Today's IssueAlert Sponsors: 

[IMAGE]

Are you looking to invest in, attract investors for, provide services to or 
understand the business and technology dynamics of the hottest companies 
emerging in the energy sector?   Attend the Energy Venture Fair, June 25 & 
26, 2001, in Boston, MA and hear CEOs from 75 hot energy companies present 
their business plans.  Complete event description available at 
www.energyventurefair.com or call Nannette Mooney at (818) 888-4445, ext. 11. 


[IMAGE]

Southeastern Electric Exchange 2001 Utility Odyssey:
Engineering & Operation/Accounting, Customer Billing and Finance Conference 
and Trade Show
The Doral Resort Miami, FL



Featured speakers include Wall Street Analysts Ed Tirello and Dan Ford and 
SEE Company Utility Executives Donald Hintz, Entergy Corp., Dennis Wraase, 
Pepco, and Bill Coley, Duke Power 

For full details: www.theexchange.org 

[IMAGE]
Miss last week? Catch up on the latest deregulation, competition and 
restructuring developments in the energy industry with SCIENTECH's 
IssuesWatch 




[IMAGE]

[IMAGE]
June 11, 2001

Power Shakeup in United Kingdom: 
American Companies Divest as the Brits Expand in the United States 

By Will McNamara
Director, Electric Industry Analysis 

[IMAGE]British-based electricity generator International Power announced that 
it is buying a 1,000-MW coal-fired station in central England from TXU Europe 
for 200 million pounds ($277 million) as part of its expansion in Britain. 
International Power, which spun off last year from privatised British utility 
National Power, said it expected the 1,000-MW Rugeley Power Station near 
Birmingham to increase earnings and generate cash in the first year of 
operation. The Rugeley deal includes a tolling contract until the end of 2005 
under which TXU Europe, part of TXU Corp. (NYSE: TXU) will provide coal for 
the plan and purchase its output. 

Analysis: TXU's sale of its Rugeley plant is part of the company's European 
strategy to expand trading operations and focus on the retail business across 
the Continent. Divesting the coal-fired plant in central England, while still 
remaining involved in a tolling agreement with the plant's new owner, 
strengthens the balance sheet of parent company TXU Corp. and streamlines the 
company's European operations so that it can become more focused on 
profitable ventures such as trading. However, it is also important to take 
TXU's sale of its U.K.-based power plant in the context of several other 
transactions that are brewing in Britain, all of which forecast a major 
shakeup in the country's power playing field. Further, while American 
companies based in the United Kingdom reevaluate and divest their holdings in 
Britain, U.K.-based companies continue an aggressive (and profitable) 
expansion into the U.S. market. 

Clearly, International Power is a British company that is more squarely 
focused on the traditional generation market than TXU Europe. For instance, 
International Power&#151which also has interests in Australia, southeast 
Asia, the United States, and across continental Europe-a worldwide generation 
capacity of about 8,350 MW. Thus, acquiring additional generating assets in 
its home country makes sense for International Power, which by the way has 
outperformed its London-listed electricity company peers by more than 20 
percent so far this year.  

In contrast, divesting the Rugeley assets seems to be a strategic move for 
TXU, which has been in the process of divesting other European assets over 
the last six months. In February 2001, TXU Europe announced the sale of its 
North Sea assets, which was the first indication that the company was moving 
away from a hard-asset strategy across the Continent. The company had bought 
stakes in several North Sea gas fields as part of its expansion into 
Britain's energy business. However, the divestiture of these assets was 
initiated out of TXU Europe's desire to concentrate more exclusively on 
trading operations in Europe. Consort Resources, a U.K. start-up company that 
also operates in the North Sea, has agreed to acquire TXU Europe's upstream 
gas business located in the region for $201 million.  

In addition to divesting its North Sea gas business, TXU Europe also 
announced in February of this year that it is seeking to sell its 20-percent 
stake in Spain's Hidroelectrica del Cantabrico. Following the planned 
divestitures, TXU Europe's primary business model will remain focused on 
energy trading. This is understandable, as the company has quickly become one 
of the major forces in the trading market since a number of European 
countries have opened their electric and gas markets to competition (upon the 
directive of the European union). In fact, TXU Corp. reported a 75-percent 
jump in revenue for 1Q 2001, which it attributed in large part to its energy 
trading business both in the United States and the United Kingdom, where 
revenue more than doubled. 

However, as noted, in addition to furthering TXU's own European strategy, the 
divestiture of the Rugeley plants is also part of an emerging game of musical 
chairs in the U.K. power market. In addition to a change in business model, 
many American companies may be looking to sell their U.K. power assets in 
response to Britain's intense regulatory scrutiny of energy profits and the 
application of the country's windfall profit tax. In other words, companies 
such as TXU may find that any value in holding onto U.K. assets may be 
overshadowed by taxes enforced by the British government.  

In any case, TXU is not the only American energy company looking to divest 
U.K. assets. For instance, ScottishPower, the Glasgow, Scotland-based utility 
that owns PacifiCorp in the United States, is reportedly holding talks with 
Entergy Corp. about purchasing Entergy's two U.K. gas-fired generation 
assets, Damhead Creek and Saltend. According to some financial analysts, the 
two plants, which have a combined capacity of about 2,000 MW, could earn 
Entergy as much as $1.9 billion (a figure that seems awfully high). Similar 
to TXU, Entergy is looking to divest the U.K. generating assets to support 
its thriving wholesale trading business. As a sidenote, the possible sale of 
Entergy's U.K. generating assets was cited as one of the factors that 
contributed to the company's failed merger with FPL Group earlier this year.  

Just like International Power, it would make sense for ScottishPower to 
increase its asset base in the United Kingdom. The company has reportedly 
increased its retail supply business in England and needs to hedge the cost 
of selling power in the country. In addition to possible interest in 
Entergy's U.K.-based gas plants, it has also been reported that 
ScottishPower, along with potential partner Southern Energy (not to be 
confused with Mirant Corp., which was formerly known as Southern Energy) are 
also interested in Seeboard, a regional U.K. electricity company currently 
owned by American Electric Power (AEP).  

Moreover, this growing interest in Seeboard also represents another critical 
component of the U.K. power shakeup. Seeboard serves around two million 
connected customers in England (in the towns of Kent, Sussex and Surrey). 
Under its brand name of Seeboard Energy, which combines electricity from 
Seeboard and gas from Beacon Gas (a joint venture with BP Amoco), the company 
sells dual fuel to customers throughout the United Kingdom. Seeboard owns, 
operates and maintains an electricity network of over 45,000 km (28,000 
miles) of overhead lines and underground cables and, along with consortium 
partners, also manages and operates the electricity distribution system 
serving the London Underground. Again, AEP (as Seeboard's current owner) is 
looking to divest the company in order to focus on European power generation, 
marketing and trading. 

Up until a few weeks ago, it appeared that Electricite de France (EDF) was 
the leading contender to acquire Seeboard. Having previously purchased London 
Electricity, one of 12 regional electricity companies in England and Wales 
and a supplier to approximately two million customers in metro London, it was 
a smart move for EDF to further expand its base in the United Kingdom with 
additional acquisitions. Through its London Electricity subsidiary, EDF made 
a 1.5-billion pound ($2.07 billion) offer for Seeboard, which AEP rejected. 

However, as recently as last week, it was still up in the air what will 
become of the Seeboard assets. The last word is that London Electricity 
continues to negotiate with AEP, but the American company reportedly faces a 
multi-million-dollar tax bill if it sells the U.K. assets before June 2002. 
According to a report in Reuters, AEP now claims that it will proceed with 
the sale only if EDF assumes the tax bill associated with the sale of 
Seeboard.  

As noted, while American companies continue to reevaluate and divest their 
U.K. electricity assets, British companies are taking full advantage of 
deregulation and power supply concerns in the United States. I already 
mentioned the fact that ScottishPower is looking to expand beyond its 
ownership of PacifiCorp with further acquisitions of American energy 
companies (Portland General has been named as a strong possibility).  

In addition, U.K.-based National Grid aims to become the premier transmission 
operator in the United States. Toward that end, National Grid has been 
aggressively acquiring U.S. companies that are consistent with its emphasis 
on the transmission and distribution business. For instance, National Grid is 
currently in the process of acquiring Niagara Mohawk Holdings, Inc. (NYSE: 
NMK), an upstate New York energy services company. Niagara Mohawk is the 
third acquisition that National Grid has made in the United States, and all 
three purchases have been of utilities based in the Northeastern part of the 
country. In 2000, National Grid purchased New England Electric System (NEES) 
and Eastern Utilities Associates (EUA), which provided National Grid with 
strong transmission and distribution assets in Massachusetts, Rhode Island 
and New Hampshire. 

Of course, the U.K. company Powergen completed its acquisition of Louisville, 
Ky.-based LGOlast December, which has helped the British company to establish 
a presence in the Midwest market. Powergen has acknowledged that it continues 
to look for additional U.S. companies to acquire. 

Further, the Bush administration's plan that calls for new energy production 
efforts has opened up new windows of opportunity for British companies to 
further expand in the United States. In addition to any acquisitions that it 
might make in this country, ScottishPower also reportedly plans to construct 
new 1,000-MW power generators in three U.S. states. Also, British Energy, a 
U.K.-based nuclear power supplier, hopes to capitalize on plans to increase 
nuclear power in the United States with the sponsorship of new nuclear plants 
(taking advantage of President Bush's call for tax subsidies for nuke 
plants). Note also that British Energy formed a partnership with PECO Energy 
(creating AmerGen) that is in the business of purchasing power plants. In 
addition, given ongoing concerns about natural-gas supply in the United 
States, British gas companies such as BG Group, British Petroleum and Shell 
are reportedly looking into the construction of gas-fired plants in this 
country. All of this makes for a very interesting dichotomy as American 
companies continue to divest their power assets in the United Kingdom while 
British companies acquire further holdings in this country.  

An archive list of previous IssueAlerts is available at
www.scientech.com


[IMAGE]
The most comprehensive, up-to-date map of the North American Power System by 
RDI/FT Energy is now available from SCIENTECH.  
Reach thousands of utility analysts and decision makers every day. Your 
company can schedule a sponsorship of IssueAlert by contacting Nancy Spring  
via e-mail or calling (505)244-7613. Advertising opportunities are also 
available on our website. 
SCIENTECH is pleased to provide you with your free,  daily IssueAlert. Let us 
know if we can help you with  in-depth analyses or any other SCIENTECH 
information  products. If you would like to refer a colleague to receive our 
free,  daily IssueAlerts, please reply to this email and include  their full 
name and email address or register directly on our site.  

If you no longer wish to receive this daily e-mail, send a message to Issue
Alert, and include the word "delete" in the subject line. 
SCIENTECH's IssueAlerts(SM) are compiled based on the  independent analysis 
of SCIENTECH consultants. The opinions expressed in  SCIENTECH's IssueAlerts 
are not intended to predict financial performance  of companies discussed, or 
to be the basis for investment decisions of any  kind. SCIENTECH's sole 
purpose in publishing its IssueAlerts is to offer  an independent perspective 
regarding the key events occurring in the  energy industry, based on its 
long-standing reputation as an expert on  energy issues.  


Copyright 2001. SCIENTECH, Inc. All rights  reserved.