cash flow

Market risk remains one of the most significant issues for gas and power merchants. The SEC requires disclosure of market risks in a company’s annual filings. However, the allowable metrics fail to communicate the type of information an investor actually can use to gain an understanding of the market risk embedded in a company’s business.

How will utilities in the next 10 years manage a multi-billion-dollar infrastructure buildout, higher interest rates/cost of capital, diminishing free cash flows, state renewable mandates, and political pressures to keep rates or power prices low, all while complying with carbon emissions programs that emphasize higher-cost fuels? Meeting the challenges may depend on whether a national carbon program that regulates carbon emissions is established.

A defense of the total return to shareholders (TRS). Our authors use TRS as the bottom-line performance indicator, and come up with a number of performance insights.

(September 2006) Consistent performance over time is the Holy Grail of corporate management, and a focus of many of the executives who made this year’s Fortnightly 40 ranking. Who returned to the list, and who fell off? And more important, why?

Fifteen years ago, you couldn’t fill a small room with energy CEOs interested in discussing how credit risk affects their companies’ bottom lines. But a recent series of contract defaults, bankruptcies, Sarbanes-Oxley controls, and merger-and-acquisition activity has placed credit-risk management squarely on the industry’s radar. Today, it’s clear that an integrated risk system that measures, monitors, and manages credit-related risk is no longer a Wall Street extravagance, but rather an industry essential.

It is almost impossible to design an effective hedge program without first determining the exact objectives a company wants to achieve. Although this sounds obvious, it rarely is. Management usually can agree that the firm should hedge to reduce risk, but “risk” is too vague a term to justify hedging on its own.

Is the love affair with utility stocks cooling? A Standard and Poor’s equity research report in late May included a negative outlook for electric utilities: “We think the sector will underperform in 2006, weakened by the rising interest-rate environment,” the report said. But not all investors agree. We talked with veteran portfolio manager Michael R. Yogg of Putnam Investments, who revealed how the modern-day investor views the utilities sector.

Applying the traditional rate-base concept to the new hybrid companies is where the gap between the old and the new regulatory paradigms resembles a deep schism. The current shifts in regulation should cause regulators to revisit and reconsider concepts that once reigned supreme in ratemaking.

Calpine’s announcement that it will shed 20 of its 92 power plants, close three offices, and lay off 775 more staff in a bid to emerge from bankruptcy caused by more than $22 billion in total debt was not unexpected. The question is whether these actions will be sufficient to get the job done.

Beginning around June 2005, prices in the PJM day-ahead locational market pricing energy markets and real-time pricing markets rose precipitously. Based on publicly available information, our study concludes that these price increases are not fully explained by higher loads and higher commodity fuel prices. Could higher energy prices be the result of the inappropriate exercise of market power rather than the appropriate result of market dynamics operating in the presence of scarcity?