In the wake of the banking crisis, utilities lead the way to financial stability.
In mid-September, as this issue was going to press, a storm was raging on Wall Street. From Lehman’s bankruptcy and acquisition by Barclays, to the transformation of Morgan Stanley and Goldman Sachs into full-fledged banks, to the historic nationalization of U.S. mortgage debt, the financial landscape was changing at a bewildering pace.
But despite the tumult on Wall Street, many of the things that were true about access to capital for U.S. utility companies on September 1 remain more or less true on October 1 and November 1—except now they’re doubly true, in spades, with big exclamation points.
Namely, a handful of factors will determine the terms on which companies in this sector can raise capital—credit quality, liquidity, the ability to generate cash flow, and support from industry regulators.
These factors always have differentiated winners from losers in the U.S. electric power and gas industry, and that hasn’t changed. The stakes of the game, however, have changed—with losers facing dire choices (i.e., Constellation Energy’s rescue by MidAmerican Energy). Fortunately, however, most companies in this sector find themselves in reasonably good shape for accessing debt and equity financing. In this uncertain and volatile market, capital will flow first toward the most stable and secure investments—such as power plants, transmission lines and rate-regulated utility operations.