Opportunities and limitations of five top strategies.
David Fornari is national managing director – energy consulting for Deloitte Consulting LLP. Branko Terzic is global regulatory policies leader of Deloitte Services LLP and a former FERC and Wisconsin PSC commissioner. Contact Fornari at email@example.com and Terzic at firstname.lastname@example.org. Adapted from a series of articles that first ran in New Power Executive, a publication of the Scudder Publishing Group LLC. Reprinted with permission of the publisher.
Among the many fine books on strategy and value creation for the business enterprise, most are less than adequate for application to a regulated utility. Five classic approaches to value-creation and how U.S.-style regulation of public utilities (electric and gas distribution companies) provide both limitations and opportunities when managements try to apply these approaches.
Of course, management at investor-owned utilities faces the same pressures in demonstrating creation of shareholder value as that of any other listed company. Management goals frequently are set in terms of higher-than-peer performance.
Boards reward managers based on such factors as superior share price appreciation (see Figure 1) and a track record of increasing reported returns on equity (see Figure 2). The graphs on both of these performance parameters show a wide range of achievements. Thus, the stage is set for management to review strategic options periodically. So what are the best strategies available to corporate America?