Dominion and AEP want to put the toothpaste back in the tube, but re-regulation could get messy.
Is it possible to go back to the way things were? Nostalgia for the old regulated model seems to be waxing of late, particularly in Virginia. The 70-percent rate increases in Maryland last year at the expiration of price caps—part of the transition to electric competition—has become the calamity that some state regulators fear most. Several utilities are pushing for re-regulation:
• At press time, Dominion was pushing a far ranging re-regulation bill that, most observers believe, Virginia’s governor will sign into law.
• AEP CEO Michael Morris voiced similar ideas at the Exnet Annual Utility M&A symposium in late January.
Dominion CEO Tom Farrell and AEP’s Morris believe re-regulation is the only answer to attract the billions needed to build large-scale coal and nuclear plants. “We cannot put down $2 billion to $3 billion or $4 billion to $5 billion, and say, ‘I hope I get a return on this investment down the road.’ So, the re-regulation model makes a tremendous amount of sense for us,” Morris said.
Morris added that full regulation this time around means utilities will look for “upfront assurances, rather than the more historical electric utility model where they build and hope the regulator likes it.”
But according to some bankers who asked to remain anonymous, capital markets currently are lending to utilities at favorable rates for the big buildout, regulation or no.