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McKinsey Medium Profitability

Electric Utility

#Energy
ProHub Comment

This is a Round 2 brainstorming case that tests the candidate's ability to systematically decompose a profitability problem using a framework (Profits = Revenue - Costs) and drill deeper into root causes. The case emphasizes qualitative problem-solving over quantitative analysis, requiring candidates to think critically about supply chain inefficiencies across coal acquisition, electricity generation, and transmission stages.

Estimated Time 27 minutes
Difficulty Medium
Source Chicago Booth
40 / 100

Our client is GPE, a producer of electricity. Here are a few concepts about electricity generation that will help you in this case: • There are several ways to produce electricity: water, coal-fired plants, nuclear, wind, etc. • Electricity can be supplied to a wholesaler or to consumers directly. • Electricity transmission is highly regulated because the wires used to transport electricity are mostly government controlled. However, electricity usage is mostly deregulated (i.e. the government does not set the price, it is set by competitive forces).

Our client has 10 plants that produce electricity using coal. The client obtains coal partly from its own coal mines and partly from 3rd-party providers. Of late, the client has seen the profitability of its coal generated electricity decline.

What could be causing this?

Clarifying Information

  1. This is a deregulated industry; price is set by competitive forces.
  2. There is one price set per the entire year.
  3. As a simplification, assume the same price is charged to all customers.
  4. GPE supplies electricity to over 1 M customers (a customer is a household or business) in deregulated markets through wholesalers.
  5. Volume is generated by demand. The market is fragmented.
  6. The market is growing at about 3% per annum.
  7. GPE runs 10 plants around the US.
  8. GPE pays a fixed cost to lease transmission lines to transmit the electricity produced.
  9. As a simplification, consider the main raw-material to be coal.
  10. GPE gets a 30% cheaper rate on coal from its own coal mines than compared to 3rd-party coal mines.
  11. There is a large market for coal.
  12. Coal customers are diverse, electricity producers are just one of many.
Mock Interview
Interviewer

Our client is GPE, a producer of electricity. Here are a few concepts about electricity generation that will help you in this case: • There are several ways to produce electricity: water, coal-fired plants, nuclear, wind, etc. • Electricity can be supplied to a wholesaler or to consumers directly. • Electricity transmission is highly regulated because the wires used to transport electricity are mostly government controlled. However, electricity usage is mostly deregulated (i.e. the government does not set the price, it is set by competitive forces). Our client has 10 plants that produce electricity using coal. The client obtains coal partly from its own coal mines and partly from 3rd-party providers. Of late, the client has seen the profitability of its coal generated electricity decline. What could be causing this?

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
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Practice this case with AI Mock Interview

GPE, an electricity producer, faces declining profitability despite operating in a deregulated market. Through structured analysis using a profitability framework, candidates identify that revenue opportunities are limited due to market saturation and competitive pricing, directing focus to cost reduction across coal sourcing, generation efficiency, and transmission. The conclusion reinforces keeping internal coal mines (for supply control) while managing utilization realistically.

Key Insights:

  1. In mature, deregulated markets, profitability drivers shift from revenue expansion to cost control when pricing and volume growth are constrained
  2. Vertically integrated operations (owning coal mines) provide supply chain resilience and cost advantages beyond simple accounting—reducing supplier power and operational volatility
  3. Industry benchmarks provide context but shouldn’t drive unrealistic targets; GPE’s 80% utilization is near-industry average (77%) and reflects the cyclical nature of electricity demand
  4. Systematic supply chain decomposition (acquire → generate → transmit) helps organize brainstorming and identify multiple potential cost drivers rather than jumping to conclusions