A PHB Hagler Bailley annual survey found that many topexecutives in the gas and electric industry expect to become moreinvolved in e-commerce and telecommunications over the next fiveyears. The results of the survey, called PHB Hagler Bailley EnergyIndustry Outlook 2000, were released last week at the NationalPress Club in Washington, D.C.

“The single biggest change among North America’s utilities isthe crossover when predominant earnings shift from the regulated tothe unregulated side,” said Roger Gale, senior vice president ofthe consulting firm.

Gale said e-commerce and telecommunications investments willplay a significant role in this earnings shift. Of the more than800 executives who responded to the survey, 95% said electronicbill payment will increase during the study period, 97% saidautomated meter reading will increase, and 52% indicated that thetelecommunications industry will provide shareholders with the mostattractive rate of return.

“The e-commerce and telecom businesses represent paths that boththe customers and companies can use to their advantage incompetitive markets. Over 80% surveyed said that they don’t believecompetition will significantly lower bills for residential andsmall commercials. Without that benefit, companies will need tooffer other services in order to attract customers and to makemoney.”

While Gale noted many customers are not reacting quickly to thederegulating energy industry, he also said the survey found that70% of the respondents believe customer choice is the mostimportant issue facing the industry over the next few years. Also,the survey found that one of the main things companies will attemptto do during the study period is define new retail strategies,”because nobody’s got it right so far,” Gale said.

Looking ahead five years, respondents to the survey predictedthat motivation for customer choice will increase and that theintegration between electric companies and telecommunicationcompanies will “be booming.” Gale also said that the surveyindicated a belief that electricity prices won’t have changed,while gas prices will be higher due to increased electric demand,more distributed generation and decreased coal demand thanks tostricter environmental regulation.

Interestingly, 54% of the survey participants said competitionin electric markets would adversely affect reliability. Galeexplained that when markets become competitive, companies slashcosts in order to improve their bottom line. One of the main itemsto be slashed, the survey found, was maintenance programs, such astree cutting.

Because so many questions revolve around electric transmission,Gale said an opportunity arises for gas. “Transmission is the weaklink. Grid dynamics don’t work well right now. The less we bolsterthe electric grid, the more we will rely on natural gas. And themore we rely on natural gas, the faster we will move towardlocalizing the siting of new generation, both gas turbines and fuelcells.” PHB Hagler Bailley does management and economic consulting.For more information, call (202) 223-6665. John Norris

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