Report: Strategic clarity, proactive regulatory strategy are key drivers for increasing public utility shareholder value


HAUPPAUGE, N.Y., June 7, 2002 — In a presentation conducted at the Energy Association of Pennsylvania’s Annual Conference, Rudden Associate, James P. Bolduc, emphasized that utilities need strategic clarity and regulatory strategy now to boost shareholder value.

Bolduc’s presentation is posted on the Rudden web site at www.rjrudden.com in the section titled Profiles, and then Papers.

Why the renewed focus on fundamentals? According to Bolduc, previously Executive Vice President & CFO at CTG Corporation, “Many utilities are suffering from a financial Wanderlust. Over the last decade, they have set out in all sorts of strategic directions, often seemingly for the pure excitement of the journey, with no clear destination in mind. Strategic clarity has dissipated, and the financial markets have punished utility stocks accordingly.

“But now, with attentions turning back to the core utility business, a new and even more powerful risk factor is emerging, an intensified regulatory scrutiny, born of a decade of frustrated market experiments, energy company bankruptcies and arguable abuses of market power. An effective strategy for dealing with this new era of regulation will be a key to utility success in the near future.”

Until recently utilities adopted a strategy that kept them out of traditional rate cases which was successful for awhile. Now, that strategy could cost companies quality returns with the energy industry in turmoil.

Another surprise is that “Traditional utilities appear to be just the kind of businesses that will provide the risk-adjusted returns for which investors are clamoring,” stated Bolduc.

“Therefore, a sound regulatory strategy, based on an honest assessment of near-term financial condition, is essential if shareholder value is to be maximized.” On the downside, Bolduc warns that Wall Street will have no tolerance for utility managements that lack strategic vision and these same managers better prepare for increased scrutiny about their organization’s fundamentals from rating agencies. Regulators will also ask for more information on strategies, plans, merger synergies and accounting practices.

How does the utility accomplish success in such an environment? “The lynchpin of effective regulatory strategy is a clear corporate vision of the industry end state, an understanding of the company’s role in that environment and a correspondingly aligned strategy.”

R.J. Rudden Associates Inc. a strategic, economic and management consulting firms specializing in energy matters. Throughout its history, Rudden has assisted clients in such mission-critical areas as: economic and financial analysis; strategic, management and marketing services; industry restructuring support; litigation and regulatory support; technical analysis; and implementation support.

Rudden has offices in New York; Washington, D.C.; Houston; Atlanta; Augusta, Maine; and San Francisco. Additional information about the firm is available on Rudden’s web site at www.rjrudden.com.

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