Energy & Utilities - Business issues

The energy and utilities industry includes oil, gas, electricity, and water companies.

One of its major challenges can be summarised in a single word: Volatility.

Taking the price of oil as an example, this is not a new phenomenon: “After touching $147 a barrel in July 2008, the price of oil had fallen to $47 when the world economy was deep in recession. But before the end of 2009 the price was back to $75-$80 mainly because of the liberal cut in oil supplies by the OPEC and overbought position in oil futures¹.”

But price volatility gained renewed impact in the course of 2010 – 2011: “Oil prices are at it again. In June 2011 rates have dropped almost 20 percents from the $114 high that it touched 4 months earlier. Going by the current trades, oil prices are hovering slightly below $98 as we enter the third quarter of 2011. The media, scrambling for an explanation it seems, has been quick to attribute these rapid fluctuations in oil price to the unrest in the Middle East and natural calamities across the globe such as the Japanese earthquake and tsunami. But the Federal Trade Commission (FTC) begs to differ. In fact, extreme fluctuations in oil prices over the last few months have led the Federal Trade Commission to launch a full-fledge investigation into the oil and gas markets².”

For customers, such an unpredictable input represents a major risk.

Energy purchase ceases to be a simple procurement exercise and becomes instead a battle to minimise the impact of an uncontrolled cost on their business.

These fluctuations may be evened out in future years by the global drive to bring renewable energy sources on stream.

Although generally associated with the industry’s CSR obligations, these programmes are not driven solely by carbon reduction targets.

Energy and utilities companies themselves are acutely aware of the reputational damage they face unless they are seen to be actively addressing environmental issues – especially in the wake of high profile oils spills, a bad press for coal-fired power stations and mixed attitudes to nuclear energy.

In the face of these challenges, leadership teams within the industry must make a strategic decision on how to add value in their markets.

For some – Xchanging customers amongst them – that decision includes removing complexity from their operating models so they can focus on the things that really make a difference to their customers.