[BETA] Fortnightly

(September 2009) The industry’s best companies are weathering the financial storm reasonably well, with the F40 delivering equity returns in the 14-percent range for fiscal 2008. However, falling sales and rising costs are putting heavy pressure on balance sheets—and on regulatory relationships. Companies that balance customer value and shareholder value will be most likely to thrive in the new normal.

In light of coming GHG legislation, price transparency is the key to achieving cleaner generation through the dispatch of lower-carbon sources.

So far, states have taken the lead in carbon-control strategies. These state actions, however, could lead to constitutional conflicts—as recent court battles demonstrate. Only the U.S. Congress can regulate interstate trade, so states must step carefully in controlling carbon leakage.

Various approaches to distributing emissions allowances spark a heated debate over costs and fairness, but the allocation methodology doesn’t determine whether a regulatory scheme will reduce emissions. Auctioning allowances and distributing them for free both offer advantages and challenges for a successful cap-and-trade system.

Money may be difficult to come by for Wall Street financiers in these dark days, but apparently not for electric transmission construction—at least so far. A rash of recent orders from FERC shows that generous financial incentives remain available to companies seeking to expand the nation’s grid capacity.

The era of easily available, affordable energy rapidly is ending and our society is realizing that our energy infrastructure is severely inadequate to supply the energy demands of the future. The major issue facing the sector today is how to fund and deliver this new climate-friendly infrastructure, which is currently estimated will cost almost $2 trillion between now and 2030.

As president and CEO of ISO New England, Gordon van Welie has his feet planted firmly on each of two sides of a cultural divide. First, as a transmission system operator, van Welie must keep the lights on and the wires humming. At the same time, he must run a regional market—an ongoing experiment in freewheeling capitalism in an industry fraught with more long-term uncertainty than perhaps any other.

Lenders know there are billions of dollars of weak financial assets in the market, such as securities backed by bad mortgages. The problem is no one knows who is exposed at what level to those weak financial assets. This causes a lack of confidence in the lending industry, and a credit crunch that — if unabated — could cause a recession.

Tax incentives, renewable portfolio standards, and the creation of renewable-energy credits and carbon constraints are no longer separate considerations when assessing renewable-energy projects. The convergence of these economic considerations will affect the value proposition for every potential generation investment in the United States.

Utilities need to begin planning for U.S.-wide emissions restrictions that will be more effective than state efforts. Such restrictions are no longer a matter of “if,” but “when.”