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Dynegy's Watson Sees Knowledge-Based Industry

Dynegy's Watson Sees Knowledge-Based Industry

Sounding more like a visionary guru than a hard-charging CEO, Dynegy's Chuck Watson offered up his forecast last week for successful energy companies of the future, telling participants at Energy Economy 2000 in Houston that businesses will need to own the technology they use, recruit and keep technical talent and most important, transform their companies from the traditional asset-driven formula to a knowledge-driven strategy by embracing the Internet.

Energy convergence is key to Dynegy's success, Watson said, with natural gas, power, communications and technology forming the cornerstones of the company's business. Already a wildly successful marketer since he first went into business 15 years ago, Watson said that business opportunities and the natural gas business has never been more exciting. His company has backed up that vision with a common stock price that has quadrupled since the first of the year.

"There are a lot of similarities in communications and natural gas and power," said Watson. "The data business is a huge business today and will be for the next 15 years at least. If we're even remotely as successful in our data communications business as we have been in the gas and power business, there are more earnings potential in communications than in anything else."

Watson said the communications opportunities are "huge and growing," and he wants to make sure that Houston-based Dynegy is in a position to own the technology rather than just trade it, as it does in its natural gas marketing.

As part of its long-term plan to compete in the communications business, Dynegy announced in August that it would buy Extant Inc., a Colorado-based communications solutions and network company (see NGI, Aug. 7). That deal is set to close by the end of September.

"Technology convergence gives us the ability to compete in ways we never dreamed of. We have dramatically expanded our reach in the past 18 months." Because of the transformation of the marketplace, Watson said that Dynegy would continually be changing to meet the needs of its customers. "We are reinventing ourselves every year."

Based on what Dynegy has seen in recent months, he predicted that in the future, successful companies would be those that manage their emerging assets more than just managing the assets they already have. "Today, 80% of our business is traditional, and 20% of it is B2B, e-business. In two years, I predict that 80% of our business will be B2B and 20% of it will be traditional. There's going to be a huge shift."

The economy of the future will be based on "ideas rather than physical" assets. "Knowledge assets drive Wall Street already, and if you leverage your intellectual capital, you will do well." Dynegy, he said, will be balanced in its attack and continue to be a leading energy marketer, but insisted it will be a knowledge-based company "for years to come."

Asked about the outlook for natural gas and Dynegy's place in the market, Watson said, "natural gas is not done" in North America, but more opportunities exist globally, especially in Western Europe in the short term. To continue to meet the energy demands of the future, especially in natural gas, oil and power, Watson said that the United States needs a domestic energy policy.

"This country is dangerously short of peaking capacity," he said. "There's been virtually no capacity added in the last 10 years." By 2001, he predicted that the United States would be 45,000 MW short of capacity overall. Some areas of the country, like the Northeast, are in good shape, while the Northwest is extremely short. "Meanwhile, the demand growth continues. This is not a window that will close in six or seven years."

Although he said that the global opportunities ahead are enticing, Watson said Dynegy would remain strong in North America. "North America is still exciting for us. We've stuck to our knitting, and now we have a strong company and can look toward other global opportunities."

Carolyn Davis, Houston

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