Cap Gemini Ernst & Young urges prudence for enthusiasts of global utility deregulation

HOUSTON, Texas, Feb. 5, 2002 — Consultants at Cap Gemini Ernst & Young, an IT services and management consultancy, are offering cautionary guidance to U.S. and global utility company executives who feel deregulation has been a success so far.

“While a Cap Gemini Ernst & Young survey of more than 100 global utility executives indicates enthusiasm for all things deregulated, the 20 year history of the airlines and telecom sectors tell us there is often more pain than gain, from an individual company perspective,” says Bill Hunter, Utilities Restructuring leader of Cap Gemini Ernst & Young Energy, Chemicals & Utilities practice in the Americas. “We know many airline executives who might have embraced airline deregulation in its early days did not survive its effects on the industry.

“We know that in a deregulated environment, prices often become volatile and capital is prone to seek more steady returns on investment, as they have in a regulated environment,” Hunter said. “Therefore, as deregulation twists and turns as a reality around the world, utility executives now more than ever must focus on reducing existing costs and making sure their organization is prepared for rapidly changing developments in competition, legislation, and capital flows.”

The Cap Gemini Ernst & Young report attempts to fully understand the impact of deregulation on the world’s utility companies. Cap Gemini Ernst & Young interviewed over 100 senior utility executives from more than 85 companies around the world. Roughly 15 percent were from the Americas. The survey identified key challenges now facing energy and utility companies, including:

* Political and regulatory obstacles
* Maintaining efficiency and delivering profits
* Inter-market connections
* Asset-backed trading


The report states that more than two-thirds of respondents felt that deregulation has been a success, bringing substantial and value-adding change. Competition appears well underway and companies are increasingly focused on cost reduction and performance improvements.

Hunter says:

“From the survey we know that economic uncertainty is accepted as part of executives’ new operating environment. However, confidence in the current regulatory system remains a major concern and as does the lack of clarity over market rules and standards.

“As a result, exuberance in the C-suite is being checked. Survey respondents confirm this, saying that a prolonged period of transitions, with differing signals from regulatory agencies, decreases their confidence in the ability of the market to effectively deregulate.

“While we’re all for deregulation — it is undoubtedly best for consumers and companies over the long run — executives must cautiously execute their plans and urge clarity and speed from regulators.”

About Cap Gemini Ernst & Young
Cap Gemini Ernst & Young is a management and IT consulting firm. The company offers management and IT consulting services, systems integration, and technology development, design and outsourcing capabilities on a global scale to help businesses continue to implement growth strategies and leverage technology in the new economy. The organisation employs about 57,000 people worldwide and reports global revenues of about 8.5 billion euros (2000 pro forma).

About Energy, Utilities & Chemicals Global Sector
With more than 5,000 consultants engaged in Energy, Chemicals Mining and Utilities projects across Europe, North America and Asia Pacific, the Group’s Global Sector Unit – Cap Gemini Ernst & Young Energy, Utilities & Chemicals – serves the business consulting and information technology needs of many of the world’s largest players of this industry. More information about individual service lines, offices and research is available at www.cgey.com/energy.

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