GAS PIPELINES. Noting a move toward shorter-term contracts since Order 636, the FERC on July 29 issued an "integrated package" of reform proposals for the natural gas pipeline...
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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