What to Do With All that CASH?Seeing no need to build, utility managers are looking
to invest. Can they be trusted
with stockholder money?With little of the fanfare that surrounds the debate on utility competition, robust cash flows and declining capital outlays have created forces that will reshape the industry no matter how competitive restructuring unfolds. Cash generation already exceeds investment in core utility activities, and the differential will grow sharply over the next several years. Utility managements face two options: 1) they can retire securities and shrink their capitalizations, or 2) they can invest unabsorbed funds outside their core businesses. Their choice will exert a major impact both on the future business activities of utilities and on shareholder values.
Growing Cash Flow,
Shrinking Expenditures
In the last several years, the relationship between electric utility cash generation and the industry's investment opportunities has changed dramatically. Although it enjoys the cash generation capability of a capital-intensive industry, electric utilities have actually become less capital intensive. Current cost-based rates provide utilities with large amounts of capital recovery through depreciation and amortization, yet capital expenditures are shrinking rapidly due to three factors:
s Continuing excess capacity has limited the need to build new generating capacity.
s Utilities are no longer the sole provider of new generating capacity.