In the fall of 1996, when deregulation was picking up steam in the United States, three McKinsey consultants—William Heller, Paul Jansen, and I—wrote an article predicting how and where value would be created in the newly refashioned electric power industry.1 Two and a half years and hundreds of mergers, asset sales, business restructurings, and CEO changes later, it is time to review our forecasts and see what, if anything, we would say differently today.
In general, the changes we expected have indeed come to pass. We made no serious gaffes. Our observations about the likely winners were correct, as far as they went. Our rough quantification of the amount of value at stake appears to have been on target: we said that although investor-owned utilities could collectively lose almost $30 billion a year, growth in new businesses could create as much as $45 billion a year—more than offsetting the loss.
Some of our thinking did not go sufficiently far, however. Three predictions in particular cry out for refinement and augmentation.
1. "This vertically integrated industry is about to fragment into three separate but linked businesses—generation, wires, and power services—plus a dispatch function..."
We predicted that electric utilities would...