Wall Street is back in business. What’s next for utility finance?
Michael T. Burr is Fortnightly’s editor-in-chief. Email him at burr@pur.com
When the storied investment bank Lehman Brothers declared bankruptcy on Sept. 15, 2008, it marked the official beginning of the worst financial crisis in recent history.
The fact is, however, that by the time Lehman went bankrupt, a crisis already had been brewing for at least 18 months. The subprime lending meltdown began in early 2007, when median home sales prices in the United States began sharply declining from their January peak. By the end of 2007, the subprime mortgage crisis was looking like a debt crisis generally, and we were already talking about a recession and its possible effect on utilities.
Specifically, in our October 2007 financial report, we wrote: “the industry’s financial health arguably has nowhere to go but downward in the months and years to come.
“Utility companies are bringing monumental capital expenditure plans before rate regulators just as they’re dealing with a barrage of rising costs – for fuel and other commodities, as well as labor, pension-fund obligations, and interest payments. Additionally, with the threat of greenhouse-gas (GHG) regulation looming in the 2009 to 2013 time frame, utilities face unpredictable environmental-compliance costs.