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.
Pipeline Corp., based upon a long-term GDP growth rate of 6.39 percent, and proxy group midpoint of 12.59 percent, halfway between Transco (11.53 percent) and Enron (13.65 percent). (See, Northwest Pipeline Corp., Docket Nos. rp 93-5-025, et al., Opinion No. 396-b, June 11, 1997, 79 FERC ¶ 61,309.)
As of January 1998, however, partly because of recent drops in the dividend rate and IBES short-term growth rate for Coastal Corp., the FERC's DCF formula would imply only a 10.88 percent return on equity, a prospect that Keith Bailey claims will drive capital away from pipelines.
"We hold 15 to 20 percent of throughput nationally on any given day. We need returns on pipeline assets in the range of 13 to 15 percent. Given our environment today, we can't approve a new pipeline project for 10.88 percent."
Yet Hoecker seems determined: "DCF may be fantasy land, but one thing that isn't fantasy is the Natural Gas Act. When we get to a court of law, we can't just say that a pipeline is like Dell Computer or Kellogg's Corn Flakes."
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