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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "SCIENTECH IssueAlert" <IssueAlert@scientech.com< X-To: X-cc: X-bcc: X-Folder: \Mark_Haedicke_Oct2001\Notes Folders\All documents X-Origin: HAEDICKE-M X-FileName: mhaedic.nsf Today's IssueAlert Sponsors:=20 [IMAGE] Are you looking to invest in, attract investors for, provide services to or= =20 understand the business and technology dynamics of the hottest companies=20 emerging in the energy sector? Attend the Energy Venture Fair, June 25 &= =20 26, 2001, in Boston, MA and hear CEOs from 75 hot energy companies present= =20 their business plans. Complete event description available at=20 www.energyventurefair.com or call Nannette Mooney at (818) 888-4445, ext. 1= 1.=20 [IMAGE] Southeastern Electric Exchange 2001 Utility Odyssey: Engineering & Operation/Accounting, Customer Billing and Finance Conference= =20 and Trade Show The Doral Resort Miami, FL 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 [IMAGE] Miss last week? Catch up on the latest deregulation, competition and=20 restructuring developments in the energy industry with SCIENTECH's=20 IssuesWatch=20 [IMAGE] [IMAGE] June 11, 2001 Power Shakeup in United Kingdom:=20 American Companies Divest as the Brits Expand in the United States=20 By Will McNamara Director, Electric Industry Analysis=20 [IMAGE]British-based electricity generator International Power announced th= at=20 it is buying a 1,000-MW coal-fired station in central England from TXU Euro= pe=20 for 200 million pounds ($277 million) as part of its expansion in Britain.= =20 International Power, which spun off last year from privatised British utili= ty=20 National Power, said it expected the 1,000-MW Rugeley Power Station near=20 Birmingham to increase earnings and generate cash in the first year of=20 operation. The Rugeley deal includes a tolling contract until the end of 20= 05=20 under which TXU Europe, part of TXU Corp. (NYSE: TXU) will provide coal for= =20 the plan and purchase its output.=20 Analysis: TXU's sale of its Rugeley plant is part of the company's European= =20 strategy to expand trading operations and focus on the retail business acro= ss=20 the Continent. Divesting the coal-fired plant in central England, while sti= ll=20 remaining involved in a tolling agreement with the plant's new owner,=20 strengthens the balance sheet of parent company TXU Corp. and streamlines t= he=20 company's European operations so that it can become more focused on=20 profitable ventures such as trading. However, it is also important to take= =20 TXU's sale of its U.K.-based power plant in the context of several other=20 transactions that are brewing in Britain, all of which forecast a major=20 shakeup in the country's power playing field. Further, while American=20 companies based in the United Kingdom reevaluate and divest their holdings = in=20 Britain, U.K.-based companies continue an aggressive (and profitable)=20 expansion into the U.S. market.=20 Clearly, International Power is a British company that is more squarely=20 focused on the traditional generation market than TXU Europe. For instance,= =20 International Power—which also has interests in Australia, southeast=20 Asia, the United States, and across continental Europe=0F-a worldwide gener= ation=20 capacity of about 8,350 MW. Thus, acquiring additional generating assets in= =20 its home country makes sense for International Power, which by the way has= =20 outperformed its London-listed electricity company peers by more than 20=20 percent so far this year. =20 In contrast, divesting the Rugeley assets seems to be a strategic move for= =20 TXU, which has been in the process of divesting other European assets over= =20 the last six months. In February 2001, TXU Europe announced the sale of its= =20 North Sea assets, which was the first indication that the company was movin= g=20 away from a hard-asset strategy across the Continent. The company had bough= t=20 stakes in several North Sea gas fields as part of its expansion into=20 Britain's energy business. However, the divestiture of these assets was=20 initiated out of TXU Europe's desire to concentrate more exclusively on=20 trading operations in Europe. Consort Resources, a U.K. start-up company th= at=20 also operates in the North Sea, has agreed to acquire TXU Europe's upstream= =20 gas business located in the region for $201 million. =20 In addition to divesting its North Sea gas business, TXU Europe also=20 announced in February of this year that it is seeking to sell its 20-percen= t=20 stake in Spain's Hidroelectrica del Cantabrico. Following the planned=20 divestitures, TXU Europe's primary business model will remain focused on=20 energy trading. This is understandable, as the company has quickly become o= ne=20 of the major forces in the trading market since a number of European=20 countries have opened their electric and gas markets to competition (upon t= he=20 directive of the European union). In fact, TXU Corp. reported a 75-percent= =20 jump in revenue for 1Q 2001, which it attributed in large part to its energ= y=20 trading business both in the United States and the United Kingdom, where=20 revenue more than doubled.=20 However, as noted, in addition to furthering TXU's own European strategy, t= he=20 divestiture of the Rugeley plants is also part of an emerging game of music= al=20 chairs in the U.K. power market. In addition to a change in business model,= =20 many American companies may be looking to sell their U.K. power assets in= =20 response to Britain's intense regulatory scrutiny of energy profits and the= =20 application of the country's windfall profit tax. In other words, companies= =20 such as TXU may find that any value in holding onto U.K. assets may be=20 overshadowed by taxes enforced by the British government. =20 In any case, TXU is not the only American energy company looking to divest= =20 U.K. assets. For instance, ScottishPower, the Glasgow, Scotland-based utili= ty=20 that owns PacifiCorp in the United States, is reportedly holding talks with= =20 Entergy Corp. about purchasing Entergy's two U.K. gas-fired generation=20 assets, Damhead Creek and Saltend. According to some financial analysts, th= e=20 two plants, which have a combined capacity of about 2,000 MW, could earn=20 Entergy as much as $1.9 billion (a figure that seems awfully high). Similar= =20 to TXU, Entergy is looking to divest the U.K. generating assets to support= =20 its thriving wholesale trading business. As a sidenote, the possible sale o= f=20 Entergy's U.K. generating assets was cited as one of the factors that=20 contributed to the company's failed merger with FPL Group earlier this year= . =20 Just like International Power, it would make sense for ScottishPower to=20 increase its asset base in the United Kingdom. The company has reportedly= =20 increased its retail supply business in England and needs to hedge the cost= =20 of selling power in the country. In addition to possible interest in=20 Entergy's U.K.-based gas plants, it has also been reported that=20 ScottishPower, along with potential partner Southern Energy (not to be=20 confused with Mirant Corp., which was formerly known as Southern Energy) ar= e=20 also interested in Seeboard, a regional U.K. electricity company currently= =20 owned by American Electric Power (AEP). =20 Moreover, this growing interest in Seeboard also represents another critica= l=20 component of the U.K. power shakeup. Seeboard serves around two million=20 connected customers in England (in the towns of Kent, Sussex and Surrey).= =20 Under its brand name of Seeboard Energy, which combines electricity from=20 Seeboard and gas from Beacon Gas (a joint venture with BP Amoco), the compa= ny=20 sells dual fuel to customers throughout the United Kingdom. Seeboard owns,= =20 operates and maintains an electricity network of over 45,000 km (28,000=20 miles) of overhead lines and underground cables and, along with consortium= =20 partners, also manages and operates the electricity distribution system=20 serving the London Underground. Again, AEP (as Seeboard's current owner) is= =20 looking to divest the company in order to focus on European power generatio= n,=20 marketing and trading.=20 Up until a few weeks ago, it appeared that Electricite de France (EDF) was= =20 the leading contender to acquire Seeboard. Having previously purchased Lond= on=20 Electricity, one of 12 regional electricity companies in England and Wales= =20 and a supplier to approximately two million customers in metro London, it w= as=20 a smart move for EDF to further expand its base in the United Kingdom with= =20 additional acquisitions. Through its London Electricity subsidiary, EDF mad= e=20 a 1.5-billion pound ($2.07 billion) offer for Seeboard, which AEP rejected.= =20 However, as recently as last week, it was still up in the air what will=20 become of the Seeboard assets. The last word is that London Electricity=20 continues to negotiate with AEP, but the American company reportedly faces = a=20 multi-million-dollar tax bill if it sells the U.K. assets before June 2002.= =20 According to a report in Reuters, AEP now claims that it will proceed with= =20 the sale only if EDF assumes the tax bill associated with the sale of=20 Seeboard. =20 As noted, while American companies continue to reevaluate and divest their= =20 U.K. electricity assets, British companies are taking full advantage of=20 deregulation and power supply concerns in the United States. I already=20 mentioned the fact that ScottishPower is looking to expand beyond its=20 ownership of PacifiCorp with further acquisitions of American energy=20 companies (Portland General has been named as a strong possibility). =20 In addition, U.K.-based National Grid aims to become the premier transmissi= on=20 operator in the United States. Toward that end, National Grid has been=20 aggressively acquiring U.S. companies that are consistent with its emphasis= =20 on the transmission and distribution business. For instance, National Grid = is=20 currently in the process of acquiring Niagara Mohawk Holdings, Inc. (NYSE:= =20 NMK), an upstate New York energy services company. Niagara Mohawk is the=20 third acquisition that National Grid has made in the United States, and all= =20 three purchases have been of utilities based in the Northeastern part of th= e=20 country. In 2000, National Grid purchased New England Electric System (NEES= )=20 and Eastern Utilities Associates (EUA), which provided National Grid with= =20 strong transmission and distribution assets in Massachusetts, Rhode Island= =20 and New Hampshire.=20 Of course, the U.K. company Powergen completed its acquisition of Louisvill= e,=20 Ky.-based LGOlast December, which has helped the British company to establi= sh=20 a presence in the Midwest market. Powergen has acknowledged that it continu= es=20 to look for additional U.S. companies to acquire.=20 Further, the Bush administration's plan that calls for new energy productio= n=20 efforts has opened up new windows of opportunity for British companies to= =20 further expand in the United States. In addition to any acquisitions that i= t=20 might make in this country, ScottishPower also reportedly plans to construc= t=20 new 1,000-MW power generators in three U.S. states. Also, British Energy, a= =20 U.K.-based nuclear power supplier, hopes to capitalize on plans to increase= =20 nuclear power in the United States with the sponsorship of new nuclear plan= ts=20 (taking advantage of President Bush's call for tax subsidies for nuke=20 plants). Note also that British Energy formed a partnership with PECO Energ= y=20 (creating AmerGen) that is in the business of purchasing power plants. In= =20 addition, given ongoing concerns about natural-gas supply in the United=20 States, British gas companies such as BG Group, British Petroleum and Shell= =20 are reportedly looking into the construction of gas-fired plants in this=20 country. All of this makes for a very interesting dichotomy as American=20 companies continue to divest their power assets in the United Kingdom while= =20 British companies acquire further holdings in this country. =20 An archive list of previous IssueAlerts is available at www.scientech.com [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. =20 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 e-mail, send a message to Issue Alert, 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.
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