Financing teams adopt new tools for asset valuation

By Dana Bacciocco, Associate Editor

The activity in power plant development, divestment, and acquisition demands timely, sophisticated asset valuation. In response to the need for timely and comprehensive cost and market data, and using their own accumulated expertise and research, e-Acumen is providing the tools via technology.

“In the current environment we’re seeing utilities that have owned assets for a very long time turn them over and sell them,” said Sandra Ringelstetter Ennis, executive vice president of asset valuation at e-Acumen. “A lot of projects involve coming to terms with the value of those assets. And since a lot of assets have been rate-based, regulated assets for a long time, it’s a completely different world when you start looking at them from the standpoint of how much money can they make in a competitive environment.”

Power plant development is driving much of the advancement of asset valuation. “That’s really the area we’ve seen the most asset valuation, investment banking teams looking at whether they can go through the process of financing a plantellipseand whether the revenue streams support the deals they’re structuring,” said Ringelstetter Ennis.

e-Acumen’s new asset valuation product, PowerView, touches a cross-section of users in an energy company. Ringelstetter Ennis observed that users can include long-term traders, structured desks, market assessment groups, development teams, and financing teams. “We can cover the trading floor to the people who are signing up the investments to go forward with a particular generation project.”

PowerView’s introduction went better than expected, according to Ringelstetter Ennis, who found that people are exploring new products and looking for “external sources for validation of internal assumptions.”

“The Enron situation feeds into that, in a general sense, just because it puts more emphasis on external analysis,” said Phil Inje Chang, e-Acumen president.

Two approaches to asset valuation are slowly coming together to address the new energy economy, and technology is helping put the information in evaluators’ hands.

“The biggest change in how it’s done goes back three or four years, when there were only certain markets that were open and there was very limited information on how markets and price formation worked,” said Ringelstetter Ennis. Traditional models had been used in utility planning departments for years-models built off the idea that prices are equal to the cost of production-production cost models.

“The approach that we use and that we’ve been moving towards is much more of a market approach. We believe that prices aren’t necessarily directly correlated to the cost of production,” said Ringelstetter Ennis. At some point price and cost of production coincide, but market economics are fluid, and prices will diverge from the cost of production, even on a daily basis.

The market-based approach relies on existing competitive markets, but also must recognize and address fundamental market changes in supply and demand. “We like to call it ‘customized consulting in an off-the-shelf package,'” said Ringelstetter Ennis.

PowerView, an ASP system, is Web-driven and comprises a database and reports. The subscriber-based system tracks generation projects from announcement through milestones to operation. The detailed database is constantly updated, so changes are practically posted in real time. Reports, updated quarterly, track the market at a higher level.

While other products exist for providing new generation data, PowerView is directly derived from asset valuation activities. The detail and accuracy of PowerView databases have been tested by actual consulting and financing projects in which the data are used as an input into sophisticated revenue forecasting models.

“We’ve been the team behind some of the first asset valuation divestiture financings. We’ve been there from the inception of asset valuation and the first deals.

PowerView is more than a data source; we have the relationships with the financing community as well as a lot of top-10 developers in the country,” said Ringelstetter Ennis.

PowerView databases are provided online in annual subscriptions and are updated daily. PowerView reports are updated quarterly and include information on supply and demand balance, transmission infrastructure, market structure, fuel availability, and state restructuring activities. For Eastern regions, five-year price forecasts will be available shortly.

Ringelstetter Ennis can be reached at 303-545-5300, or sandy.ringelstetter@e-acumen.com.

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