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The U.S. utility industry is comprised of investor-owned, cooperative, municipal, state, and federal utilities, as well as power generating companies that are not classified as utilities. Investor-owned utilities account for approximately three-fourths of the industry’s sales in terms of volume and revenues.
According to preliminary data compiled by the Edison Electric Institute (EEI), a trade organization, the market capitalization of investor-owned utilities totaled $503.9billion (for 64 companies). Industry valuations reflect the strong recovery the industry has made from the marked declines earlier in the decade, when the industry fell from favor due the weakness of the wholesale power market and scandals related to energy-trading activities and accounting practices.
The electric power industry has been through a period of major change. Historically, regulated investor-owned utilities had exclusive franchises to provide vertically integrated electric services to retail customers – usually within a given state, in contiguous areas outside the state, or both. However, the monopolistic, tightly regulated utilities created under legislation more than 60 years ago have become increasingly exposed to competition, (particularly in the generation and wholesale power markets), due to changes brought about by the National Energy Policy Act (NEPA) of 1992.
Industry experts expect that, over the long term, advances in technology and the desire for customer choice (primarily from the large industrial and commercial customers) and more prudent regulatory oversight – gradually will lead to a more competitive market. They also believe that the industry is likely to become increasingly consolidated in the years ahead with the eventual emergence of a few dominant powerhouse companies.
VRC has over 30 years of experience providing valuation and financial advisory services to companies in the utility industry. Our extensive experience in the valuation of gas and electric assets is recognized throughout the industry.
The statistics and trends above are from the Electric Utilities Industry Survey (2/14/08).
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