Ringo Starr was once asked if he thought the synthesiser was revolutionising music.
His deadpan response was ".. Oh yeah, it's a total revolution...like, now you can make a guitar sound like a piano, and a piano sound like a guitar..."
Watching the UK utility market since privatisation leaves you with a similar feeling. There has been disaggregation, vertical integration, international expansion, multi utility, product and service diversification. Foreign ownership, foreign retreat, mutualisation and "thin equity" models. The wheel is still turning, with CEO's departing under a cloud, non-core businesses for sale, and large M&A deals in the offing. But has anything really changed in the fundamental value drivers?
In fact, looking at the current winners and losers in the UK market, the fundamentals are as clear as ever. Those who in the later 1990's bet on buying customers and then tying them in with a range of increasingly high margin services and products are back-pedalling. Those who invested in hard assets, particularly boring old networks, are now looking the clever ones.
Of course, good management - especially cost management - has played its part. But utilities are not like other businesses. Product innovation is limited, breakthroughs in proprietary technology infrequent, brand loyalty low, pricing regulated: in this sector, value continues to lie in having monopoly control or capturing superior, if not unique, economic rent from scarce assets. You could argue that the retail strategy of the multi-utilities, with its aim of creating customer "stickiness" was just another version of the "captive asset" approach.
They know this all too well in continental Europe. France seems determined to retain a de facto monopoly structure. Italy has allowed competition in generation but the price setting marginal capacity stays in Enel's hands. Germany has gone for an effective oligopoly with a grip on the all-important transmission network. UK utilities' current problems lie not just in diminishing sources of low cost gas, but in limited access to related infrastructure - storage, pipelines, and now LNG terminals. With monopoly no longer an option, such assets are key sources of value in the UK context.
So there will be a rush to invest in such infrastructure. But that may well be a strategy of short-term value. Firstly, there could even be an overcapacity problem in European LNG hardware in the next decade. Secondly, it will do little to address the political problems of rising gas prices. Lastly, it could a case of applying the right fundamental principle to an environment that may not be with us for much longer. The winning strategy for utilities is to be thinking now of how unique economic rent can be captured in the low-or post-carbon environment of the future. Where is the scarcity value in renewables? Where are the bottlenecks in distributed energy systems?