[BETA] Fortnightly

WHEN UTILITIES SAY THEY WILL "EXIT" THE generation business (em their stock in trade for the last 50 years (em what does that mean exactly? And what of those that plan to "concentrate" on transmission and distribution? Can you visualize a T&D utility? What would it look like? How many employees? How big a dividend? It's time to ponder these questions.

And what better place to delve deeper than at Florida's Disney World, where dreams come true, and where the Edison Electric Institute just concluded its annual Financial Conference, to which the EEI invites credit analysts, equity analysts, investment bankers and other Wall Street types to put some hard questions to the financial officers of the nation's major electric companies.

The analysts came in droves. From what I saw, Wall Street appeared very skeptical of a restructured electric utility left without generating assets. After all, can you name a U.S. utility that has set up a profitable, standalone wires business?

The questions at the conference ran something like this: Where is the shareholder value in a T&D company? How do you (the utility) evaluate the T&D business? What is the capital structure? What should an investor measure (em cash flow, asset appreciation, dividend growth? With very few exceptions, the answers that came back did not appear convincing.

To be fair, the utilities have brought this cynicism upon themselves. Appearing almost glib, they have embraced the sale of generating plants perhaps too willingly. John E. Hayes Jr., chair and CEO of Western Resources Inc., struck the tone: "You cannot be in love with the machinery. You have to be willing to let it go."

And so, the utilities continue to file their divorce papers. They agree to sell off their generation, seeing no margin in power production. But I don't buy it. The utilities themselves don't seem to have their hearts in it. They're still in love with the machinery.

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"There is no money to be made in power trading today. It's all just brag-a-watts," says Charles M. Oglesby, president and COO of the HI Trading and Transportation Group, part of Houston Industries Inc.

Stephen W. Naeve, executive vice president and CFO at the parent company tells why: "Some power marketers are doing deals at a loss. They're willing to take a 'haircut' just to boost volume so that they will get onto the top-ten list."

Nevertheless, Houston Industries is bullish on generation. It sees the generation business as merging with power marketing to become power wholesaling (em a single unified function full of untapped value for those who are willing to play the new game as it must be played. Thus, it will sell some the generating assets serving its present retail territory, but will buy more on a merchant basis in other locations.

Contrast that strategy with GPU Inc., which is closing its Oyster Creek plant and intends to sell Three Mile Island. The company says it has signed a confidentiality agreement with a potential party interested in buying nuclear assets. Even overseas, GPU says it will sell