Diversified companies lead (and the globals lag) over the past five years.
James Coyne is a senior managing director and Prescott Hartshorne is a managing director for FTI Consulting’s electric industry strategy practice. Contact Coyne at james.coyne@FTIConsulting. com.
The unbundling of services and companies in the electricity and natural gas industries have created unprecedented opportunities to reinvent the traditional integrated utility model, with a broader array of attendant risks and rewards. But this past year was clearly one of retrenchment and strategic soul searching, allowing an opportunity to re-examine the sector for winning business formulas.
Our prior research over the restructuring period of 1998-2002 showed that the modest yet steady profits of companies with a high degree of rate regulation easily won out over flash-in-the-pan step-out strategies. Companies like Exelon and Southern Co. reigned, while companies like Aquila and Dynegy faltered. A return to regulated roots ensued.
This year, relying upon the same financial metrics we used in this earlier investigation, the current study focuses on the shareholder returns for 66 companies in the energy value chain that are listed in the Fortune 1000.
Shareholder Returns: Outperforming Other Industries
Figure 1 illustrates annual shareholder returns from 1999-2003. This time frame is long enough to capture the impacts of strategic decisions and investment cycles that take years to unfold. The companies are arrayed according to five-year performance, grouped by quartiles. Based on shareholder return and an examination of the basic differences in the business models of these companies, several observations emerge.