Fortnightly Magazine - December 2004

While we are concerned about the effects of ratings linkage on regulated utilities, in no respect do we blame credit rating agencies. In fact, we strongly believe that the rating agencies are critical gatekeepers that point out for investors and regulators the potential linkages among holding company subsidiaries that could result in utility abuse or its credit downgrade.

To achieve the benefits of broadband over power line communications platforms, policy-makers must resolve a number of issues, including: (1) harmful radio interference; (2) access; and (3) cross-subsidies. If their policies impose diseconomies on the operation, design, or financial structure of BPL, widespread deployment of the technology is unlikely.

Value Line projects that total capital for electric utilities will increase about 12 percent during the next several years, while common equity will increase nearly 28 percent. Similarly, natural gas distribution company total capital is projected to increase about 10 percent, and common equity close to 15 percent. For both industries, the median common equity ratio in the near-term future for companies with investment-grade rated subsidiaries is in the range of 51 to 52 percent. For utilities, higher equity ratios are desirable for several reasons.

A group of executives and analysts tell Fortnightly that the outlook for generation is positive, because it has to be. But making generation work well—affordably, cleanly, and reliably—won’t be easy.