A note from CSFB on implications from FERC order.  No real "new" news for 
sector.  Indicates market had already priced the info into the stocks.

Jim

---------------------- Forwarded by James D Steffes/NA/Enron on 06/19/2001 
07:49 AM ---------------------------
From: Chip Schneider/ENRON@enronXgate on 06/19/2001 07:34 AM
To: Richard Shapiro/NA/Enron@Enron, James D Steffes/NA/Enron@Enron, Michael 
Tribolet/ENRON@enronXgate
cc:  

Subject: FW: FERC Order: Neutral Implications for the IPPs; Focus on CPN, NRG 
and ORN



 -----Original Message-----
From:  "Sifert, Bryan" <bryan.sifert@csfb.com>@ENRON 
[mailto:IMCEANOTES-+22Sifert+2C+20Bryan+22+20+3Cbryan+2Esifert+40csfb+2Ecom+3E
+40ENRON@ENRON.com]  On Behalf Of "Stein, Neil" <neil.stein@csfb.com>
Sent: Tuesday, June 19, 2001 6:30 AM
To: undisclosed-recipients:;@ENRON
Subject: FERC Order: Neutral Implications for the IPPs; Focus on CPN, NRG and 
ORN

Good Morning,

Attached, please find our FC note on the implications of the June 18 FERC
order for the IPPs.

 <<IPPupdate0601.pdf>>

Summary
1) As expected, on June 18, 2001, the Federal Energy Regulatory
Commission (FERC) issued an order extending the scope of its California
market mitigation plan.  Overall, the order was very much in-line with our
expectations.

2) Minimal Impact on Sector; Recent Valuation Compression Presents
Attractive Opportunity   While we view unfavorably the imposition of any
form of price controls, we believe the expansion of the FERC's current
market mitigation plan will have a minimal impact on the Independent Power
Producers with California exposure-AES, CPN, MIR, NRG, and RRI.  Our reasons
are as follows: 1) The bulk of their capacity is sold forward, making price
controls irrelevant; 2. The FERC's methodology is benign; and, 3) Valuations
already reflect political uncertainty and normalized power prices.

3) Focus on CPN, NRG and ORN   In this situation we would highlight Calpine
(CPN, Strong Buy), NRG Energy (NRG, Buy) and Orion Power (ORN, Buy).  CPN
has the least political risk of any of the California IPPs.  NRG is the best
relative valuation play in the sector at 13.5x 2002 EPS.  ORN, which owns no
assets in the West, is ideal for investors seeking to avoid any exposure to
this issue.

4) Background    In its original plan, which took effect on May 29, the FERC
imposed a floating cost-based wholesale power price cap in California during
periods of stage 1, 2 and 3 emergencies.  This would entail any period when
capacity reserves fall below 7.5%.

5) The June 18 order expands upon the original market mitigation plan in 2
key ways: 1) This order extends the floating price cap mechanism to the
other 10 Western states beyond California and 2) The order extends the
floating price cap mechanism to apply to all hours of the day, not simply
stage 1, 2 and 3 power emergencies.

6) Settlement Conference Scheduled for Late June   The FERC also announced
that it will hold a settlement conference later this month, bringing
together the California utilities and the power generators.  The goal of the
conference will be for these parties to arrive at a settlement on 2 key
issues: 1. Retroactive refunds by the generators related to past power sales
to the utilities; and, 2. Payment for past power purchases by the utilities
from the generators.  Resolution of these key issues would be a major
positive and would remove a major overhang for the sector.  We eagerly await
additional details on the upcoming conference.

Regards,

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

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 - IPPupdate0601.pdf