Welcome to the April 2008 edition of
Business Leasing and Finance News

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FOUNDER'S NOTE
By David G. Mayer

No Rules

Would you have predicted that, in a matter of 96 hours, the Federal Reserve, led by Chairman Bernanke, would toss a $29 billion life rope to Bear Stearns and arrange a sale of the Bear to JPMorgan Chase? That bold and atypical action shows that the Federal Reserve threw out the existing rules and took decisive action to prevent the collapse of an investment bank for the first time. The Federal Reserve recognized the serious consequences for of a bankruptcy of Bear Sterns. As a controversy brews over its actions, the Federal Reserve has argued that the failure of a large investment bank, such as the Bear, could destabilize the U.S. financial system and thereby hurt the U.S. economy.

Apart from the high-stakes, no-rules game played by the Fed, I must say that I am saddened by the Bear’s fate. From the time (many years ago) I was a young lawyer in New York, I watched the firm grow from an “also ran” to a powerhouse in the investment banking world. The recent disclosures show that, like so many institutions that profited from subprime mortgages, good things in this industry can, and in this case, did come to an abrupt end.

What has not come to an end is the troublesome condition of our economy. As Chairman Bernanke nearly said a short time ago, we could be entering a recession or a serious risk exists that we may soon do so. He, of course, can move markets by what he says and how he says it. But, if your perspective is like mine, the recession is clearly here, and, like the fate of the Bear, the robust market for growth and profitability seems, for now, to have come to an end.

At this point, all of us should know that we must work harder and smarter in this sluggish economy. We must scrutinize the types of deals we do, have done and will do. We must do a better job atmanaging risk and losses. We should try to apply lessons we can glean from the broken credit markets and the near-death experience of Bear Stearns. All of this effort, of course, sounds great, but as you know, it is easier said than done. Nonetheless, do we really have any choice but to meet these challenges? I think not if we are going to move through the recession and revive the ailing U.S. economy. Your efforts, however small, may be part of the solution; it certainly beats having an experience anything remotely like that of Bear Stearns.

Thanks for reading BLFN and good luck as you start the second quarter.

1. Texas Wind Energy Tops Market as Transmission Capacity Falls Short

Texas blew past California in 2006 to become the largest producer of wind power in the United States. With about 25 percent of the entire capacity of wind power in the U.S., Texas developers slate even larger projects in the next few years that will keep Texas in the lead. According to The New York Times: “After breakneck growth the last three years, Texas has reached the point that more than 3 percent of its electricity, enough to supply power to one million homes, comes from wind turbines.” See Move Over, Oil, There’s Money in Texas Wind, The New York Times (online) (Feb. 23, 2008) (Money in Texas Wind).

Despite this enormous growth and progress in building wind farms in Texas, the Lone Star State may not be able to deliver the power to consumers due to a lack of transmission lines and infrastructure. The situation creates a conundrum: If Texas developers build the wind energy, will the transmission lines exist to carry all the power to market? The State of Texas is taking steps to assure it will have the infrastructure to transmit wind power. See Texas Receives $10B Commitment to Wind Power; Pledges Needed Transmission Lines, Business Leasing and Finance News, by David G. Mayer (Nov. 2006).

Booming Development

In January alone, developers in Texas placed in service wind farms representing $700 million of investment, sufficient power for 100,000 homes. See Money in Texas Wind.

As of November 2007, Texas developers had placed in-service about 4,150-megawatts (MW) of installed wind generation capacity. Another 2,629-MW of prospective wind power generators have signed interconnection agreements.

The future of wind power development in Texas holds great promise. In July 2007, Shell WindEnergy Inc. and Luminant, a TXU Corp. subsidiary, announced a joint development arrangement to build a 3,000-MW wind project in the Texas Panhandle. In mid-March 2008, Tejas Transmission LLC, a subsidiary of Babcock and Brown announced its intent to establish a new utility business unit to construct, own and operate transmission facilities in Texas. In one of the most high-profile projects that may be developed, T. Boone Pickens has indicated that he will build a 4,000-MW wind farm in Pampa, Texas, valued at around $10 billion. If he completes all phases of the project, Pickens’ project will be the largest in the world. He believes that he can make money in this new venture and is working with consultants to plan the initial phases of the wind farm.

The Production Tax Credit (Section 45 of the Internal Revenue Code) (PTC) is generally viewed as an essential component of raising capital and generating acceptable returns on investment. The PTC lowers the cost of capital by providing a direct credit against federal income tax, which is viewed as essential to make wind projects economically viable. However, the credit expires at the end of this year. See As PTC Languishes in Congress, the Wind Power Industry Feels the Heat, By David G. Mayer with Amy Koch, Business Leasing and Finance News (March 2008).

*Action Point: For any stakeholder or professional involved in developing or financing wind power, the time is now to contact legislators to extend to PTC for a substantial period of time.

Transmission Limitations

Although wind energy has contributed a small fraction of the power requirements in the U.S., the importance of wind energy is becoming more widely recognized. It is generally viewed as an environmentally friendly way to replace fossil fuel used to produce electrical energy. However, the growth of the energy resource seems to be outstripping the capacity of transmission lines to carry the power to the grid and to markets that need the power. According to the Electrical Reliability Council of Texas, “more eye-popping growth in 2008 is expected to push generation past transmission capacity by 65% by year's end,” according to Bill Bojorquez, Vice President, System Planning at ERCOT. See Wind energy confronts shortage of transmission lines, USA Today (online) (Feb. 26, 2008).

*Term to Know: The Electric Reliability Council of Texas (ERCOT) manages the flow of electric power to approximately 20 million Texas customers – representing 85 percent of the state’s electric load and 75 percent of the Texas land area. As the independent system operator for the region, ERCOT schedules power on an electric grid that connects 38,000 miles of transmission lines and more than 500 generation units. ERCOT's members include consumers, cooperatives, independent generators, independent power marketers, retail electric providers, investor-owned electric utilities (transmission and distribution providers), and mu