Regulated Utilities: Reinventing the Classic Business Strategy

Deck: 

Opportunities and limitations of five top strategies.

Fortnightly Magazine - December 2005
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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?

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