US POWER SECTOR'S NEW FINANCIAL PLAYERS MAY FACE DISAPPOINTMENT

Will the complexities and uncertainties of the electric power business stymie investors looking only at financial strategy? With little fanfare and surprising speed, financial sponsors have amassed a significant ownership position in the domestic power industry since July 2002, acquiring capacity equal to all New England's power plants. In contrast to traditional utilities and independent generators, financial sponsors intend to resell their power holdings in the next several years to earn returns two to three times those typical of electric utility stocks. Significant "barriers to exit" may dampen investment returns for some of these interim owners, however, when they seek to monetize their holdings.

- Several strategies could help financial sponsors clear such hurdles.
- Investors should be careful to avoid four critical "blind spots."
- An investment bandwagon is not well supported by current industry fundamentals.
- These deals are likely to catalyze further restructuring of the domestic power industry for years to come.

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