Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

The Fortnightly 100: Which Utility Ranks the Highest?

Fortnightly Magazine - September 1 1998

utilities. For example, Southern Co. received an efficiency score of 1, but was never used as a peer This indicates that Southern, although efficient, was not influential in determining the efficiency of the other companies (i.e., no companies matched the criteria for comparison with Southern Co.). Furthermore, this indicates that Southern was found to be efficient, at least partially, due to its uniqueness. Idaho Power, on the hand, also received an efficiency score of 1 and was used as a peer for 55 different utilities. (Idaho Power received an efficiency score of 1.0 even when placed with 55 similar utilities, a more convincing accomplishment.)

Table 2 shows the gains/losses in productivity for the top 100 holding companies utilities for each year between 1990 and 1996, as well as an overall estimate spanning the entire time period. It is interesting to note that over the 1995-96 period, the top performing companies witnessed an average of 7-percent efficiency gain, while the remaining utilities witnessed a 4-percent efficiency loss.

There appear to be outstanding achievers among the utilities in the study. For example, the top five performers in terms of efficiency improvement over the 1995-96 period (Upper Peninsula, Ameren Corp., Northwestern Wisconsin Electric, American Electric Power Co., and North Central Power ) averaged more than a 54-percent gain. Four of these companies also ranked among the most efficient in 1996. Upper Peninsula Energy Corp., at greater than 133-percent efficiency improvement in 1995-96, is especially interesting. Upon detailed data examination, its generation fuel mix showed a drop in steam from nearly $2 million to zero in 1996 without a significant change in the net generated MWh.

On the whole, the results suggest that the less efficient utilities in the study (all except the top 19) underutilized their inputs by nearly 40 percent, on average. Target values were computed to investigate discrepancies in underutilization of individual inputs. Figure 2 illustrates that, on average, for the less efficient utilities, nearly 54 percent of their capital (electric plant) is underused, representing large over-capacity; O&M is a close second at nearly 53 percent. Fuel underutilization is at the overall average for all input (40 percent).

For electric utilities, the need for efficiency improvement is likely to manifest itself both in regulated and unregulated branches of their business. The regulated segments are likely to be subject to some form of incentive ratemaking, which is most likely decided primarily based on some measure of efficiency. In the unregulated segments, efficiency is likely to be the most significant determinant of price and thus the ability to compete effectively.

Despite what one may think, the industry as a whole is not showing very strong signs of improved efficiency. Only 16 percent of the utilities studied showed positive trends in efficiency over the 1990-96 period. Among the less efficient utilities, there seems to be enormous opportunities for improvement. Based on our results, the overall underutilization in this segment of the industry for all resources in 1996 was nearly 40 percent.

We believe that efficiency measurement tools are needed and are going to be critical in