Title

Long-Term Consequences of Selected Competitive Strategies During Deregulation of the U.S. Electric Utility Industry: System Dynamics Modeling and Simulation

Date of Award

1997

Document Type

Dissertation

Degree Name

Doctor of Science in Management Systems (Sc.D.)

Department

Management

First Advisor

Abbas Nadim

Second Advisor

Omid Nodoushani

Third Advisor

Matthew Sanders

LC Subject Headings

Electric utilities--Deregulation--United States, Electric utilities--Management--Simulation methods

Call No. at the Univ. of New Haven Library

AS 36 N290 Mgmt. Syst. 1997 no.2

Abstract

Currently, U.S. investor-owned utilities (lOUs) are facing major reforms in their business environment similar to the airlines, telecommunications, banking, and insurance industries. As a result, lOUs are gearing up for fierce price competition in the power generation sector, and are vying for electricity customers outside their franchised service territories. Energy experts predict that some lOUs may suffer fatal financial setbacks (especially those with nuclear plants), while others may thrive under competition.

Both federal and state energy regulators anticipate that it may take from five to ten years to complete the transition of America's electric utility industry from a regulated monopoly to a market-driven business. During this transition, utility executives are pursuing aggressive business strategies to confront the upcoming price wars. The most compelling strategies focus on cutting operation and maintenance (O&M) costs of power production, downsizing the work force, and signing bilateral energy agreements with large price-sensitive customers to retain their business. This research assesses the impact of the three pivotal strategies on financial performance of utilities during transition to open market competition. A system-dynamics-based management flight simulator has been developed to predict the dynamic performance of a hypothetical lOU organization preparing for market competition. The simulation results show that while the three business strategies lead to short-lived gains, they also produce unanticipated long-term consequences that adversely impact the organization's operating revenues. Generally, the designed flight simulator serves as a learning laboratory which allows management to test new strategies before implementation.

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