Slider, I knew that you would be on top of the story about the importance of Natural Gas to the future of the Industry. Read on......
"By Deena Beasley
LOS ANGELES, Feb 22 (Reuters) - A fresh spate of mergers
hit the electric and gas industry on Monday, with Dominion
Resources Inc. <D.N> buying Consolidated Natural Gas Co.
<CNG.N> for $6.3 billion and Sempra Energy <SRE.N> agreeing to
acquire KN Energy <KNE.N> for $1.8 billion in cash and stock.
And a bidding war looked likely to erupt for Las
Vegas-based natural gas utility Southwest Gas Corp. <SWX.N>,
which said Monday it received an unsolicited takeover bid of
$960 million from Southern Union Co. <SUG.N> of Texas. That's
about 12 percent more than Oneok Inc. <OKE.N> had offered for
the company in December.
"The U.S. energy utility industry is one of the most
fragmented in the world. It is a $300-billion-a-year market,
and there is a lot of room for consolidation," said Phil
Giudice, vice president at Mercer Management Consulting in
Boston.
The Dominion deal combines the owner of Virginia's largest
power company with a Pittsburgh-based gas producer and
distributor to form the fourth-largest U.S. energy utility. The
Sempra transaction would merge the owner of two major
California utilities with the second largest gas pipeline
company in the country.
"In the next three years all the gas companies will be
owned by the electrics," said Edward Tirello, an analyst at BT
Alex Brown. "This is just the tip of the iceberg."
As the utility industry slowly deregulates, the combination
of electric and natural gas companies has become increasingly
common, with companies like Duke Energy Corp. <DUK.N>, Enron
Corp. <ENE.N>, Texas Utilities Co. <TXU.N> and Reliant Energy
Inc. <REI.N>, formerly Houston Industries, already taking on
such ventures.
Meanwhile, natural gas prices are down sharply from a year
ago, driven lower by weakness in the oversupplied oil market as
well as mild winter weather. That has battered the stock prices
of gas companies, making them even more appealing to potential
buyers, analysts said.
"For an electric company with growth on its mind, gas stock
prices look pretty attractive," Giudice noted.
Analysts said the inevitable loosening of the regulatory
structure governing monopoly utilities would encourage further
convergence within the energy services market.
"They have to have both fuels. And they need to have
national footprints," Tirello said. "Customers are going to
demand it."
In addition, natural gas has become the fuel of choice for
a new generation of so-called "merchant" power plants, which
are being built by independent power companies looking to
compete with traditional monopoly utilities.
The Midwest, for instance, still relies primarily on
coal-fired and nuclear power plants, but new projects are being
fueled by cleaner-burning, less environmentally threatening
natural gas. In California, permits have been filed for 18 new
power plants, all to be fueled by natural gas, according to the
state's Energy Commission.
Sempra, the San Diego-based parent of Southern California
Gas Co. and San Diego Gas & Electric Co., said its acquisition
of KN Energy would increase the company's penetration in the
energy market triangle that stretches from the Gulf Coast to
Chicago and across the Rockies to California.
"They've gone from California to the Mississippi River in
one jump. Another jump and they'll be in the Northeast,"
Tirello said.
Some analysts suggested that Sempra might be taking on more
than it bargained for with KN Energy, which comes toting a $4.2
billion debt load. But Tirello said Sempra was doing the right
thing by "looking past all that ... They have a bigger plan."
A major stumbling block to the consolidation hitting the
industry, however, may be the Public Utility Holding Company
Act of 1935, which makes it difficult for nonadjacent companies
to merge, analysts said.
Management consultant Giudice, though, said he would not be
surprised if one or more of the major oil companies eventually
take a look at acquiring apiece of the energy utility
industry, should the law be changed. A bill to repeal it was
introduced in Congress last month, though past efforts at
repeal have not succeeded.
"So far they have been active mainly on the wholesale
trading side, but once PUHCA is removed the oil companies will
be eyeing those nice steady revenue streams at the end-user
level," Giudice said.
<DN.N> <CNG.N> <SRE.N> <KNE.N> <SWX.N> <SUG.N> <OKE.N>
<DUK.N> <ENE.N> <TXU.N> <REI.N>
Check out huge Natural Gas companies like OKE and see who they are making deals withand possible acquisition candidates. That may be the companies to buy and hold while they are extremely "cheap."
Santiago
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