Utility executives are more certain than they should be about the future of deregulation and globalization, according to a detailed survey and interviews with senior decisionmakers.
“Our research* shows utilities think government policy is key to their strategies,” said Deloitte Research study director Dwight Allenbut. “Also that many of them underestimate the unpredictability of what voters are going to do this fall and in future elections.”
Government was ranked first by industry decision makers among factors likely to impact the utility business during 2000-2010 in a Deloitte poll. “Many executives think government will have its impact by reforming the old monopoly rules,” said Lee Dittmar, Atlanta-based principal in the Deloitte Consulting energy practice. “In the survey, 47% said more competition and privatization are highly likely. And in our follow-up interviews some utility executives made comments such as, “I’m very optimistic about deregulation” and “government will have to rely on the market.”
Yet utilities need to be flexible. “Ignoring other possibilities could mean getting blindsided if policy shifts back towards regulation,” Allen warns. “Power shortages in California have caused voters there to question deregulation, and after decades of free-market reforms, voters in New Zealand elected a more government-knows-best prime minister.”
“The study results underline the importance of keeping options open and having the agility to change strategies when the marketplace shifts unexpectedly,” said Dittmar.
The same theme applies to globalization. In the Deloitte survey, 88% agreed governments will promote more trade and investment, 70% agreed that globally consistent accounting principles will be established by 2010, and over 80% believed the companies dominating the utility business in 2010 will be multi-national.
“Those results validate the strategies of companies using mergers and acquisitions to create global giants,” said Branko Terzic, Washington-based Deloitte & Touche director. However, events such as the International Monetary Fund protests in Prague and World Trade Organization protests in Seattle this year highlight what could be growing opposition to globalization. “Politics can veer off in unexpected directions,”, said Terzic. “It’s unwise to be so committed to any one view of where voters and government policy are moving that you lack contingency plans.
“Utilities can minimize their risk in this uncertain era, while at the same time moving forward decisively, “ said Dittmar. “They can use management tools such as scenario-based planning, real options valuation, and computer modeling - these approaches provide the means for understanding the array of strategies available and for defining the significance of choosing one or the other.”
Additionally, the studies show that utilities need systems, processes, and a culture that make them versatile — that permit them to nurture “just-in-case” technologies, products, and businesses, spot leading indicators of change, and switch strategies without confusion and delay.
* The two reports published here are segments of The Utility Executive’s Field Guide to the Future. Part 1 summarizes the results of a global survey of 185 decisionmakers in utilities, corporations, and engineering firms in 15 countries, while Part 2 focuses on the outlook for regulatory policy and globalization. Part 2 is based not only on the survey results but also on 75 subsequent interviews with utility CEOs, power managers in large corporations, government officials, and others around the world. The research also included an intensive review of economic studies, government reports, opinion surveys, and other sources.