The Finance Forum: Growth in a Back-to-Basics World

 

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What next? That seems to be the question on every utility executive's mind. After two years of stomach-wrenching ratings downgrades, agonizing downward valuations, embarrassing accounting scandals, skyrocketing gas prices, and positively stubborn mild weather, or the "perfect storm," as many have called it, many believe the worst is now over.

But will the the recovery be worth the wait?

On the plus side, the Northeast blackout of two months ago failed to slow the recent recovery. It came on the heels of a booming stock market, lower interest rates, and a strong winter heating season that helped utilities stabilize credit ratings and turn in a fairly strong second quarter. The dividend tax repeal added still more good news, helping to drive up the Dow Jones Utility Index by double-digit percentages.

If anything, the Blackout may give cover for power executives seeking to invest in infrastructure as part of a back-to-basics strategy.

Yet many executives still urge caution. Just ask Northwestern, which filed for bankruptcy in mid-September, or PG&E Corp., who at press time was dealing with the bankruptcy of its wholesale merchant unit, even as its regulated utility begins to emerge from insolvency, pending regulators' approval of the company's reorganization plan in December. Allegheny Energy, another investor-owned utility, was still flirting with bankrupty at last look. Analysts say the company has much to do to improve its balance sheet and restore investor confidence.