Fortnightly Magazine - August 2008
Hollywood envisions the utility of the future.
One of Hollywood’s biggest blockbusters this summer has been Wall-E—Disney-Pixar’s animated movie about a lovable robot who restores humanity’s place on a trashed Earth. I doubt Wall-E’s producers realized it, but they created a cynical metaphor for the U.S. utility industry.
(August 2008) Luminant (the former TXU power generation unit) announced that Texas Secretary of State Phil Wilson joined the company as senior vice president of public affairs. NiSource named Stephen P. Smith CFO. AEP named Richard E. Munczinski senior vice president, shared services. And more...
Green investments require bulletproof financing.
Originally developed to compensate U.S. electric utilities for regulatory assets rendered uneconomic by deregulation, so-called “stranded-cost” securitization techniques are finding new applications. To date, utilities have issued approximately $40 billion of stranded-cost securitizations. That number could increase dramatically if the industry applies well-tested securitization techniques to the extraordinary costs it faces in the future.
Is electricity price-elastic enough for rate designs to matter?
Contrary to conventional wisdom, electricity demand isn’t immune to price elasticity, and rate designs can encourage conservation. In particular, inclining block rates coupled with dynamic pricing can cut electric use by as much as 20 percent.
Market forces are transforming the IOU business model.
As market forces transform the IOU business model, Apple’s iPhone provides a metaphor and possible example for the industry to follow. The iUtility will emerge as companies renegotiate the regulatory compact and reinterpret the traditional rate formula.
Web technologies are transforming the utility-customer relationship.
Thanks to the Internet, consumers expect 21st century companies to bring a sophisticated online presence. Utilities that leverage the interactive power of Web 2.0 will strengthen their positions in regulatory and competitive arenas.
Ad hoc approaches will fall short when the workforce crisis strikes.
Utilities are headed for trouble. A critical shortage of skilled employees likely will worsen. And overcoming the workforce gap will require viewing it as a strategic issue, and taking a comprehensive, fact-based approach.
Strategic transformation demands more than score-keeping skills.
Several of the industry’s top-performing companies have been guided by CFOs with an expansive sense of what the finance office should offer to the business. Increasingly CFOs are developing the skills and capabilities to move beyond the traditional role of traffic cop to the more valued roles of business partner and enabler.
Global markets affect domestic prices, exports and infrastructure.
Who knew coal-supply issues in countries far away from U.S. markets could have a massive impact on domestic supply and pricing, helping to increase prices for Appalachian coal by 260 percent in the past year? Despite what might have appeared to be an isolated U.S. coal market, recent events throughout the globe, such as supply disruptions in Australia and South Africa and increasing demand in some Asian countries, have shown that U.S. markets indeed are a major part of the global coal economy.