For sixty years, the entire utility industry operated in a regulated and noncompetitive market environment. Utilities were granted certain defined service areas and franchise rights. Investments were made in resources and distribution networks to serve these captive customers. Investor-owned utilities were allowed to earn an allowed rate of return for their shareholders. Municipal utilities were allowed to earn a return or issue tax-exempt bonds to finance their investments. These policies produced a highly segmented, heavily capitalized industry with steadily increasing rates to pay for large, high reliability assets over 20 to 40 year investment time horizons.

As the economies of newly industrialized nations around the world grew dramatically in the 1980's, industrial companies in the United States and Canada began to face increasing competition in existing and new markets for their products. This has led to increasing pressure to reduce production costs, including the cost of energy and other natural resources. This cost pressure culminated in several federal, state and provincial legislative efforts to induce competition into other utility sectors to include electric, water and wastewater operations.

For example, energy is quickly evolving towards deregulated commodity status. Energy may now be bought and sold in a variety of markets at prices that are published on a daily basis. Transmission capacity is available to any utility or broker at postage stamp rates that are non-discriminatory. In some areas, enduse customers are able to shop for alternative energy providers under terms of customer choice or retail wheeling that many jurisdictions are supporting. These revolutionary changes offer unique opportunities for market participants that are able to position themselves correctly through the use of strategic planning.

Strategic Planning involves assessment of current market conditions versus the key competitive advantages of the business, in order to define an action plan to ensure future success. Given the pace of change and new level of competition in the energy industries today, strategic planning has become an almost continuous process.

Provide Guidance through Deregulation
EES Consulting can assess the current and future regulatory environment and make recommendations for change. During the rule setting process, we can make recommendations regarding what rules and regulations would be best for a particular company, whether asset based or retail. After the rules are in place, EES Consulting can make recommendations as to the most suitable organizational structures and processes.

In some jurisdictions, electricity deregulation is forcing traditional asset based companies to spin off retail affiliates. We have helped distribution utilities decide to keep or sell retail affiliates. We have experience valuing retail affiliates as stand-alone entities and as part of a vertically integrated company.

Assess Market Conditions and Trends
EES Consulting can assess current market conditions and future market trends. We are in daily contact with decision makers at utilities concerning developing market trends. We actively participate in industry forums, conferences and roundtable discussions. Over the past three years, we have issued RFPs and evaluated responses for power purchases, power plants and fuel supplies on behalf of dozens of clients from as large as 500 MW to as small as 1 MW. We have access to daily price information for all energy markets.

This broad network of industry contact and experience base allows us to evaluate and recommend several alternative strategies that may range from renegotiation of existing energy contracts to merger or acquisition of complementary businesses.

Through the use of focus groups or one-on-one interviews, EES Consulting can poll the opinion of customers concerning utility rates, customer service, communications and overall quality of service provided.

EES Consulting is experienced at "benchmarking" the performance of an organization against competitors in the marketplace. Comparison of operating parameters such as rates, customers per employee, employee salary levels, operation and maintenance (O&M) expenditures per customer and other ratios yields important information about the current and future cost competitiveness of the organization.

Assess Stranded Cost Exposure
New competition in the energy markets has spawned the issue of stranded costs. Stranded costs are those costs that customers would not pay (strand) if they left the utility system for the purpose of obtaining less expensive energy provided by alternative suppliers. Customers remaining on the system would face higher rates to recover these costs over a smaller sales volume. In the worst case, rising rates would result in additional defections, revenue shortfalls and eventual sale or dissolution of the organization.

EES Consulting can perform an asset by asset review of the potential stranded cost liability of an organization, including energy purchases, supply resources, and distribution systems.

Strategies can then be developed to mitigate or eliminate stranded costs, including retirement of debt, renegotiation of contracts or even sale of assets. Rate impacts of strategies are also considered in comparison to rates of competitors.

Assess Organizational Structure
EES Consulting can make an objective assessment of the organizational structure and quality of internal communications. Recommendations can be made to consolidate or expand certain functional groups and modify reporting lines. Overall, the organization is evaluated based on the skill sets and functions that would be necessary to remain market competitive.