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Deck: 
Can utility executives find happiness in back-to-basics?
Fortnightly Magazine - March 2005
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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.

What's more, those bankers warned us that if utilities didn't act fast, they would see their investors lured away by the promise of higher-yielding, fixed-income securities.

After the roller-coaster thrills of the past decade, can utilities ever go back to their traditional role as slow-and-steady performers, with equity performing more or less as a bond equivalent? Or, will the analysts' warnings prove prophetic: that fickle investors will turn their backs on companies that remain happy to stick to the straight and narrow path?

So far, this year has proven no different. The financial community continues to question the concept of success without growth, yet some experts still appear willing to defend the traditional utility vision of slow-and-steady.

I can think of no better example than what I saw just two months ago, as the debate played out at Exnet's annual M&A conference, with the adept title, "Can Mergers and Acquisitions Close the Growth Gap?" held at New York City's Plaza hotel in late January.

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