Analysis of Northeast Utilities Activity - Research Paper Example

Northeast Utilities Northeast Utilities Northeast Utilities Industries This company was formed in 1966 following thesuccessful business merger that occurred between Connecticut Light and Power Company (CL&P), the Hartford Electric Light Company, and the Western Massachusetts Electric Company (WMECO) (Mcleold, 2001). This merger made the companies to come under one management qualifying to be the largest multi-state holding following the Public Utility Holding Act of 1935. Other companies later joined the merger in the subsequent years and in this case, Holyoke Water Power Company (HWP) joined in 1967 and finally in 1992, Public Service Company of New Hampshire (PSNH) signed a deal to merger with the company (Mcleold, 2001). This informs that five companies that were once independent constitute the Utility. In 2010, Northeast Utility further eluded their intention to merger with NSTAR but maintaining the title as Northeast Utility and this is still a subject of approval. It is worth noting that the company is listed in the Fortune 500 with the headquarters at Berlin, Connecticut. The company also runs several subsidiaries in the business of retailing electricity and natural gas. The company’s customer base in New England is about 2.1 million and this qualifies it to be one of the largest public utilities in New England (Hoover, 2012). In this regard, the company has electric transmission lines covering 3,140 miles with about 32, 802 distribution pole miles. Their natural gas distribution also covers an area of about 5,000 km2 (Murray, 2012). This utility serves the area of Connecticut, New Hampshire, and Western Massachusetts. With the figures shown relating to the company, it is evident that the company occupies a niche in the market and controls a significant share of the market. To ascertain this performance, the company has consistently features in the fortune 500 list, which ranks some of the best-reputed companies in terms of performance and profit making in the world. Competitive Forces Faced by the Industry Members The industry involves supply of energy through electricity and the natural gases. Considering the 5-forces that are essential in shaping industrial competition, this industry is not an exception. In any business, it is very important to understand these forces so that one can identify the source of business strength and weaknesses so that the necessary adjustments can follow. In this case, this industry faces fierce competition from other companies providing similar products-competitive rivalry. This includes other companies like, First Energy, UIL Holdings, UNITIL, NSTAR, and EnerNOC (Murray, 2012). The existence of these companies in the provision of the same product has elicited severe competition in the provision of the same service-energy. There is different customer’s loyalty experienced in the market and other factors like switching cost that make the competition based on the existence similar products industries to be fierce. In the industry, there is need to achieve change in different categories; to achieve change in the efficiency of the energy production and distribution, this is aimed at reducing the cost of energy to the final consumers. When the cost of production is reduced, there is possibility of reducing the cost of the final product that goes to the consumers and thus a company is able to cut themselves a niche in the market. In this sense, the factor that is driving change in the company is the need to provide the consumers with products at moderated prizes to acquire a larger share in the market place. The reliability and safety of the product is also a concern of the company, the company dealing in the provision of the utilities tend to have the sense of reliability to the customers so that they do not lose market on that grounds. Competitors in the Industry Like any other business, the provision of the energy in which Northeast Utility is involved is experiencing the same competition from other service providers. Considering all the competitors in the area where Northeast Utility is situated, Northeast Utility takes the largest share of the market. This is attributed to the experience of the company in the business, the personnel, and the financial strengths of the company (Rodmann, 2010). This attributes make the industry leaders very difficult to compete and make them experience reduce investor and business risks. NSTAR as one of the competing firms has been in the business of providing energy foe the last 100 years. It is lauded for delivering safe electricity and natural gas in the Central, Southeastern, and Eastern Massachusetts. The company delivers its products to the estimated 1.1 million c customers aligned to the electric power and about 30,000 customers in need of the natural gas. This service is provided in the 81 and 51 communities respectively. It should be noted that the company is being incorporated in the Northeast Utility as a partner. UIL holdings having its headquarters in Haven, Connecticut are a product provider for about 700,000 individuals in electric and natural gas. It serves about 66 communities. The companies that are perceived to be competitors of Northeast Company have lesser extent of service provision if compared and this only shows the market share division of the companies. With reference to the FirstEnergy, the company has its headquarters in Akron, Ohio. It serves a customer base of about 6 million customers and is ranked 212 according to the fortune 500 list in 2007. It serves about 194,000 miles of the distribution lines of electric power. It operates in an area of 170,000 Km2. It stronghold service areas includes New York, Maryland, New Jersey, West Virginia, and Pennsylvania. EnerNOC is also one of the competitors in the market; The Company was initiated in 2003 and has a significant customer portion in the market (Caser, 2001). Its headquarters is in Boston, Massachusetts. This industry has made significant steps in realizing successes in different facets. The products like the natural gas have been made safe for the customer’s use. The utility industries have also made inroads in almost all parts of the areas under which their influence is felt. All the companies in the business are constantly in the business of finding and developing strategies to outsmart the competitors and this explains why strategic plan is an important factor in the daily running of a business. Current Strategy and Comparativeness Northeast utility company’s current strategy is to make investments in their regulated businesses for the benefits of the customers, shareholders, and employees. This strategy is aimed at making absolute focus on the regulated natural gas and electric for the success of the industry. Success in this case is defined at optimizing the investment and the operations of the business for the benefits of key stakeholders. For the realization of the business strategy, the management realizes that excellence teamwork, planning, and execution is a matter of priority. This strategy of the company has also ensured that the company offers its services at relatively accommodative prizes that are competitive in the market experiencing a cutthroat competition. The competitive prizes of the company’s products is billed for the large market share of the company and the subsequently it is dominant in the market of the products provision. In a situation where all other factors are constant, the only factor that can make a company rise above the rest is the competitiveness of the prices. Strategy Issues of the Northeast Utility In as much as the company has strategic plan for the business to provide proper services to the clients and the stake holders of the business, they are also faced with several issues in the implementation of the strategy. The company’s debt to equity ratio has been on the increase and this is a huge chunk of the shareholders equity to be considered in the debts used to finance the company’s assets. Because Northeast Utility is a publicly traded company in terms of share holding, it is important that the ratio be maintained so that more investors can trade in its shares. Reducing the ratio has been one of the challenges that the company has faced in efforts to meet its strategic plans of satisfying the needs of all the stakeholders. Current Ratio This is a financial ration that is used to gauge whether a firms has the capacity of meeting the payment of all of its debts in the next 12 months. The calculation of the ratio requires the comparison of the current assets and the current liabilities. The current ratio for the Northeast Company stands at 0.56 times (Reuters, 2012). This shows that the company’s ability to meet its short-term obligation is limited. This includes; purchase of the raw materials for production and paying of the creditors. When the current ratio goes below 1 it indicates the business’s inability to meet such obligation. In business, short-term creditors always prefers a higher current ratio since it is a demonstration of reduced overall risk. On the other hand, the investors do prefer lower ratios since they are interested in the growth of the business by use of the available assets. Contrary to the perception of the creditors and the investors, the standard current ratio that is universally accepted as show a good business is current ratio of 2 to1 (Reuters, 2012). The ratios between the two values are important for the evaluation of the manner in which the assets of the company and the liability compares. Strategic Alternatives Given the financial position of the company, they have to make a decision on which way to pursue, making the current ratio to be higher or maintaining it to be lower. I would prefer that the company maintain the lower current ratio. This is because of the advantages that come with it. A lower current ratio is a demonstration of the company efficiency in terms of capital usage, most of the investors for example will look at the company’s current ratios and opt for those with the low current ratio. This is because the lower the current ratio, the stronger the flow of the operating cash. The company should be concentrated in attracting investors and this would imply that the current ratio is maintained at a lower ratio. Low current ratio always leads to higher return on assets, which is a direct measure of how a company compares it profits and its total assets. This financial ratio should be used to compare companies in the same industry where all other factors are constant. Higher return on assets always demonstrates efficiency on how the assets are used. Recommendations for the Firm Northeast utility has several strengths in the business of utility supply in the energy sector than most of its competitors. This is manifested by the miles they serve in Connecticut and the number of individuals they serve with the natural gas. The company should therefore make a decision to attract more investors in the company. This they can only do by maintaining the current ratio, which is the interest of the investors. Attracting more investors in the firm would mean increased capital and money to invest and expand the utility expansion to some other areas that requires the same products. The other option the company should explore is to merger with others that can promote its operation in the area. Merger is important in pooling together capital and bringing different experiences and other expertise, which can be modified to make the business thrive. The company should also endeavor to cut themselves a niche in the market share, this they can do by offering their utilities at cheaper cost than most of their competitors. The provision of the services at a cheaper cost will mean that they come up with efficient means of power production so that the ultimate cost of the product is favorable to the consumers compared with the competitors. Maintaining the market share is one of the most important strategies for a business to stay in the main stream of providing services to the customer, in this case, the provision of the utilities like electricity and the natural gas. Northeast company has a good head start for the staging a viable strategy in consolidating and expanding its market area thereby realizing more profit. References Caser, J. (2001, April 30). Northeast Utilities.(Brief Article). Bank Loan Report, 12, 52. Hoovers | A D&B Company. (n.d.). Hoovers | Company Information | Industry Information | Lists. Retrieved December 6, 2012, from http://www.hoovers.com/company-information/cs/company-profile.Northeast_Utilities.2846ce21f1ed794c.html Mcleold, C. (2001, April 23). Northeast Utilities.(loan package)(Brief Article). Bank Loan Report, 7, 44. Murray, M. (2012, July 24). Fitch Assigns ST IDR and Commercial Paper Rating to Northeast Utilities. Entertainment Close-up , 8, 36. Rodmann, B. (2010, August 4). Northeast Utilities announces Q2 results.. International Resource News, 13, 28. Reuters, T. (2012). United States Securities and Exchange Commission. Current Report Filling , 50. Read More