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CFOs Speak Out: Utilities: Not Interested

Stephen I. Chazen, Senior Executive VP and CFO, Occidental Petroleum

Fortnightly Magazine - October 2005

Energy experts have long speculated that PUHCA was a big barrier for oil majors consolidating with the utilities industry. Do you find the power utilities industry more attractive now with the repeal of PUHCA? And what are your views on further convergence?

Stephen I. Chazen:  I think it is unlikely. I don't think the problem was PUHCA. Running power plants is really not what oil companies do. And you also have-even though you are allowed to do it-you do have the rate regulation problem. Most oil companies don't like any more government regulation than they currently have. I think it is pretty unlikely except as an ancillary activity. I don't see an oil company wanting to buy a Consolidated Edison or something.

I do see that Occidental Petroleum owns 2,100 MW of power plant. What type of plants do you operate?

SIC: Those are mostly related to our chemical plants. Those are cogeneration facilities. Their purpose is to make our chemical business more efficient, as opposed to just because we like being in the power business. … Our chemical business is one of the largest buyers of electricity on the Gulf Coast. What we do is take the electricity and turn it into chlorine and caustic soda, similar to Dow's business. And so that is a big business for us. Power is a major cost of that business. It is important for us to control our costs, so we have a power-marketing business. And then we also use a lot of electricity in our West Texas operations, which have a lot of pumps. … Our major variable cost is power.

Do you use your power plant as an entry into power marketing?

SIC: We do, of course, sell the excess electricity from those plants, and it is part of our trading operation-mostly tied to our natural gas business. I don't see us looking for more power facilities.

How does each Occidental business contribute to the bottom line?

SIC: It would be 85 and 15 [percent] between oil & gas and the chemical business.

How about the energy-marketing business? What percentage does it contribute?

SIC: I can't tell you … because [sales are] netted back. It's a fairly sizeable activity. But it is related to our electricity needs, mostly in the Gulf Coast, in marketing the excess power that we have. For example, in a time like now, where natural gas prices are high, we might find it to our advantage to not run the chemical plant and just sell the electricity that we produce.

You say that the chemicals business is not a natural ancillary business to oil. Then, would you say it is just the regulation that you find unattractive about the utilities industry?

SIC: It's the regulation more than anything. It isn't that you couldn't do it. I don't think the holding company act was what kept people from our business away from it, . It would have if

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