New energy economy also relies on some old fossil friends.
Wall Street is back in business. What’s next for utility finance?
Utilities are enjoying some of the best financing terms anybody’s ever seen. Is the party winding down?
Conditions are ideal for utility financing—but not forever. Although interest rates remain low, policy changes weigh on capital structures.
Utilities stay the course in a volatile market.
A wave of mergers and acquisitions is moving through the industry, as utilities and financial players position for growth and strategic advantage. Will economic and regulatory forces continue supporting these transactions? Our annual finance special report examines trends in capital markets and M&A deals involving utilities, power generators and gas suppliers.
Many utilities have trimmed their capital spending in the face of economic weakness and regulatory uncertainty. At the same time, strong energy sales have boosted cash flow and profits. Backed by regulated returns and clear resource plans, the industry should step up infrastructure investments. Are we ready to lead America out of economic malaise?
Business models are evolving to suit a shifting industry landscape.
The next decade will bring serious disruption to the utility industry. But with cooperation from regulators and legislators, utility companies will be able to shift their business models to capture significant value—both in existing businesses and emerging ones.
Ring-fencing after the subprime meltdown.
When Électricité de France stepped in to buy Constellation Energy’s nuclear assets and help the company avoid bankruptcy, the Maryland Public Service Commission conditioned the sale on a set of ring-fencing provisions. The industry has been using such structures to protect ratepayers in complex and high-risk M&A transactions since the 1990s. The protection isn’t foolproof, however—and it can bring problematic regulatory trade-offs.
Why similar U.S and Canadian risk profiles yield varied rate-making results.
Cost of capital is often a contentious issue in utility ratemaking. This is due, in part, to the inexact nature of the tools available to financial analysts and the considerable room for divergent opinions on key inputs to cost-of-capital estimation. Perhaps for this very reason, and to achieve regulatory efficiency, Canadian regulators widely adopted a formulaic approach to setting return on equity (ROE). However, an unusual degree of rancor has evolved north of the border as allowed ROEs in Canada, once at parity, have fallen near 200-basis points below their U.S. peers.
Customers demand real choices for bill payment.
In the world of utility bill payments, few issues have generated more controversy than the use of credit, debit and pre-paid cards. Generally, regulated utilities have been unable to build a compelling business case to offer no-fee card payments to customers, preferring instead to partner with third-party processors (TPPs) who happily charge convenience fees to card users.
Will Congress dare to put local wires under federal control?
Congress hasn’t amended the Federal Power Act in any way that would change the status quo, and a bright line still separates the distribution business from the federally regulated bulk-power system. Pending legislation, however, might change that.