Letters to the Editor

Fortnightly Magazine - August 2004
This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.

To the Editor

An earnings gap? Is that like the “missile gap”—a false alarm but a sure attention getter? Gary L. Hunt and Jon Ecker assert, in their article (“Back to Basics: A Starvation Diet for Utility Earnings Growth,” June 2004) that investors expect 10 percent growth but a back-to-basics strategy will deliver only 3 percent. I agree with the latter observation but not the former. The earnings gap sounds, to me, like a leftover from the 1990s. I doubt that utility investors, in general, expect 10 percent, at least not the investors that I know.

Just about every utility that comes to town to tell its story preaches the line that the back-to-basics strategy will produce growth rates of at least 3 percent, and investors do not walk out in disgust and promptly dump the stocks. At a recent Edison Electric Institute conference in New York City, a panel of institutional investors berated utility managements for having engaged in strategies that destroyed value, not for going back to basics. I suspect that energy utilities, as a whole, have produced no earnings or dividend growth over the past decade just because they strayed from basics into fields in which they had no experience or advantage. Three percent is a lot better than nothing.

This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.