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Utilities at a crossroads

Electric utilities can die in the past, or conquer the future

OVERVIEW

The rise of self-generating and other energy efficiency technologies is making it easier for customers to manage their consumption and get their power elsewhere—and at a lower cost—or produce their own.

Utilities in Europe and Asia are using cost transformation as one of the means to combat disruption. In North America, utilities have been investing at a rate of 2x to 3x depreciation over the past five years, pushing customer rates higher in an industry with dismal growth.

There is a powerful opportunity for utilities to use cost management and technology innovation to improve margins and fuel growth.

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Competitive utilities will transform traditional thinking and embrace the new to confidently take on the future.
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KEY FINDINGS

Over the last decade, US utilities have made substantial investments ($350B in 2016), with the 30 largest US utilities seeing capital investments exceed depreciation by 2.4x. However, those investments have not translated into operational efficiency. Cost optimization is the only controllable source to free up cash that could be allocated to growth.

Utilities customers want solutions that address their issues and need for clean, affordable energy. New entrants are rushing into the market to fulfil customer needs by offering better service, more transparency in rates, energy efficiency recommendations and a wider array of products at costs 10-30 percent lower.

Furthermore, current business models are not sustainable. Large utilities can partner with smaller, more nimble companies to survive in the new and be more relevant by delivering the new products and services that customers are seeking.

US utilities have made substantial investments, $350B in 2016, with the 30 largest US utilities seeing capital investments exceed depreciation by 2.4x

RECOMMENDATIONS

Utilities must take the right steps at this crossroad:

Build a cost DNA
Build a cost DNA
Having an enterprise-wide cost-conscious mindset can be fuel for growth. New entrants and private equity firms are using zero-based mindsets and other cost-optimization methods.
Be responsive to customer needs
Be responsive to customer needs
Utilities should be creative about ways to deliver value and capture markets. Traditional companies may consider becoming energy solution integrators, distribution platform optimizers or low carbon producers.
Shape the future through proactive regulatory involvement.
Shape the future through proactive regulatory involvement.
Companies must collaborate with stakeholders and engage more actively with regulators, playing a role in shaping new policies.

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