Why rate base is back in style.
It's no surprise that traditional utilities are now fashionable with Wall Street.
With merchant generation and energy trading gone bust, bankers, analysts, and fund managers at the 37th Edison Electric Institute Financial Conference, held last month in Palm Springs, Calif., were falling over themselves to find those regulated gems overlooked during the energy merchant boom years.
"How much of your earnings came from the regulated-side? When is the last time you had a rate case? Do you think that will be allowed? What is your dividend?" The financial analysts attending the meeting asked those questions and more. Even some utility CEOs and CFOs got into the act.
It seemed that every firm worth its salt offered up a pie chart with bold claims showing just what share of the bottom line had come from regulated earnings. Count those companies as the lucky ones.
By contrast, the utilities at the conference with under-performing merchant or trading operations were greeted with a level of suspicion that you might otherwise reserve for an unindicted co-conspirator. Consider a question posed to TXU.
"When did you know your energy trading and merchant operations in Europe were under-performing?" TXU had reported significant losses to its European subsidiary quite abruptly in October.
Of course, everybody by now has heard that TXU sold its UK assets, and is now one of many U.S. companies that has exited the European and the UK markets recently.
But confidence in U.S. utility companies-their ability to show a profit in competitive markets-has now been shaken, perhaps irrevocably.