Skip to content

Value Networks -- The Future of the U.S. Electric Utility Industry

Electric utility companies will have to reinvent themselves to change from 'vertical to virtual' integration based on value networks segmented into six areas: generation, transmission, distribution, energy services, power markets, and IT products and services."Several forces are creating challenges and opportunities in the electric power business. Customers and legislators are pushing for greater competition, while utilities are trying to preserve the status quo. Power companies are increasingly competing against each other, much like airlines and trucking and telecommunication companies. Changes in generation, transmission, and distribution are changing every segment of the value chain.

Weiner et al. predict five ways in which the electric utility industry will be affected:

1. Prices. Competition and consolidation will result in reduced prices.

2. Contracts. The number of short-term contracts will increase, as customers buy on the spot market.

3. New products and services. De-regulation means that electric utilities will be able to offer such items as on-line billing, remote appliance scheduling and control, energy-use monitoring, home-security systems, and electrical appliance maintenance contracts.

4. Global scope. Faced with little domestic growth, utilities will have to go abroad to develop new markets.

5. Information intensity. The amount of information and computer technology to develop efficient markets will grow exponentially.

To reduce costs, increase revenue, and expand globally, utilities will have to focus on six segments of the value chain: generation companies, intelligent transmission networks, distribution companies or "WireCos," energy services or "EsCos," power markets, and IT products and services. As the industry breaks apart, new entrants focused on high-profit, high-growth niches will not own all or even most of the assets in the value chain. They will configure only those activities that add value and that customers want. The authors foresee the evolution of three value network models:

1. Regulated value networks. States will mandate the initial form of value network in a transition to competition.

2. Virtual value networks. Each company will manage its own assets and competencies and expand its product scope to include energy and energy services, telecommunications, computing, and facility services.

3. Customer-designed value networks. With technology and direct market access, customers will manage their own networks.

Purchase Options

Educator and Student Discounts Available. Learn more »