The European Commission has indicated its preference for passage of a network ownership unbundling directive in 2008. This potential highlights the issue of how networks business units perform within integarted power and gas utilities, and how valuable these business units are.

Scope

An analysis of operating margins across a range of utilities at the level of both networks business units and the overall utility. An assessment of financial performance at those utilities which derive the highest proportion of their income from network assets. An examination of financial measures, from credit ratings to debt leverage, that may be explained by a utility's focus on network assets. A review of share price betas for utilities with different levels of reliance on network assets.

Highlights

Among those utilities that publish operating information for their networks business units, operating margins are significantly higher than for the utility as a whole. The average utility earns 21% of its revenue from its networks business, and has a debt-to-equity ratio of 57%. However, there is no consistent relationship between levels of debt leverage and the proportion of a utility's revenue that derive from its networks business unit. The return on capital employed of 30 leading utilities has been declining steadily since 2002. In contrast, utilities with a high proportion of their revenue flowing from networks businesses saw a turnaround in return on capital employed in 2005.

Reasons to Purchase

Compare European utilities on the proportion of revenue and operating income that are derived from networks business units. Understand how a utility's relative focus on networks affects a range of financial metrics. Challenge assumptions about the financial benefits that a focus on networks may provide to integrated utilities.