BURLINGTON, Mass., May 29, 2002 — The electric power distribution business may take diverging paths with important results for earnings, regulatory oversight, and ownership structure, new research states.
The research released recently by XENERGY Inc., Crossed Wires: Scenarios for the Future of the Electric Distribution Business, analyzes the most important forces that will shape distribution companies and presents four alternative scenarios. Together these scenarios expose the difficult strategic challenges that all utilities will face over the next ten years.
Working with a panel of distribution company stakeholders, the report identified six highly uncertain and interrelated forces that will create the future: (1) regulatory oversight of performance and earnings, (2) earnings growth through revenue growth and cost-cutting, (3) investment to replace aging infrastructure and to expand the system, (4) technology change in power delivery and distributed resources, (5) asset management and operations challenges including an aging workforce, and (6) the omnipresent pressures related to reliability, power quality, and customer satisfaction.
Four scenarios were developed based upon the uncertainties and impacts of these forces:
* Shock Absorber — When there are bumps in the road, it is the regulated utility that must absorb the shocks. Persistent problems and meager returns result in the disintegration of the business as we know it.
* Sam Walton: PUC Chair — “Cheaper is better, with no frills” dominates the regulatory mindset driving the industry to further cost-cutting, outsourcing, and consolidation.
* Scratch My Back — The common interests of the special interests triumph over the cost-cutting pressures in place recently leading to stronger companies working a web of mutually supporting stakeholders.
* wires.net — New energy technologies drive the future of the electric industry characterized by the growth and consolidation of the distribution business.
“The future of the electric distribution business may unfold in ways that are far different from recently’s regulated utilities,” says Bruce Humphrey, XENERGY VP and director of Crossed Wires. “Yet the ability of companies to address these possibilities and to pursue the opportunities is constrained by the reality of cost pressures, the uncertainties of regulatory oversight, and the increased pressure to grow earnings.”
XENERGY (http://www.xenergy.com) is an energy consulting, information technology and energy services firm headquartered in Burlington, Massachusetts, with offices across the United States. The company offers consulting services on a wide range of energy issues, and works with utilities, energy service companies, industrial and commercial customers, institutions and government agencies. Founded in 1975, XENERGY is a wholly owned subsidiary of KEMA Consulting.