The year 2002 brings
with it a host of new trends, including rampant project divestitures,
eagle-eyed portfolio and earnings management and energy purchasing, a
heightened call for transmission regulatory reforms, and new transmission
projects. With the balance sheets of large companies under increased scrutiny
and CFO's making major decisions to clean up on and off balance sheet
items, it is clear that the industry's recent emphasis on greenfield development
has been replaced by liquidity concerns and lower forward curve projections.
If all goes as expected, this should clearly be the year of mergers and
acquisitions. Key executive skills required during this period are patience,
a counter cyclical investment strategy, and the ability to recognize and
improve undervalued assets.
Jim Schretter is
president and founder of Beacon Energy LLC, a preeminent energy consulting
firm. He has 20 years of experience in wholesale energy markets as a partner
in leading energy consulting firms. Beacon Energy specializes in providing
due diligence support for project acquisitions, power and fuel forecasting,
transmission regulatory and business support, business strategy development
and project management. Since forming the company in 1997, Mr. Schretter
has helped many of today's largest energy companies deal with changing
business strategies, the creation of new assets, and the sale of existing
assets. " Beacon Energy has provided industry leadership by serving
as a catalyst to form the Council for Competitive Transmission and the
Capital Area Energy Association, helping clients create new gas and coal
fired generating assets, publishing our widely read Beacon Energy's Spotlight
newsletter, and performing customized energy consulting assignments. "said
Mr. Schretter. He added, " Beacon Energy's 30% per year growth has
been fueled by strong business relationships and the ability to consistently
add value to wholesale energy situations. Beacon Energy is unique in the
ability to provide strategic insights and implement transactional solutions.
"
During the past
year, Beacon Energy led the development of six large coal fired generation
asset projects, four gas fired peaking projects, several new pipeline
projects, multiple due diligence acquisition assignments, and a wide variety
of strategic planning and energy forecasting engagements. The firm provided
proprietary forecasts for project developers and lenders, negotiated power
purchase contracts, and obtained electric and gas transmission and fuel
supply for projects. In addition to building proprietary forecasting models,
Beacon Energy participated in the market through power sale RFPs and transactional
activities. Beacon Energy supported new transmission projects in constrained
market areas, performed gas and power contracting due diligence on project
acquisitions, and participated in new greenfield development in the west,
southeast and internationally.
In addition to performing
consulting assignments in 2001, Beacon Energy contributed capital to new
coal fired generation assets. "New clean coal generating technology
is a fundamentally strong long-term investment. A balanced generation
portfolio is needed in the US to help consumers obtain a reliable low
cost solution to our energy needs. Strategically, our country is dependent
on oil and natural gas, however, our international political independence
can be strengthened if the US continues to become innovative with clean
coal and other technologies," said Mr. Schretter.
In terms of forward
transactional pricing, Mr. Schretter commented, "Another challenge
confronting the industry are the current low forward curves for electric
power. If these forward curves reliably predicted the future, they would
not be a problem. However, many trading shops are using forward transaction
curves that do not reflect long-term fundamentals but are conservative
transactional points. In this regard, they are wise benchmarks. Unfortunately,
they tend to understate the opportunities in the market and stifle long-term
solutions."
As all veteran energy
players know, the industry works in cycles. Mr. Schretter believes that
the low gas prices of 2002 will be replaced by substantially higher prices
in the 2004 timeframe, and that a similar scenario will hold true for
power prices. Investing in counter cyclical trends is extremely difficult,
but Schretter believes that investors need to move away from the herd,
conduct analytically rigorous analysis, and invest in fundamentally strong
areas. It takes a strong positive attitude, thorough research and analysis,
and a great deal of determination to make wise counter cyclical investments.
The Federal Energy
Regulatory Commission (FERC) and Congress have recognized that the electric
transmission arena has not been receiving adequate investment and improvement.
To foster more investment, Beacon Energy and Mr. Schretter has been instrumental
in working with leading energy companies to form a new industry coalition
to advance a more competitive electric transmission marketplace. The reaction
to the group has been strong among industry participants and in regulatory
and legislative circles. According to Mr. Schretter, "Beacon Energy
is proud to maintain a focus on important areas within the energy business
and design solutions that add real value to the industry and our client
positions."
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