'Well head to wall switch' strategy to emerge, says El Paso executive

Companies that manage the trade off between the need for energy and societal desires will emerge as winners in the future, says the managing director of El Paso Power Finance, a unit of El Paso Energy Corp. In the next 5 years, the energy industry must deal with ideology, price volatility, and strategy, said Gar Seifullin, at PowerMart conference in Houston. Continued consolidation will pare down the ranks of the energy merchants but new players in some energy areas will emerge.


Ann de Rouffignac
OGJ Online

Companies that manage the trade off between the need for energy and societal desires will emerge as winners in the future, says the managing director of El Paso Power Finance, a unit of El Paso Energy Corp.

In the next 5 years, the energy industry must deal with ideology, price volatility, and strategy, said Gar Seifullin, at PowerMart conference in Houston. Continued consolidation will pare down the ranks of the energy merchants, but new players in some energy areas will emerge.

Consolidation will come in two forms, says Seifullin.

There will be increasing vertical integration as companies seek to control resources and customers from �well head to wall switch.� Other companies will consolidate horizontally specializing in generation or transmission, gobbling up smaller low-margin operators. New businesses, such as distributed generation, will emerge alongside consolidation.

Price volatility is reaching unexpected levels and that creates volatility in earnings�something Wall Street doesn�t like. The volatility has other consequences especially for capital intensive industries.

�How do you balance volatility with the need to raise capital for your businesses?� he asked.

Energy companies will also continue to face some old problems such as a shortage of human capital and the inability to forecast. But these problems have taken on a new dimension.

�The energy industry has never been any good at forecasting,� Seifullen said. But changes in the business have made forecasting even tougher today. Forecasts can no longer focus on a single commodity. Power and fuel must be forecast together, for example.

Forecasts differ wildly. Some predict an overbuilt landscape, others a looming power shortages. Electricity demand growth forecasts vary from 2% to 4%, he said.

Meanwhile, the ideology of the energy business is being revisited. Without a long history or set of guiding principles for the energy merchant business, questions arise as to whether deregulation and the free market will guide the industry or if principles left over from regulation will mold the industry.

People want cheaper better power. But they also want that power to be produced �cleanly,� he said. He reminded conference participants that plant sites in California were turned down, even when the need is critical because people around the plants don�t want to �see� where the power is produced.

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