|
|
Enron Mail |
Today's IssueAlert Sponsors:=20
[IMAGE] Southeastern Electric Exchange=20 2001 Utility Odyssey: Engineering & Operation/Accounting, Customer Billing and Finance Conference= =20 and Trade Show The Doral Resort Miami, FL =20 Featured speakers include Wall Street Analysts Ed Tirello and Dan Ford and= =20 SEE Company Utility Executives Donald Hintz, Entergy Corp., Dennis Wraase,= =20 Pepco, and Bill Coley, Duke Power=20 For full details: www.theexchange.org=20 In an exclusive SCIENTECH PowerHitters Interview, Cody Graves, CEO of=20 Automated Energy, Inc. and former Chairman of the Oklahoma Corporation=20 Commission, discusses the status of restructuring in Oklahoma and=20 nationwide. Graves also discusses the role Automated Energy is playing in= =20 providing an essential piece of the restructuring pie. See the questions= =20 Graves was asked at: www.ConsultRCI.com=20 [IMAGE] The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. The Wall Map measures 42" x= =20 72"; the Executive Map Set consists of 18 11" x 17" maps. Visit our website= =20 at www.ConsultRCI.com for a detailed description of these valuable maps and= =20 complete ordering instructions.=20 [IMAGE] IssueAlert for April 3, 2001=20 Constellation Energy Pursues "Pure Play" Strategy by Will McNamara=20 Director, Electric Industry Analysis Christian H. Poindexter, chairman and CEO of Baltimore-based Constellation= =20 Energy Group (NYSE: CEG), announced that it will create two "pure play"=20 energy companies mid-to-late this year to focus exclusively on the North=20 American wholesale market, and regional retail energy services in Maryland= =20 and the surrounding region. Both entities will become publicly traded=20 companies before the end of the year. Constellation Energy Group is a holdi= ng=20 company that includes a group of competitive energy businesses focused most= ly=20 on power marketing and merchant generation in North America, plus Baltimore= =20 Gas & Electric (BGE), a regulated energy company in Central Maryland. In=20 2000, Constellation reported combined revenues of $3.9 billion and total=20 assets of $12.4 billion.=20 Analysis: Constellation's plan to separate into two publicly traded compani= es=20 has been in the works for over a year. In early 2000 Constellation began a= =20 restructuring of its corporate identity, dividing its operations into two= =20 separate segments: one focused on its unregulated merchant energy business= =20 (wholesale power marketing and generation operations) and the other focused= =20 on retail services (including the regulated electric and gas utility, BGE).= =20 As part of this process, Constellation combined its diverse generation=20 portfolio, power plant operations, and development efforts with its energy= =20 marketing and trading organization. The company has clearly stated that the= =20 primary reason for bifurcating its operations is to enhance shareholder=20 value. Constellation has said that "the separation of the businesses will= =20 illuminate the specific investment advantages of each emerging company and= =20 allow investors to make decisions based on a clearer assessment of each=20 company's balance of risk and return." =20 Upon separation, the holding company of the merchant energy businesses will= =20 retain the Constellation Energy Group name. The holding company of the reta= il=20 services businesses will become BGE Corp. Current shareholders will own=20 shares in each company when the transactions are completed. In addition, th= e=20 Constellation board of directors has approved a move to allow Goldman Sachs= =20 to become an equity owner of up to 17.5 percent in the unregulated business= .=20 Goldman Sachs has been a partner with Constellation since 1997, providing= =20 risk management and power marketing services. =20 The split of the business can be seen as primarily benefiting Constellation= 's=20 unregulated operations, which provide the real money-making opportunities f= or=20 the company. In return, the high growth of the unregulated businesses and i= ts=20 new status as a stand-alone company is expected to benefit Constellation=20 shareholders. Constellation Energy's merchant energy business is made up=20 primarily of the following subsidiaries:=20 Constellation Power Source, Inc.=01*wholesale power marketing and trading;= =20 Constellation Power Source Generation, Inc., which has ownership of 13 foss= il=20 and hydroelectric power plants formerly owned by BGE;=20 Constellation Power, Inc. and subsidiaries=01*development and management of= =20 existing power plants throughout the United States; and=20 Constellation Nuclear, LLC and subsidiaries=01*nuclear generation and=20 consulting. Poindexter has said that delivering solutions to the company's wholesale=20 customers is the foundation of Constellation's business (as opposed to the= =20 more traditional operations found on the regulated side). Further, the=20 company's primary growth strategies center on the non-regulated domestic=20 merchant energy business with the objective of providing new sources of=20 earnings growth. The company is planning to divest generation assets in=20 international markets such as Latin America and focus exclusively on its=20 unregulated businesses in the United States.=20 Toward that end, Constellation has focused over the last year on aggressive= ly=20 building its generation portfolio. Currently, the company controls more tha= n=20 9,000 MW of power capacity, and over the course of this year plans to add= =20 1,050 MW of gas-fired peaking capacity as well as complete a recently=20 announced acquisition of 1,550 MW of the Nine Mile Point nuclear facility i= n=20 New York. The goal for the merchant energy business, according to Poindexte= r,=20 is to establish a portfolio of over 30,000 MW of electric generation=20 facilities by 2005. Up until this point, Constellation's generation assets= =20 have been primarily based in a mixture of coal and nuclear, and for the mos= t=20 part located in the Northeastern United States. According to information=20 directly from the company itself, Constellation's own fuel mix is=20 predominantly coal (54 percent), followed by nuclear (40 percent). Oil, gas= =20 and hydro only represent a small percentage (6 percent) of Constellation's= =20 fuel mix. However, moving forward, it is expected that nuclear power will= =20 play an increasingly important role in Constellation's competitive strategy= .=20 Constellation's merchant energy business was ranked fifth in the nation for= =20 sales of electric power in the third quarter of 2000, and the company is=20 committed to expanding this growth. Revenues in Constellation's unregulated= =20 businesses totaled $1.14 billion for year-end 2000, almost half of the tota= l=20 revenues for the company. Segment earnings for 2000 reflected a shift in=20 earnings from the regulated utility business to the non-regulated domestic= =20 merchant energy business as a result of the transfer of BGE's electric=20 generation assets to non-regulated subsidiaries on July 1, 2000.=20 Constellation believes that a reasonable range for 2001 earnings per share = on=20 a total company basis is $3.00 to $3.10. More than two-thirds of the total= =20 earnings is expected to come from the domestic merchant energy business, wi= th=20 the remainder coming from BGE and the other businesses that will comprise t= he=20 new BGE Corp. as part of the business separation strategy.=20 Meanwhile, BGE remains a consistent performer and in fact contributed the= =20 majority of Constellation's revenues over the course of 2000 ($2.13 billion= =20 out of a total of $3.9 billion). BGE's fourth quarter electric sales volume= s=20 increased nearly 7 percent as compared to 1999. This increase in the fourth= =20 quarter helped to offset a portion of the decline in electric sales=20 experienced during the summer of 2000. BGE will remain a regulated provider= =20 of gas and electricity delivery services in central Maryland. However, as a= =20 regulated entity, Constellation apparently believes that BGE will not provi= de=20 the same level of profit potential as the unregulated merchant business, an= d=20 therefore the company wants to attract two different sets of investors. =20 FERC approved Constellation's separation plan in early March. The company= =20 still needs to receive approval from the Nuclear Regulatory Commission and= =20 the Internal Revenue Service. =20 Also related to Constellation's separation process is a change in the=20 company's common stock dividend policy effective in April 2001. At that tim= e=20 Constellation's annual dividend is expected to be set at $.48 per share.=20 After the separation, BGE Corp. expects to pay initial annual dividends of= =20 $.48 per share. Constellation Energy Group, as a growing merchant energy=20 company, initially expects to reinvest its earnings in order to fund its=20 growth plans and not to pay a dividend.=20 Constellation's strategy falls into a growing trend among energy companies= =20 attempting to streamline their businesses for competitive markets. For=20 instance, last fall American Electric Power (NYSE: AEP) announced its plans= =20 to restructure into two companies to support a new focus on power generatio= n,=20 marketing and trading. Under the restructuring, one corporation will hold= =20 AEP's utility and non-utility subsidiaries whose revenues are derived from= =20 competitive (unregulated) business ventures. The second corporation will ho= ld=20 AEP's utility subsidiaries (primarily T=02=15subsidiaries) that are subject= to=20 regulation by at least one state regulatory commission, or foreign=20 subsidiaries subject to rates or tariffs regulation. It is not clear if AEP= =20 will opt to take both companies public. Linn Draper, AEP's CEO, has said th= at=20 the company is reserving that decision until the end of 2001, the time at= =20 which he believes the restructuring will have received all the necessary=20 regulatory approvals.=20 In addition, just yesterday, Mirant (NYSE: MIR) completed its spin-off from= =20 parent Southern Company and is now recognized as a fully independent,=20 publicly traded company. Mirant is a global competitive energy company with= a=20 leading position in both power generation and energy risk management and=20 marketing. With an integrated business model, Mirant develops, constructs,= =20 owns and operates power plants and sells wholesale electricity, natural gas= =20 and other energy commodities.=20 Other parent companies that have announced the spin-off of unregulated=20 generation companies into stand-alone and possibly publicly traded companie= s=20 include UtiliCorp, Reliant and Xcel Energy. =20 As noted, the common driver behind the growing trend of spinning off=20 high-risk, high-growth ventures into stand-alone companies is the hope of= =20 attracting two sets of investors. For instance, let's take a look at the=20 Southern Company / Mirant example as Mirant has just completed its spin-off= =20 from Southern. Southern Company's P/E multiple is 10.48 compared to Mirant'= s=20 29.14. The price earnings ratio is typically used to gauge a firm's measure= =20 of value and can be used to compare a company to its peers and industry=20 average. The average P/E ratio of a traditional utility company is somewher= e=20 around 12.00. A P/E ratio much higher than the average signals that the=20 company has a high-risk, high-reward profile. However, the general consensu= s=20 is that the traditional utility investor does not have the risk-appetite fo= r=20 an IPP-type company. The IPP stock carries more risk than the average utili= ty=20 and does not guarantee a dividend payment. On the other hand, with risk com= es=20 reward. Consequently, companies such as Southern, Constellation and the=20 others mentioned are finding that by splitting non-regulated and regulated= =20 businesses, they can attract two different sets of investors and safeguard= =20 any possible negative earnings impact that might spill over from one side o= f=20 the business to the other. =20 An archive list of previous IssueAlerts is available at www.ConsultRCI.com Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily email, send a message to=20 IssueAlert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.
|