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

  • Michael Weiner, Nitin Nohria, Amanda Hickman and Huard Smith
  • July 15, 1997

The $250 billion U.S. electric power industry is in the midst of historic transformation. The industry structure of the past — vertically integrated utilities operating in protected geographic markets — will soon go the way of the gas lamp. Participants in the future electric power marketplace will have more diverse corporate structures and product offerings. Some will operate in narrow niches, and others, across state and even national geographic boundaries. All will focus on specific areas of competence and, as a result, may be forced to invest in a narrow range of assets and earn a return for their investors in a broad range of ways.

In this article, we outline a new structure for the U.S. electric utility industry. We discuss the factors that will likely lead the industry to fragment into a wide range of service providers in an expanded business. These disparate segments will be linked to serve customers through three emerging types of “value networks” rather than through integrated providers. The first value network will be based on regulated boundaries. The second will be based on linkages created by “virtual” utilities — firms that supply energy services but no longer own all the assets necessary to supply these services. The third will be based on customer-initiated linkages. As a result of these three new networks, customers themselves will be able to assemble more easily a panoply of power services that best suit their unique needs.

Our purpose here is to paint a vision of the emerging future. Such predictions are always risky; nevertheless, articulating a vision helps shape the debate and therefore, indirectly, the evolution of the industry. Our vision is based on analogies drawn from other regulated and unregulated industries that have undergone similar dramatic changes. In addition, we extrapolate from current electricity industry initiatives that provide a glimpse into the future.1

First, we summarize the factors that are forcing a restructuring of the electric power business. Second, we make five projections about the industry’s future based on similar experiences in other industries. Third, we describe how the industry will evolve into six discrete business segments, from power generation to energy services. To dominate each segment, utilities will need different core capabilities and will have to learn or import them from industries where competition, powerful customers, and choice have prevailed for years.