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Energy & Utilities

Industry Overview

The industrial revolution started with the steam engine and is still dependent on energy produced from natural resources. The process begins when energy companies extract fossil fuels such as oil, coal, and natural gas from Mother Earth. These natural resources are turned into electricity and delivered to the consumer's door by power utilities companies, or they are processed into fuels, such as gasoline, propane, heating oil, or industrial coke for making steel. They are supplemented by water-powered hydroelectric generators and by uranium-powered nuclear generators. In any case, the result is the energy on which industrial countries are dependent. Without it we could not run our home appliances or our factories, travel by car or airplane, talk on the phone, or watch television.

Although extremely profitable, the industry has endured some upheavals: In early 1999, oil prices dropped below $10 per barrel-the lowest level since before the oil crises of the 1970s-due to a global petroleum surplus. While prices did recover, the plunge meant a lot of sleepless nights in so-called Oil Patch cities like Houston and New Orleans, with oil equipment and services companies taking a particularly hard hit. Then, in 2001, rising energy prices caused power crises, especially in California-resulting in more regulatory attention being paid to energy companies. Also in 2001, high-flying energy broker Enron became a spectacular failure, going bankrupt, laying off thousands, and watching in horror as its value tumbled and company officers came under legal scrutiny for alleged shady dealings; the entire energy-trading sector has slowed as a result of this and other alleged corporate malfeasance.

Conflicting forces will shape the future of the energy industry. Deregulation, initiated by the 1992 National Energy Policy Act, is transforming energy companies from regulated monopolies to free-market competitors, changing the face of the utilities industry. Continuing expansion of industrial development across the planet will spur increased global consumption of energy. However, that will cause worsening pollution and the depletion of natural resources, raising the question: can we continue using energy as we have been? Perhaps not.

Some energy policies already foreshadow changes, an example being new, stringent EPA regulations in the U.S. In the near term, though, neither environmental concerns nor volatile oil prices are likely to threaten the U.S. energy and utilities industry's role as a major supplier to the world market. It enjoys annual revenues of hundreds of billions of dollars and a demand that could double by 2020.

War: What Is it Good For?
Higher oil prices. That's what it's good for. Standard & Poor's estimates that the current crisis in the Middle East is adding $4 to $7 to the price of each barrel of crude oil. And if the Bush administration should move forward with its apparent desire to take military action against Saddam Hussein's Iraqi government, you can be sure that the price of oil will be pushed up even further. Which means higher prices at the pump-and bigger profits for oil companies.

Legal Troubles
Enron isn't the only company looking at legal troubles. Others like Dynegy and CMS Energy are under investigation due to their round-trip energy transactions. Allegedly, these companies artificially pumped up their revenue figures by engaging in these transactions.

New Oilfields
Oil and gas may be dwindling resources in the long term, but in the short term there's plenty left in the ground to feed our need for energy. Currently companies are focused on finds in Brazil, the Soviet Union, West Africa, and the deep water in the Gulf of Mexico.

Playing Politics
The oil companies don't retain armies of lawyers and lobbyists-or make huge political contributions-for nothing. With strong ecological arguments existing against exploiting oil extraction in places like Alaska, the oil companies depend on legal and political clout to ensure they'll be able to continue exploiting oil finds. No example of the importance of political clout is better than Florida, home state of President Bush's brother, Governor Jeb Bush. The federal government recently agreed to purchase the rights to oil fields off the Gulf Coast of Florida from oil companies in order to prevent drilling there. Meanwhile, in California, environmentalists have been clamoring for decades for the government to do something similar to prevent drilling off the coast of that state; currently, there are signs the government may finally be ready to do for California what it did for Florida. But you can be sure the oil companies will do what they can to prevent that from coming to pass.

America's energy companies are clustered in the Oil Patch region of Louisiana and East Texas, though many have major offices in Los Angeles and other coastal cities. The Big Oil companies are global; Exxon alone has a presence in some 100 countries. By contrast, utilities are generally more local in nature, usually doing business in a single city or region-though with deregulation, this is beginning to change. The vast industry can be broken down like this:

Integrated Oil and Natural Gas
We have John D. Rockefeller and his Standard Oil Company to thank for the vertical integration of the world's largest oil and energy companies. His empire has long since been dispersed, but its legacy remains in the form of giants like Chevron, Exxon, and Phillips, which are involved in every phase of petroleum production and sales-from the extraction of crude oil through refining and shipping all the way up to the gas pump. Big Oil is a major force in the world's economy, but it is susceptible to global surpluses and plummeting oil prices when members of the Organization of Petroleum Exporting Countries (OPEC) cannot agree to restrain production.

Consumption and production of natural gas has grown far more rapidly in recent years partly due to its environmental advantage over oil. Also, natural gas is relatively less expensive as an electricity-generating fuel-an advantage that has been magnified by the competitive nature of the electricity industry since deregulation. While Big Oil is increasingly involved in the natural gas business, there are still specialists such as Consolidated Natural Gas, British Gas, and Questar Corporation.

Equipment and Service
Companies like Schlumberger, Baker Hughes, and Halliburton provide the equipment and services that make it possible for the oil, coal, and gas companies to extract those products from Mother Earth. This once-booming sector took a hard hit in the late '90s due to over-production. While the largest companies will certainly survive, boutique concerns such as Dawson Geophysical (a technology expert) are more vulnerable.

Coal
Coal is primarily used for electricity generation and in a few manufacturing industries. It is increasingly in demand as developing countries such as China and India wire themselves for electricity. However, environmental concerns may put a damper on the use of coal. The 1990 Clean Air Act called for cuts in high-sulfur coal production, and there are growing worries about global warming caused by burning fossil fuels. Even if coal consumption continues at current levels, reserves will last only another 200 years. Despite these concerns, the near-term future of coal production and consumption is bright. Major players in this arena include Arch Coal, the Peabody Group, and the Coastal Corporation.

Utilities
More than 3,000 utilities in the United States deliver electric power to individual homes and businesses. Major players include the Southern Company (the nation's largest investor-owned utility) as well as regional giants such as Public Service Energy Group in New Jersey, PECO Energy in Philadelphia, Pacific Gas and Electric in California, and Boston Edison in Massachusetts. The balance of the industry comprises federal agencies such as the Tennessee Valley Authority; local, publicly owned utilities, which are usually run by municipal or state agencies; and rural, nonprofit electric cooperatives, which serve small communities.

Nonutilities
Though they're in the business of electric power generation and distribution, nonutilities serve large individual clients-mostly utility companies that need extra electricity-as opposed to cities or regions. Though they only account for about ten percent of power generation, nonutilities- such as Nicor Energy, which is part of Nicor, Inc., and Duke Energy-represent the fastest-growing sector of the industry. In the wake of deregulation, smaller-scale generators are freer to sell energy to big distributors, and small, efficient producers can be quite profitable.

In the energy sector, job seekers face a particularly unstable market as prices (and profits) fluctuate drastically. But don't throw away your geology or petroleum engineering degree yet; recruiters at Big Oil companies are anxious to hire qualified candidates. With most of the larger mergers and acquisitions a few years behind them (BP Amoco acquired Arco in 2000; Chevron and Texaco merged in 2001), many companies are turning the page on skimpy profits in 2001 and looking ahead, making efforts to recover and replenish their talent pools.

Entry-level jobs for engineers will be the most plentiful. Firms primarily recruit new engineers from the undergraduate level. Although fewer in number than engineering opportunities, entry-level business jobs should be available mainly in support roles such as accounting and human resources. Companies typically favor internal candidates who started as engineers to fill higher-level positions, but firms do recruit MBAs and some mid-career candidates, if in small proportions compared to the number of engineers in their ranks.

The deregulation of the utilities industry also means brand-new opportunities. With competition comes the need for expanded marketing, sales, communications, and PR departments. In addition, many utilities, suddenly free to diversify their business interests, have entered the telecommunications industry, with the Southern Company and American Electric Power leading the way. Such seismic shifts in the industry are sure to open up new opportunities for young, ambitious employees, as formerly stuffy, hierarchical organizations are forced to entertain new ideas. Though nonutilities lack the guaranteed business of utilities, they can be attractive to job seekers in search of challenges that are more creative.

Major Players, by 2001 Revenues

Rank	Company	Revenue (in millions)	Profit (in millions)	# of Employees
1	Exxon Mobil	191,581	15,320	97,900
2	Texaco	99,699	3,288	67,569
3	American Electric Power Company	61,257	971	27,726
4	Duke Energy	59,503	1,898	24,000
5	Reliant	46,226	981	16,958
6	Dynegy	42,242	648	6,139
7	Marathon Oil	35,041	157	30,671
8	Conoco	32,795	1,589	20,000
9	Mirant Corporation	31,502	568	10,000
10	TXU	27,927	677	18,000

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