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Competition Lost

U.S. companies' international strategies turn sour, as Europe faces a future with an oligopoly of power companies.
Fortnightly Magazine - February 1 2003

volatility in the power markets brought down many newcomers. U.S. companies, including Enron, Reliant, and Mirant took large positions in power trading in Europe, and when the market collapsed, the bigger, stronger European conglomerates and government monopolies stepped in, Tirello says.

Dynegy, Aquila, AEP, Duke Energy, El Paso, and the Williams Cos. also have closed or scaled back trading operations in Europe. European companies have assumed greater power trading roles.

"You are going to have big companies dominating the story-probably a dozen or so. The big dozen will just get bigger," Tirello says, speaking of the full spectrum of the power business from production to retail sales. "As the markets open up they will compete against one another to hold customers."

Some experts see little room for a return of U.S. energy companies as competitors. Jonathan Rubin, president of New York-based Ikor Energy Advisors, a consultancy, says U.S. companies have lost whatever opportunities they once had in Europe and the United Kingdom.

"We came, we saw, we left. … I think we are better off staying home, frankly," Rubin says. "I don't think the U.K. is the place you want to be unless you are a vertically integrated player. That is true for most of Europe."

With the tensions between the United States and Iraq and the possibility of oil price spikes, now is not the time to venture abroad, Rubin says.

"Given the global economy, it would be best to stay at home, get the balance sheets cleaned up, and focus on core capabilities," he says.

Antitrust May Limit Dominant Players, but U.S. Exit Continues

Britain's antitrust laws will come into play eventually, other experts say. "It's a question of who hits the buffers on anti-trust first," Jarman says.

Antitrust issues could limit the expansion of major incumbents in Europe as well, Jarman says, pointing to the problems E.ON is having in gaining approval to buy Ruhrgas, at press time.

While E.ON lost shareholder value due to the decision, it still has billions of euros to spend outside Germany. In fact, in late December, E.ON announced that its supervisory board had approved a planned capital spend of 14.2 billion euros ($14.56 billion) for the next three years.

The giant utility, which posted 2001 sales of almost 80 billion euros, said its operating cash flow would markedly improve its net financial position, giving it considerable financial flexibility to fund major strategic acquisitions.

Furthermore, the European Commission-the executive body of the European Union-recently approved E.ON's 2.17 billion euros ($2.23 billion) purchase of U.S. investor-owned utility TXU Europe, with its 5.5 million retail power and gas customers. E.ON will combine that acquisition with the 3 million customers E.ON acquired in its purchase of Powergen for about 8 billion euros earlier this year. The bargain price for TXU Europe was the result of a depressed power market that pushed the company into protection against creditors.

TXU also has been hammered in Germany, where it has announced plans to sell controlling stakes in utilities in the cities of Kiel and Braunschweig.

Even in Britain, where competition