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  • May 2000 (Revised April 2003)
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Contractual Innovation in the UK Energy Markets: Enron Europe, The Eastern Group, and the Sutton Bridge Project

By: Benjamin C. Esty and Peter Tufano
  • Format:Print
  • | Language:English
  • | Pages:24
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Abstract

In December 1996, Enron Europe and The Eastern Group were on the verge of signing an innovative transaction in the utility industry. Eastern was going to buy a long-term option to convert natural gas into electricity from Enron, thereby giving it the economic right to operate a "virtual" power station. This structure was vastly different from the traditional independent power plant (IPP) structure, and the executives involved had to convince their superiors of its wisdom before they could proceed. This case was jointly written for Large-Scale Investment and Corporate Financial Engineering, and it covers topics related to both project finance and financial engineering. It illustrates a new paradigm in the electric power industry: the creation of virtual power stations backed by physical power stations with merchant exposure. It also illustrates how physical operations (constructing and operating a power plant) can be used to offset contractual obligations and trading exposures.

Keywords

Project Finance; Infrastructure; Supply and Industry; Corporate Finance; Utilities Industry; Energy Industry

Citation

Esty, Benjamin C., and Peter Tufano. "Contractual Innovation in the UK Energy Markets: Enron Europe, The Eastern Group, and the Sutton Bridge Project." Harvard Business School Case 200-051, May 2000. (Revised April 2003.)
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About The Authors

Benjamin C. Esty

Finance
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Peter Tufano

Finance
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More from the Authors
  • Crises and Collective Purpose: Distraction or Liberation? By: P. Tufano
  • Tempur Sealy International (A, B & C) By: Benjamin C. Esty and Daniel Fisher
  • MTN: Unlocking Value While Driving Socioeconomic Progress By: Benjamin C. Esty, Pippa Tubman Armerding and Dilyana Karadzhova Botha
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