Generation Assets: How to Derive Greater Value

Deck: 
Learning from Wal-Mart.
Fortnightly Magazine - December 2002
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Learning from Wal-Mart.

It's bad enough that merchant generating companies are struggling under the weight of regulatory, accounting, and public scrutiny in an era of shattered shareholder confidence. To make things worse, over the past few years generation was overbuilt on speculation that sparks spreads would be maintained and the economy would grow. But sparks spreads have shrunk, and given the national economic downturn, energy use is also down. This comes at a time when generating companies are straddling the regulated and non-regulated worlds. Generating companies continue to have a tremendous amount of regulated governance-if not in reality, certainly in their struggle to discard a cost-of-service mentality. Realistically, these companies should be working within a commodity business model, but instead find themselves still operating like regulated entities in many of their business decisions. Most of these companies primarily make electricity-a commodity product (notwithstanding potential ancillary services). But most are not yet adept at driving down costs while building in efficiencies. Yet Wall Street, customers, regulators, and the public all expect generators to be competitive and to deliver solid business performance.

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