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BEFORE THE IDAHO PUBLIC UTILITIES
~~~T~~aJm'H'IiSSION
IN THE MATTER OF THE
INVESTIGATION OF THE CONTINUED
REASONABLENESS OF CURRENT SIZE
LIMITATIONS FOR PURPA QF
PUBLISHED RATE ELIGIBILITY(i.e., 1 MW) AND RESTRICTIONS
ON CONTRACT LENGTH (i. e. ,
5 YEARS).
CASE NO. GNR-E-O2-01
~"'.~ \
COURT REPORTER
REBUTTAL TESTIMONY AND EXHIBITS OF
DAVID HAWK
ON BEHALF OF
INDEPENDENT ENERGY PRODUCERS OF IDAHO
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is David Hawk.My business address is
999 Main Street, Suite 1000, Boise Idaho.
WHAT IS YOUR OCCUPATION?
I am the Director , Energy Natural Resources for
the J. R. Simplot Company.I am also the Chairman of the
Board of Remington Oil and Gas Corporation headquartered in
Dallas,Texas,small oil andexplorationand gascap
production company with a market value of approximately $500
million.
ON WHOSE BEHALF ARE YOU TESTIFYING?
am testifying Independenton behalf the
Energy Producers of Idaho.However, since the J. R. Simplot
Company is also a party to this case, my testimony may be
viewed also as the position of the J. R. Simplot Company.
TESTIMONY?
607.
ARE YOU SPONSORING ANY EXHIBITS WITH THIS
I am sponsoring Exhibit Nos.606 throughYes.
PLEASE DESCRIBE YOUR QUALIFICATIONS TO TESTIFY
AS AN EXPERT IN THIS PROCEEDING.
As the Director, Energy Natural Resources of the
J. R. Simplot Company, I am intimately familiar with almost
all aspects of prospect generation , drilling, purchasing and
transportation of natural gas.I routinely purchase natural
Hawk, Di-Reb
IEPI
gas for my employer s many diverse operations throughout the
Uni ted States and Canada.In addition, prior to joining the
Simplot Company in 1984,previously held senior
posi tions oilmanagement and exploration andgas
production companies, Vice President and General Manager of
a sister company of Intermountain Gas and as a manager in
that utility.The Simplot Compan y ,under
direction, was the first industrial customer to utilize open
access transportation when it became available on Northwest
Pipeline 1985.June first,We were the and for
several years the only,industrial customer to receive a
7 (c)certificate from the Federal Energy Regulatory
Commission for such an access arrangement.The Company has
played an integral role in the formulation and direction of
energy policy affecting industrial energy customers at the
FERC, numerous public utility and service commissions,and
within industrial enduser organizations.
WHAT IS THE PURPOSE OF YOUR TESTIMONY?
My testimony is limited to the single issue of
the appropriate initial gas price that is used to determine
avoided cost rates.
WHAT CONCLUSIONS DO YOU REACH FROM YOUR ANALYSIS
OF THE VARIOUS PARTIES' TESTIMONY ON THE APPROPRIATE INITIAL
GAS PRICE TO BE USED IN SETTING AVOIDED COST RATES?
Hawk, Di-Reb
IEPI
reviewing posi tionsthe the various
parties,it is apparent that there is a wide gulf between
the high and low recommendations.
PLEASE EXPLAIN?
The following table indicates the natural gas price
recommendations by the various parties:
Avista
IPCoStaff
IE PIPacific
$2.
$2.
$3.
$3.
$3.
per MMBtu
per MMBtu
per MMBtu
per MMBtu
Per MMBtu
DIDN'T THE IEPI RECOMMEND A LOWER GAS PRICE
ITS DIRECT TESTIMONY?
The IEPI put forth two numbers,$3.84 perNo.
MMBtu and $3.91 per MMBtu. It is clear to me, after viewing
the other parties estimatescost and current marketgas
conditions,that the Commission should use,at a minimum
the higher IEPI number,$3.91 per MMBtu or even Pacific
number , $3.95 per MMBtu.
WHY IS THAT?
Today (August 2,2002)checked the price of
gas at Sumas, which is the trading hub the Commission uses
avoidedset withcost Resources,theratesIGIgas
preeminent gas marketing and supply agent for industrial
customers in the Northwest.The price for one year s supply
of firm gas, beginning November 1st was $3.36 per MMBtu.
Hawk, Di-Reb
IEPI
WHY DID YOU USE NOVEMBER 2002 TO OBTAIN A QUOTE
ON THE SUMAS TRADING HUB?
November is considered the beginning of winter
and the calendar point which year supplyone
traditionally calculated.However one can produce a one
year strip price beginning with any month.Also, November
1 st is my best estimate when the rates the Commission sets
will become effective.
ISN'T THE $3.36 QUOTE YOU RECEIVED MUCH LOWER
THAN THE $3.91 YOU ARE ASKING THE COMMISSION TO ADOPT?
The price at Sumas is only part of the cost of
getting the natural gas to load centers in Idaho.Ignoring
those additional costunfairlyunderstatesthecosts
natural gas.
PLEASE EXPLAIN?
It is sort of like renting a car.When you are
quoted a price, say $50 a day, that is not the price you end
paying.After insurance,airport fees andtaxes,
surcharges you will pay more than the $50 you were quoted.
Similarly there are many add-ons to the quoted price of
natural gas.
WHAT ARE THE ADDITIONAL CHARGES IN ADDITION TO
THE COMMODITY CHARGE THAT YOU WOULD HAVE TO ADD TO THE $3.
YOU WERE QUOTED?
Hawk, Di-Reb
IEPI
First,have demand charge.Northwestyou
Pipeline s demand charge is 27.76 cents per MMBtu and the
commodi ty charge is 3 cents per MMBTu.Next you have what
are called add-ons, which are collected by the pipeline on
behalf of Gas Research Institute (the GRI charge)and the
(the ACA charge).FERC The charge for ACA 0021 per
MMBtu and GRI is 0055 per MMBtu.This brings the total
charges on Northwest Pipeline 31. 52 cents per MMBtu.
Northwest also fuel-in- kind chargeassesses cover
compressor fuel and lost and unaccounted gas.Northwest'
fuel charge is currently 1. 7%, which for gas at $3.36 MMBtu
would equal an additional charge of $.05712 per MMBtu.The
fuel rate is adj usted as required by Northwest Pipeline and
over the years it has ranged between 1% and 2%.Finally one
has to add four to five cents, which is a producer firming
charge.These charges add to an additional $0.41 to .$0.
deli veredMMBtu the city thegateper property
boundary proj ect bypassing the localyouare
distribution company.Those are the costs, however, if you
can get the natural gas delivered.Further, if one is only
operating their plant 90% of the time you have effectively
three youraddedalmost transportationcents charge
making all of the additional charges in the $.44 to $.
range.
Hawk, Di-Reb
IEPI
WHAT DO YOU MEAN IF YOU CAN GET THE NATURAL GAS
DELIVERED?
Currently all the capacity Northwest
Pipeline into Southern Idaho from both Canadian and domestic
fu 11 Y sold Northwest Pipeline with thesources
exception of 13,322 MMBtu/ day which would require contract
operational flow (CFO) order language.This small amount of
firm transportation capacity is not sufficient to meet the
needs of a large firm load such as a gas fired combustion
turbine would require (approximately 40 million cubic feet a
day is required for a 230 to 250 MW generator depending on
elevation.
WHAT IS THE ISSUE WITH CAPACITY ON THE NORTHWEST
PIPELINE?
There may be interruptible capacity available
at times and one may or may not be able to locate released
capacity.However it would not be prudent to build a large
gas fired CT that has a capacity factor of 90 percent to
rely on interruptible transportation arrangement.
addi tion,released capacity may or may not be available.
Certainly individual space holders such as large marketers
may be willing to release for some period of time a portion
of their firm capacity.Whether they would be willing to do
so, and for fifteen to twenty years, is speculative.It may
be there today and it may not be there tomorrow.
Hawk , Di-Reb
IEPI
WHAT THE SOLUTION THE LACK FIRM
TRANSPORTATION CAPACITY ON THE PIPELINE?
The the would haveownernew
participate in what is called a pipeline expansion project.
In analyzing and estimating future gas prices, the Northwest
Power Planning Council study done under the direction of
Terry Morlan, utilized $ .12 per MMBtu as an additional firm
transportation related expansion.think hiscost
estimate is a reasonable one (and perhaps a little low) for
a Northwest Pipeline expansion proj ect into Southern Idaho.
Therefore, when you add up all of the charges and add ons
which are itemized below, the natural gas price recommended
by Mr.Trippel of $3.91 and the Pacific witness of $3.
appear to be the only prices in this docket that reflect
reality.
Quoted Gas Price $3.36 per MMBtu
Demand Charge $0.2776 per MMBtu
GRI Charge $0.0055 per MMBtu
ACA Charge $0.0022 per MMBtu
Fuel Charge $0.05712 per MMBtu
Gas Firming Charge $0.05 per MMBtu
Pipeline Expansion $0.12 per MMBtu
Capaci ty Factor $0.03 per MMBtu
Total Actual Price $3.90242 per MMBtu
Hawk, Di-Reb
IEPI
WHICH PRICE YOU RECOMMEND THIS COMMISSION
ADOPT FOR COMPUTING AVOIDED COST RATES?
recommend the Commlssion adopt the price
recommended by Mr. Trippel of $3.91.However, the Pacific
price of $3.95 would also be reasonable.
PULL OUT YOUR CRYSTAL BALL AND TELL US WHAT YOU
PREDICT FOR THE FUTURE OF NATURAL GAS PRICES?
Prices going to and down.By allarego up
accounts and national measures of the drilling production
and deli verabili ty and consumption of natural gas,natural
gas has become a just-in-time commodity.This means that
the amount of gas deliverable from the wellhead and storage
equi valent the volumes required dur ing high
consumption winter and summer months.However in the near
analysts believeterm,for another roundare
increases in prices for several reasons.The rig count in
the and Canada down sharply shown on my
Exhibit 606.The economic downturn has decreased expected
consumption by approximately,or minusplus one trillion
cubic onefeetannually,over what was Whileexpected.
might think this would buy us time to increase our drilling
deli verabili ty,and has resul ted wellhead price
decreases that have resul ted seismic and drilling
declines.New supply is simply not being brought to market
at the rate it was in the recent past.Increases in rig
Hawk, Di-Reb
IEPI
counts have a tendency to follow increases in prices and
declining rig counts tend to foreshadow increases in prices.
We appear to be reaching the bottom of this declining rig
count cycle.Therefore it appears to be the consensus (See
for example my Exhibit No. 607) that we are in for a period
of increasing prices.This is reflected in cotango pricing
displayed on the NYMEX futures chart.
One also has to understand that there is an alarming
decrease investment the skills and infrastructure
necessary to produce the need the future,gas
discussed the article enti tled Regulators Warned
Supply,Manpower Crisis " which attached as my Exhibit
607.
YOU HAVE OFFERED 607EXHIBIT THAT SPEAKS
THESE ISSUES IN WHICH DR. CHARLES J. MANCON IS QUOTED , DO
YOU KNOW HIM?
Yes,Dr.Mancon director the Okalahomawas
Geological Survey and Chairman of the Department of Geology
and Geophysics the University Okalahoma when
received my Masters of Science in Geology.He was also a
member thesis committee.renowned
geoscientist and geopolitical and natural resource analyst.
He speaks to a lack of activity and manpower associated with
meeting national goal thirty trillion cubic feet
available for consumption.
Hawk, Di-Reb
IE PI
WHAT OTHER FACTORS SUGGEST THAT PRICES WILL BE
INCREASING?
With the addition of new eastward bound take-
away transportation capacity from Western Canada, California
and the Northwest are no longer the black hole for Canadian
energy.There is a greater transparency across the country
wi th natural gas pricing today than there was ten years ago.
While there is still a basis differential between Sumas and
the Henry Hub, there are now months when Sumas trades at a
posi ti ve basis to Henry.Ninety-fi ve percent of all new
electric generation across the United States is scheduled to
be natural gas fired turbines.Their consumption,coupled
with normal economic growth,will work to create periodic
straining on the total natural gas system - wellhead to
burner tip.Natural gas currently has the highest degree of
volatili ty commodi t Y Withtraded.the nationalany
financial andissuesassociated with maj or market makers
traders,the futures market has become much more illiquid
from two years forward than it was in the past.It appears
there is less gas being traded for longer than a two-year
period.Long-term credit is an issue for both the buyer and
the seller and the third providing the financialparty
hedge.thisIn the end,out year uncertainty and price
volatility probably adds costs to the buyer s side of the
transaction.
Hawk, Di-Reb
IEPI
In summary, do I believe we will see $ 6.00 to $ 7.
per MMBTu gas prices in the future?The answer is yes.
will also see $2.50 per MMBtu and $3.50 per MMBtu prices.
The price of gas will be cyclical.In twenty years,
believe, we will look back and see that the gas of price was
cyclical with a general upward trend.
DOES THIS CONCLUDE YOUR TESTIMONY?
Yes. It does.
Hawk , Di-Reb
IEPI
EXHIBIT NO. 606
RIG COUNT
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Daily Price Survey
IJs\8llln ilia 19ft colurm arll 11$ rnldpOlO!8 of III~ (fPIIY ~Me8 far
lIIe 1110" oommon prt=as, paid In $Immalu 01 a I)'pICIII wlum. of
5 thau8IIIIII mmB11I. ThD I11ldt:l1o column 'how, pt/aQIUIe low-/l1g!,
prlce'lor traniClC\lQn& ~rt9d on lI1e clale at thillop ollila eol-
lI!TII!: lt1a Ihfrd cc/4J1II1 sI1owllhlll day" IIngu 10( 1t1i11T1O111 com.
moo pt101s. Thl !)IIc~' are generally tor gill! IIowIng Im!ay, wsllko
enda IIIB ulll!Blly p~ced using lIula collKlOd flIdey. FI~ngBe alii
\IIr deall dOI"J8 bOfOrt nornlll4llOll ~adlln!lll. The aJlJlrTIDII 1TII1g6
Is ~I~ IIfClll1d 1hB VOIumIl welghtlld II'J811IiI 8I'Id IhO m!dPOlnt 15
ro~6.I~ fOr \hi COtI\I1\On renae. DIU Ir1IhIa labia III CDpyrigill
2002 byThe tJleC3/WN"HIJ CompQOkls, 11'10.
NATiDNAI.AVERAGS PRICe: $S.o~~Trarm. dale: 7/SO
FloW ttatB(e): 7/31
MIdpOint Ab8OlLJ1$ Common
Perml.n ~Dlln Aroa
51 Peso. permlaJI 5aa1l1 g.,740 .2,71.aO
Nof'\llllm. MIDS Hi 2,750 2.73.79WIIN 2.930 2.0Q.8S
T!'iII1SWOSlam, PtI111l~'" Sesfn 2.740 2.73075
):.at T8JC68.Nortll LlIUllllina Call1'lDge Hub 2.936 2,9C1-Q5~e Slar 2.705 2.70-71MFIT, mal~~ne 3.010 2,95-3,
MRj', wast 11111 2,990 2,95-3.1)0
NGPh Taxok mnB 2.P.25 2..90-95
Toxu EastOm, 1m( 2,990 2.92-3,
Texl\ll "las, zone 1 2.950 z.SO-G.
EeelrHollilDfH(aty
HouB\on Ship Channol 2.e8~ 2.98-3.111 2,9H,J(lIt)I M5O 2.03-97 2.9+98
SolJ1l1.QOrJIW Ctyi8~ '
2.935 2.89.1)7' 2.91.06
2.005 2.90-92 2.90-01915 2.~S 2.88-052.950 U~.03 01,90.3.650 2.80-72 2.B2-!I8
plalls
Wedn8~day, J...ly 31,2002
Aau. DI/1t~ HI/!)
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NGPl, SIX
TonnO"OI, 20119 0
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wu!81m\a.oOL'\8l1otl Soll!ll
925 :1.96-95usa 2,BS-3.os040 3.
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2.995 2.e1-3.
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060 2.92-G.
110 2.9&3.94~ :!.
2.925 2.90-68
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At'JR, Ol\l!. 2.820 2.80-83
Nap!., M!dCPnllnant 2,765 2.7:1.79
Flensm. Eell a.930 2.BO-e4
Ft~1I1II'I1, Weat M50 2.82.06On.of(, Okla. 2,B~ 2.B0-8S
P8nhandlt, 1')(,oO\(\a. 2.760 2.70.
Wllllnrns, TII,.okla.-Kan. 2.84Q 2.81-
NIW Momo..sllll Juan 511811'1!:/ Paso, BOI1dad 1.970 1.88-2.111
EI PBsO, San Juan f!ealn MSS 2.4S-58
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FfP~Qa GaB. 20lla 2
Rol'Ida GOS, 20no 3
HenlY Hub
!:!\I~ Scut~, s.. LaJEIISI Side
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SOUlhln'l N8WJUI. LtI.
"8111185588, La., 500 I.ev
iennessae,l.JJ. 800 Lag
Tillbl EIISIClrn, WlA
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conflnul)CI 00 n~ pallo
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92-115
2.70-71
00-02
98-300
2.91-94
2JJa.S.Cl2
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U1-04
2.92-3.00
02-06
Q1-D4
3.06-12
11-21
2.85-:!.
2.73-7D
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2,92.98
2.61-110
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Gas Daily
Dismal earnings asjdeJ Dynegy CEO sees hope
ynegy s stock continued its rebound '1\1esdny even after the beleaguered c.n~
l1'3Qing company reponed second..qum:ter financial ros~Us that were dramatically
worse than a yem- ago. Dynegy s slwres rOse 45% to close Tuesday at $ !-74.
Dynegy reponed a $328 million second-quarter nClt 10::;s after charges. c:ompa.red
with a year-~;ulier $146 mHlion pronto Revenues WDl'e $9 billion, down from $10,8 bil-
lion in last year s second quarter.
In a conferenc= call with analysts, Dynegy officials said the qullI'tcrly reSUltS
incluck: previously disclosed, prettjX i1IId nonrecurring ctJarges of $499 million. or $32.4-
million aftet"(~ and a recurripg loss of $4 mjl1ion. The OOWP1\ny S total after-tax non--
recwring charges for me second qu;tI.1er include $212 million for Cerra1n communica.
tions assets an4 technology invD~1numts, $80 million rclate4 to its gas marketing busi-
ness and $32 million for ~m.ployee severance and re1a.ted ~t co~t.~ and other write-offs.
Dyn~gy interim CEO Dan Diens~bi3l' said the decline. in commodity prices qUaI'-
tet"over-quaner an4 lower liquidity levels in the energy Q'ading business substantially
hurt the comp3IIY. Dynegy s wholesale energy trading upit post~d net income of jUSt
(conrinultd an page 5)
Regulators warned of supply, manpower crisis
4cdining werle force in the gali producing industry, increasing domestic demand and
reduced itnportl; from Canada over the next five to 10 year,;; wilt lead to sustained
we~ad pricas nbove $4/Mcf in con!:taIlt 2002 dollars, a COIl$t.Utant told the gII$
committee of the National Association of ReguJato1j' Utility Co1I1IIrissioners Dn Tuesday.
Henxy Groppe, a pnrtIler at Oroppe, Long & Little in Houston, said imports of
Canadian gas likoly will peak this year at about 10 Ed/day and drop to 6 Bcfldny in
2010 boc!\\lSC of declining production in western CllIlada. That number t!lkes into con-
sideration increases from Nova Scotia and other frontier areas, be said.
Ie the United StateS gas production is decliQing in most ar~, and with increas-
ing demand for sns, "we see a totally new era" of higher pric~s that will restrain con-
sumption and lead to more fuel-switching among large consumers, including power
generators, Groppc told the NARUC conference in Portland, Ore. Relying so heavily
on g!\$ to meet peale. power generation needs will "prove to be It mi:;take in t\me,
Groppe predicted.
Charles Mankin, director of the Oklahoma Geologicat Survey and tbe Sharkey
Energy Cejiter at the University of Oklllhol11ll, conunented that increased imports of liq-
(conrml4cd 011 page
New York cash hits $10; Western prices fall
ew York cash prices soared again Tues&y this time 10 $10 tIS 0. combination
of above.-normaJ temperafUres and pipeline restrictions
continued to plague the region. Meanwhile, plentiful sup.T e arket
ply and slack demand in the Wcat scnl Malin. Ore" prices down
h M
30~ from Monday s I\verag~,
Prices on Transconti.ncnt'~ Gas Pipe Line Zone 6-New York shot higher for 3. vari-
ety of rejIBons, sourc~ said. but mainly because of hea( indices that hovered around 105
degrtCS in the Big Apple, Tempe.raturos arc expected to climb into mid-90s again tod~y
before a cooldown Thursday, SO\1fCC$ fiaia.
Intraday deals W3l'G reported around $8 by tare morning, ana source said, though
ne:u-day cl\~h wa,s more fickle. &fly prices in the $4.708 soon gave way to $5, then $6
and $7 as the mllrket began to overheat:. But t&W in trading. deals were reponed as high
as $10 and offers w13rc scc.n aro\)nd ~20,liources ~pid,
Another trader said Tuesday wu the busiest and most volatile trading qay of
the year aD fqr. "Usua.l1y, the winter months arc the most vol!\ti1e in the New York
mtlrket. but I never sa\\, II winter day as volatile as what we went through for the
Copyright 2002 The McG(EJIIV"Hill COrnpl1n/Bs, Ina.
Ma-s?
1.54-68
80-
1.A5.
EXHIBIT NO. 607
David Hawk
Pal!e 1 of 2
MU'-='. c:..c:.t:Jt:Jc:.J.J.......OMI"..11". '::)J.I',LV I c..VI"'Hil I ,::,/ ,:j
Page 6
Mlrant reports 8151 million loss;
2001 accounUQg errors po8slbla
Citing FIeV' market uncertainties, Mlrant 011
Tuesday announced a .second phase" of be!t-
tigh~ning measures, Includlog the sale laler thIs
year of Its 49% holdif19 ill U.K, electric company
Western Power Distribution,
Mlran! said it hopl1li to raise betwean $700
mnlion and ~1 bUlion from a$sat sales including
WPD and also will cut back capltallr'IVeatment by
about $260 million 111 200~ especially 011 new
plant constructiO/'l overseas.
The Atlanta-based company released Its sec.
ond-QtJarter flnanclal reslJl~ which included
$284 million write-off of its WPD holding and a $18
million restruclurtng charge for recent s~ff c:u1s.
The charges more than offset M'ITanl's $145 million
In earnings fJQm operations - now called acl/usted
earnings -leaving It with a net loss or $151 mll.
lion for the quarter. That compares with an adjust.
ed income 01 $181 rnlJRon and a net income of
$124 mlilloo In the same period Illst year,
At the same time, Mirant saId Its cere dam6Slfc
generaUon and marketing puslness had dane sur.
pris!1'\Q wen In the quarter given Ihe overall problems
with 'he fTlBrfcB~ It corrtnbuted $121 mIllion to earn-
ings in the quarter, down only 24% from last year,
Mlranl said II traded gas volumes of 22.3
Bel/day during !he quarter, up as% over the year-
earner period. and sold 91.8 minion MWh of elec.
tricity, up 32%.
MI(SI1t President and CEO Maree Funer saId the
r~lfs were helped by Mlrant's large 8GSet base,
which II; maInly located near !Wior demand centers.
Also TlIesday, Mirant said it was reviewing
$250 mil~on in possible accounting errors In lIS
2001 financial results, but h$ no plans now to
restate last year's earnings.
Fuller told analysts that an Initial Intemal
review showed the problems !lPpeared 10 be
honest mIstakes' Involving the timing of when
Ilabllides and gains were recorded. She said all
amounts involved were "bonl:\ fide revenues-
Fuller said the problema were revealed dur-
Ing an internal reconqliation between aCCQunts
of the parent company and its Mlrant Americas'
un~, They included an $85 million O\fer$t&tement
of a g85 asse~ a $100 million overstatement of
an accoonts payable RabRity aI)d a $68 million
overstatement of an acco~nt$ ~ivable asset
At the sarna ~me, she said that becausa or tl'ta
hoightenedlnvestor concerns about such issues,
Mirant had retained an out!jide law firm to con-
duct an Inciepeodent review of the potenflal errore
while MJrant works to reconcile l/1e fjccounls,
Fl1l1er said Mlrant does not plan to restate 2001
eamillgs unless It cannot sa~sfsctonly recoodle
the differences. She also said the company does
not bcnove the problem wIg affect Its 2002 results.
Fl.!ner saId that "integrity is and always would
be the hallmark of Miran\'s code of conduct" and
she would do all pQS$ible to maintain accurate
reportil"tg and irwe$tor con~dence. Mlral1t IIsed
Aulhur Anderson ~ its accounting firm un\P May,
when it swilc~eq to KPMG.
11V. IQJ.;:)
Gas Daily Wedn&adaYJ ..July 31, 2002
starns of receivables as well as unforeseen events " he said. "When this transaction closes.
our liquidity will be very solid, It should put the liquidity question to rest, at least for the
immediam future,
In addition to the Northern Natura1 sale. Dynegy hopes to improve its liquidity
through ti)e sates of its U.K. gas stOr~ge holdings, the offering of a bond for its TIIinois
Power asSets nnd the creation of a master limited partnership for a portion of its liqpids
business. Dynegy has aJ,so said it hopc$ to find a joint venture partner for itS energy 1I"ad-
ing business.
Analysrs said Dynegy s second,qunner earnings report contained nO surprises.
Overall, it was pre~ m'tch wh~t we had expected in concert with wh~e Dynegy had
guided," said Anatol Fcygin, an aJlalyst with J.P. Morgan. He said, however, that he ~pect-
ad Dynegy to shop Norlhem Natl)ra1 around harder in an effort to set II better price. "1 was
surprised to hear that it was substantially a done deal. The company made it sound lil(,C
there wasn t much of an opportUnity for a connteroffer on the table,'. he said.
Several ana1ysts worried that Dyncgy would be caught in a Catch-22 forced to sell
off valuable asSets to raise c.'1Sh, it won t pe able to use those. assets to create long-term
income and stability.
What thB new model look/; like it's tOO ~rIy to tell. On the m~bant e11ergy side,
Dyne.gy is quick to pnt out that you can t conduCt that business without a strong invest-
tnent~grade rating," Feygin said. "But thBY dop t plan to be investment grade before year-
end '03 and d1eY don t even say ~trong invC$tn'\ent grade. It s kind of obvious Dynegy
doesn t see the Dyn~.(:y of 12 to 18 months non:! now as a strong merclunt player." 1M
Supply, manpower crisis seen ... (from page
uefied naturnl gl13 can maka "a major cof1rI'ibution" to meetin~ future demand.
Also, increasing nccet;S to areas that are am:ently off limits to producerst as was sug-
gested Monday by an American Gas Association officja) (GD 7/30). will help, "but it is by
no means a panacea," Mankin said.
Jim Renfroe.. senior vice president of dev~opmem for Halliburton, said prodtlCers and
the service companic.~ associated with the indusU'y life facing a diminishil~/; work fOICe
whose average age is 48. The sector expects to lose 60% of ccrrent staff by 2007, he said.
What s WOl"jC, young peop!~ are not pursuing geology or petroleum engineering
degrees and most of those who ~e will go to work overseas afJ:er bell\S ttaine4 in the Unit-
ed States, Renfrot) added, In order to retain staff that has ex.pcr1cmco, companies will need
to offer fl~xibl6 work hours and pan-time mentoring programs and increase recnliting out.
side the United States, Renfroe suggestac\.
Shoring up the work force in the producing and seJViee sectOrs should hecome a sig.-
nificant priority, including efforts by universities aItd major g~ and oil compunics. M!V1lcin
said. Meeting projactions for increased demand, such :18 a 3()' Tcf annu~ U;S, market, will
require "a nalionlll effort of epic proportions " Mankin said.
Groppe also noted that Wan Street is focused On sh()~tGnn gains even thougb inve.'Jt-
tnents in g~ and oil production tnkn a long time to produce results IlI1d that could make
it hardBr for companies to rDise CQpi~1.
Joshua 1\villo.y of the De1aware Public Service Commission :tgreed tbar the speQken
were presenting Ii scenario of "an approaching major crisis" in 1l1Q supply sector. aut he
said "Y1obody s raising a red flag" about the problem in WashingtOn Or elsewherB to make
sure officials are aware of the issues.
Shnilatly, Gary FcI:md, ch:1inn:m of ~be MontMQ PI.\bIic Service Commission, said
the pfC$cntations showed that "we don t have the people needed, we don t have the
money n~c1" I\I1d "ve got to l)!1ve IICCCS8 to new jU'OIIS," in order to stave off It troU-bling scenario. 'IT
PLATTS!BUSINESS WEEK To oQmlna1e ar make reservatlDOS, visit platlS
e 0 tt.
GLOBAL ENERGY AWARDS lWIW.glabaIDnargya\WrdS,plallS.com Touche
. Nomina1IDrlS due! Aug\1Sl31, 2002 TQhm~tsuNOVEMaER 18, 2002. 'FI!1~nslsllnnDLJncaClSeplBlT1liarlUOO2
TH E PLAZA INN EW YO R K C ITV . AWatl!S presented November 18, 2002
IC) Cppyrlghr 2002 Th!'J McGraw-Hili CompanIes, Inc.
EXHIBIT NO. 607
David Hawk
P~OP " of'