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Economic Analysis of . Electric Power Industry. March 05 2005. Team Victory . Brendan Flahive David Monroe Guru Prakash Thapathi John Blackwelder Magda Ramos Victor McCree. How Does This Industry Affect You?. New York’s Power blackout in 2003 estimated cost: $500M
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Economic Analysis of Electric Power IndustryMarch 05 2005Team Victory
  • Brendan Flahive
  • David Monroe
  • Guru Prakash Thapathi
  • John Blackwelder
  • Magda Ramos
  • Victor McCree
  • How Does This Industry Affect You?New York’s Power blackout in 2003 estimated cost: $500MCBSBlackout.m3uObjectives
  • Introduction - Alabama Power
  • Electric Power Industry Analysis
  • Alabama Power Analysis
  • Forecasts, Projections and Recommendations
  • Economic Environment
  • Macro Impact - Alabama Power and Electric Power Industry
  • What is Alabama Power?David MonroeObjectives
  • Alabama Power
  • Georgia Power
  • Gulf Power
  • Mississippi Power
  • Savannah Electric
  • Southern Company GAS
  • Southern Nuclear
  • Southern Power
  • Alabama Power
  • Founded in 1906
  • Subsidiary of Southern Company
  • 78,000 miles of power lines
  • Customers throughout 44,500 square miles
  • Uses coal, hydro, natural gas and nuclear sources
  • 81 electric generating plants located at 24 facilities in Alabama
  • Electric Power IndustryAnalysisVictor McCreeDescription of Industry
  • Traditional Electric Utilities, Power Marketers and Non-Utility Power Producers
  • Federal, Local and State Regulators
  • Description of Industry
  • Fossil, Nuclear and Renewable Generators
  • Total Annual Electricity Generation Market Structure
  • Monopolistically Competitive
  • -Local Monopolies
  • -None Control Major Portion of Market
  • Market Structure (continued)
  • Degree of Integration
  • -Less Regulated/More Competition
  • Barriers to Entry
  • -Large Capital Costs
  • -Fuel Costs
  • -Competition
  • Size of Electric Power Industry Relative to Economy
  • Accounted for Approximately 4% of GDP in 2002
  • -Importance to Economy
  • -One of the Largest Sectors in the U.S.
  • Surpasses Telecommunications, Airline and Gas Industry
  • Demand Factors
  • Weather – Biggest Factor Affecting Sales (Demand) and Supply
  • Economy – Affects the Demand and Supply for Industrial Customers
  • Alternative Energy Sources – Influences Demand and Sales Growth
  • Emissions – Ozone and NOx Restrictions Limits Construction and Operation
  • Production and Cost Issues
  • Environmental – Big Cost Influencer for Utilities that Use Mostly Coal-based Generators (like Southern Company)
  • Fuel Costs – Fossil Costs Tripled in Past 2 Years
  • Coal and Coke Supply Shortages
  • Sudden Rise in Costs of Natural Gas
  • Nuclear
  • Low Fuel (Uranium) Costs/Competitive Operating Costs
  • Improved Plant Safety and Reliability
  • Production and Cost Issues (continued)
  • New Generating Plants
  • Aging of Existing Plants
  • Population Growth
  • Non-Economic Factors
  • Alternative Sources
  • New Technologies
  • Deregulated Markets
  • Firm AnalysisBrendan FlahiveDemand Factors
  • Favorable weather conditions: warmer summers and colder winters
  • Strength of business and economic conditions in service area, i.e. auto industry growth
  • Price Elasticity of Demand
  • Energy conservation practiced by customers
  • New energy contracts with neighboring utilities
  • Competition
  • Demand Factors (continued)Production and Cost Issues
  • Fuel costs were 36% of 2003 total expenses
  • Purchased Power costs from affiliates and non-affiliates totaled 11%
  • Production and Cost Issues (continued)
  • Inflation creates economic loss due to the recovery of historical investment costs that have less purchasing power
  • Plant maintenance and operations
  • -LTSAs with GE
  • Environmental compliance
  • Market Power
  • Size and location
  • Diversified customer base (<10% same)
  • - 80% retail and 20% wholesale
  • Alabama PSC sets retail prices
  • Highly Reliable Service Provider
  • - 99.97% service availability in 2003
  • Top 5 Alabama Utilities Ranked by Retail Sales in 2002
  • Alabama Power 52,073,190
  • Tennessee Valley Authority 5,073,906
  • City of Huntsville 4,729,117
  • Decatur Utilities 1,440,271
  • City of Florence 1,168,312
  • Note: Figures are in kilowatt-hours (millions)
  • ALABAMA POWER provides 62.7% of
  • all the electricity in the state of Alabama!
  • Who are Alabama Power’s customers?
  • Retail
  • Industrial 21,593,000
  • Residential 16,960,000
  • Commercial 13,452,000
  • Other Retail 203,000
  • Wholesale
  • Non-affiliates 17,086,000
  • Affiliates 9,422,000
  • Note: 2003 sales in kilowatt-hours (millions)
  • Strategies
  • Maintain residential pricing at 15% below the national average
  • Economic and Community Development
  • Build new plants to reduce purchased power costs
  • Brand Marketing via Alabama Power Foundation
  • Goals
  • Grow earnings per share 5% per year
  • Environmental compliance and customer satisfaction industry leader
  • Maintain a stable regulatory environment
  • Contain costs while growing energy sales and recover costs related to growing demand and environmental standards
  • Forecasts, Projections and RecommendationsMagda RamosElectricity Demand ForecastIndustrial sector will experience the highest demand increase ratesElectricity Price ProjectionsElectricity by Fuel ForecastSupply of coal and natural gas based electricity will experience the fastest growth due to government incentivesAlabama’s Price Regulation StatusAlabama currently regulates market prices and a change in this policy is not foreseeable in the near futureLimited Profit Growth Recommendations for Alabama Power (due to regulation) Reduce production costs Attract more strategic customers to the region Focus marketing and infrastructure strategies on high growth potential customers Value-added product developmentAlabama Power Business Outlook Data Profile
  • Actively working with the Alabama Chamber of Commerce to attract large corporations
  • Transmission grid ownership allows revenue from ancillary services
  • Alabama Power Business Outlook Data Profile
  • 2004 industrial sales rebounded 5.8% due to growth in metal, chemical and paper sectors
  • Retail sales are projected to grow about 1.7% on average during 2005 through 2009
  • Economic EnvironmentJohn BlackwelderReal GDP Percent Change from Preceding YearSource: Bureau of Economic AnalysisNational Employment LevelNot Seasonally Adjusted(in thousands)National Unemployment LevelNot Seasonally Adjusted (in thousands)Projection of the TotalPopulation of Alabama1995-2025Alabama Employment LevelNot Seasonally AdjustedAll EmployeesAlabama Unemployment LevelNot Seasonally Adjusted 16 years and overNational Electrical Power Generation Employment LevelNot Seasonally AdjustedAll EmployeesAlabama Electric Power Generation, Transmission and Distribution Employment LevelNot Seasonally AdjustedAnnual Inflation RateInterest Rate Averages 1996 – 2004(Not Seasonally Adjusted)PPI Electricity 1996 – 2004(Not Seasonally Adjusted)PPI Finished Energy Goods2000 – 2004(Not Seasonally Adjusted)Macro Impact on Firm and IndustryGuru ThapathiEconomic ModelsMacro Impact – GlobalMulti-Country Linkage ModelMacro Impact – GlobalWorld Energy Prices Model (WEP2001)Models – Global Economy
  • MCLM – quantitatively analyze economic effects through trade and exchange rates involving U.S, Japan and other advanced countries.
  • WEP2001 – calculate primary energy and electricity prices from the demand and supply balance.
  • Macro Impact – GlobalMacro Impact – GlobalEconomic Models - IndustryMacro Impact – IndustryMacro Impact - FirmMacro Impact - Firm
  • Deregulation – A rousing success in Pennsylvania; A catastrophic failure in California; Remains to be seen in Alabama - A state that is not deregulated and has no plans to deregulate in the near future.
  • Price – Increase in coal prices fueled by rapid economic growth in China
  • Inflation – creates an economic loss since income tax laws are based on historical costs and company is recovering its cost of investments in dollars that have less purchasing power.
  • Conclusion
  • A 3 Billion Dollar company in a 51 Trillion Dollar world economy affected by everything….
  • From Alabama to
  • Alternate energy Sources
  • From Brand image to
  • Blackout
  • From China to
  • Coal prices
  • From Demand to
  • Deregulation
  • 2003 Estimate used for World GDP and 2003 revenue for Alabama Power Q&A
  • Brendan Flahive
  • David Monroe
  • Guru Prakash Thapathi
  • John Blackwelder
  • Magda Ramos
  • Victor McCree
  • Related Search
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