LOAN continued from 30 guarantee will be calculated on a case-by-case basis, and reflect the “net present value of estimated payments from the government (e.g., default claim payments) and to the government (e.g., recoveries), discounted to the point of disbursement.” Because the Credit Subsidy Cost is intended to reflect project risk and this program is designed specifically for projects that present technology risk, industry asked for, but did not receive, clarification as to how DOE intends to calculate the subsidy cost. DOE has committed to provide guidance soon that will allow project sponsors to estimate their subsidy costs in advance. It has also stated that it will make preliminary Credit Subsidy Cost estimates available around the time projects are selected, before the non-refundable payment must be made. Nevertheless, given the uncertainty about how it will be estimated, the affordability of the
Credit Subsidy Cost looms as a critical open question for prospective loan guarantee applicants.
The final rule is clear about two details relating to Credit Subsidy Costs. First, the final rule makes clear that administrative fees and Credit Subsidy Costs cannot be financed out of guaranteed funds. Further, the final rule requires that, for projects costing more than $25 million, project sponsors must obtain a credit rating from a nationally recognized agency evaluating the quality of project debt assuming no federal guarantee. DOE has explained that such ratings will be important both when deciding among projects and when calculating each project’s Credit Subsidy Cost.
The difficulty with this aspect of the rule is that the premise of the program is that the projects are not readily financeable without
LOAN continued on 34
Every C Three index except Less Regulated Gas saw all remaining gains from 2007 wiped away in February. February’s 5.93 percent losses were on top of January’s 5. 3 percent losses. For the full 12 months, the average share price has lost 7. 8 percent.
Coal prices continue an upward climb as world demand increases and in March, oil closed at more that $100 per barrel. Not surprisingly, natural gas prices are following these trends.
Winners: Natural gas reserves are showing their muscle these days. Williams, TransAlta, Equitable and Questar are not only in the top 10 for the past month but are all in the top five for 12-month returns.
What about the losers? The simple answer: regulatory environment—not having appropriate gas cost, fuel or purchased power adjustment clauses in the rate base or being cross-wise with regulators during crucial rate cases. PNM Resources, UniSource Energy, Sierra
Pacific Resources and Nicor all have their share of state regulatory issues. As the price of natural gas increases (with the implied price increases of other $120 energy commodities), those companies without adequate commodity price protection imbedded in their rate structures will continue to have a lot of down- $110 ward pressure on their equity prices.
We are seeing continued acceptance of decoupling in the natural gas industry. With electricity pric- $100 es having almost no place to go but up and with companies facing incredible obstacles for building new
$90
generation and transmission capacity, decoupling on the electric distribution side will likely begin to find some traction. Demand-side management and energy conservation initiatives should be bundled with equitable mechanisms so the distribution side of the business is not penalized. Obviously, there are huge downstream ramifications of decoupling but if
utilities are going to get serious about conservation initiatives, which consumers will increasingly demand as electricity prices rise, there have to be incentives for the utilities. One of the first areas that should be considered is how the structure fits with other initiatives such as smart metering and smart grid technologies.
PS Enterprise Group completing a 2-to-1 stock split on February 5. Calpine emerged from bankruptcy and is re-listed under CPN on the NYSE and has been added back to our indices under Less Regulated Electric.
For more, visit www.cthree.net.
Comparative Returns
12-month and 5-year values of Initial $100 Investment
12-month value
C Three Composite Index $93.08
LDC $92.15
Less Regulated Gas $114.23
Regulated Electric $85.94
Regulated Electric Gas Combination $81.99
Less Regulated Electric $98.03
Dow Jones Industrials $99.29
5-year value $226.24 $170.60 $316.00 $190.73 $186.11 $290.59 $153.48
12 Month Value of $100
Invested on 3/1/2007 through 2/29/2008
$80
3/30/07 4/30/07 5/31/07 6/30/07 7/31/07 8/31/07 9/29/07 10/31/07 11/30/07 12/31/07 1/31/08 2/29/08
The C Three Group Composite LDC Regulated Electric
Less Regulated Gas Focus Dow Jones Ind Regulated Electric Gas Combination
Less Regulated Electric Focus
References:
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