1EmergingUSElectricandGasIndustriesAlFortunatoHoustonBusinessConsultingDecember12,19962“Trueretailcompetitioninthegasandelectricindustrieswillbecomeatransformingandquotidianrealitywithinfiveyears...”VinodDar,HaglerBaillyConsulting,September15,1996PublicUtilitiesFortnightlyEmergingUSElectricandGasIndustriesEmergingUSElectricandGasIndustries3•OffshoreissuesaddressedbyDianaDePinto.•DomesticUSissuesareamixtureofmacroeconomics,microeconomicsandpolitics(mostlypolitics).•Politicalsupportforfreemarketeconomicsisvirtuallyunanimous.Asaresult,thecombined$280billionUSelectricandgasindustry($200Belectric,$80Bgas)definestheworddynamic.•Economicfalloutislikelytoincludebenefitsintheformoflowerlong-termpricesandcostsintheformofuncertainty(ofreliabilityandprices;e.g.,inVirginia,customerschosealocalutilityoveranewserviceproviderdespitethehigherrateschargedbytheutility).❻Long-termpricereduction($50Bdropinconsumerenergyspending)willcomeasatrade-offtoshort-termimpactofstrandedcosts.California’s12/95retailaccesslegislationstipulatedanon-bypassablecompetitivetransitionchargebeassessedfrom1996-2003.❻Uncertaintyofservicereliabilityandpricesamongutilitycustomerswillbeechoedbyreactioninthecapitalmarketstoutilities’increasedsystematicrisk.❻Thatincreasedriskwillresultfromtheeliminationofmonopolymarketfranchise-cappedrateofreturnratemakingwith“regulatedcompetition.”WhatcanonesayaboutGlobalEmergingElectricandGasIndustriesin15minutes?EmergingUSElectricandGasIndustriesEmergingUSElectricandGasIndustries4•Forceschangingthemarketplace:•Deregulation,fortifiedby“successstories”inrailroads,airlines,(bothessentially“deregulated”by1990),andtelecommunications(1993).Thebelatedemergenceofacompetitivewholesalegasmarketput“peerpressure”onelectricitytorestructurefaster.Enronplanstoemploy50,000fiveyearsout,anestimatedten-foldincrease,inlargepartduetoretailpowermarketing.•Macroeconomicsquestionsareasked--e.g.,wouldderegulatedenergypricesbelowerforconsumers,andifso,thenwhyarewestillconsumingregulatedenergy?ThecommissionreactsbymandatingOrders888(wholesaleelectricityunbundling)andstateswithhighconsumerpricescompeteforleaderstatusattheretaillevel:❻leadersinlocalgasdistributionunbundlingareCalifornia,Iowa,Maryland,NewJerseyandNewYork,wherestate-levelgasindustryrestructuringisintheimplementationstage;❻leadersinretailaccess(localpower)areCalifornia,NewHampshire,Massachusetts,NewYorkandWashington.Infact,CaliforniaissettoimplementdirectaccessstartingJanuary1,1998(allcustomersbyJanuary1,2002);and❻Florida,AlabamaandIdahoappeartobemovingintheoppositedirection.AcceleratingDeregulationEmergingUSElectricandGasIndustriesEmergingUSElectricandGasIndustries5EmergingUSElectricandGasIndustriesEmergingUSElectricandGasIndustries•Energymarketingfirmscapturemarketvaluecreatedbyregulatoryshifts--e.g.,withmandatedwholesaleunbundling,manylocalgasdistributioncompaniesfacedeitherhandlinglogisticsandriskmanagementissuesnewtothem,orturningtothemarketerforhelpwiththosebusinessactivities.Callitnon-jurisdictionalre-bundling.•Ourclientsandprospectiveclientswillultimatelybeforcedtograpplewiththelong-term,microeconomicissuesgoverningtheirbusiness.Theywillhavetoanswerthreecriticalquestions:❻Q1:Whatisouridentity-gasutility?electricutility?energyutility?energymarketer?•Firmsuncertainabouttheanswertothisquestionwillbeabsorbedinhor...
