Utilities Sector

Utilities Sector

The Utilities Sector includes companies considered electric, gas or water utilities, or companies that operate as independent producers and/or distributors of power. They are historical industries that constitute the backbone of any healthy economy. I will discuss these 3 very different sectors separately. Electricity: Imagine a World with no Light. Electricity has been around for an eternity, but not until the time Dales in Greece did it come under human attention. Dales discovered static electricity by rubbing animal fur on amber. In the 18th century, Benjamin Franklin[41] reintroduced electricity to the public through his famous kite experiment. His experiment with the kite included a kite with a key tied to the end of the string which was connected to a Leyden jar. When the lighting struck the kite, the electric current travelled down the string through the key, and into the Leyden jar (an old fashioned battery). Thomas Edison[42] was the inventor of Direct Current Electricity and the light bulb. He founded General Electric Light Bulb Company in 1887, which was later incorporated in General Electric Company. Nikola Tesla[43] worked for Edison, before founding Tesla Electric Light & Manufacturing. The company installed electrical arc light-based illumination systems, and came up with Alternating Current (AC) electricity rivalling Edison’s Direct Current (DC). Tesla built his first Power Plant at the Niagara-falls. In the beginning economies of scale made it so that large electricity plants were built around cities, which in turn contributed to city development. Later on it was economically feasible to send electricity over long distances. In the beginning, all companies competing where privately owned, and un-regulated. Later, regulation of all private electric companies and to the assignment of specific territories to these electric companies. Today, thanks to AC Electricity, we can now spread power all over the world. We have TV, Computers, we have IPods, and better medical equipment to help those who are sick.    Water: Knowing about the potential of their vast natural resources, in the early 1800s American Venture Capitalists were constructing mills to harness their rivers power, steamboats to move quickly on the river, and canals to substitute for when the need was too big as to rely on the natural landscape, that would improve the country’s transportation and business. Around 1810, Spinning Frames were imported from the UK and installed by a group of Venture Capitalists who also installed Industrial Textile Mills which resulted in higher levels of production and manufacturing. Artificial rivers were used as canals since at the time there were no trains.

The installation of canals led to the explosion of population of inner cities in the US, since they provided massive shipping transportation inside the country. They allowed massive amounts of cargo to be transported. Steamboats dominated the rivers and spread throughout the waters, business booming on the sides of the rivers. Mills produced a revolutionary amount of goods and products ready for a new national and global economy, steamboats allowing the movements of goods to happen faster.      The Water Utilities Industry today includes companies that provide drinking water and/or wastewater services to residential, commercial, and industrial sectors of the economy. Most countries run it as a natural monopoly, and the result is usually run as a public service by a public utility which is owned by local or national government. The profitability of individual companies depends on efficiency of operations, because prices are fixed by public utility commissions. Large companies have economies of scale in operations and the ability to raise capital for infrastructure improvements. Small companies can compete successfully in certain environments, but it is typical that the Water Utility Industry is subsidized and run by the government and taking a (usually heavy) loss. Natural Gas: it is a naturally occurring chemical, primarily made of Methane (CH4). It’s purity makes it an environmentally friendly fuel. The natural gas we use today began as microscopic plants and animals living in the ocean tens of millions of years ago. As they thrive they absorb energy from the sun, which is stored as carbon molecules in their bodies. When they die they sink to the bottom of the Sea and recover after layer and layer of sediment. As these plants and animals became buried deeper in the Earth over millions of years, heat and pressure began to rise.

The amount of pressure and heat transformed the matter into Natural Gas. After Natural Gas was formed, it tended to migrate upwards through tiny pores and cracks in the surrounding rock. Some natural gas goes to the surface and is kept in deposits, which is where we find them today. In 1859 Edwin Drake[44] drilled the first commercial well in Titusville, Pennsylvania, striking Natural Gas and Oil, marking the beginning of the Natural Gas Industry. In the 1800s, Natural Gas was used exclusively as Fuel for Lamps, for ex, to light local city streets. The Bunsen Burner[45] showed how Gas could provide Heat for cooking. After the 1890s, the Street Lamps were converted to Electricity, forcing Gas producers to look for new markets. Natural Gas was originally obtained as a byproduct for oil production. Since it was view as to costly to produce, much of it was burned by flaring at the warehouse. Improvements during the WW2 opened Natural Gas to new markets, thanks to Pipeline Networks. Still, Oil was the main fuel for decades to come.

Shale Gas was already discovered, but was deemed expensive to harness. Horizontal drilling and hydraulic fracturing (fracking) was introduced as innovative techniques to reach these deposits. Thanks to the Shale Gas revolution, Shale Gas has dropped to a ¼ of it’s price 10 years ago. The US alone has more than 100 years supply of Natural Gas. It is used as a versatile form of clean energy. Common uses include heating home and powering hot water heaters. Compresses gas (CNG) is a power that can be used for cars, trucks, etc. It is a clean and abundant alternative to Natural Gas & Coal. With a variety of new technologies, it is the energy of the future. When I think about the Utilities Industry, I think about the game Monopoly. You can purchase the Electric and Water Companies, but have an insignificant influence in the game. In the past, the Electrical Industry was a huge player. As explained in my book “Change Hard – Why Corporations Rise and Fade”, most industries of the past have disappeared of have reshaped. General Electric, the only surviving company of the Dow Jones Industrial Average from the beginning of the 20th Century has diversified into segments such as: Appliances, Power and Water, Oil and Gas, Energy Management, Aviation, Healthcare, Transportation and Capital. Meaning, it’s core business is not electricity anymore. Electrical distributors are today more associated with the industry, but as mentioned before usually run at a loss. Water and sanitation also run mainly under government and follow the same fate. And the Gas industry, as attractive as it looks, does not offer as big margins as before since the Shale Gas Revolution. Still, all these industries are a necessary and vital part of any functioning economy. In later chapters, I will explain HOW to take benefit of these “dying” industries… in the 21st Century.