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TWST: David, you have suggested in past discussions that investors have tried to be too simplistic in choosing industry factors that drive valuations in the group. Energy prices and weather are a couple of factors, you told us, that clearly are drivers in the short run even though they shouldn’t be. Why not?

Mr. Fleischer: Clearly energy prices and weather are important drivers in the short run, and most definitely, both of those factors have been a major part of the story over the past year. The supply/demand balance finally tightened up, boosting prices, and then it got cold. All that said, there are many other drivers that are emerging that I think are becoming the longer-term themes for this group. And I think that the convergence theme has emerged as perhaps the most significant, with both positive and negative implications for various companies. A handful of companies are demonstrating their ability to generate extraordinarily strong results, primarily playing off of convergence opportunities.

TWST: So ex California, free market forces in the rest of the natural gas marketplace are not hindered?

Mr. Fleischer: Even inside California I would say that the natural gas industry over the last, call it 15 years, but really more over the last decade, has been deregulating gradually, and steadily benefiting. I would characterize the electric industry as only 10% or 15% along the path to a full deregulation. However, natural gas and electricity are “coming together” and need to be viewed together in many ways as we talk about a deregulated energy market in the United States. Virtually all the new electric generating capacity being built today, and likely the bulk of it being built in the future, is gas fired. So it’s very clear that these two fuels are becoming one and the same on a converted basis. Gas can’t trade in a free market at too different a price from electricity.

I believe that over time, the next five or eight years, we will see the market for electricity open up to free competition. However, the industry is not there today yet, and there currently are great impediments to free market signals. All that said, the market is working reasonably well, and the companies that we’re talking about today are actually a very important part of it. I didn’t mention Duke Energy (NYSE:DUK) previously and I should have mentioned them earlier as an important and capable company. Duke is the best example of an electric utility that “gets it” and is logically working to transform itself into a major and rapidly growing convergence company.