Analyst Predicts Electrics Will Swallow Gas
Anyone working for a gas company today won't be in a few years
if a prediction of BT Alex Brown Managing Director Edward Tirello
Jr. comes true. "On convergence, I believe that the electric
companies will buy up all of the gas companies over the next five
years, and that will be the end of it."
The transition from regulated monopolies to competition in the
energy industry will bring with it fundamental changes in the way
business is done, he told attendees at Arthur Andersen's 19th
annual Energy Symposium last week in Houston. "It's a pure and
simple marketing story. You can't afford to have someone else in
the marketplace with just as good a brand franchise as yours and
all the other things that go with it. Also, you're talking about
huge electric companies that have market caps of $4 or $5 billion
dollars up to $20 billion. And you're talking about gas companies
who have $500 million, $600 million market caps."
Tirello predicts there will be about 100 companies providing
energy or energy services at the end of the day. He envisions 10
transmission companies spawned from the 10 regional electric
reliability councils; 50 or so generating companies; and 30 or 40
super-regional or national distribution companies. In his view, the
reliability councils clearly have to go.
"We will have the companies pool their assets. They'll own a
percentage of what they put in. They will bring that public as the
government prefers that these be public, and I think they will be
investor-owned and operated as businesses.
"When you run a not-for-profit company in a business
environment, you're not talking about the brightest lights. You're
not talking about people who are out there to make a real dollar
and get things moving. You're talking about bureaucrats. That's not
what this business break-up is about. The break-up is all about
getting these things to be more efficient, getting prices to come
down. That does not happen with a government agency. So as such, we
expect these to be investor-owned companies."
As for the current buy-up of generating assets, Tirello said he
sees nothing surprising about the premiums being paid. "You're
buying a site and a connection to the grid. The fact that there
happens to be something sitting there that burns whatever fuel it
burns is inconsequential to the story. You're going to knock down
that 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 these
people paying whatever they have to pay to get into the marketplace
in order to knock down what's there in most cases and put something
up three times as big and less polluting." Joe Fisher, Houston
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