The utility sector has been one of the best performing sectors in the equity capital markets for more than two years. In many respects, this has been a case of the rising tide lifting all ships.

Few companies achieve sustainable high performance. Markets change but companies fail to adapt, and investors are unforgiving. Utilities, and new entrants, learned this lesson during the first competitive market cycle of the late 1990s and early 2000s, when few companies sustained a high-performance leadership.

Business & Money

The Securities and Exchange Commission denies approval of the AEP/CSW merger. What will that mean for industry consolidation?

What's wrong the Public Utility Holding Company Act of 1935 (PUHCA)? Perhaps the date! On May 3, 2005, a Securities and Exchange (SEC) administrative law judge (ALJ) handed down a ruling that denied the application of American Electric Power Co. (AEP) seeking approval of its acquisition of Central and South West Corp.

THE CEO POWER FORUM

TXU's Wilder nets $55 million package.

Power and utility companies had a good year in 2004, as did their investors. Energy stocks broke away from the pack during the second half of the year and ended up doubling the performance of the overall market (). This marks the second consecutive year of positive returns for the SNL Energy Index; however, in 2003 the index underperformed the broader market.

The Next M&A Wave:

If mergers are once again a potential strategy for accomplishing growth objectives, the previous round of transactions offer several lessons.

Over the last 15 months, much of the utility sector's lost market capitalization gradually has been restored. Some companies have, in fact, soared to all-time valuations on the strengths of distinguishable strategies and strong execution.

Business & Money

Sticking to the Knitting:

A review of three years of post-Enron stock performance by electric utilities.

Immediately following the Enron collapse, investors dumped the stock of any electric power company that appeared to be pursuing non-traditional growth strategies. Any company that emphasized unregulated businesses-investments in overseas assets, merchant power plant development, and energy marketing and trading-was suspect.

Frontlines

Can utility executives find happiness in back-to-basics?

We've read the pitch a number of times in these very pages. Top investment bankers have told us that a "back-to-basics" strategy will never produce a high-enough return to please electric utility stockholders; that the only solution to bridge this "earnings gap" would involve a rash of mergers and acquisitions (M&A) between utilities.

Business & Money

The utilities industry is in need of more equity.

Regulated utilities, in response to increased risks and bond downratings, have de-leveraged their capital structures. According to preliminary figures from the Edison Electric Institute (EEI), in 2003 utilities cut their short-term debt by more than half compared with 2002. The EEI data also reveal that for 2003, electric utilities issued more than $10 billion of new common equity and repurchased just slightly more than $100 million of common stock.

Letters to the Editor

To the Editor:

Ratemaking Special Report

Return on Equity:

Fixing an appropriate rate of return on equity (ROE) for electric utility investors marks a fundamental component of the typical cost-of-service rate case conducted across the nation by state public utility commissions (PUCs). The following survey demonstrates the results of such cases, as observed over the past year.