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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: quehubo who wrote (92668)	10/28/2007 12:49:10 PM
From: ChanceIs	Read Replies (2) of 206349

>>>A few years ago I thought the development of new ng fired generation plants would be very rare.<<< Great article Q. Several thoughts: 1) Back in '02 in the post Enron merchant meltdown, all the analysts were saying that generation was overbuilt. Guess what. We ain't overbuilt. The problem with analysts isn't that they are so often wrong - they are. The problem is that they get a lot of attention. If they say we are overbuilt then we must be overbuilt. 2) Several Senate hearings ago, I heard rumors about bans on new CCGT construction. You see we didn't have the natural gas. I think it was the late (in Senate membership terms) Sen George Allen who led that. He held up an empty plastic Perrier water bottle and said "this is what natural gas is for." Ah well. If the green types keep constraining coal, and electric demand keeps growing........ 3) A combined-cycle plant could have been built in 1998 for $400/kW and in 2005 for $550/kW, said Schroeter. Today that number is around $750 to $850/ kW. Good gracious. I had a holding in the little company called Calpine which owned about 25K MW of CCGT generation. In '05 they stated that they would have about a gigabuck free cash flow. With 300MM shares outstanding, that would come down to about a $3 increase in book value every year. They had $19 billion in debt. So the first year they would have retired 1/19 of that, and with it the debt service. So the next year they might have had $3.50 per share in FCF. And then when you consider the increase in deman/price of electric - tat FCF in year two might have been $3.60 instead of $3.50. And on and on. But $19 gigabucks is a lot of leverage and NG prices rose while the summers were cool....so into Chapt 11. The hedge funds which issued the convertibles ended up with the cap gains on the plants. That stock would be trading at about $75 today up from $5 in '02. Just look at CTX. Constellation has been making a mint on ther merchant generation. Speaking of overextended, have you chaps looked at Countrywide Finance (CFC). It is sporting a Debt/Equity ratio of 8.6, and they just issued convertibles at $17.50 strike for the embedded call while the common was trading at $18!!! Can you smell the desperation. That mortgage meltdown is far far from over.

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