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Did Power Plant Buyers Pay Too Much?

Fortnightly Magazine - November 1 1999

not move in tandem. At Pace Global Energy Services, we hold the view that a dominant presence in one regional market is preferable to owning one small plant in several regional markets, as economies of scale may be achieved. Of course, a dominant presence in several markets is better still. Think Long and Short. Above all, valuation is a multi-tiered exercise. It must integrate supply and demand, encompassing the value that a plant has as both a power-producing machine and a hedging instrument. Our firm has developed such a multi-tiered approach. While a full presentation of the entire process is well beyond the scope of this publication, a simplified application of a single aspect of the approach can address the question, "Were the prices paid for recent power plant acquisitions too high?" - A.H.

1 This fuel cost assumption is also more consistent with the assumptions used in the confidential Offering Circular for the 144A Bond offering that financed Edison Mission's Homer City deal. 2 While this capital structure is consistent with recently financed transactions, the actual debt-equity ratio for the Homer City deal had a much higher proportion of equity capital.


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