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********************************************************************* Energy Exchanges Online - Scottsdale - December 4-6 B2B e-commerce has revolutionized commodity trading, the A&D process and procurement within the energy industry. With heavyweight keynotes and in-depth panel discussions this is the first event to bring the major energy companies, net markets, venture capitalists, regulatory bodies, investment banks and analysts together to thrash out why its not business as usual but business online. For more information please visit www.eyeforenergy.com/xonline ********************************************************************* =============================================================== SCIENTECH IssueAlert, November 13, 2000 The New Power Company: Going Green While Stock Price Drops By: Will McNamara, Director, Electric Industry Analysis =============================================================== The New Power Company (TNPC, NYSE: NPW), which bills itself as the first national residential and small business energy provider, announced that it has signed a Letter of Intent with Community Energy, Inc. to provide wind-generated energy to customers in the Philadelphia area. Under the terms of the agreement, TNPC will market wind power supplied by Community Energy from a site under development in the mountains of northeast Pennsylvania. The new wind turbines are scheduled to come online by the end of 2001. ANALYSIS: This is an interesting development, especially considering that TNPC is still embroiled in a battle with Green Mountain for a significant number of customers that TNPC recently secured in a bidding process from PECO Energy. This could be an attempt on the part of TNPC to appease customers who might have preferred to be served by Green Mountain. On the other hand, it could be a shrewd marketing strategy from the energy service company, founded earlier this year by Enron (along with partners AOL and IBM). As you may recall, just two weeks ago TNPC announced that it had reached an agreement with PECO Energy to supply "competitive default service" for approximately 300,000 of PECO's residential electricity customers who have not selected a competitive energy service provider. Green Mountain formally challenged this agreement, arguing that the PECO/TNPC agreement is "not in the public interest" and that Green Mountain should have been awarded the right to serve as the default provider for the customers in question. Thus, it seems curious that TNPC has just now announced the addition of wind power to its portfolio of services. Up to this point, TNPC has been working to aggressively acquire customers from other energy providers, such as the approximately 285,000 natural gas and 20,000 electricity customers it purchased from Columbia Energy Group. The acquisition of the customers in PECO's territory was a major coup for TNPC, which is still in start-up mode. Although TNPC claims that it was fairly awarded the customers from PECO, the addition of wind power could be seen as an attempt to quell further objections from Green Mountain or perhaps the beginning of a new identity as a provider of renewable energy. Community Energy, the company from whom TNPC is securing the wind power that it will market, began making wind power available to businesses in Pennsylvania last year. TNPC customers will be able to buy wind energy in fixed kilowatt-hours, allowing for more customized service and tailored use of power. Interestingly, the Commonwealth of Pennsylvania just renewed a contract with Green Mountain in which Green Mountain will supply about 37,500 MW of green power to aggregated state agencies. This indicates that desire for green power is quite strong in Pennsylvania, and any energy provider wanting to market in the state would be wise to include green power in its portfolio. Thus, while renewable energy was not a fundamental component of TNPC's original business plan, the company appears to be moving in this direction (at least in states where it is strategic to do so). However, this announcement comes on the heels of TNPC's announcement of its third-quarter earnings and a sudden drop in its stock price. TNPC's revenues for 3Q 2000 were $18.2 million, derived from the sale and delivery of electricity and natural gas to retail customers in just two states (Pennsylvania and New Jersey). Gross profit was $1.3 million, or 7.2 percent of revenues. Yet, the loss on earnings before income tax (EBIT) was $68.3 million. The net loss for the quarter was $69.9 million, or $2.96 per basic share. TNPC reiterates that it is a new company with a very limited operating history. Therefore, the company contends that its year-over-year comparisons are not meaningful or indicative of future performance. The company's goal for 4Q 2000 is to achieve revenues of approximately $60 to $63 million, with an estimated year-end customer count of 340,000. Eugene Lockhart, TNPC's CEO, said he was pleased with the 3Q performance. Lockhart contends that TNPC "achieved both our overall financial performance targets and business objectives," and referenced the fact that the company is still building its "systems and architecture" so that it can continue to penetrate additional competitive markets. In addition, TNPC has raised approximately $546 million in funding which the company is using primarily to build its brand identity in this early stage of its operation. However, despite its positive outlook, after TNPC made its earnings announcement its shares took a nosedive, perhaps reflecting uncertainty about the energy provider's ability to meet its objectives. The shares closed last Friday at $9, which is a dramatic drop from the average price of $25 before the 3Q earnings announcement. TNPC issued its IPO on Oct. 5, 2000, at a price of $21 per share, which at the time seemed quite high for a start-up energy company with a limited track record. A day after its opening, the stock closed at $27 per share. The stock was received so favorably for two reasons, in my estimation. First, TNPC has been bankrolled by some hefty investments. In two separate, private placements, investors such as Enron, GE Capital Equity Investments and DLJMB Partners (among others) put up about $214 million in start-up capital in exchange for shares in the company. Enron is the majority owner of TNPC, with 57-percent control. Second, and perhaps more importantly, earlier this year Enron transferred its residential and small commercial retail operations in California and Ohio to TNPC. Together with the Columbia Energy Group acquisition, TNPC has come out of the gate running with a significant beginning customer base of over 325,000 customers. Yet clearly investors are now questioning the strength of TNPC stock, and the company is at a crossroads. In order to keep its momentum on track, TNPC needs to do two things. First, it needs to acquire additional customers to expand its base. Key states such as Texas or Ohio offer the best opportunity to secure customers since competition is unfolding at a more rapid pace in those states. Second, as I discussed in my IssueAlert from Nov. 6, 2000, energy stocks that are based on new technologies in general and alternative fuels in particular are being received particularly well by investors. Consequently, it is a very shrewd move for TNPC to suddenly announce that it will be a provider of wind power. This could potentially send the stock price on a upward climb again, despite the fact that financial success of the company is still unproven. Regarding the customer base expansion, Ohio looks like the next state that TNPC will target. Just last week, the company filed an application with the Ohio Public Utility Commission to provide electricity in the state. Yet, it's clear that TNPC is still fine-tuning its marketing approach. In Ohio, it is offering customers competitive energy prices, flexible payment and pricing choices, and frequent flier miles as a marketing incentive, but there is no mention in TNPC's application that it will provide renewable energy in Ohio. Moreover, several questions remain. Does TNPC plan to carve out a new role for itself as a renewable energy provider, or it just providing wind power in Pennsylvania to preserve its market edge in the state? Will the addition of wind power positively benefit the stock price of TNPC? Will TNPC demonstrate revenues of $63 million in 4Q 2000? And where will the company's next acquisition of customers take place? All of these questions directly impact the future success of TNPC. =============================================================== Miss last week? Catch up on the latest in the energy industry at: http://www.consultrci.com/web/infostore.nsf/Products/IssuesWatch ============================================================== SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert Sincerely, Will McNamara Director, Electric Industry Analysis wmcnamara@scientech.com =============================================================== Feedback regarding SCIENTECH's IssueAlert should be sent to wmcnamara@scientech.com =============================================================== SCIENTECH's IssueAlerts are compiled based on independent analysis by SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed or to be the basis for investment decisions of any kind. SCIENTECH's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy and telecommunications issues. Copyright 2000. SCIENTECH, Inc. If you do not wish to receive any further IssueAlerts from SCIENTECH, please reply to this message and in the body of the email type "remove."
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