Fortnightly Magazine - March 2006

The Top Utility Stocks

A review of total shareholder returns shows how growth and merger strategies drove performance last year.

To better understand the performance of the electric utility sector from both a short-term and long-term perspective, we examined the total shareholder return (TSR)—dividends plus change in stock price—of 58 electric companies for 2005 and for three- and five-year periods. We grouped these companies into four categories to better understand the impact of alternative strategies on investor performance: Recovering, Traditionalist, Growth, and Merger.

The Art of Gas Storage Valuation

Benefits and drawbacks of the most popular estimation methods or modeling techniques.

Before we go about trying to value natural-gas storage, we should try and come up with a list of important considerations in any valuation process. Also, the data requirements should be modest, and the calculation time should be reasonable. But not all gas storage valuations are created equal.

A Candy-Coated Grid

Incentives for transmission investment could boost postage-stamp pricing over license-plate rates.

FERC proposed a new set of regulations, under the new section 219 of the Federal Power Act, explaining in broad outline how it might approve generous financial incentives for new investments in transmission—incentives once dubbed as “candy.” As of mid-January, the new NOPR had spawned more industry comment than just about any other FERC proposal in recent memory.

Market Resurgence

Banks are reshaping the energy-trading landscape. When the dust settles, utility companies will face different strategic horizons.

Utility executives face volatile energy markets, skyrocketing fuel prices, and changing federal energy policies. How are utilities benefiting from the turnaround in energy trading?

Long-Term Transmission Rights: A High-Stakes Debate

The absence of long-term transmission rights could exclude potential competition—and cause higher electricity costs.

Power-industry restructuring redistributed financial uncertainties that discourage generation investment and ultimately raise the price of electricity to consumers.

LNG's Final Hurdle

Interchangeability issues threaten to delay vitally needed LNG projects.

Gas composition issues have become a significant hurdle for the industry. Resolving these challenges will not be easy, requiring all stakeholders to apply a thoughtful approach to understanding the issues.

Winning the Merger Game

A new wave of consolidation is coming. To succeed, a company must understand where its strengths are.

Companies that relied heavily on mergers and acquisitions generated more than half of the value in the power industry during the past 10 years. Furthermore, more than half that value was generated by a handful of companies. How did they do it?

After EPACT: A Mad, Mad Scramble for Talent

The Energy Policy Act of 2005 makes human resource challenges even more significant.

Hidden in the 1,700-plus pages of the Energy Policy Act of 2005 is a set of regulatory requirements that will redefine the technology, leadership, training, culture, compensation, job design, and organizational models currently employed in the industry.

Manual Meter Reading: Twenty-First Century Tools

Segways and rugged laptops afford new levels of convenience—and protection—for mobile workers.

Advanced metering may be the future of meter reading, but as utilities grapple with implementation costs and technical issues, it’s in their best interest to maximize meter reading done the old-fashioned way: on two feet.

The Merger Paradox

More consolidation could trim costs, but some CEOs fear a backlash from regulators.

With the possible exception of keeping the lights on, the merger game dwarfs just about every other question facing today’s electric utilities. The last big wave of consolidation hit in the late 1990s. Now the forecast calls for a repeat performance, but don’t bet the farm. There’s a hitch, you see. It’s today’s high commodity costs.