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Business & Money

Wall Street bankers say utilities are not effectively telling their story.
Fortnightly Magazine - November 1 2003

advising the Texas Public Utilities Commission, Fichera says he held quarterly conference calls with Wall Street analysts and regulators to provide a clear dialogue between regulators and the investment community.

"Companies and their investment bankers need to go back to the old-fashioned practice of getting the credit story out before a deal. They need to speak to a broader range of investors. And rather than following the pack, focus on concentrated parts of the capital markets. In getting the story out, they will broaden the investor base. This means more aggressive marketing with investment bankers that sell the story on a long-term basis, as opposed to just doing transactions."

Shining Light on Evolution

The restructuring of the industry has altered the way many utilities are run. As a result, many companies offer investors varied risks, growth and value propositions. No longer can investors use a one-size-fits-all valuation of individual utilities, bankers say. That is why Jeff Holzschuh, managing director and head of the global energy and utility group at investment bank Morgan Stanley, believes there is a need to find clarity and transparency. Holzschuh co-chairs the Edison Electric Institute's Wall Street Advisory Group, a subcommittee of the EEI's chief executive officer's committee.

"Historically, each individual company would come to the Wall Street community and come to the ratings agencies independent of each other, but a lot of utility companies have become so different and so varied, there is a benefit in having a consistent point of view on the fundamental segments of the business. So you don't have many different suggestions to the ratings agency as to how one might treat some aspect of the balance sheet."

Furthermore, Holzschuh says valuations of the utility industry likely would go up if the industry had better transparency and more consistent methodology in valuing individual utilities.

The intent of the Wall Street Advisory Group, he says, is to assist EEI and the senior managers of these companies to provide real-time Wall Street feedback. So, as they think through issues such as disclosure, how often should they be giving earnings guidance, should there be an open and transparent trading market, are there things that we can do to educate constituents such as ratings agencies and investors," he says.

Furthermore, Holzschuh believes that this advisory group would provide the industry with perspective on such issues as how to finance transmission, and be responsive to issues as they come up. "In effect what we are going to do is prioritize a list of 20 issues that this group will try to provide some feedback to the EEI CEO group on. The group's mandate is to try to add a perspective and add value in areas where we have specific expertise. It is not to be an academic exercise. It is a much more practical application of those skills."

Regulators and Limited Options Cloud Picture

Beyond the increased communication that is being sought between utilities and investors, most experts believe that regulators still have to provide a clearer picture to both camps. That is why it is a difficult