Chief financial officers discuss new strategies and the possibility of further convergence inside and outside the energy industry.
A whole new cast of characters is expected to enter the energy industry—overseas ventures, telecom firms, insurance companies, and financial-services groups. But even as the future seems to hold boundless opportunity, utility executives and industry experts continue to disagree on what sort of consolidation is right.
Whole-company deals may not take off with PUHCA repeal.
Edward Metz and Michael Tarney
One simple line in the recent Energy Policy Act sets the stage for broader geographical ownership by current utilities and easier ownership from outside industries. Readers know very well that one line calls for the repeal of the depression-era Public Utility Holding Company Act, and many pundits have stated that a wave of mergers and acquisition activity is now imminent.
Change is the only certainty in today’s market.
Devrim Albuz and Mark Griffith
The past year has allowed the North American power sector to continue its recovery, but it has been a treacherous time for investing. Asset values, and the value of their associated debt instruments, are being driven in the short term by an extreme fuel market and in the long term by a back-to-basics mindset among electric utilities. Still, asset valuations in most markets are not yet at replacement costs, leaving current investors with a residual level of risk.
Finding and applying the efficient frontier.
Buyers of power-plant assets use a number of tried-and-true approaches to asset valuation, including discounted cash flow and option-pricing models. While the valuation approaches employed generally are sophisticated, they focus almost exclusively on individual assets. Conspicuously missing is consideration of the asset portfolio as a whole. For illustrative purposes, we performed an assessment of a basic new power-plant portfolio. The results are well suited for general risk analysis and risk management, portfolio planning and restructuring, power plant acquisition, development, and divestiture.
Which is the best energy company?
(September 2005) Top honors in our first annual financial ranking go to those staying with the basics and to those dealing with soaring commodity prices.
Why current estimation models set allowed ROE too low.
A. Lawrence Kolbe, Michael J. Vilbert and Bente Villadsen
A material capital structure mismatch, which occurs frequently, can lead to material misestimates of the appropriate allowed return on equity, perhaps on the order of 2 percentage points. That is, a 9 percent estimate of the cost of equity can imply an allowed rate of return on equity of 11 percent.
How utilities can take a portfolio-management approach to environmental compliance.
Vikram Janardhan, Grant Thain, and Olof Bystrom
In March 2005, the Environmental Protection Agency (EPA) issued the final Clean Air Interstate Rule (CAIR) and Clean Air Mercury Rule (CAMR). Assessing the impact that these and other environmental policies have on the whole organization reveals implications for the corporate process at all levels.
The consequences of short-sighted rate making.
Gas utilities and state commissions must work together to help preserve rates of return, encourage conservation, and lower customers’ bills.
The CEO Power Forum: TXU's Wilder nets $55 million package.
Companies continue to embrace the back-to-basics strategy, and investors seem to think that it is paying off.
The CEO Power Forum: Not all utility CEOs are created equal...
Interviews by Richard Stavros
We talk with Cinergy’s James E. Rogers, DTE Energy’s Anthony F. Earley Jr., Constellation Energy’s Mayo A. Shattuck III, Xcel Energy’s Wayne H. Brunetti, FPL Group Inc.’s Lewis Hay III, and TXU’s C. John Wilder.