NGI The Weekly Gas Market Report
NGI Archives | NGI All News Access
U.S. Gas, Power Execs Perplexed on Direction of Energy Markets
With expansion overseas ending in retreat and the continuing liquidity and regulatory problems plaguing natural gas and power utilities, U.S. executives remain perplexed over the market’s direction, according to a new study by PricewaterhouseCoopers (PWC).
“The roll call of leading players has radically changed in the space of just 18 months,” according to the report titled “Movers and Shapers 2003 Utilities — US,” which is the result of surveys of 105 top executives from more than 60 companies across the United States.
Size does matter, according to the report. Duke Energy was listed by most respondents as the leader among global and U.S. markets, and analysts also found that a “back to basics” strategy of asset-based revenue “means that larger companies will have a clear advantage in building efficiencies today and maintaining their lead in the future.”
Mergers and acquisitions are driven by companies wanting to become bigger, with most U.S. energy utilities favoring domestic expansion. Broken down, 40% were interested in expanding in the Northeast; 30% the Central and Midwest; 29% in the West; 27% in the Southeast; and 18% in the Southwest.
The main competitive threat in domestic markets continues to be U.S.-based companies, even though five of the top seven global players are European, said PWC. “This scenario will likely remain as uncertain market and regulatory conditions may delay significant European entry into the U.S.”
Topping the revenue and profit-producing list was power generation, with 42% naming it as the leader for revenue and 41% for profit. “Retail supply ranked second at 21% for revenues and profit sources…followed by networks, retail supply (multi-product), trading and non-utility operations.”
The challenge to restore confidence in the industry is being taken seriously, according to the study. More than two-thirds of those responding are investing in improved Enterprise Risk Management (ERM) systems. Companies also are looking to “rationalize” the functions and enhanced risk management for top areas where efficiency gains may be achieved.
“U.S. utility leaders also acknowledge that another critical challenge they face is communicating value in order to win the commitment of long-term investors,” said PWC. “The main obstacles companies face in achieving maximum shareholder value are the capital markets and regulators.” Nearly 55% considered that either the markets were not getting the right information, or, if they were, they were delivering inaccurate valuations.
Almost 26% indicated they were “severely” curtailing or abandoning trading activities. For those that still trade, 77% trade to hedge price risk for their own generation and retail; 34% for combined hedging and speculative trading; 30% for separate hedging and speculative activity; 23% for risk management services; and 12% for pure speculation.
The main “spur” to environmental strategy and performance continues to be regulatory pressure, said PWC. Nearly half of the respondents “either have no strategy or say that it is still under consideration.” Environmentalism business gains “remain unclear to most companies,” and while more than half see a shift to renewables, only 38% “see it enhancing shareholder value.” The “push” of regulation pressures rather than the “pull” of strategic business gain is a “dominant imperative.”
In the next five years, respondents expect increasing regulation and obligation, increasing transmission capacity, continuing wholesale price volatility and “concerns over security of supply. The importance of a clear and compelling articulation of strategy by utility leaders and an approach to risk that can satisfy all stakeholders is underscored by the fact that regulatory uncertainty remains a key factor clouding market attitudes.”
The full report can be found at the web site at www.pwc.com/moversandshapers.
Â©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.
© 2023 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1266 |