Like a physician with her stethoscope at the outset of a check-up, astute shareholders and directors should use the level and trend of a utility’s market-to-book ratio (MtB) as one of the first...
Does slow and steady still win the race?
Another example is found in companies with aging coal plants that require clean air retrofits. With environmental mandates looming over so many plants—the factor some critics call the EPA “train wreck”—regulators might ask whether utilities acted prudently in delaying such investments until a crisis emerged. They might decide that, as with FP&L and its new power plant, ratepayers shouldn’t have to pay anything more than the bare minimum to cover basic expenses. But even when regulators do grant a normal rate-base return, such investments might well prove less attractive for shareholders than other projects that would grow revenues.
“Companies would rather be building power plants or transmission systems than spending money on environmental retrofits,” said Jean Reaves-Rollins, managing partner with the C Three Group in Atlanta, in an interview for the Fortnightly 40 report. “If you have to clean up a lot of plants at once, it won’t leave much money left over to pursue other investments.”
And then shareholders might well ask, “Whatever happened to ‘slow and steady’?”