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Conventional Wisdom May Steer Power and Utility Companies Toward the Wrong Future

Significant New Challenges Could Be in Store According to a New Deloitte

Research Report
Sep 14, 2005, 01:00 ET from Deloitte & Touche USA LLP

 WASHINGTON, Sept. 14 /PRNewswire/ -- Most of America's leading power and
 utility CEOs and CFOs think business will not change much over the next five
 years. However, a study released today by Deloitte Research -- including
 interviews with regulatory, financial, and policy experts -- shows significant
 new challenges could be in store between now and 2010.
     These are the highlights of the Deloitte Research report: Which Way to
 Value?  The U.S. Power and Utility Sector, 2005-2010.
     In the report Deloitte Research groups the contrasting views on what the
 next five years may hold into three broad scenarios: "Continuity," "Tough
 Times," and "Rising Expectations." The "Continuity" scenario is based on the
 majority view among industry executives.
     "We believe that while minority views may represent less-likely scenarios,
 they should not be ignored," says Greg Aliff, vice chairman and national
 managing partner, energy and resources, Deloitte & Touche USA LLP. "The report
 notes that when companies base their strategies on the conventional wisdom,
 they may leave themselves vulnerable if the contrarians turn out to be
     The study documents support for certain views that go against the
 industry's prevailing assumptions. Some examples of cases where the majority
 view deserves another look:
     -- Climate change. Most executives interviewed believe the industry will
        not face carbon limits within five years. But some executives
        interviewed disagree, including CEOs of major utilities, and the
        perception that new mandates could be in place before 2010 is shared by
        some state regulators, environmentalists, and shareholder groups.
     -- Rate regulation. Most of the executives interviewed believe state
        regulators will support utility rate increases associated with new
        facilities investments. But some executives interviewed think
        commissions will be hard to convince, and that view is seconded by some
        state regulators and financial players.
     -- Back to basics. Most of the executives interviewed expect capital
        markets to applaud the "back to basics" strategy of focusing on
        reliable returns from the regulated core business. But some executives
        interviewed think investors may soon demand more growth than the back-
        to-basics model permits, and some in the financial sector concur.
     -- Natural gas. Many executives interviewed predict gas will stay viable
        as a generation fuel, with liquefied natural gas (LNG) from abroad
        augmenting output from North American wells. Not so, according to other
        executives interviewed, as well as some regulators, consumer advocates,
        and national security analysts, who worry about problems such as
        opposition to new LNG terminals and the emergence of a new "gas OPEC."
     What will happen to U.S. utility companies if one of the minority views
 turns out to be correct? By asking "what if?" and then acting on the insights
 that result, executives can adapt and augment their current strategies in ways
 that better prepare their companies for the opportunities and threats that may
     The report discusses how power and utility companies can redefine their
 strategies and potentially increase returns from assets, and grow their
 companies through mergers and acquisitions, despite uncertainty over which
 scenario the next five years will most closely resemble.
     The study was conducted by Deloitte Research, part of Deloitte Services
 LP.  Using as a starting point the findings from a late-2004 survey conducted
 by GF Energy, Deloitte Research interviewed 20 leading senior industry
 executives as well as another 20 people with other perspectives, including
 regulators, investment bankers, environmentalists, consumer advocates, and
 think tank scholars.
     Copies of the report may be obtained by sending an email request to
 publicationcenter@deloitte.com. Please reference item number 5092.
     About Deloitte
     Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss
 Verein, its member firms and their respective subsidiaries and affiliates.  As
 a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its
 member firms has any liability for each other's acts or omissions. Each of the
 member firms is a separate and independent legal entity operating under the
 names "Deloitte", "Deloitte & Touche", "Deloitte Touche Tohmatsu" or other
 related names. Services are provided by the member firms or their subsidiaries
 or affiliates and not by the Deloitte Touche Tohmatsu Verein.
     Deloitte & Touche USA LLP is the US member firm of Deloitte Touche
 Tohmatsu.  In the US, services are provided by the subsidiaries of Deloitte &
 Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte
 Financial Advisory Services LLP, Deloitte Tax LLP and their subsidiaries), and
 not by Deloitte & Touche USA LLP.

SOURCE  Deloitte & Touche USA LLP


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