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CNN Financial News SHOW: STREET SWEEP 03:00 PM Eastern Standard Time December 19, 2001 Wednesday JAN HOPKINS, CNNfn ANCHOR, STREET SWEEP: Our focus now is energy, the state of and the fate of deregulation. My next guest advised California Governor Gray Davis during the state's energy crisis last summer. He is now consulting with the state of Texas. Joseph Fichera, he is CEO of Saber Partners, a financial advisory firm. So how are things going in California? I guess you got saved by lower energy prices and other things. JOSEPH FICHERA, SABER PARTNERS: Well, the governor had a great deal to do with getting those lower energy prices through both a combination of contracts and conservation and encouraging construction where there hadn't been any construction plants approved prior to his arrival. HOPKINS: But natural gas prices are down a lot and oil prices are down a lot, so that's definitely helped. FICHERA: Absolutely. They drove a lot of the prices down, but some of this needed to be done and was done to manage demand, it had an effect on prices. And I think what also we had was good government intervention at the initial stages to manage the crisis. We also had some good fortune and certain commodity prices coming down into the summer, and not having as hot a summer as we had a year before. But without the conservation, without the government intervention, the lights probably wouldn't have been on or stayed on. HOPKINS: Now you're now talking to the state of Texas about deregulation. What did you learn in California that can be applied in Texas? FICHERA: Well, Texas, there are two different things. Texas learned from California and avoided some of the structural problems that California had in their law back passed in 1996; Texas passed legislation in 1999, SB 7. And they started with a pilot program. Full deregulation is going to start up in January of this coming year. They also expedited the construction of power plants and siting requirements and had a more of an abundance of power going into deregulation where as California didn't have that because of past neglect. HOPKINS: Well, and also in California now they are depending on Calpine (Company: Calpine Corporation; Ticker: CPN;, Dynegy (Company: Dynegy Inc.; Ticker: DYN; , some of these companies that are having trouble on Wall Street to build plants for them, right? FICHERA: That is right. They affect the state electric power fund that was created last year. It contracted with a number of energy provider merchant generators. About a third of the megawatts that has been contracted for are with Calpine and Dynegy, I think, it's about 5000 megawatts for Calpine which is an in-state generator, and about 3 or 4000 megawatts for Dynegy which is about one-third of all of the contracts. And there is a great deal of controversy about those contracts within the states. Some people wanted to just abrogate them, break them. I think there is going to be even more controversy going forward because Dynegy and Calpine will not want to have those contracts broken because they do want..... HOPKINS: They depend on the prices that they negotiated. FICHERA: And then their earnings going forward. HOPKINS: Right, right. FICHERA: The issue with deregulation is many of these companies on Wall Street had certain forecasts about earnings and about opening up markets. That because of California probably is not going to happen as rapidly and therefore projections of earnings per share and everything are going to have to take into account. HOPKINS: Good point, thanks. Joseph Fichera of Saber Partners. FICHERA: Thank you. HOPKINS: Thanks for joining us. Saber Partners, LLC provides confidential, independent, senior-level analysis, advice and execution strategies for Chief Executive Officers, Regulators, Elected Officials, Chief Financial Officers, Treasurers and others.
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