1. Case - Contractual Innovation in the UK Energy Markets

Read the following:

Contractual Innovation in the UK Energy Markets: Enron Europe, The Eastern Group, and the Sutton Bridge Project, HBS, Benjamin C. Esty, Peter Tufano, 200051-PDF-ENG. This case is downloaded from Harvard Business School (HBS) from a link found on the class website in the sixth week. The cost for the course package is $4.50. https://hbsp.harvard.edu/import/747498

Questions

• Why is Enron interested in getting additional generation capacity?
• How would you characterize Eastern's option under the Capacity Tolling Agreement (CTA)? When is the option viable? For quizple, what happens when gas is priced at 1.25 pounds per MMBtu and electricity is priced at 25 pounds per MWh? What happens when gas is priced at 2.50 pounds per MMBtu and electricity is priced at 15 pounds per MWh?
• Should Enron the Capacity Tolling Agreement (CTA) with Eastern, build the physical plant, or do both? What risk does it take if it does one or the other, but not both?
• How does Enron make money on this deal? What happens if it builds the plant and does not use it? How likely is Enron to use it?