Size Matters: Consider teh Alternatives

Deck: 
For small to midsize utilities, the costs and burdens of being a stand-alone investor-owned utility merit considering the alternatives.
Fortnightly Magazine - May 15 2003
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For small to midsize utilities, the costs and burdens of being a stand-alone investor-owned utility merit considering the alternatives.

A pressing question for many utilities-particularly small to midsize utilities-is whether to remain a standalone publicly owned company at their current form and size. Do the benefits outweigh the costs?

Being a public company is, despite its many benefits, costly in several respects. The most obvious benefit is the (usually) ready access to equity funds for growth. A traded equity currency for use in strategic transactions also is important. The lowest cost of equity is obtained from the public markets. Nevertheless, the costs and burdens of public ownership and the accompanying regulation continue to rise.

Consider the actual costs of being a public company: preparation of periodic regulatory filings and reporting; financial and legal staff to prepare these filings and monitor compliance; filing fees; an investor relations department; annual meetings and reports; and related costs, such as director and officer (D&O) insurance.

With the enactment of the Sarbanes-Oxley Act and recent increased scrutiny, these costs-particularly D&O insurance-have only escalated (see Figure 1).

More to the point, the personal exposure, financial or otherwise, of the CEO, CFO, and other officers has increased significantly. Any member of a public company board of directors has to have the same concerns. Increased regulatory and public scrutiny will help curb many of the abuses seen in the go-go years, but unfortunately, everyone gets caught in this dragnet and pays the costs just the same.

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