Leadership Isn't Just Volumes Traded
Convergence obviously is alive and well in the energy industry,
but it's not exactly what a lot of people seem to think, according
to Dynegy CEO Chuck Watson. Convergence isn't just about gas and
power coming together. It's not just marketing gas and power and
growing market share.
"People are running for market share, and frankly, there's a lot
of - we call them bragawatts - there's a lot of companies out there
saying I'm doing this amount and I'm doing this volume.. I believe
that's a mistake. It was a mistake in the gas business, and it's a
mistake in the power business. You run after market share and you
lose money doing it, and you're really not learning a damn thing
about this industry, and it's not a long-term strategy."
Watson told attendees at the Electric Power and Risk Management
Power '99 conference in Houston Wednesday that a convergence
strategy must include physical assets combined with marketing and
trading and energy services, such as risk management. Watson said
about 75% of Dynegy's profits now come from selling services
associated with the energy commodity, such as asset and risk
Right now the energy industry has a gap between asset-heavy players
and marketing/trading players. "I think what's happened is if you're
one or the other, I believe that you're not taking advantage of what I
call energy convergence. You're not going to survive just as a
marketer or trader because you're not taking advantage of the full
spectrum of energy convergence." Not insignificantly, Dynegy last week
made a bid to acquire Illinova Corp. and its substantial midwestern
asset base (see Daily GPI June 15, 1999).
Watson pointed out gas and power can't come together on the
physical side until there is yet another form of convergence on the
regulatory side. "Right now there is no compatibility between the
gas delivery rules in the industry and the electric delivery rules.
We've got to get those to be matched up a little bit better. You
can't nominate on a daily basis in gas and an hourly basis or
minute-by-minute in power because, in fact, those two commodities
have already merged.. The optionality of both of the commodities
needs to be maximized. You can't do that right now because of the
physical way we nominate the two commodities. We have to have
flexible and competitive markets. You've got to put everybody on
the same tariff at the end of the day on electricity and on gas so
price can be transparent and not be predicated on the different
tariff rules for each of the pipelines or transmission companies."
Ultimately, Watson is predicting convergence of technology with
communications and a combining of these with energy. "We're going
to have the ability to dial in and literally get not only the
energy commodity we want but all the services that we want. I
believe this is going to happen. Whether or not an energy
convergence player is going to be a dominant player in this on the
retail side in the future is a question I think you have to ask
yourself." Whoever is successful at the retail level will be
relying on wholesale providers, such as Dynegy, in order to serve
their customers, Watson said.
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