Vinod K. Dar
RCG/Hagler, Bailly Inc.
Jefferson Gas System Inc.
Arlington, Va.
Top Level of the SMS Hierarchy Table (34819 bytes) Until the mid-1980s, North American corporate and Wall Street executives and regulators believed the major business and policy challenge facing the energy delivery system was managing scarcity
Consumers were not only taken for granted, they were often denigrated as voracious, ungrateful users of precious energy resources, incapable of informed decision making and oblivious to price signals.
Capital investment decisions and enterprise financing were predicated on rapidly growing energy demand and sharply rising energy prices, especially for oil and gas.
Government policy was aimed at penalizing business success and efficiency and discouraging the use of cheaper energy (oil and gas) while subsidizing development of more expensive substitutes, including geothermal, wind, solar, and biomass.
None of this thinking had much to do with market reality, technological innovation, an intelligent public, and irrepressible energy entrepreneurs. Since the challenge was scarcity, some people and companies decided that rather than accept the inevitability of shortages they would proceed to solve the problem, ignoring conventional industry wisdom and disapproval of government.
CHALLENGE OF ABUNDANCE
The problem of energy scarcity in North America has been solved, although this is not yet conventional wisdom.
The dominant business challenge for business and Wall Street now and for years to come is creating value and managing assets in an age of energy abundance.
Yet many regulators, corporate chiefs, and securities analysts continue to behave as though the abundance that began in the mid-1980s is a regrettable, inexplicable interruption in the long term trend of scarcity.
Indeed, government, industry, and Wall Street forecasts continue to be imbued with the dogma of scarcity. Most forecasters consider it somehow disloyal and disreputable to present 1020 year predictions that do not incorporate smoothly rising real burnertip, wellhead, and busbar prices after an obligatory pause of 2-3 years.
In truth, real energy prices have been declining steadily for years.
Segments of the energy industry that are competitive, chiefly hydrocarbon production but increasingly electricity production and wholesale energy logistics, have borne the brunt of these price declines.
Segments that are still uncompetitive and protected by regulations, mainly local energy distribution and sales, have been substantially insulated from compression in the prices or margins of their services or products.
It is hardly surprising that many regulators are constantly amazed by how well the competitive energy segments continue to perform for the nation and that many business executives are continually disappointed by the low return on equity of energy production assets.
The disconnect between business and regulatory practice and market reality ensures that it is the disbelieving regulator, executive, and analyst-not the market-who will have to yield and change.
SUSTAINABLE VALUE
In the years ahead, the only truly long term scarce resources in the North American energy industry will be customers, innovative technologies, and superior management.
Axiomatically then, sustainable value can be created and competitive advantage captured only by businesses that organize themselves around customers and constant innovation (in business and organizational practice and via information and engineered technologies) and continual investments in improving management skills, organizational learning,, and executive leadership by personal example.
Inventive companies, who are beginning to rethink every aspect of their enterprise and equip themselves to manage the problems of energy product and service abundance, Will continue to widen their performance lead over their peers who are either ambivalent about giving up the ethos of scarcity or, worse, still strongly adhere to it especially in private, where the real strategic decisions are made and corporate culture molded.