Dave, I still believe that the most flexible model that provides high ROCE 
and has growth not constrained by capital is the one being employed by 
Enron.  I think the cash on cash returns on these Genco's in the short run 
will be good; however, I think it will be difficult for these companies to 
move quickly to react to market opportunities given their need to protect 
their long position (not unlike our friends in the oil & gas producing 
sector).  The returns and value provided by these companies will be primarily 
be based on the timing of new production and their asset base and they will 
realize (on a relative basis) very little from the trading.

It is not a bad model just a different one.

Either way, they will be  a strong bid for assets given their story to Wall 
Street.

Regards
Delainey
---------------------- Forwarded by David W Delainey/HOU/ECT on 08/14/2000 
08:33 AM ---------------------------


David Haug@ENRON_DEVELOPMENT
08/10/2000 10:17 PM
To: Greg Whalley/HOU/ECT@ECT, David W Delainey/HOU/ECT@ECT
cc:  
Subject: Assets and Trading

What do you guys think of the conclusion here re the need for large asset 
portfolios? - - -DLH
---------------------- Forwarded by David Haug/ENRON_DEVELOPMENT on 
08/10/2000 10:14 PM ---------------------------


Shawn Cumberland
08/10/2000 11:41 AM
To: David Haug/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:  

Subject: Assets and Trading


David:  This is a very intersting article for you to consider when the 
management considers what businesses Newco should include.  This article 
suggests that a combination of physical assets and trading are best.  That 
may  be true for US and Europe markets, but maybe not for lesser developed 
countries.

Shawn

 
Analyst: Koch Venture Adds Value To Entergy-FPL Merger
By Bryan Lee
  
08/10/2000 
Dow Jones Energy Service 
(Copyright (c) 2000, Dow Jones & Company, Inc.) 

OF DOW JONES NEWSWIRES 

WASHINGTON -(Dow Jones)- The trading venture between Entergy Corp. (ETR) and 
Koch Industries will get a big boost from the utility's planned merger with 
FPL Group (FPL), marrying trading floor expertise with a commanding array of 
power plant assets.

So says Diane Borska, director of the utilities and energy practice at 
Cambridge, Mass.-based Fuld Inc., a consulting firm specializing in 
"competitive intelligence." 
In April, Entergy and Koch formed a joint venture to trade electricity and 
natural gas. 

The Koch joint venture is "the real killer thing about this merger," Borska 
said in an interview, in which she elaborated on her observations in a "white 
paper" analyzing the Entergy-FPL transaction. 

Once completed, the merger will put the combined company at the vanguard of 
competitive energy companies seeking convergence between physical assets and 
trading floor and risk management expertise, Borska said. 

Many companies are strong in trading floor and risk management expertise, but 
lack physical assets they can leverage in competitive electricity markets, 
Borska observed. 

On the other hand, utilities are rich in physical assets, but lack trading 
floor expertise, she said. 

In the past, "the people who have excelled have not necessarily had physical 
assets," Borska said. 

But in the future, "the people who are going to dominate are going to have 
both huge national asset portfolios and top-tier trading and risk management 
expertise," she said. "It's not going to one or the other." 

Koch has been in the top 20 in terms of trading energy. But adding the 
tremendous portfolio of power plant assets involved in the Entergy-FPL merger 
will undoubtedly bump Koch's trading into the top 10 or top five, Borska 
predicted. 

The stock transaction valued at $7 billion will bring together 48,000 
megawatts of power generation capacity, creating the nation's largest 
electric utility company with 6.3 million customers. 

Included in that staggering generation portfolio are 10,000 megawatts of 
so-called "merchant" power plants, which solely sell wholesale energy into 
competitive bulk-power markets, rather than serve a retail customer base. 

These competitive-market merchant plants are geographically dispersed in a 
complementary way, distributed among five regional power market hubs in the 
Northeast and mid-Atlantic, Southeast, Midwest, Gulf South and Western 
states, Borska noted. 

The two companies' existing development pipeline would triple the existing 
10,000 megawatts merchant generating capacity, and plans call for growing the 
business into a 70,000-megawatt merchant-plant portfolio, Borska noted. 

"Additions to the fleet will come from additional nuclear power plant 
acquisitions and from green-field development of gas-fired plants," Borska 
noted in her white paper analysis of the transaction. 

The companies will be able to piggy-back onto Koch's 10,000-mile network of 
pipelines to supply their planned gas-fired power plant additions, Borska 
noted. 

The merger, when combined with the access to gas supply and trading-floor 
expertise of Koch, should cause investors to re-examine the higher valuations 
given pure-play generation companies compared to generation-rich combination 
companies, Borska said. 

AES Corp. (AES) and Calpine Corp. (CPN) have huge market valuations, but 
aren't known for engaging in "large, deep trading," she said. 

"Their ability to fully leverage their assets in the marketplace has been 
limited," Borska said. 

The Entergy merger with FPL, when considered in light of the Koch joint 
venture, "raises the bar for a Calpine or an AES" to gain the capability to 
leverage their significant physical assets, Borska said. 

Other energy companies, such as Dynegy (DYN) and Duke Energy (DUK), marry 
significant generation assets with trading floor sophistication, Borska 
conceded. 

But they aren't on the same scale or geographic scope as the Entergy-FPL-Koch 
combination, she said. 

-By Bryan Lee, Dow Jones Newswires; 202-862-6647; bryan.lee@dowjones.com