Business & Money

Lehman Brothers and others say upcoming rate cases and falling unregulated earnings mean some IOUs will have less to show for their effort.

Even as utilities enjoy the spoils of higher valuations as a result of the dividend tax repeal, institutional investors and Wall Street experts predict a continued threat to earnings from upcoming rate cases and underperformance in unregulated activities. Daniel Ford, equities analyst at Lehman Brothers, in a report titled A Blast From the Past, says, "The enacted dividend tax reduction is now fully incorporated into utility valuations. Dividend safety and growth will become important for individual electrics to maintain their new higher valuations."

Ford's concern is that rate cases are likely the greatest threat to utilities' dividend growth and safety. "[Lehman Brothers] expects a surge in regulatory activity in the coming years arising from 1) low interest rates; 2) the end of deregulation transition periods; and 3) new capital investments and costs not reflected in rates.