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Today's IssueAlert Sponsors:=20
[IMAGE] The IBM e-Energy Executive Forum =01) "Personalization, Partnership, and=20 Profitability" Designed for executives in the utility industry looking to leverage Custome= r=20 Relationship Management in the competitive marketplace. Topics will focus o= n=20 how process and technology can be leveraged to gain competitive advantage.= =20 Featured speakers will include IT analysts, solution partners, IBM=20 executives, and customers including: John Goodman, President of e-Satisfy;= =20 Richard Grimes, Director of CRM Energy Services; David Bonnett, Global=20 e-Energy Sales Executive, Siebel Systems.=20 www.ibm.com=20 Learn more about SCIENTECH'S newest InfoGrid: Venture Capital Firms, Emergi= ng=20 Technology Companies and Services in the Electric Industry. Get the latest= =20 news and information available today regarding technologies in distributed= =20 generation, fuel cell, solar, wind and energy information services. Over 1= 10=20 companies and over 42 investors are featured in this intelligence product. = =20 Download a sample at www.ConsultRCI.com or contact Chris Vigil at (505)=20 244-7605 for more information.=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. =20 [IMAGE] IssueAlert for March 28, 2001=20 AES Completes Acquisition of IPALCO by Will McNamara=20 Director, Electric Industry Analysis The AES Corporation (NYSE: AES) announced that it has completed its=20 acquisition of IPALCO Enterprises, the Indianapolis, Ind.-based utility wit= h=20 3,000 MW of generation and 433,000 customers in and around Indianapolis.=20 IPALCO has now become a wholly owned subsidiary of AES through an exchange = of=20 shares in which each outstanding share of IPALCO common stock will be=20 exchanged for 0.463 shares of AES common stock. IPALCO common stock was=20 suspended from trading at the close of the market on March 27. =20 Analysis: The purchase of IPALCO, an established and respected utility in t= he=20 Midwest, will help AES to continue to secure its foothold in this region an= d=20 further the company's aggressive expansion efforts along the generation sid= e=20 of its business. AES already owns CILCORP, an energy services company whose= =20 largest subsidiary, CILCO, serves portions of Illinois and Missouri. (Note= =20 that pursuant to an SEC order, AES will restructure and/or sell its ownersh= ip=20 interests in CILCORP within two years in order to retain its status as an= =20 exempt holding company under PUHCA). Thus, through the purchase of IPALCO,= =20 AES is strengthening a presence in the Midwest that it already has=20 established. In addition, from this purchase we now know that AES, along wi= th=20 being a global player, intends to remain dominant throughout the United=20 States as well. Further, the acquisition represents a rather bright=20 development for AES, considering that the company has recently encountered= =20 some ongoing challenges related to its operations in California.=20 First, let's examine the value of AES' acquisition of IPALCO. Certainly, th= e=20 3,000 MW of generation that AES gained in the deal must have been the prima= ry=20 draw, but from comments made by Dennis Bakke, AES president and CEO, the=20 company apparently also wants to become a marketing presence in Indiana (an= d=20 the Midwest as a whole). IPALCO gains in the deal by now being under the=20 aggressive management of AES; the subsidiaries under IPALCO such as=20 Indianapolis Power & Light will now stand a much better chance for global= =20 development and expansion.=20 As with other generation acquisitions that AES has made, the company secure= s=20 a decided edge over competitors that may have strong marketing presence but= =20 fewer hard assets. With its strong generation portfolio, to which the IPALC= O=20 purchase only adds, AES can further guarantee to potential customers a=20 reliable power supply. AES is one of the largest generation companies in th= e=20 world, having reached this level through a series of strategic acquisitions= .=20 The company's generating assets include interests in 134 facilities totalin= g=20 over 48 gigawatts of capacity. By comparison, Calpine has approximately=20 36,700 MW, Dynegy has a net ownership of 12,497 MW, and Reliant has about= =20 27,000 MW. In addition, AES' electricity distribution network has over=20 920,000 km of conductor and associated rights of way, and sells over 126,00= 0=20 GWh per year to over 17 million end-user customers. =20 AES has surpassed many of its power supply competitors by maintaining an=20 aggressive growth strategy over the past year. Recent milestones for the=20 company are too many to list here. However, highlights include acquiring a= =20 controlling interest in Electricidad de Caracas; acquiring 100-percent=20 interest in Tractebel Power; purchasing 70-percent interest in the Mohave= =20 Generating Station in Laughlin, Nev.; and purchasing GeoUtilities, Inc., an= =20 Internet-based superstore for energy and telecom services. Just since the= =20 start of 2001, AES entered into an agreement to purchase all of the energy= =20 assets of Thermo Ecotec Corporation, a wholly owned subsidiary of Thermo=20 Electron Corporation of Waltham, Mass., for $195 million, and announced new= =20 generation development projects in Texas and California. AES also has=20 continued its international expansion with an acquisition of a 140-MW=20 oil-fired co-generation facility in Italy, the acquisition of a 290-MW=20 barge-mounted natural-gas fired generating business in Nigeria, and the=20 purchase of additional ownership interest in a 1,000-MW hydro plant in=20 Argentina. =20 As I've said in the past, AES is a company to watch. Even when acquisitions= =20 that AES is making seem rather small, they must be taken within the context= =20 of the portfolio that AES is building. Whether it's generation, retail=20 marketing, telecom, or selling electricity over the Internet, AES has a=20 foothold in many different areas. AES is a major player that can offer the= =20 full package to a customer, which may in the end be its strongest advantage= .=20 The company maintains that it is engaged in three lines of businesses, whic= h=20 are all equally important to its strategy: power generation, network delive= ry=20 services and retail energy marketing. However, it is important to recognize= =20 that AES continues to build a huge generation arsenal and now has the=20 capability to market its commodity products through its marketing=20 subsidiaries.=20 However, although AES has had a fairly successful year, the company has hit= =20 some bumps and made some questionable decisions along the way, all of which= =20 were related to the California market. AES has established several tolling= =20 agreements with Williams Corp. for the power plants that AES owns in=20 California. Under the tolling agreements, AES essentially rents its plants = to=20 Williams so that Williams can generate fuel to electricity, which it then c= an=20 sell on the wholesale market. In other words, Williams had a contract to=20 market all of the power generated by AES' California plants. In hindsight,= =20 AES may regret the questionable decision to enter into the tolling agreemen= ts=20 with Williams in California. Although AES did well last year, with net inco= me=20 rising 181 percent to $641 million, the company reportedly lost $11 million= =20 on the lucrative California market. Meanwhile, Williams (NYSE: WMB) reporte= d=20 unaudited 2000 income from continuing operations of $873.2 million, or $1.9= 5=20 per share on a diluted basis, versus $178 million, or 40 cents per share on= a=20 restated basis, for 1999. AES also took a hit when it had to pay air=20 pollution fines and buy power on the wholesale market to meet its obligatio= ns=20 to Williams when it was forced to shut some plants down. =20 Further, AES (along with other companies) continues to fall under the inten= se=20 scrutiny of FERC for pricing that the commission has deemed "unjust and=20 unreasonable" for power generated at AES-owned plants. FERC's investigation= =20 centers on the unavailability of certain so-called "must run" generating=20 plants in the Los Angeles area that are owned by AES Southland, a subsidiar= y=20 of AES. A "must run" plant is a generating facility that the California ISO= =20 can call upon to provide energy and ancillary service essential to the=20 reliability of the California transmission network. Several weeks ago, FERC= =20 announced that a preliminary investigation raised serious questions about t= he=20 actions of Williams Energy Marketing and Trading and AES. =20 On March 14, FERC gave the two companies 20 days to explain why they should= =20 not refund $10.86 million to California utilities. Further, FERC said that= =20 "Williams had a financial incentive to prolong any outages" of two AES-owne= d=20 plants last April and May. "Williams received more revenues as a result of= =20 the respective outages," the commission said. AES responded to the charges = by=20 saying that the plants were taken off line for repairs and that it did not= =20 share in market revenues from sales of power from the plants. According to = a=20 report in The Washington Post, AES Pacific Group vice president Stu Ryan sa= id=20 that as long as the plants are in operating condition, Williams decides whe= n=20 they will run and what it will charge for their power. =20 As a result of the unavailability of the two "must run" AES plants, the=20 state's ISO had to obtain power from other plants, also owned by AES, where= =20 the power was much more expensive and the companies made much larger=20 profits. The commission said its investigation indicated that AES and=20 Williams refused to make the two "must run" plants available "for reasons= =20 that were not directly related to the necessary and timely maintenance" of= =20 the plant. =20 Many power supply companies that were active in the California wholesale=20 market now are retreating due to the volatility and uncertainty of the=20 state's market. Although it remains unclear how AES will continue to=20 participate in the California market, it may be a smart move for the compan= y=20 to focus on expanding operations in other regions of the United States (suc= h=20 as the Midwest). Yet, how AES' acquisition of IPALCO will impact the=20 company's bottom line remains to be seen. Standard & Poor's (S&P) is=20 reserving its assessment of the partnership for the time being, and is=20 keeping AES on CreditWatch. AES' double-'B' corporate credit, single-'B'-pl= us=20 rating on subordinated debt, and single-'B' rating on the company's trust= =20 preferred securities remain intact pending further review and information= =20 about the acquisition of IPALCO. Also, S=02?lowered its corporate credit ra= tings=20 on IPALCO to triple-'B' from single-'A'-plus, and IPALCO's subsidiary,=20 Indianapolis Power & Light Co. (IPL), to triple-'B' from double-'A'-minus,= =20 and revised the CreditWatch implications to positive from negative. S=02?ex= pects=20 to address the CreditWatch status in the next two weeks. =20 On March 27, AES shares closed at about $47.75. As of mid-morning on March= =20 28, AES shares were priced at about $50.00. Over the last few days, AES=20 shares have increased by about 5 percent and have closely tracked the Dow= =20 Jones Utility Average.=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.
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