When we first saw the numbers for this year’s Fortnightly 40 report, two rankings immediately stood out from the rest.
First, a wholesale energy company that emerged from bankruptcy less than five years ago—Mirant—rocketed into a coveted top five position in the F40. At the same time, Mirant’s former parent, Southern Company, sank into the bottom half of the rankings (#28) after being a perennial leader since the F40’s inception in 2005 (see Figures 2 and 3).
Not coincidentally, Moody’s downgraded Southern Company’s credit rating just as this issue was going to press. The rating agency pointed to some of the same factors that dragged Southern downward in our analysis—including a balance sheet burdened by negative cash flow and ballooning capital expenses (see Figure 5). Moody’s also identified ratemaking challenges in two of Southern’s regulated markets—Florida and Georgia.
With regard to Mirant, its position in the rankings will be short-lived, because earlier this summer the company agreed to be acquired by RRI Energy (formerly Reliant). Nevertheless, the diverging fortunes of Southern and Mirant combine to suggest an obvious trend, namely: From the shareholder’s point of view, the industry’s financial momentum seems to be shifting away from the traditional rate-regulated, cash-flow oriented utility business and toward unregulated, growth-oriented business opportunities.