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SCIENTECH IssueAlert, November 13, 2000
The New Power Company: Going Green While Stock Price Drops
By: Will McNamara, Director, Electric Industry Analysis
===============================================================

The New Power Company (TNPC, NYSE: NPW), which bills itself as the first
national residential and small business energy provider, announced that
it has signed a Letter of Intent with Community Energy, Inc. to provide
wind-generated energy to customers in the Philadelphia area. Under the
terms of the agreement, TNPC will market wind power supplied by Community
Energy from a site under development in the mountains of northeast 
Pennsylvania.
The new wind turbines are scheduled to come online by the end of 2001.

ANALYSIS: This is an interesting development, especially considering that
TNPC is still embroiled in a battle with Green Mountain for a significant
number of customers that TNPC recently secured in a bidding process from
PECO Energy. This could be an attempt on the part of TNPC to appease customers
who might have preferred to be served by Green Mountain. On the other hand,
it could be a shrewd marketing strategy from the energy service company,
founded earlier this year by Enron (along with partners AOL and IBM).

As you may recall, just two weeks ago TNPC announced that it had reached
an agreement with PECO Energy to supply "competitive default service" for
approximately 300,000 of PECO's residential electricity customers who have
not selected a competitive energy service provider. Green Mountain formally
challenged this agreement, arguing that the PECO/TNPC agreement is "not
in the public interest" and that Green Mountain should have been awarded
the right to serve as the default provider for the customers in question.
Thus, it seems curious that TNPC has just now announced the addition of
wind power to its portfolio of services. Up to this point, TNPC has been
working to aggressively acquire customers from other energy providers,
such as the approximately 285,000 natural gas and 20,000 electricity customers
it purchased from Columbia Energy Group. The acquisition of the customers
in PECO's territory was a major coup for TNPC, which is still in start-up
mode. Although TNPC claims that it was fairly awarded the customers from
PECO, the addition of wind power could be seen as an attempt to quell further
objections from Green Mountain or perhaps the beginning of a new identity
as a provider of renewable energy.

Community Energy, the company from whom TNPC is securing the wind power
that it will market, began making wind power available to businesses in
Pennsylvania last year. TNPC customers will be able to buy wind energy
in fixed kilowatt-hours, allowing for more customized service and tailored
use of power. Interestingly, the Commonwealth of Pennsylvania just renewed
a contract with Green Mountain in which Green Mountain will supply about
37,500 MW of green power to aggregated state agencies. This indicates that
desire for green power is quite strong in Pennsylvania, and any energy
provider wanting to market in the state would be wise to include green
power in its portfolio. Thus, while renewable energy was not a fundamental
component of TNPC's original business plan, the company appears to be moving
in this direction (at least in states where it is strategic to do so).

However, this announcement comes on the heels of TNPC's announcement of
its third-quarter earnings and a sudden drop in its stock price. TNPC's
revenues for 3Q 2000 were $18.2 million, derived from the sale and delivery
of electricity and natural gas to retail customers in just two states 
(Pennsylvania
and New Jersey). Gross profit was $1.3 million, or 7.2 percent of revenues.
Yet, the loss on earnings before income tax (EBIT) was $68.3 million. The
net loss for the quarter was $69.9 million, or $2.96 per basic share. TNPC
reiterates that it is a new company with a very limited operating history.
Therefore, the company contends that its year-over-year comparisons are
not meaningful or indicative of future performance. The company's goal
for 4Q 2000 is to achieve revenues of approximately $60 to $63 million,
with an estimated year-end customer count of 340,000.

Eugene Lockhart, TNPC's CEO, said he was pleased with the 3Q performance.
Lockhart contends that TNPC "achieved both our overall financial performance
targets and business objectives," and referenced the fact that the company
is still building its "systems and architecture" so that it can continue
to penetrate additional competitive markets. In addition, TNPC has raised
approximately $546 million in funding which the company is using primarily
to build its brand identity in this early stage of its operation.

However, despite its positive outlook, after TNPC made its earnings 
announcement
its shares took a nosedive, perhaps reflecting uncertainty about the energy
provider's ability to meet its objectives. The shares closed last Friday
at $9, which is a dramatic drop from the average price of $25 before the
3Q earnings announcement. TNPC issued its IPO on Oct. 5, 2000, at a price
of $21 per share, which at the time seemed quite high for a start-up energy
company with a limited track record. A day after its opening, the stock
closed at $27 per share. The stock was received so favorably for two reasons,
in my estimation. First, TNPC has been bankrolled by some hefty investments.
In two separate, private placements, investors such as Enron, GE Capital
Equity Investments and DLJMB Partners (among others) put up about $214
million in start-up capital in exchange for shares in the company. Enron
is the majority owner of TNPC, with 57-percent control. Second, and perhaps
more importantly, earlier this year Enron transferred its residential and
small commercial retail operations in California and Ohio to TNPC. Together
with the Columbia Energy Group acquisition, TNPC has come out of the gate
running with a significant beginning customer base of over 325,000 customers.

Yet clearly investors are now questioning the strength of TNPC stock, and
the company is at a crossroads. In order to keep its momentum on track,
TNPC needs to do two things. First, it needs to acquire additional customers
to expand its base. Key states such as Texas or Ohio offer the best 
opportunity
to secure customers since competition is unfolding at a more rapid pace
in those states. Second, as I discussed in my IssueAlert from Nov. 6, 2000,
energy stocks that are based on new technologies in general and alternative
fuels in particular are being received particularly well by investors.
Consequently, it is a very shrewd move for TNPC to suddenly announce that
it will be a provider of wind power. This could potentially send the stock
price on a upward climb again, despite the fact that financial success
of the company is still unproven.

Regarding the customer base expansion, Ohio looks like the next state that
TNPC will target. Just last week, the company filed an application with
the Ohio Public Utility Commission to provide electricity in the state.
Yet, it's clear that TNPC is still fine-tuning its marketing approach.
In Ohio, it is offering customers competitive energy prices, flexible payment
and pricing choices, and frequent flier miles as a marketing incentive,
but there is no mention in TNPC's application that it will provide renewable
energy in Ohio.

Moreover, several questions remain. Does TNPC plan to carve out a new role
for itself as a renewable energy provider, or it just providing wind power
in Pennsylvania to preserve its market edge in the state? Will the addition
of wind power positively benefit the stock price of TNPC? Will TNPC 
demonstrate
revenues of $63 million in 4Q 2000? And where will the company's next 
acquisition
of customers take place? All of these questions directly impact the future
success of TNPC.
===============================================================

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Sincerely,

Will McNamara
Director, Electric Industry Analysis
wmcnamara@scientech.com
===============================================================
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wmcnamara@scientech.com
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