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Merrill: Finger Pointing Delays CA Solution
Merrill Lynch urged investors in energy marketing stocks to”proceed with caution” during this period of “finger pointing” inCalifornia. “Outrageous claims and ignorance appear to be thethemes of the day,” the Wall Street analysts said in a bulletintitled “Santa Claus, the Tooth Fairy and Leprechauns Do Exist -Just Ask California.”
“California only has itself to blame…,” said Merrill Lynchanalysts Donato Eassey, Carl Kirst, Steve Fleishman and PeterStaples. Instead of blaming marketers for the energy crisis,legislators and end-users should welcome them with open arms assaviors from imminent market collapse and utility bankruptcy.
“At a time when Californians should be encouraging investorsentiment to stimulate interest in attracting capital to build outmuch needed power and natural gas infrastructure facilities,certain factions continue their witch hunt for a scapegoat. This isas unfortunate today as it’s been for the past several months,where instead of attacking the real problems and recognizing thereality to raise prices, they bury their heads in fairyland.”
The analysts said they remain confident the court will “bringsome sanity/reality” to the situation, but they believe the basicproblems will not be solved until state lawmakers call on themarketers to help them out.
“The point is that the very companies being accused of marketissues are the ones capable of meeting the problems head on andhelping to solve them. We think the level heads will ultimatelyprevail and that the likes of [Dynegy, Enron, El Paso, SempraEnergy and The Williams Companies] and others will get out of thedoghouse and into the rescue/heroes mode, once California’sleadership comes to grip with the reality that energy costs acrossthe nation, and for that matter around the entire globe have risensharply, and just like the misguided gasoline gouging charges whichfaded into the sunset, we think these issues will as well.”
The Merrill Lynch analysts noted that Californians on averagepay relatively low rates (in the bottom 25%) per capita. Only whenthey have to deal with real price signals will they begin the “longroad to recovery,” the analysts said.
“We suggest investors stay vigilant and keep in mind that untilCalifornia returns to reality, many of our names are likely to beimpacted by event-driven issues (such as nuance lawsuits and thelike), versus industry fundamentals.”
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