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Enron Mail |
I agree with Mark's points. While we have advocated our merger with PGE
(which did not concentrate market power) we have intervened in opposition to most others. Moreover, there is some hope that the German government will take the opportunity to use the proposed utility merger to force greater open access. We will likely encourage that action and may oppose the merger otherwise. Most mergers in this industry are defensive, not procompetitive, and, in my view, deserve no credit for convergence, innovation, or liberlization. ---------------------- Forwarded by Steven J Kean/HOU/EES on 09/10/99 01:17 PM --------------------------- Mark Schroeder@ECT 09/10/99 05:26 AM To: Margaret Carson/Corp/Enron@Enron cc: Joan Wasylik/LON/ECT@ECT, Danny McCarty/LON/ECT@ECT, Steven J Kean/HOU/EES@EES Subject: Speech to the British Institute of Energy Economists Margaret - apologies for the delay in getting comments to you on your speech. Due to press of other matters I will be brief. First, your speech caption, refernecing "mergers" is somewhat different than the topic shown in the agenda, i.e., "Industry Structure and Competitive Behaviour", but I trust you are wroking that out with the BIEE. Second, in your first paragraph, you note that developments in the energy sector over the last decade are due to the mergers of the last five years (a point I will retrun to later), but in any event, not entirely consistent in terms of timeframes. Third, I am surprised that the Enron Corp. view is that gas and electricity markets grew as they did over the decade due to mergers. In the past, things like unbundling and non-discriminatory third-party access have featured prominently in our advocacy. Indeed, though it was not my role at Enron, I would have thought that in many of the recent electricity mergers pre-dating Order No. 888 we would have joined the chorus of voices arguing that these mergers concentrated market power, and that such market power could only be mitigated with the provision of non-discriminatory third-party access (an argument we will be repeating in, e.g., Germany, as noted below). Finally, I would note that in the past, I thought we had questioned the value of mergers as an impediment to competitive markets, as I recall Ken Rice gave an infamous address/speech, in which he described "good" mergers and "bad" mergers, i.e., defensive mergers like Houston Industries and NorAm. I actually borrowed heavily from that speech two years ago, in paris, but if we have changed our tune, that is good to know. Even the "good" mergers identified in his/my speech, e.g., Enron/Portland, have had the "goods" thwarted, in part, by regulators, who would not let us do all we wanted to do that was pro-competitive. Also, in the past, we have used as a good example of "convergence" the arbitrage we have done at Sithe's facility in NY, pointing out that we are in an "energy" or "BTU"market, not gas alone, or electricity alone. Not clear to me that mergers in the US demonstrate this. Fourth, accepting that it is the Enron Corp. view that mergers are symbolic of the convergence of gas and electricity, and are what yield the many beneifts of competition that you dsicuss elsewhere in your speech (I do, of course, agree with all the platitueds that competition yilds more service offerings, innovation, etc.), you should be aware, coming over to this market, that a number of mergers are taking place that we have expressed concerns about in comments to the regulators, and will do so in the future. here are some you should be aware of: Veical integration in the UK electricity industry (not clear yet that this will result in better/more service, but definitely loss of counter-parties, re-bundling of business before retail unbundling/competition has taken hold); Exxon/Mobil (consolidation in the upstream sector in Continental Europe, which is already concentrated), VEBA/VIAG in Germany (probalby okay, assuming thrid-party access is allowed/enhanced to the wires). Just FYI, any objections we have are usually communicated confidentially. Fifth, if you are ging to emphasise mergers, as per your title and opening paragraph, I question the inclusion of all the discussion on privatisation, which is good, but does not seem to demonstrate the benefits of merger activity, which I read is the premise of your speech, per paragraph one. In addition, recitation of ownership of miles of gathering lines and transmission lines does demonstrate change in aggregate ownership, but not clear it is all due to mergers (e.g., I thin NNG is just capital expansion), nor does the connection get made that this has lead to innovative or enhanced service offerings. I do think excellent points can be made about the deregulation/divestment of gathering, and getting it out of federal regualtroy purview, but that is not in the speech at this point. Sixth, you describe "network industries" well, but in the broader context of your speech, I think your listeners will assume you are referring to the physical network, rather than the Enron vision, which you capture accurately, nor is it easily understood how this demonstrates or adds to your point about convergence. Seventh, in your table of converged companies, you could be asked about the fact that Duke has already disposed of the pipeline assets it acquired in the PanEnergy deal (since sold to CMS), apparently keeping only the trading business. Also, our pieeline assets to do not serve our cogen facilites in NJ, so not clear to me that thisdemonstrate convergence in the East Coast. Hope this helps. I will be travelling today and Monday, but if you have questions, please leave me voice mails, and I will return your calls. P.S. at p. 7 you describe "secular" change. I assme that this should read "sectoral" change. Mark
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