Power-supply costs and nonproduction operation and maintenance (O&M) costs differ markedly, both between regions and between utilities within regions. In an open market, only companies with a competitive cost structure will be able to compete effectively.
High costs reflect high embedded costs; above-market, long-term coal-supply and power-purchase contracts; and relatively high nonproduction O&M expenses. Competitive strength correlates to relatively low and declining O&M expense per kilowatt-hour of sales. Although most utility costs are fixed (em such as cost of capital, taxes, depreciation, and a portion of O&M expenses (em they can be mitigated by:
s Optimizing management and administrative processes
s Buying out "above market" portion of coal and power contracts
s Working with fuel and power suppliers to profit from downstream market opportunities
s Instituting aggressive power-marketing programs
s Improving operating efficiencies through merger or acquisition