Access without ownership. Although we own substantial physical assets such as generating plants and natural gas supply/storage facilities, we capitalize on the option of gaining access to assets through partnerships and contracts as well. Partnerships and contracts provide flexibility and lower capital investment. For example, while we do not own any generation assets in Victoria, Australia, we have long-term financial instruments for generation capacity. We have similar arrangements in Europe.
It’s adjustable. Portfolio management means constantly adapting the portfolio to fit changing market conditions—that is, the portfolio has to be flexible.
Selectively adding new assets through purchases, contracts, and relationships is key to growing and expanding our business. Our acquisition of a majority stake in Stadtwerke Kiel, a large municipal energy company in northern Germany, provides value throughout the energy chain. It gives us access to generation, natural gas, and retail customers. The acquisition also provides brand leverage and invaluable market knowledge. With Kiel, we have taken on a German identity in the German market.
Knowing when to sell assets to take advantage of a market opportunity, get ahead of a market downturn, or shape the portfolio is just as crucial as knowing when to buy. For example, we bundled North Sea natural gas properties and contracts to take advantage of current favorable market conditions. Sale of these assets was completed in early 2001. The assignment of an expensive, inflexible, long-term gas contract was the major benefit of the sale.
In 2000, we sold our UK meter-reading and installation business—considered an integral part of the network by many—to Siemens Metering, which continues to read meters for us. This profitable, groundbreaking deal not only improved the efficiency of our electricity distribution business, but also helped to reshape the industry in the process.
We are in the process of selling our 19.2 percent interest in Hidroeléctrica del Cantábrico, a Spanish power company. After determining that this investment was not going to deliver the opportunity we wanted to grow market share, we are now exiting the investment and expect to gain a nice profit.
Our US generation is currently concentrated in a single market—Texas—and we think it is prudent to diversify. We expect to sell or swap some Texas generation by the end of 2001. A sale would provide funding for investments in new competitive markets, while a swap would provide such investments directly.
The keystone of successful building. Portfolio management provides the real-time intelligence and superior knowledge of energy markets to operate nimbly in today’s fast-changing competitive environment. This sophisticated portfolio management trading and financial system extracts value, manages risk, unlocks dual-fuel arbitrage opportunities, and shapes and adjusts the energy portfolio in the light of market conditions. It manages the price and volume risk over the full spectrum from upstream energy to downstream retail sales, both for TXU and, through risk management products, for other energy retailers, generators, and traders.
Our business model, with its portfolio management approach, assembles and, like a keystone, holds together our portfolio’s variety of physical and financial resources and customers. It underpins the success of the competitive merchant energy business we are building.
