1999 PPL CHALLENGE #1
As electric utility companies face deregulation and reorganize themselves
into separate "Wires" and/or "Generation" businesses, each of these business
lines seeks new ways to enhance their bottom line profits. With fixed maximum
amounts that a Pennsylvania utility can now charge customers for just delivery
of power over its wires, the opportunity for revenue growth in this traditional
wires business is nearly limited to Pennsylvania's economic growth of about
3% annually. This falls well below investor expectations of investment
growth of 10% or greater. Therefore, the "Wires" business needs to offset
this 7%+ difference by reducing operating expenses without sacrificing
reliability or adding revenues from non-traditional sources. The problem
is (1) to identify and evaluate the best payback opportunities in non-traditional
ways for the "Wires" business to improve its profit bottom line and (2)
to develop a hypothesis for implementation based on cost and risk factors
associated with the newly-suggested business opportunity or approach.
Background Information:
Under a completely regulated environment, the electric utility cost
to generate and deliver power was bundled into one customer billing rate.
Stock shareowner's return was usually consistent at a very stable amount
based on the individual utility's rate structure and actual operating expenses.
Under deregulation, the power generation portion of customer billings will
be based on a competitive open market price. However, the "Wires" business
will probably be regulated more stringently than ever and rate caps will
be set on the price a customer can be billed for the power
delivery service. This presents a new and unique problem for a "Wires"
business line that cannot realize substantial growth with its traditional
services.
Interestingly though, the existing power delivery infrastructure (distribution
and transmission lines) can conceivably provide opportunities to exploit
new telecommunication or other customer direct services to increase revenues.
Some utilities, such as PPL, are already installing fiber optic networks,
cellular and PCS antenna sites, etc. on their facilities to acquire lease
revenues. Also, the ability to wheel larger blocks of power over existing
lines without building more new facilities is a new challenge and priority.
There may be many other, yet unidentified, opportunities in which to exploit
the present infrastructure.
Suggested Approaches/Considerations:
Brainstorm ways to acquire new revenues from existing electric lines
or associated rights-of-way or reduce operating expenses while maintaining
present reliability standards.
Brainstorm new uses of telecommunication or other delivery services
that are a natural compliment to the present customer electric service
point of contact.
Develop individual implementation hypothesis to support your best recommendations.
Focus on minimizing cost expenditure investments and reducing business
risks for your recommendations.
Identify factors which will give PPL the competitive advantage over
other utilities or traditional service providers for your recommendations.
Identify possible business partnerships or networking by PPL which will
enhance your recommendations.
Suggested Research Area:
On December 3, 1996, Governor Tom Ridge signed into law the Electric
Generation Customer Choice and Competition Act (Act). The Act is watershed
legislation that will restructure the electric utility industry in Pennsylvania
to allow consumers the ability to choose their electric supplier.
Please send any comments, additions, or suggestions about
this web site to
Dr. Dan Holt.
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