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The Finance Forum: Growth in a Back-to-Basics World

Thomas Fanning, executive vice president and CFO, Southern Co.
Fortnightly Magazine - October 15 2003

fact, in late September, FPL Energy recently announced an agreement with British Energy LLC to buy its 50% ownership in AmerGen Energy, which owns three nuclear power plants totaling 2,480 MW. But don't expect the utility to go on a spending spree. "This company has a very strong record of financial discipline which we plan to maintain and that means when you are in an acquisition mode not overbidding for particular assets. So, you have to be firm in setting a price that gives you good economics and then being willing to stick with it. As a consequence, it is very hard to know how many of those opportunities there will be," he says. But even as utilities hope to grow their businesses during an economic upturn, Dewhurst reminds us of the reality that is the utility industry.

"What everyone has to remember about the utility industry, much as we might like it to be otherwise, it is as an industry likely to be a modest growth industry overall. Virtually everybody in this country has access to electricity, so we are not going to sign up a lot of new customers collectively. The industry has tried to innovate in terms of product design, but none of us have really yet shown that we can come up with new product forms that customers want to buy in the same way that, for example, cell phone providers have come up with all kinds of different ways of getting a higher share. The customer really wants from the utility industry in general is good quality, reliable, low-cost power. I think if we both here at FPL and in the industry focus on the basics, doing it well and doing it efficiently, then we can continue to offer a compelling value proposition for our shareholders. Where we as an industry have gotten away from that seems to be where companies got themselves in trouble."


Comeback Kid:
Northeast Utilities Eyes Return to Growth

John Forsgren, vice chairman and CFO, Northeast Utilities System

If Northeast Utilities were likened to a prizefighter, the utility has had to take it on the chin on more than one occasion in the last few years. In the 1990s it was almost TKO'd, coming perilously close to bankruptcy due to the financial strain put on the company from the shutdown of its troubled Millstone nuclear complex.

Later, according to Raymond E. Moore, equity analyst at Shields & Co., "the company's three largest … ventures, including trading, retail, distribution and utility services … Those businesses (including parent expenses) lost money, lots of it, $70 million in 2002 ($0.54 a share). Traditional utility operations earned $222 million ($1.72 a share)." If this were not enough, Northeast Utilities in the last year, and in the coming year, will have to patiently sweat through the potential financial impact to its business from several regulatory proceedings. Hanging over the company are a series of disputes involving:

  1. Implementation of locational marginal pricing (LMP) in Connecticut;
  2. Major distribution rates cases in New Hampshire and Connecticut;
  3. Requests for approval of transmission