Non-regulated utility marketing affiliates may become a thing ofthe past, not as a result of forced divestiture but of voluntaryseparation, according to Hagler Bailly Consulting’s Ken Malloy.

“Most people think it will happen because the regulators requiredivestiture. The insight I bring to it is that it doesn’t need tohappen that way and it might not even likely happen that way,” hesaid following a speech at the Federal Energy Bar Association’sannual meeting in Washington, D.C. last week. “It really happensthrough four more subtle forces.” No. 1, a mounting culture clashdivides the companies internally. No. 2, competing marketersconstantly bite at the heels of the utility affiliates and urgeregulators to deepen their scrutiny of the relationship between thenon-utility marketers and the utilities.

“If you’re playing basketball against Michael Jordan, you wanthis legs tied together. You don’t care whether it’s fair or not,you just want a reasonable shot a beating him. Marketers will haveincentives to continue to argue that the success of the unregulatedaffiliate is itself evidence of the illicit advantages that arebeing conveyed to it by the conduit,” said Malloy.

No. 3, over time in order to preclude any kind of antitrustliability exposure, the utility side “actually comes todisadvantage its affiliate in order to prove that it’s being aboveboard, and then the affiliate starts to resent the fact that itsnot being given a fair opportunity to profit from the market.”

And the last reason is pressure from Wall Street. “You have avery risky activity and a very nonrisky activity under the samerubric. They have difficulty pricing that and understanding thedynamic behind the [company’s performance].”

Malloy’s fellow panelists, Columbia CEO Rick Richard andPG&E CEO Robert Glynn, may have been intrigued a bit, but theycertainly didn’t agree. Both PG&E and Columbia have tremendousamounts of regulated “conduit” property and large and growingentrepreneurial marketing units.

Malloy, however, is talking about events that are expected tobegin happening in five to 10 years. “The jury is still out,” heconceded. The industry should not expect mass divestitures anytimesoon, he said. “A lot of these things are going to take time. Theseare forces that I regard as inexorable in the industry, but don’texpect in the year 2000 it will start to shape up this way. I wouldcertainly think that you’re going to see evidence of this by 2005,but it’s not like it’s right around the corner.”

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