By unbundling usage from access, utilities can maximize contribution to margin and yet still retain load.
With deregulation and industry restructuring, energy utilities face price...
Did you hear the one about the middle-aged utility executive who became depressed about plans to restructure his company? It seems he couldn't cope with how fast things were changing. So he threw himself in front of a glacier.
That story comes from a meeting I attended back in October, styled Executive Visioning Workshop, sponsored by Arthur D. Little, Inc., which attracted some 21 energy industry executives. The group encompassed current and past players on Wall Street, two state PUCs, electric and gas distribution utilities, energy service and marketing companies, pipelines, gas storage and hub operators, DOE and White House policy offices, industrial manufacturers, consumer retailers, and trade and R&D associations.
We were asked to divide ourselves into three groups and pretend the calendar had jumped ahead to the year 2010. Then we were to recount everything that had happened during the late 20th and early 21st centuries in the natural gas business and related energy service and utility industries. Then write it all down, lest we forget.
In case you're wondering, the world didn't come to an end with the new millennium. In fact, each of our three groups "remembered" those 15 years in nearly the same way (see sidebar, page 6). Although we worked independently, we each described a similar vision of discoveries, inventions, successes, and failures.
The Ice Age
Let's go back for a moment to 1932. That's when the U.S. Supreme Court, after much debate, decided not to accord "public utility" status to the business of manufacturing and distributing ice for refrigeration. Justice Sutherland delivered the majority opinion: "Here we are dealing with an ordinary business [such as] the grocer, the dairyman, the butcher, the baker, the shoemaker, or the tailor... which bears no such relation to the public as to warrant its inclusion in the category of businesses charged with a public use." (New State Ice Co. v. Liebmann, 285 U.S. 262.)
But Louis Brandeis wasn't so sure. In his dissenting opinion, he viewed icemaking as a utility business: "The business of supplying ice... is one which lends itself peculiarly to monopoly." He saw duplication of ice manufacturing plants and ice delivery services as "wasteful and ultimately burdensome to consumers," with untidy consequences: "[T]he relative ease and cheapness with which an ice plant may be constructed exposes the industry to destructive and frequently ruinous competition... [and] often causes managers to go to extremes in cutting prices in order to secure business."
Today we still need ice, but not the infrastructure. Why pipe it in? We can make ice at home with electricity. (Query: Do we use natural gas at home for any need that cannot also be met with electricity?)
Forget Global Warming
Our vision of the years 1995-2010 identified electric deregulation as the single overarching concern for gas industry executives. Yes, gas has gotten a bit of a head start on electricity. We've unbundled the production, transportation, and bulk-commodity segments, thus laying the groundwork for making gas more competitive at the burnertip. But the consensus at the Visioning conference was that gas must do more to