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Capital Conundrum

The Big Build will test the industry’s access to Wall Street.

Fortnightly Magazine - September 2008

which some of the companies with the most aggressive spending programs suffered erosion in financial conditions. S&P foresees some risk on the basis of the industry’s previous experience in buildouts. It’s possible that a track record of rate freezes or prudency disallowances could make some utilities or states less attractive for investment than others. Investors will be carrying out careful due diligence to clarify whether there’s a reasonable chance of future recovery of costs. Utilities themselves will need to manage the process meticulously to avoid the risk of prudency write-offs, putting strict controls in place to manage the buildout and ensuring they have the regulator’s sign-off at each step of the development process.



1. IEA, World Energy Outlook 2006.

2. Dow Jones Private Equity Analyst newsletter, January 2008.

3. Hedge Fund Research Report , January 2008.

4. Crédit Suisse, ExNet M&A conference, January 2008.

5. e.g., this was the reasoning behind Macquarie’s investment in Puget Energy in Washington.

6. e.g., PJM, NY ISO, ERCOT, CAISO and NE-ISO.

7. e.g., PNM Resources recently announced plans to sell off its gas business to focus on electricity; and ConEd announced the sale of its unregulated generation to focus on its distribution business.

8. Estimate from Paul Bowers, president of Southern Company Generation, to the Senate Committee on Energy and Natural Resources. Reported by Electric Power Daily.

7. November 2007.

9. Four other states have voluntary regimes.

10. The Race for Green:How Renewable Portfolio Standards Could Affect U.S. Utility Credit Quality , Standard & Poor’s, March 10, 2008.

11. Including LS Power, which has just initiated a research study on the subject with the University of Texas at Austin.