ScottMadden Energy Industry Update – Times are Changing but the Utility Not so Much

ScottMadden Energy Industry Update – Times are Changing but the Utility Not so Much

ScottMadden Energy Industry update offers much knowledge and points to ponder.  I want to thank ScottMadden in making the report publically available.

Executive Summary Thoughts

I couldn’t agree more with the Executive summary theme – Times are Changing.   However, what is not addressed is the root of the utility business involves the status quo.  Not because of the lack of understanding, but the very nature of their business design and incentive.  The root of utility business without elaborating too much involves a regulatory return on investments and minimizing cost to allow more returns on investment.   The risk-reward paradigm does not offer enough or any reward for change.   If you happened to guess right, your rewards are limited, and if you guess wrong, the punishment could be severe particularly on a personal level not necessarily the company level.   In addition, because uncertainty in the sector and revolving commissions doing what was done in the past, has been viewed as not being wrong, even if that is the case.  

The mergers & acquisitions noted in the report continue to follow the root of the utility business which ignores that changing landscape.   I believe that getting larger in the face of the customer getting more knowledge and involvement in the electric sector goes against the desire of the customer.   The business model needs to change and find a way to get back to serving customers, not just by class, but by individual needs and requirement.  This would have been impossible in 1970’s, but we have come a long way now, in terms of technical capabilities.

You will note many of the themes in investment, ScottMadden notes goes right back to following the old business model.   A “No-regrets” activity in the T&D space is the perfect lingo of doing what one did before.   The T&D space is really the only no-regret activity, since it still falls under regulatory paradigm.   Anything involving generation can now be considered outside that no-regret policy.

ScottMadden concludes in the executive summary section accurately that new business models are needed.   However, I feel they offer quite a bit of optimism that change can happen in time.  One may consider many utilities as big and clunky as the Titanic, but the positive thing is, even if  one see the iceberg ahead, yet refuse to alter course; they will not likely sink as the Titanic, given the broad need and still some regulatory format, but they will be altered.  The real decisions is whether they want to prosper by the change or be left in a much smaller, less active role, similar to the newspaper industry.   Print is here to stay and there will be returns for some, but nothing like the good ole days.

Let me break my reporting of the ScottMadden, given the abundance of topics covered in the next sections.   I want to close with thanking ScottMadden in sharing this very enlightening document.   Business decisions are made by – Information turning into Knowledge turning into Action – the consultant part in the process is not hoarding the information or knowledge but helping you with the turning.

Your Energy Consultant Focused on Helping You Turn,

David K. Bellman


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