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The Fortnightly 40

Fortnightly Magazine - September 2008

pressure on customers’ rates and shareholders’ returns. The best performers in the energy industry will be those that know how to position themselves in the value chain—delivering strong returns to shareholders, while also addressing the concerns of regulators and the needs of customers.

Leading companies also will become more creative about cost control and rate design.

“While we constantly look for cost-cutting opportunities, we also maintain an excellent working relationship with the state commissions,” says Smith of National Fuel Gas. “We’ve employed various rate-making mechanisms to benefit both our ratepayers and shareholders, including a conservation incentive program, a revenue decoupling mechanism, bad debt trackers and weather normalization.”

Such structures help regulated utility companies manage the increasingly complex set of risks they face. Ultimately, however, regulated returns alone generally don’t deliver top-tier shareholder performance. Accomplishing that requires the willingness and aptitude to manage financial and operational risks in the energy marketplace, as well as regulatory risks in the policy arena.

“Our service territory touches seven states now,” says MDU’s Hildestad. “Just like geographic diversity and market diversity, regulatory diversity is a good thing for shareholders. We’re working hard all the time to provide great service to our customers and maintain our good rapport with regulators.”