Platts/Capgemini Utilities Executive Study

INCREASING AND EVER-CHANGING GOVERNMENT regulation, the ongoing challenge of infrastructure investments and the roller coaster ride of natural gas prices are the top issues on the minds of the movers and shakers in the North American electricity and natural gas utility industries, according to a recent survey by Platts and Capgemini.

Completed in late 2006, the Platts and Capgemini survey of top utilities executives in the US and Canada was designed to (1) identify and prioritize current industry issues, (2) assess opinions about the future of the energy industry, and (3) measure steps utility companies are taking to prepare for the future. The study was conducted in two phases. The first qualitative phase of the research was designed to identify the issues, while the second phase statistically quantifies and prioritizes those findings.

Key Findings

The following key findings are based on an analysis of the study data:

*Utility executives do not think retail competition in the electricity industry has been successful. They do believe that retail competition will move forward, but, they anticipate major changes along the way.

*Regulation, infrastructure investments, and managing the risk associated with natural gas price fluctuations are key issues facing the industry today. Utility executives' feel there is significant room for improvement across the industry on each of these key issues.

*Under the heading of regulation, uncertainty surrounding the ability to recover investments, environmental compliance, and confidence (lack of) in market rules are most important.

*Within the area of infrastructure investment, aging infrastructure, lack of transmission capacity, and maintaining reliability are most important.

*Within the area of natural gas, price volatility and overall costs are most important.

*Near-term investments (next two years) will be made in the areas of IT, workforce training, new technology, and risk management.

*Long-term investments (over the next five to 10 years) will be made in the areas of IT, workforce automation, use of renewable energy sources, and risk management. Within the area of information management, cyber security is the area rated as most important.

Future Industry Issues

When asked how strongly they agreed or disagreed about future industry issues, respondents most strongly agreed with the following statements:

*There will be increased reliance on IT and technology (i.e. automated metering infrastructure (AMI), smart grid, cyber security, and smart meters)

*The aging workforce will continue to be a challenge

*There will be an increase in workforce automation

*The use of renewable energy sources will increase

*The risk management function will be more important

Respondents tend not to agree with the statements below.

*The industry will be totally deregulated.

*There will be one predominant fuel source (i.e., coal or nuclear) for new generation.

*The focus on supply security will diminish.

*There will be a stable regulatory environment.

*The role of RTOs will be primarily coordinating transmission.

*Market equity will increase among market players.

*RTOs will succeed in offering centralized markets.

*There will be a move back to vertically integrated utilities.

Overall, utility executives resoundingly feel retail competition in the electric industry has yet to prove successful. Regardless, about one-third (35 percent) of those interviewed believe retail competition will continue to grow in the next five to 10 years, while one-fourth think it will diminish and 40 percent say it will stay the same. Those who think retail competition will grow say ...

*As lessons are learned, competition will grow

*Competition drives efficiency

*Markets will demand it

*The "cat is out of the bag" and we cannot go back

*Regulators and utilities will continue to work together toward a solution

*Customers want choice

Those who think retail competition will diminish say . . .

*Legislators and regulators are "too deep in the pockets" of industry participants

*It has not been successful so far and customers are indifferent

*It has not proven to benefit residential customers

*Regulators cannot differentiate between reliability requirements and generation competition

*Industry consolidation will limit the ability to be successful

An Era of Change and Challenges

The Platts/Capgemini Utilities Executive Study clearly shows utility leaders believe that the industry is in an age of intense change that will create ongoing challenges for all of its players. A written report is available for Phase I (qualitative) and a detailed PowerPoint report is available for Phase II (quantitative). To download your complimentary copy of the Platts/Capgemini Utilities Executive Study, please visit: www.us.capgemini.com/PlattsStudy

If you have questions, please contact a member of the Platts/Capgemini project team:

Patsy Wurster, Director, Strategic Media Solutions, Platts Business Development & Planning

patsy_wurster@platts.com

Tia Hensler, Director of Market Intelligence, Platts Market Intelligence, Platts Business Development & Marketing

tia_hensler@platts.com

Amin T. Bishara, Vice President, Global Energy and Utilities Outsourcing, Capgemini

amin.bishara@capgemini.com

Jenifer Bush, Manager, Americas Energy and Utilities Outsourcing, Capgemini

jenifer.bush@capgemini.com