Winners and Losers: Utility Strategy and Shareholder Return

Deck: 

Diversified companies lead (and the globals lag) over the past five years.

Fortnightly Magazine - October 2004
This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.

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.

This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.