“Opportunities in the regulated utility business have never beenbetter,” according to UtiliCorp United Chairman Richard C. Green,Jr.
“Warren Buffet is beginning to see that; Bill Gates is beginning tosee that, and a lot of financial organizations are realizing it,”Green said referring to the purchase by Buffett’s Berkshire HathawayInc. of MidAmerican Energy (see Daily GPI, Oct. 26) and Gates’ recent investment inAvista. (see Daily GPI, Jan. 28)
Part of the attraction, Green acknowledged is the low valuationthe financial market currently is putting on utility stocks.Utility stock prices had the worst year since 1975, he added.”There are some very slender sectors carrying the hype and highinvestment” in today’s market. But, “the market moves in cycles.Our attitude is to keep performance up and create a track record.The focus on the Internet will abate over time.”
UtiliCorp specifically is going for earnings growth. Coming offthree straight years of 8% growth, the company now is targeting 10%in inherent growth, not counting acquisitions, possibly this year.Sales shot up 50% in 1999 to $18.6 billion. UtiliCorp’s goal is tobe the leading multinational energy solutions provider by wrappingunregulated lines of business around its regulated energy deliveryservice. Currently the company is split 50-50 between regulated andother lines of business.
The Missouri-based utility is applying that strategy with itsproperties in North America, Europe, Australia and New Zealand. Thekey, Green said, is to branch out from the regulated businesses,but stay within core competencies.
For instance its marketing and trading subsidiary, AquilaEnergy, attracts customers for commodity trading, and then sellsthem risk management add-ons. Energy customers face “commodityrisk, credit risk, market risk, the list goes on and on. “You haveto have the capability to trade that risk out into themarketplace,” said Robert K. Green, UtiliCorp’s President and COOand Richard Green’s brother. “Those customers need someone to helpthem manage those risks. That is a profitable business and itreally is THE business.” This is an example of the use of”intellectual leverage…..being there in the marketplace.”
R.K. Green, who recently added the title of chairman of AquilaEnergy to his portfolio, said UtiliCorp was committed to themarketing business “for the long term.” The Green brothers, thefourth generation of their family to run the business, spoke toreporters at the National Press Club in Washington, D.C..
Parrying a reporter’s question about the shrinking field ofmarketers, CEO R.C. Green, said, “Some companies may have reliedtoo much on trading to make a profit as opposed to sellingsomething to the customer that has a market value you can put inyour pocket.” On the natural gas side particularly, “the market hasreached maturity, so we’re taking market share from others.”
A risk management product steadily gaining favor is the businessof weather derivatives. “We’re into our third year with these, andthe market is beginning to recognize and understand the product.Utilities are beginning to realize they can offload earningsvolatility. We used this strategy ourselves on the utility sidethis past November and December, which were unusually warm. Itallowed us to stay whole and paid off in that two months about $6.5million based on heating degree days below normal,” Green said.
UtiliCorp is taking into other markets its strategy of wrappingunregulated around regulated services. It acquired 28% of the stock ofHouston-based Quanta Services. It also opened marketing and tradingoffices in Europe. This week it announced plans to buy Albertaelectric distributor Trans-Alta Corp. (see Daily GPI, Feb. 8).
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