Analysts: Down on utilities. Is the party over? That’s the tough question posed in a research note by Wachovia equity research analyst Samuel Brothwell.
of total variance unexplained. Future research may take other variables into consideration, such as 1) the quality and vision of company management, 2) merger opportunities, 3) diversification activities, or 4) specific regulatory issues, such as plans for
performance-based ratemaking. t
John L. Domagalski is a senior associate of the utilities/ energy group of Coopers & Lybrand Consulting (C&L). Mr. Domagalski holds a BS in commerce from De Paul University. Agustin J. Ros, a senior analyst at the National Economic Research Associates, Inc., holds an MS and PhD in economics from the University of Illinois at Champaign-Urbana. He served previously at the Federal Communications Commission and as an advisor to the chairman of the Illinois Commerce Commission. Philip R. O'Connor is a principal of C&L, and previously served as chairman of the Illinois Commerce Commission.
Mr. O'Connor earned an MA and PhD in political science from Northwestern University.
1"Stranded Costs: Is the Market Paying Attention?" by Agustin J. Ros, John L. Domagalski, and Philip R. O'Connor, PUBLIC UTILITIES FORTNIGHTLY, May 15, 1996, p. 18.
2"Stranded Cost Will Threaten Credit Quality of U.S. Electrics" (Moody's Investor Service, August 1995).
3"Direct Access Threatens Electric Utility Revenues." 1995 Utilities and Perspectives, Vol. 2, No. 48, Special Edition (Standard & Poor's, Nov. 27, 1995).
4See note 1, supra.
5ROE and dividend payout ratio (1) were taken from Electric Utility Monthly (Regulatory Research Associates, July 1996). Common equity ratio (2), pre-tax coverage (3), fixed-charge coverage (4), and cash-flow dividend coverage (5) were taken from Electric Utility Quality Measures (Regulatory Research Associates, July 3, 1996).
6Production costs (1), non-production costs (2), purchased power expenses (3), and total electric operating expenses (4) were taken from the Electric Utility Operating Cost Data (Regulatory Research Associates, October 17, 1995). Load factor (5) and reserve margin (6) were taken from Electric Utility Capacity Data and Construction Data: 1994-1997 (Regulatory Research Associates, Nov. 9, 1995). Average industrial price (7) and percent of load accounted for by industrial customers (8) comes from Average Retail Price of Electricity: 1995 & Comparative Data (Regulatory Research Associates, May 23, 1996). $/kW generation capacity cost (10) and generation assets as a percent of total assets (11) were taken from The Grand Bargain (Salmon Brothers, Feb. 14, 1996). Five-year growth in sales (12) and capacity factor (13) were derived using the Resource Data International PowerDatÔ Database. Customer density (14) was taken from the Electric Utility Performance Profiles (Utility Data Institute, Feb. 1995).
7State Regulatory Evaluations, (Regulatory Research Associates, Apr. 15, 1996).
8Electric Industry Restructuring Update, (Regulatory Research Associates, Apr. 29, 1996).
9The RRA ranking of the states according to the degree of regulatory and industry restructuring involves the use of inherently ordinal data. An argument could be made that ordinal variables, for which distance between each successive value is not of the same magnitude, but only directional, are not customarily used in multiple regression analysis. In this case, however, the judgement was made to test the RRA rankings, along with our statistical assumption that the five ranking values involve reasonably similar distances between those values.
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