NGI The Weekly Gas Market Report
Increasing competitive pressure inside traditional monopolyutility market territories has triggered somewhat of a revival ofinvestment diversification by gas and electric utilities. But theseinvestments are not what they’re cracked up to be, according toenergy consulting firm Metzler Services, a subsidiary of Metzler& Associates. Non-core investments, including internationalventures, did not payoff over the year ended last September,Metzler calculated in its third quarter Flashreport, released lastweek.
In fact, the contribution of these endeavors has been so minimalthat, according to Jerry Benson, executive vice president ofMetzler Services, “more than 95% of the industry’s earningscontinue to be derived from domestic electric and gas coreservices.”
Companies such as Duke Energy, Dominion Resources, AEP, CMS andothers have spent significant dollars on overseas investments andother non-core operations over the past few years. While there havebeen some notable earnings contributions from “non-core”initiatives at some companies, from an industry standpoint thesehave been offset by some significant losses from both theoperations and the divestiture of these initiatives. The industry,taken as a whole, has yet to significantly benefit from divestiturestrategies.
“A lot of [non-core investment] activity took place 10 yearsago, and it didn’t work out that well,” said Benson. “And nowthere’s been another movement as a lot of companies, primarily theelectrics for whom deregulation is becoming a reality, have thefeeling they need to diversify. It’s taking two forms now: Some aregoing to off-beat ventures, while others are sinking a lot ofdollars into international investments feeling there won’t be asmany constraints on the returns they can get overseas. There’s beena lot of action in Great Britain, Australia and South America.
“Our view is that while it’s interesting that these companiesare buying this, divesting that, diversifying, what shouldn’t getlost in all that is that what’s going to make or break thesecompanies in the marketplace over the next few years is howcompetitive they are in their traditional line of business becausethat’s still where 95% of the earnings are coming from,” saidBenson. For more information contact Jerry Benson at 217-241-1450.
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