A challenging year brings a change in the rankings.
Michael T. Burr is Fortnightly’s editor-in-chief. He acknowledges the editorial contributions of the C Three Group and Accenture.
If the Fortnightly 40 report tells us nothing else about the U.S. utility industry, it reminds us about two immutable facts.
First, after all is said and done—after all the strategic positioning and planning, after all the talk of transformation and customer engagement—utility financial performance comes down to customer demand for energy. If demand is flat, then utility performance will be flat.
Second, it reminds us that utilities are the quintessential asset business. Power and gas companies really have only one way to deliver greater value for shareholders, and that’s by growing the asset base—either through expansions or acquisitions.
If these facts sometimes get lost in the haze, this year’s Fortnightly 40 brings them into stark relief. In 2011, meager economic growth combined with a warm winter to yield flat demand in most parts of the country. Accordingly, the industry’s production levels sank, and returns suffered. Specifically, U.S. electric output fell by 0.6 percent overall, compared to 2010 production. And the industry’s average return on assets (ROA) dipped to its lowest level—2.4 percent—since Fortnightly began keeping track in 2006 (see Figure 6). Trends in return on equity (ROE) (see Figure 7) and free cash flow tell similar stories.