two examples. Will these private equity companies accelerate the M&A potential of the industry by using these acquisitions as cash cows for other purchases while using allowed rates of return of regulated utilities to smooth their overall portfolio returns?
Although much progress has been made in cleaning up the liquidity issues facing the merchant generators, those "fixes" may not be sufficient to carry the merchants through the process of working off the excess. The back-to-basics strategy and the resulting earnings gap will push utility executives to look externally for the quick fix-acquisitions. Those who choose the more challenging path will need to convince their PUCs to let them take advantage of distressed assets or allow power contracts into the ratebase if they expect to beat The Street. If low earnings growth, high reserve margins, and commensurate low profitability aren't causing insomnia already, the new back-to-basics strategy just might.
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