Expert Voices

Short-term strategies threaten utilities as power demand stagnates

Workers install solar panels on the roofs of homes under construction south of Corona on May 3, 2018.
Worker installs solar panels on California homes. Distributed energy like rooftop solar has contributed to utility stagnation. Photo: Will Lester/Inland Valley Daily Bulletin via Getty Images

Last week, activist firm Elliott Management Corporation mandated that California-based Sempra Energy return to basics and shutter future growth activities. With U.S. electricity demand continuing to flatline, "a return to basics" will juice near-term prices, but risks Sempra’s long-term stability.

Why it matters: Elliott's strategy, like those of other activist investors, intensifies the structural pressure on once-stable utilities. As declining utility demand, stiffer competition and increased consumer interest in distributed services challenge legacy service models, utilities are struggling in part because some owners are playing a profit-squeezing short-game at the expense of long-term planning.