Good Morning,

Attached, please find the latest issue of our Independent Power Weekly.

 <<IPW062501a.pdf>>  <<ROIC_Under_FERC.xls>>

Summary:
1. IPPs Fall 10.4%   Last week our IPP composite fell 10.4%, underperforming
both the NASDAQ (+0.3%) and the S&P 500 (+0.9%).  International Power was
the strongest performer in the group, rising 1.7%.  Shaw Group was the
weakest performer, falling 18.1%.

2. Same Old Story--Politics   Last week's lackluster stock price performance
reflected lingering political and regulatory uncertainties.  These concerns
were heightened by the FERC's latest order issued on Monday (6/18), calling
for expanded price controls in the Western markets.  In addition, the
subject of retroactive refunds received renewed attention.

3 The Litmus Test: Impact on Forward Earnings, Returns and Growth Rates   In
our view, the market's litmus test for evaluating these stories must focus
on whether any event has taken place that negatively impacts forward
earnings, returns or growth rates for the sector.  Our analysis of recent
events points to an unchanged forward earnings profile for the sector.  On
that basis, we regard the recent stock price activity as irrational.

4. Significant ROIC Possible Under FERC Plan   Under a best case scenario,
assuming power prices remain at their maximum allowable levels under a power
emergency, we estimate that a new combined cycle natural gas-fired power
plant can earn up to a 68% ROIC.  Under a more likely scenario, assuming
average power prices approximate 60% of the maximum allowable level, such a
plant could earn a 25% ROIC.  Importantly, 2-3 years ago, power plant
developers were predicating their investment decisions on a targeted 12%
ROIC.  We have attached a spreadsheet containing our analysis.
5. FERC Settlement Conference Begins Today   Today a FERC hosted settlement
conference will begin, bringing together California power generators and
utilities.  The goal will be to get the parties to arrive at an agreement on
this issue of refunds and the repayment of past receivables.  While the
possibility of retroactive refunds presents some uncertainties for the
IPP's, we believe closure on this issue could be imminent.  The settlement
conference may bring some resolution to the situation.  Regardless, if no
agreement is reached, FERC will issue a final decision on this matter.
6. RRI Analyst Meeting on Tuesday   On Tuesday (6/26), Reliant Resources
will host its first major analyst meeting since its April 2001 IPO.  At the
meeting we expect management to clarify its longer-term exposure to FERC's
expanded price controls.
7. CSFB Hosting Lunch With UK Chief Regulator on Friday   On Friday (6/29)
at noon, CSFB will be hosting a luncheon with Callum McCarthy, Chief
Executive of the UK Office of Gas and Electricity Markets (OFGEM).  In his
position, McCarthy serves as the chief power and gas regulator in the UK.
The luncheon will take place at our offices at 11 Madison Avenue on the 27th
floor.  Please contact us if you would like to attend.


Regards,

Neil Stein   212/325-4217
Bryan Sifert   212/325-3906

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 - IPW062501a.pdf
 - ROIC_Under_FERC.xls