Anyone working for a gas company today won’t be in a few yearsif a prediction of BT Alex Brown Managing Director Edward TirelloJr. comes true. “On convergence, I believe that the electriccompanies will buy up all of the gas companies over the next fiveyears, and that will be the end of it.”

The transition from regulated monopolies to competition in theenergy industry will bring with it fundamental changes in the waybusiness is done, he told attendees at Arthur Andersen’s 19thannual Energy Symposium last week in Houston. “It’s a pure andsimple marketing story. You can’t afford to have someone else inthe marketplace with just as good a brand franchise as yours andall the other things that go with it. Also, you’re talking abouthuge electric companies that have market caps of $4 or $5 billiondollars up to $20 billion. And you’re talking about gas companieswho have $500 million, $600 million market caps.”

Tirello predicts there will be about 100 companies providingenergy or energy services at the end of the day. He envisions 10transmission companies spawned from the 10 regional electricreliability councils; 50 or so generating companies; and 30 or 40super-regional or national distribution companies. In his view, thereliability councils clearly have to go.

“We will have the companies pool their assets. They’ll own apercentage of what they put in. They will bring that public as thegovernment prefers that these be public, and I think they will beinvestor-owned and operated as businesses.

“When you run a not-for-profit company in a businessenvironment, you’re not talking about the brightest lights. You’renot talking about people who are out there to make a real dollarand get things moving. You’re talking about bureaucrats. That’s notwhat this business break-up is about. The break-up is all aboutgetting these things to be more efficient, getting prices to comedown. That does not happen with a government agency. So as such, weexpect these to be investor-owned companies.”

As for the current buy-up of generating assets, Tirello said hesees nothing surprising about the premiums being paid. “You’rebuying a site and a connection to the grid. The fact that therehappens to be something sitting there that burns whatever fuel itburns is inconsequential to the story. You’re going to knock downthat coal plant that’s 46 years old and what are you going to do?You’re going to put up a gas plant three times as big. I see thesepeople paying whatever they have to pay to get into the marketplacein order to knock down what’s there in most cases and put somethingup three times as big and less polluting.”Joe Fisher, Houston

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