That Giant Sucking Sound? Rural Distribution Territories and Utility Earnings

Rural Distribution Territories: A Drag On Utility Earnings?

 

The case for selling off the lower-density areas.

The utility industry is restructuring. As companies abandon the old vertically integrated, energy-sufficient model for operation and adopt a differentiated strategy focused on generation, transmission, distribution, or services, they will also move from a stock valuation based upon dividend policy to one based upon return on assets and earnings growth. The regulatory environment is also moving away from the old rate-based mentality to a greater reliance on market forces and, in the future, performance-based distribution rates. If one looks at any other major industry in the United States, it seems clear that there will be fewer major players in the future. Those survivors will be the companies that extract the best financial performance from their assets and get the greatest multiple on their stock price.