cash flow

Credit Parameters in Flux: When Assets are Liabilities

The question I am asked most frequently is "Who will emerge as the 'winners' and 'losers' among today's electric utility companies?" The short answer is painfully simple. The winners will offer the best prices (a.k.a., the low-cost producers). The losers will be unable to cut prices to meet the market (a.k.a., the high-cost producers).

Unfortunately, real-world answers rarely come in black and white. The electric utility industry enjoys less pricing flexibility than one might imagine.

It Ain't in There: The Cost of Capital Does Not Compensate for Stranded-cost Risk

Electric utilities now face the risk that existing assets, costs, or contract commitments may be "stranded" by increased competition, leaving shareholders rather than customers to bear the costs. Have shareholders already been compensated for this risk?

Some argue that shareholders have automatically been compensated for this risk by an allowed rate of return equal to the cost of equity capital determined in efficient capital markets.1 If so, forcing shareholders to bear stranded costs may seem fair.


The other day I read in the New York Times that evolution is dead. For humans, at least. It seems we don't have enough sabre-toothed tigers around anymore to cull the weak from the strong.

Now that doesn't mean Darwin was wrong. Few dispute his "survival of the fittest." But without the normal complement of predators, we're each as "fit" as the other. The Times article ("Evolution of Humans May at Last Be Faltering," William K. Stevens, March 14, 1995, p.