Positioning for deregulation

HOUSTON -- To hear Jeffrey K. Skilling tell it, Southern Co. is a relic, a monopoly that wants to stifle any outside competition to Georgia Power and its other electric utility businesses.

"If Thomas Alva Edison came back from the dead and called Southern Co. to get some electricity, he'd find that nothing has changed," said Skilling, president of Enron Corp., the nation's No. 1 gas and electricity marketing company.

"These guys are living in an industry that was created 100 years ago, and they want to keep it that way," Enron's second-in-command said in his wood-paneled 50th-floor office in downtown Houston. Enron and Atlanta-based Southern increasingly may be locking horns as they position their businesses for deregulation of the $200- billion-a-year electric utility industry. Both intend to be among the few major players left standing after the inevitable industry shakeout. Southern, the largest U.S. power generator, and Enron have been shadowboxing for years. They've bid against each other on big power projects in the United States and abroad. Both have launched multimillion-dollar ad campaigns to build national recognition in advance of deregulation. They also are polar opposites in the debate intensifying in Washington about how fast and what form deregulation should take. Enron wants to break the china, while Southern counsels caution to make sure it's "done right." Skilling and his boss, Chairman and Chief Executive Kenneth L. Lay, bring a missionary zeal to their drive to pry open the nation's electric utility industry. Their goal is to go head-to-head with entrenched monopolies like Southern and capture 10 percent of the market -- $20 billion in revenue -- within a decade. Skilling, 44, a dapper Harvard MBA, is the scrappier of the two. He's the company's point man for prying open new U.S. markets. He and other Enron executives contend most of the utility monopolies are determined to keep the industry closed. Skilling calls Southern the industry's "worst offender," because it's the largest, the "900-pound gorilla," as Southern calls itself. Skilling says Southern is all for competition in states like Massachusetts, where outside utility companies can vie for commercial accounts. But when it comes to its four-state Southeastern service territory, he says, Southern will go to any length to keep out potential rivals who might offer a better deal to its 3.6 million customers. Southern executives deny the charge but are circumspect when asked about Enron. "I look at them as a competitor just like I do anybody else," said A.W. "Bill" Dahlberg, president, chairman and chief executive officer, who added that he has "great respect" for the company. In many ways, Southern and Enron are mirror images: * Southern is expanding beyond its Southeast electric utility businesses into unregulated areas, including marketing gas and electricity to other utilities, marketers and large businesses. It has launched a joint gas and electricity marketing venture with Houston-based Vastar Resources. Southern also has raided Enron to hire several marketing executives, provoking a legal dispute now before the Georgia Supreme Court. * Enron is moving beyond its longtime natural-gas pipeline and wholesale marketing business into electricity. The company's recent $3.2 billion acquisition of Portland General Electric placed it among the fraternity of regulated utility monopolies like Southern. "It's like the barbarians have come inside the gate," Skilling cracked. Enron is moving aggressively into retail electricity markets -- serving homes and businesses -- as they open up to competition in states like California and Pennsylvania. Southern, so far, has steered clear of these new mass markets, which are much more costly to enter than selling to larger and more- profitable customers like office buildings and plants. "It gets really expensive," Andrew Levi, analyst at the Furman Selz investment banking firm, said about the retail markets. "Do they want to start sending customers $25 checks (to lure them)?" Southern inevitably will have to defend its home turf against outside competitors, including Enron. But Georgia, like the rest of the Southeast, is not expected to mandate full competition for retail electricity sales anytime soon. So far, public support has been scant, mostly because the Southeast enjoys comparatively low electricity rates. But Enron may be marching on Georgia nonetheless. Deregulation of the state's natural-gas marketing industry next year will allow Enron to compete for more than 1 million customers now served by Atlanta Gas Light Co., when AGL becomes a "pipes only" distribution company next year. Enron will make a final decision after the Georgia PSC sets the rules for competition and approves rates AGL can charge for distributing gas to customers. But the company has "every intention" of marketing gas to Georgia homes and businesses, said Kathleen Magruder, Enron's director of government affairs. Enron sees a rare opportunity to establish itself in the heart of Southern's service territory, where it would be poised to sell electricity as well when that market is eventually deregulated. Said Melissa Lauderdale, an Enron executive who has been spearheading the Georgia effort, "This is a big-picture decision."

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