EnergyBiz - November/December 2007 - (Page 9)

Analysts predict that National Grid will not make any major changes to KeySpan’s operations since KeySpan is known for its excellent customer relations, Abramson says. In fact, National Grid “might take some of KeySpan’s best practices and implement them in other areas,” he notes. In the past, National Grid has integrated its overseas utilities into its culture and adapted well, Abramson says. He said he has heard of no major complaints from regulators or customers when National Grid assumed control of a U.S. utility. Since National Grid will take time to absorb KeySpan, industry analysts don’t expect it to soon go on any immediate buying sprees. But Abramson says in a few years he expects National Grid to expand its footprint outside the Northeast. Abramson suggested that Exelon’s distribution system in Chicago could be a target since Exelon’s power generation business produces the bulk of its revenue. That would extend National Grid’s reach to the Midwest and the country’s third largest city. Moreover, National Grid could consider Exelon’s distribution system in the Philadelphia area. If National Grid wanted to extend its customer base in the Northeast, even Consolidated Edison could be a target. “Odds are that Con Edison would more likely seek acquisitions on its own, but it could be targeted,” Abramson notes. Con Edison, however, is not the least bit ruffled by the growing appetite of National Grid for Northeastern utilities. Asked about the effect of National Grid’s acquisitive tendencies on Con Edison, Michael Clendenin, its director of media relations, says “We don’t expect it to have any impact on our operations.” National Grid is primed for growth. Catell says with its sizable bankroll, National Grid will not be limited to the Northeast in terms of future acquisitions. The utility industry is still fragmented, he suggests. At National Grid, “We can look beyond our backyard. We can look at the entire country. National Grid gives KeySpan a larger platform and base. We don’t need proximity any more,” he says. On the other hand, Miller notes that “there are plenty of growth opportunities in the Northeast” for National Grid to consider after it absorbs KeySpan. Growth opportunities in Europe are very constrained, so its revenue growth likely depends on U.S. acquisitions. Abramson adds that National Grid might also consider venturing into new businesses and might explore “building and owning major high-voltage transmission systems in other regions.” Other areas need these high voltage systems and that could leverage National Grid’s expertise. Though the stock has been hovering around at a $75 share price, Miller has a valuation of $80 for the stock, which incorporates the KeySpan acquisition. Miller’s key risk that could curtail National Grid’s growth opportunities involves regulatory issues. If it failed to meet its $200 million cost savings, New York State regulators could penalize it or lower future rate hikes. Miller adds that most of KeySpan’s operations are regulated except its power plants, which are merchant plants that fall within New York’s deregulated markets. Since National Grid is highly profitable in Europe and has money to invest, Morningstar’s Miller expects to see it make an infusion of capital into KeySpan’s infrastructure and pare down some of its debt. Further, National Grid might opt to introduce a marketing campaign to convince new customers to convert from heating oil to gas. Only 53 percent of residents in the United States use natural gas to heat their homes. Miller’s key question on National Grid and its acquisition involves growth. Though he says utility revenues grow at a rate of about 11 percent a year, other than rate hikes, how else can National Grid boost revenue in the United States? Catell sees growth opportunities for National Grid, mostly by wooing new natural gas customers. KeySpan has 80 percent penetration of residential customers in Long Island, but only 40 percent of customers throughout much of the Northeast use natural gas. “KeySpan was one of the most aggressive gas marketing companies,” Catell says. He expects that National Grid will ramp up marketing to win new customers. “We have a tremendous opportunity to grow organically,” he adds. National Grid is not the only European-based utility that has expanded in the United States. E.On, which is based in Dusseldorf, Germany, owns Louisville Gas & Electric and Kentucky Utilities, which combined have about 1.2 million customers. Asked if E.On was ready to grow in the United States, spokeswoman Rebecca Middleton says, “Our position in the United States could be used as a platform for future growth, but right now we do not have any such ambitions.” Five years from today, where will National Grid likely be? “I see National Grid as a significantly larger player in the U.S. and not limited to the Northeast,” Catell replies. FinanciaL FrOnT Gatherings www.energycentral.com/events To view any of these events, please go to www.energycentral.com/ ) into the quick link box. quicklink and type the quick link code ( deceMber 3-5 Transmission renaissance 2007 Washington 3-4 4-5 4-5 5-6 5-6 5-6 | | Project Prioritization and Portfolio Management | coal Mining Operations and economics | Gas Market dynamics | in-depth intro to electric Markets | Outage Management solutions | renewable Generation & Procurement E17427 Charlotte, N.C. 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Table of Contents Feed for the Digital Edition of EnergyBiz - November/December 2007

EnergyBiz - November/December 2007 Contents Continental Grid Vision Needed Readers’ Views and Opinions Next for National Grid Clearing the Air The Need for Nuclear Energy Trade Status Report The Innovators California On The Leading Edge FERC Sparks Change Getting Coal Right Leadership in Times of Turmoil Innovation Delivers Return A Tale of Two IPOs LNGs Bright Prospects Generation Techologies The Age of Superconductors Leaders with Vision Get Ready for Plug-in Hybrids Betting on Batteries Cost of Decarbonizing Nuclear Helmsman – A chat with Dale Klein, Chairman of the U.S. Nuclear Regulatory Commission Global Energy Snapshot; Low-Income Energy Help; IT Spending Robust; The Greening of State Regulators; Generating Support Simplifying Offshore Wind Regs Chasing Construction Costs Energy Agency Sets New Course Deregulation Means Higher Rates Go-To Staffer Nightmare in Manhatten

EnergyBiz - November/December 2007

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