The coming cash flow and dividend stress at America’s electric utilities.
James M. Seibert is the managing partner of management consultancy Chicago Energy Associates LLC.
Awareness is growing that the U.S. government’s fiscal, tax, and monetary policies over the past decade have significantly affected the underlying health of numerous industries, most notably in the mortgage banking, housing, and health care sectors. Policy missteps have often created perverse incentives to make specific investments that obscured an industry’s economic well-being or swamped its future financial performance. There’s now a growing concern that similar patterns might be at work in the electricity industry and might portend negative impacts on dividends and cash flows in the coming decade.
At issue is the quality of earnings and cash flows. While there’s no strict definition of earnings quality, its fundamental principle is sustainability. More specifically, are the utility’s earnings and cash flows repeatable? Are they controllable? Are they bankable?