Integrating financial thinking with strategic planning to achieve competitive success
- Economics Resource Group, Inc., Cambridge, MA (United States)
Competition is imposing a general shift in financial thinking. Utility executives today should understand that financial derivatives are only one tool in their financial toolkit. The real benefits of this shift in financial thinking are at the strategic level, aligning utility capital needs with business strategy. The restructuring of the electric industry - more precisely, the restructuring of public policy regulating the industry - is leading and will continue to lead to dramatic changes in how the industry, particularly electric utilities, does business. These fundamental changes will dramatically alter, if not completely overhaul, the way utilities think about finance. The use of financial instruments - futures, forwards, options, and other derivatives - is correctly perceived as a new line of business enabling utilities to help their customers adjust to the greater volatility in electricity prices that is likely to occur with greater competition. In addition, such risk management is a means by which utilities can hedge their own fuel price risks, again to benefit customers. This article addresses two strategic aspects of risk management to demonstrate how modern financial techniques, combined with the development of electricity markets, will enable utilities to implement their strategic visions.
- OSTI ID:
- 457446
- Journal Information:
- Electricity Journal, Journal Name: Electricity Journal Journal Issue: 4 Vol. 9; ISSN ELEJE4; ISSN 1040-6190
- Country of Publication:
- United States
- Language:
- English
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