The fallacy of the foreseeable future.

• Author: Allen, Dwight

We often refer to the "the foreseeable future." Consultant and author William Sherden decided to find out if there is such a thing. He reviewed predictions by dozens of experts in a variety of fields and checked their forecasts against subsequent events. His harsh verdict appears in his 1998 book, The Fortune Sellers:

The forecasting track records for all types of experts are universally poor ... [they] routinely fail to predict the major events that shape our world, or even the major turning points ... whether it be the economy, stock market, weather, or new technologies. Is the future really that unknowable? And are there major uncertainties that deserve the attention of managers and boards running electric cooperatives? A Deloitte Research study suggests the answer is yes to both questions.

During 2005 we asked what may lie ahead for the power and utility industry over the next five years. We interviewed 20 senior power and utility executives and 20 people outside the industry. The latter group included regulators, investment bankers, and issue advocates. We then consulted other sources of insight into what the future may hold, such as books, academic studies, and government reports.

We found that the majority of the power and utility executives interviewed generally agree on how the utility business will evolve over the next five years. Further, the majority believes conditions won't change very much between now and 2010. This is an entirely respectable view--there's support for the "steady as she goes" prediction from a variety of sources outside the industry. Arguably, then, uncertainty is not a big concern for utilities.

However, we also found well-corroborated predictions about the future that are decidedly different from what the majority foresees. Some power and utility executives question the majority view. Different expectations are even more prevalent outside the industry. This suggests that the majority view among industry executives is a flawed "conventional wisdom" that will prove a poor guide to how the next five years will actually look.

The study thus shows that although the majority view may turn out to be right, cooperatives should consider other possibilities when making strategic decisions, Prudence requires that alternative scenarios receive careful attention, and, to the extent possible, that cooperatives build into their strategies some degree of preparation for multiple versions of the future.

What are examples of the clashing opinions about business conditions over the next five years? Consider the findings in four areas: electricity demand, rate regulation, reliability standards, and environmental policy.

Electricity Demand

Growing electricity demand has been both an opportunity and a challenge for many cooperatives. Economic expansion and urbanization have converted what were once rural areas into burgeoning communities with fast-growing needs for electricity. Meeting this demand requires effective planning, huge investments, and new operating models. A key question that arises when looking out to 2010 is whether the economy will continue to expand, increasing electricity use, or whether there will be a slowdown in the rate of growth.

Generally power and utility executives expect demand in coming years will grow at current rates or better, driven by steady economic expansion. As a utility CFO said during an interview: "Technology keeps evolving, and technology uses electricity." The director of an energy users' association agreed: "I've seen nothing except projections that electricity demand is going to continue to grow at the same pace that it's been growing."

Support for that optimistic view is found in projections by the U.S. government, the International Energy Association, and the U.S. Energy Information Administration. All expect at least moderate economic expansion and concomitant growth in U.S. electricity consumption over the next five to 10 years. In its 2006 annual report, the Council of Economic Advisors says, "The U.S. economy continues to be well-positioned for long-term growth."

Moreover, some economists say forecasts would be even brighter if U.S. government statistics did a better job of measuring investments crucial to an increasingly...