Valuation implications of thedistressed asset crisis: The regulatory challenge

摘要

The so-called "distressed assets crisis" related to the electric generation business has gained notoriety recently. Some experts estimate that, in the U.S., the industry has between 100,000 to 136,100 MW of excess generating capacity. In addition, related to these assets, between $40-90 billion in debt is due by 2006. The primary sellers of these assets include NRG, Mirant, PG&E National Energy Group, and others (e.g., banks, insurance companies, etc.). Potential buyers include investor-owned utilities (IOUs), generation and transmission cooperatives, unregulated arms of utilities with strong balance sheets and private equity companies such as Berkshire Hathaway and AIG*the latter is generally less concerned with the location of assets. At least three general options exist for asset owners: Sell the asset at auction at distressed prices, mothball the units and wait for better opportunities, or hire a company to operate the unit (assuming that the market price for electricity will support a price in excess of the variable cost of operation). In many cases, the operators of the assets are subsidiaries of IOUs and may even take an equity position in the plant. What are the regulatory implications of IOUs purchasing the distressed assets (i.e., the auction option)? Are they possibly the same assets that were divested when "deregulation" in the electric utility industry first started?