After power price spikes, contract defaults and costly supplydeals cost Cinergy $73 million in July, the company said it wasseriously considering quiting the supply business altogether. (SeeDaily GPI, Aug. 9, Aug. 11, and Aug.13) But CEO James E. Rogerssaid yesterday the company’s board of directors has unanimouslydecided Cinergy should stick with it as the industry moves to acompetitive environment.
“The board and management carefully weighed all options,including exiting the supply business, and concluded that we haveobtained the size, scale, and skills necessary to be a successfulplayer in the region,” said Rogers. “Our supply business is a majorcontributor to the corporation, accounting for 70% of our revenuesand over half of our profits. Our strategically positioned,low-cost assets already make us a major competitor in our region.”
The board also recognized that in the future, management mightwish to monetize portions of the supply business, given regulatoryapprovals, and, originate customers and assets in order todiversify its supply portfolio from an operational, geographicaland customer standpoint.
“As our regulated business evolves into a competitive supplybusiness, we must design a new model that places a premium on aprofitably balanced portfolio,” Rogers said. “In this vision of thesupply business, the power trading function is an integral part ofthe balancing of supply and demand that will allow the company tostabilize earnings in the future.”
Cinergy has recently taken steps to match supply and customerdemand more closely. It reached agreement with Duke Energy NorthAmerica on a partnership that will jointly own three new wholesaleelectric generating facilities totaling more than 1,400 MW expectedto be in service by the summer of 2000.
Over the past six months, new senior management personnel withextensive commercial experience in energy commodity marketing andtrading have been recruited to lead Cinergy’s efforts in the supplybusiness. “In addition, our internal review of this business hasidentified several operational improvements that are beingimplemented immediately,” Rogers stated. “We are building astronger team with a tighter focus and are confident we can makeour supply business successful.”
The board’s unanimous decision came after a three-month reviewduring which it examined Cinergy’s supply obligations, supplycapabilities, regional market dynamics, and supply industryevolution. Cinergy’s operating companies, Cincinnati Gas &Electric and PSI Energy, serve more than 1.4 million electriccustomers and 470,000 gas customers in Indiana, Ohio and Kentucky.Cinergy’s energy system comprises 11,000 MW at 14 baseload stationsand seven peaking stations. Its gas distribution system isconnected to six interstate pipelines.
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