Events during the past year have painfully reminded us that individuals, companies and entire industries can quickly suffer new lows after falling from the heady peak of success. In 2000, Dynegy's stock rose 220%. In 2001, chairman and chief executive Chuck Watson was inducted into the Texas Business Hall of Fame and was named a Master Entrepreneur by Ernst & Young. Today DYN is around $4. And Watson's got a lot more time on his hands, he ruefully told a Houston audience last month. It was his first speech since resigning from Dynegy in May. What is he doing these days? For one thing, he's been watching Alan Greenspan on C-SPAN. As a member of the group promoting Houston's 2012 Summer Olympics bid, he recently hosted the U.S. Olympic Committee's tour of Houston. He's anticipating the season opener of the new Houston Texans football team, of which he is a part owner. And, he has been thinking about the natural gas and power business. It is rare for a man in his position to speak publicly, and it would have been naïve to expect anything too candid about Dynegy or its peer group, which is in turmoil. But it is illustrative to share his thoughts on the future. "This [recent scandals and financial disasters] is a blow, but it is a blip on the screen. And that's all it is," he said. Watson's been a cheerleader for this business his whole career and that won't change. He believes most executives do operate with integrity, but that regulations will no doubt tighten up, in part to satisfy political demands of the coming election season. He still believes power deregulation should go forward and not be stopped. But Watson's biggest concern? The country's inability to find new sources of natural gas supply. He cited declining production as reported by producers during the last few quarters, and conceded the industry has been reeling for some time. "Gas prices are soft. Production is down and decline rates are up. Inventory will be full by the start of winter, and I'm not comfortable that we've got our arms around the numbers on gas storage [as reported by the Energy Information Administration]. "I see a shortfall of natural gas in 2003 and I think it could be a significant issue in 2004-05. We have got to drill on more lands that traditionally have not been accessible to the industry. If we do not, that shortfall could last another 10 years." Some analysts have predicted U.S. gas demand will grow about 3% or 3.5% per year, but Watson believes growth will be more like only 2%. He advised executives to manage their businesses as if it were only 1% or 2%. He has been taken by the fact that U.S. gas demand, while down, has not fallen as much as one might have feared, given the market turmoil and economic slowdown. "It's extraordinary-the U.S. economy has withstood some mighty blows when you think about the business climate lately and even before that, going back to September 11. But I don't see a recovery for the next three quarters." Capital will be scarce for the next two years, especially in the power sector, Watson said. "Cash is king. Any capital that is found will stay on the books and not be spent on new facilities. I am increasingly concerned about our infrastructure because we don't do enough about it. The infrastructure in power especially has been, and is, horrible. A couple of years ago, some of us said all this noise about building new power plants was just that-noise. Many of them have been canceled or are being rethought. Once again, we'll go through a lull [in construction], but if the economy is stronger in 2004-05, we'll be short." Watson seemed as surprised as the rest of us that the collapse of the marketing and trading business has been so dramatic. "Liquidity in the long-dated power market is virtually nonexistent and it's drying up on the gas side. The physical market to 30 days and three months is intact, but if you want to hedge longer term, you're having trouble finding counterparties. The impact on the power market has been even greater. "Electricity deregulation will not stop. It may be stalled but we cannot go back-that would hurt everybody on all sides of the market-producers and marketers alike. I have seen deregulation in gas markets and it works." In the meantime, he worries Congress will overreact and stifle entrepreneurship. He advocates full public disclosure so that investors can judge for themselves whether a company has been conservative or aggressive in its business practices. "Do accounting standards need to be tweaked? Yes. Do the sidelines need to be moved in a bit? Yes. And if you step outside them, you can expect to be slapped. "But I believe in this industry's ability to shake this off."