Business & Money

Can economies of scale make the industry more stable?

The recent Northeast Blackout framed for regulators and public policy-makers one of the central issues confronting the utility industry: infrastructure reliability and the significant capital investment requirements necessary for improvement. While estimates vary widely, some industry experts currently project that the investment necessary to revitalize and secure the transmission infrastructure in the United States may run in excess of $100 billion. The challenge for policy-makers in addressing these significant investment needs will be to create a sustainable economic and regulatory regime that is supportive of infrastructure investment while not unduly burdening either utilities or ratepayers.

The challenge is made more complex when one takes into account the already existing pressures on rates, especially from natural gas prices. Moreover, many utilities have not realized rate increases for some time, with current rate levels also frequently funded by cost savings strategies that are not sustainable over the long term.

The good news is that a solution is readily available that would properly balance these structural and economic imperatives: create a comprehensive regulatory environment supportive of utility consolidation that directs a significant portion of the derived merger synergies toward infrastructure investment.