The “desperation” by utilities to consolidate, mutate or get outof the business altogether is a good thing, said utilities analystDaniel Ford of ABN AMRO, because this fear is where most of thestock values are now being created. Ford, a keynote speaker at lastweek’s PowerMart 2000 in Houston, called investors a “ficklebunch,” but added they are sticking with utility stocks.

One of the things investors like the most is change, said themanaging director of utility research for ABN AMRO. “Companies haveto change their strategies to fit what investors want. That isexciting.”

Investors invest in “themes,” said Ford, and suggested thatutilities looking for better stock performance look for new ways toenhance their business. To make the stock more exciting, Fordrecommended one of two paths: develop a substantial non-regulatorygrowth business, or sell it for cash.

“On the non-regulatory side, we see that happening more andmore,” he said. These are the companies that are having the beststock performance. If they can’t expand their businesses, then herecommended they sell them.

“What doesn’t work are paper mergers, rate cases and leverage,”Ford said. “Companies that have overextended their balance sheetsare not going to last.”

Most of the outstanding growth in utility stocks is coming inthree areas, through telecommunications infrastructure; independentpower and convergence; and in the electro-technology fields. If acompany has not already begun to invest in telecommunications, Fordsaid, “frankly, that was last year’s story. It’s almost too late toget into that now.” He said the story now is in bandwidth, andcompanies willing to change already are filling that marketplace.

The electro-technology field includes the small niche “cottageindustries,” said Ford, and these attract a lot of attention frominvestors. If a utility finds the right type of technology toinvest in and make a part of its business, then these can add stockvalue.

Most of the attention is in the growth of independent power andin convergence, he said. “There is a lot of opportunity there.”Calling electricity the “most volatile market the world has everknown,” Ford said that there aren’t many players in this market,and the United States needs more resources, starting withgeneration.

“Turn out the lights in the U.S. if we don’t do somethingquickly,” said the analyst.

Only a few “meaningful” power companies are now traded in theUnited States, he said, mentioning Calpine, AES, Dynegy, NRG, ElPaso and the utilities with large IPPs. “These are very attractiveto investors.”

Ford said that natural gas, already a huge growth area, wouldcontinue to stay on an upward path – but it’s continued stronggrowth actually may depend on who is elected president in November.A win, he said, by Vice President Al Gore (D), would guarantee morenatural gas production. “He will get the gas plants.” He didn’tmention what Republican nominee, Texas Gov. George W. Bush, mightdo.

Ford also said to be prepared for winter natural gas spikes of$6 to $7 in the next few months if the season is normal. “Gas playsright now are incredibly attractive.”

Carolyn Davis, Houston

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