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 lock in customer preferences and market share before electric deregulation takes its gloves off and creates a brand-new, dog-eat-dog energy services business.
We saw electric deregulation (em with retail wheeling, undundling, real-time pricing, and more competitive rates (em as starting up in earnest sometime during the three-year period from 1999 to 2001. That scenario would give gas executives about three years to get it together before taking on electricity as a full-fledged competitor. As several members of our group put it, "Gas needs a wake-up call."
Many of us thought the wake-up would come from a disaster (em a financial or market cataclysm that forces gas (and electric) executives to face the music. But one group member offered a compelling alternative. He predicted that, before long, a new industry mogul will put together a successful vision of what a mega-sized, integrated, pipes-and-wires, energy commodity and transportation company will look like in the future. Or an energy services marketer. In the past, it took visionaries like Theodore Vail, Henry Ford, and Ted Turner to remake entire industries. Why should energy markets prove any different?
By the way, we all predicted that the natural gas and energy industries would solve the greenhouse problem by 2010. So we can stop worrying about global warming. But you still might get run over by a glacier.
Energy FuturesLooking Back from 20101996-1998
. Retail gas unbundling (starts in CA, IL, & NJ)
. Widespread real-time, end-use gas metering (industrial/commercial)
. First NYMEX electric COB contract
. Gas-to-gas mergers (pipes & commodity players)
. First friendly gas/electric mergers
. PUHCA repeal/reform
. Legislative support for NGVs
. Improved AC/refrigeration gas technologies
. Pipeline bottlenecks removed
. Onsite electric generation grows
. National energy brands emerge
. Widespread outsourcing
. Labor Union concessions1999-2001
. Gas cooling technologies build load
. LDCs form alliances w/equipment manufacturers
. National brands proliferate
. Cost breakthrough on end-use gas metering (residential)
. Electric deregulation, retail wheeling, real-time pricing intensifies competition w/natural gas
. Electric RTGs, RINs, EBBs mature
. First hostile gas/electric mergers
. Gas marketers acquire/join vertical companies
. First mega-sized ESCO
. Insurance for telecom, water, home energy service, and appliances
. Wall Street finances w/o franchises
. Most LDCs out of gas-supply business2002-2004
. Breakthrough in fuel-cell technology
. National brands for energy services
. Five mega-ESCOs control 60% of market
. Multiple commodity swaps (gas/electric/other)
. Gas storage hubs in full use
. LDCs perfect technology for online monitoring of distribution systems
. Electric recover stranded costs; rates fall
. Regulators accept smaller role (safety monitoring; complaint resolution)2005-2010
. Baby boomers demand consumer safety net
. Complex mergers (AT&T/PG&E/Time-Warner)
. New industry mogul emerges, successfully commercializes energy/telecom "black box" for interactive "smart house"
. Energy industry solves "greenhouse" gas problemSource: Consensus of group of 20+ energy industry executives, representing Wall Street analysts (1), state PUC representatives (2), managers at energy service and marketing companies (2), electric and gas distribution utilities (6), gas storage and hub operators (1), pipelines (1), trade and R&D associations (4), DOE and White House policy offices (2), manufacturers (1), and consumer retailers (1).
Develped at the Executive Visioning Workshop, York Harbor, ME, OCt. 9-11, 1995 (Arthur D. Little, Inc., sponsor).
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