PC6final.pdf>>  <<Sprague--Supply&Demand--client.xls>>

Jeff's Sprague's (212-816-6699) comments:

GE stock has been weak in recent days as concerns about lower power prices
have hurt utility stocks and raised the fear that power capacity is being
overbuilt.

Ultimately enough capacity will be deployed in the US, but we do not believe
we are there yet.  Based on our analysis of GE's delivery plans, the US will
reach a 14% reserve margin (based on capability at summer peak load) in
2002.

We do not expect the industry to ever return to the 20%+ reserve margins of
yesteryear, but 14% seems far from excessive given the very severe
shortcomings of the electrical grid (see our 6/4 report on the grid).

If GE's output in '03 is flat with '02, reserve margins would rise to a
still reasonable 16%.  GE has filled 90-95% of its backlog for 2003 and has
experienced no cancellations or push-outs in orders to date.

The bottom line is we believe the sell-off in GE is overdone.  We will
publish a more detailed report on the supply demand equation in the U.S.
power market in the coming days.  Please see the attached spreadsheet for a
more detailed analysis.


Raymond C. Niles
Power/Natural Gas Research
Salomon Smith Barney
(212) 816-2807
ray.niles@ssmb.com

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 - PC6final.pdf 
 - Sprague--Supply&Demand--client.xls