Maybe Steve Huntoon Was Right
Leonard Hyman is an economist and financial analyst specializing in the energy and regulated sectors. He was formerly head of utility equity research at Merrill Lynch, and senior advisor to investment banking at Salomon Smith Barney. At one point, he was on a NASA panel investigating the placement of nuclear power plants on the moon. He is author of America’s Electric Utilities: Past, Present and Future.
William Tilles is a senior industry advisor and speaker on energy and finance. He worked as a bond analyst and later headed equity utility research at Dean Witter Reynolds and then Smith Barney. He then became a portfolio manager at Angelo, Gordon & Co. and later at Sandell Asset Management. For a time he ran the largest long/short equity book in the world.
What do utility shareholders want? Answer: to earn a total return, dividends plus capital gains, at least commensurate with the risk incurred.
That is, to earn a return equal to, or in excess of, the cost of capital.
Did shareholders earn this in the past? And what do they require now?
In a recent piece written for Public Utilities Fortnightly, Steve Huntoon didn’t directly answer those questions. Rather he concluded, much more elegantly, that whatever shareholders want, they get too much of it.1
Steve is a lawyer. So what does he know?