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TWST: What does the ideal, integrated energy company look like today?

Mr. Hyler: There is no doubt that the market has begun to identify the benefits of integration from the wellhead to the power plant, including the ability to leverage physical assets through effective trading/marketing operations. The market has increasingly placed higher premiums (p/e multiples) on well integrated companies with the capability to maximize profitability along the entire Btu value chain. Interestingly, over the past year, with natural gas and power increasingly replacing oil as the primary growth engine in energy markets, the integrated major oil company has continued to lose ground (in the financial markets) to the integrated gas/power company. This trend is expected to continue as long-term growth rates for gas/power remain more robust than for crude oil.

TWST: Are there any manufacturing or infrastructure bottlenecks or scarcities that will have an impact over the next one to two years?

Mr. Hyler: Everyone talks about gas wellhead deliverability and the inability to find gas. That really only represents half the problem. We would also argue that the pipeline/storage infrastructure to effectively meet a sharp rise in natural gas consumption is just not in place. Gas demand in 2000 finally recovered back toward the 22 trillion cubic feet historical peak of 1973. Accordingly, one could argue that the infrastructure to move natural gas to consuming markets has largely been in place for past 28 years. The transition to a 28-30 Tcf market with dual winter and summer demand peaks will require tremendous investment in infrastructure. The same can be said for the electric power industry, where transmission bottlenecks have hindered the development of a truly competitive wholesale power market capable of wheeling low-cost power to power-short regions.

TWST: Overall, has Enron (NYSE:ENE) gotten too big to sustain growth rates?

Mr. Hyler: Following sharp gains through October 2000, there is no doubt that Enron shares have struggled, particularly over the past four months. Investors should know that part of the 2000 move in ENE shares was a function of its newer growth initiatives in telecom and B2B online commerce, two sectors that have come under pressure. These businesses will have to deliver longer term for Enron to sustain attractive longer-term growth rates. In the interim we do expect the company to sustain its dominant position in wholesale energy markets. Also, relative to its wholesale peers, Enron has an established retail business via Enron Energy Services (NYSE:ESS). As more and more large commercial and small industrial retail customers seek energy supply and facility management services, Enron will likely emerge to dominate this space.

TWST: What is the key message, in summary, for investors?

Mr. Hyler: Despite strong performance the past year, we continue to believe the natural gas and power sectors offer attractive investment opportunities. At our March 2000 energy conference, we had NASDAQ hitting all-time highs — a factor distorting valuations for much of the energy and “older economy” sectors. Accordingly, while stocks have recovered from very oversold levels, the positive outlook for gas and power markets continues to suggest above-average growth rates for many companies. Moreover, the continued evolution of wholesale deregulation, coupled with tight commodity markets, should open up new growth initiatives in non regulated power, LNG imports and energy infrastructure.