The Electric and Gas Industries are Converging: What Does it Mean?

Fortnightly Magazine - April 1 1995
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RETAIL DEREGULATION:

A TRANSFORMING EVENT

Retail sales of gas and electricity run about $300 billion a year. The deregulation of energy production, wholesale logistics, and bulk consumption has brought competition to about 40 to 45 percent of the value chain from wellhead and busbar to the retail meter. Thus, 15 years of fitful deregulation has brought competition to less than half the final price paid by middle-market and residential gas and electric consumers. Moreover, gas and electric final markets are extraordinarily balkanized; each is circumscribed by the geographic boundaries and regulatory confines of thousands of franchised and municipal firms engaged in distribution.

Enter deregulation.

Retail deregulation will compress industry margins from existing lines of business (while creating enormous new business opportunities), transform energy selling into a cyberspace retailing enterprise, and eventually cause the gas and electric industries to converge (see figure on p. 22). Convergent evolution promises significant business consequences for the production, merchant, local logistics, and network (that is, gas and electricity long-haul transportation, balancing, and system control activities) segments of the emerging and essentially integrated U.S. gas/electric industry. For the next 10 to 15 years, this convergence will affect consumers, investors, executives, regulators, legislators, and of course, business and government advisors/counselors. Neither private strategy nor public policy can succeed if it ignores or denies the rules of this new energy game.

COMPETITION AND COLLABORATION

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