By Michael T. Burr

If you were following @FortnightlyMag on Twitter last week, you saw a stream of tweets in real time from Accenture’s International Utility & Energy Conference in Tyson’s Corner, Va. Below is an edited selection of those tweets, most of which are paraphrased quotations from the speakers indicated.

Gen. Colin Powell, former U.S. Secretary of State (April 20, 2010)

-Energy is the second most powerful force. The free exchange of ideas is the first. 1:27 PM

-Openness and democracy is the greatest weapon America has. 1:14 PM 

-China won’t become America’s enemy because they’re doing too well by being our partner. 1:25 PM 

-In my judgment and that of Kleiner Perkins, cars in America are moving to electricity. It’s a solution that makes sense. 1:03 PM 

-Fuel cells have a unique military application. #bloomenergy 1:55 PM 

-Fuel cells are a breakthrough. Think of them like cell phones. #bloomenergy 1:54 PM

-We need to be careful not to focus so much on terrorism that we forget what we can accomplish. Keep moving forward. 1:40 PM

Ray Kurzweil, inventor and futurist (April 19, 2010)

-People tend to disregard new technologies in the early years of logarithmic growth. 8:50 AM

-Exponential growth in IT is transforming every industry. Every industry will be an IT industry. 8:07 AM

-Nanotechnology is inherently an information technology, subject to exponential growth. 9:20 AM

-Solar and storage are the energy technologies that depend on nanotechnology, and they follow the law of accelerating returns. 10:40 AM

-The cost per watt of photovoltaic cells is a function of nanotech progress. 9:20 AM

-Solar energy production doubles every two years. In five years solar will reach the cost-per-watt crossover point and will be cost-competitive with the alternatives. 8:15 AM

Electricity storage is a bit behind solar. It’ll be eight to nine years before storage is cost effective. In 10-20 years, it’s a whole different landscape. 11:24 AM

-Decentralized power networks are inherently more stable than centralized networks. 8:35 AM

-We’re destroying jobs at the bottom of the skill ladder and replacing them with eight times as many at the top. 8:48 AM

Jonathan Silver, DOE loan program executive director (April 20, 2010)

-Government loans should finance technologies that private financing doesn’t support. When private financing comes in, DOE should get out. 7:55 AM

-The worst thing for private financing isn’t a bad set of rules; it’s uncertainty about the rules. 7:58 AM

-Clean tech investing is the driver of the VC industry today. 8:01 AM

-[On Fortnightly’s question RE: FutureGen status and plans:] Expect progress. Next question? 8:15 AM

Andy Karsner, former DOE Under-Secretary (April 20, 2010)

-Durable price signals are the most effective remedy for ‘capital constipation.’ 9:28 AM

-DOE has lost its focus on R&D toward scalable techs and is displacing private capital. 8:49 AM

-Congress has two approaches to policymaking — do nothing or overreact. 8:33 AM

-Congress is more likely to legislate energy policy in reaction to a crisis than it is to legislate with thoughtful deliberation. 8:35 AM

-”No policy” is a lot cheaper than “bad policy.” 8:46 AM

-The official US position on oil price policy is we don’t know and it’s out of our control. 9:12 AM

Andy Serri, Ameren (April 20, 2010)

-In Washington, the loudest party, the last to speak, rules the day. Subject matter experts aren’t in the room. 8:54 AM

Hugh McDermott, Better Place (April 19, 2010)

-As long as EV batteries carry a price premium, we will take that out of the equation w/ leasing. 3:27 PM

Mark Case, Baltimore Gas & Electric (April 19, 2010)

-BG&E’s “no losers” rebate program nets the same peak reduction as critical peak pricing and gives 100% of customers immediate benefit. 2:47 PM

-Peak rebate program will save customers $1,500 each over the 15 year meter lifespan. 2:44 PM

Chris Colbert, UniStar (April 19, 2010)

-We haven’t started construction yet and Calvert Cliffs is already big: $600 million just for permitting & licensing. 1:02 PM

-You have to convince yourself you’re not building just one reactor, but three or four. 1:35 PM

-We’re not just building a project; we’re building up the whole nuclear industry again, including the NRC. 1:30 PM

Gautham Chandra, Washington Gas Light (4/19/2010)

-We try to position ourselves to be the lowest cost platform to bring the best technology solutions to market. 10:49 AM

-The regulatory tide is moving gradually toward DG and distributed control of the grid. 11:27 AM

A.R. Mullinax, Duke Energy CIO (4/19/2010)

-We’re hedging our bets, investing in all the emerging solutions. 10:45 AM

-Once you break the electricity storage barrier, everything changes. 11:18 AM

Arthur Hanna, Accenture (4/19/2010)

-About 51% of US consumers say they don’t trust energy companies to make correct decisions to address US energy challenges. 9:33 AM

-… Yet 2/3 say the industry is responsible to solve energy problems. 9:35 AM

-The energy industry has a responsibility to take charge of educating consumers. If they don’t trust us, they’ll trust someone else. 9:48 AM

Geoffrey Colvin, Fortune magazine (4/19/2010)

-The most successful companies are very good at creating new solutions for customers’ new problems. 10:22 AM

Posted: April 26th, 2010 under Current News, R&D, Uncategorized, climate change, dynamic pricing, finance, geoengineering, green energy, investment banks, natural gas, renewable energy credits, renewables, smart grid.
Comments: none

Further to last Friday’s post re: hybrid coal-biomass plants, today private equity firm Energy Investors Funds (EIF) and developer NTE Energy announced a joint venture to develop, build and operate large hybrid renewable and natural-gas fired power plants in the United States. The announcement called hybrid plants a way to generate “sustainable sources of clean electricity at a lower cost.”

The joint venture intends to build gas-fired plants that also use solar, biomass and other renewable technologies. While the companies didn’t reveal any specific projects in development, they did promise announcements of new projects in Florida, South Carolina and Alabama to come in “the near future.”

By targeting the renewable-challenged Southeast, the joint venture might be positioning the company to help such utilities as Florida Power & Light, Progress Energy and Southern Company to meet pending federal renewable energy standards without taking the politically unpopular steps of sending ratepayer dollars out of state to buy renewable power or renewable energy credits.-Michael T. Burr

Posted: April 5th, 2010 under biomass, energy policy, finance, green energy, investment banks, natural gas, renewable energy credits, renewables.
Comments: none

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Sept. 1, 2009

FOR IMMEDIATE RELEASE

Contact:
Michael Burr
burr@pur.com
320-632-5342
Public Utilities Reports Inc.

 

Fortnightly 40 Survey: Utility Balance Sheets Strained by Growing Expenses, Declining Sales

 Cost pressures portend contentious rate cases.

Vienna, Va.: Share values among America’s utility, gas and power companies have outperformed the broader market since the financial crisis began one year ago. Maintaining this performance, however, might become more difficult in the months ahead, according to a report published in the September issue of Public Utilities Fortnightly magazine (www.fortnightly.com).

The fifth-annual Fortnightly 40 study, sponsored by Accenture, ranked the four-year shareholder value performance of U.S. investor-owned utilities (IOUs) and other companies active in electric power and gas industries. The C Three Group of Atlanta, which along with Public Utilities Fortnightly developed the F40 financial model, analyzed the annual reports of 85 companies to compare a series of shareholder-value metrics — such as profit margin, dividend yield, return on equity (ROE), return on assets (ROA) and sustainable growth.

Companies leading the F40 ranking this year included DPL, Energen and PPL. Ranked among the top 40 for the first time was NRG (32), and returning to the ranking after a year’s absence were Mirant (21) and AES (37) — three companies with heavy exposure in wholesale power markets. Conversely, Alliant and Northwest Natural Gas slipped to the bottom of the F40 after ranking in the high 20s last year.

The F40 metrics — combined with supplementary 2009 data — showed the industry remains financially robust despite a substantial decline in stock prices. Cap-ex spending among the Fortnightly 40 companies grew by nearly 30 percent in 2008, topping $49 billion, and the entire industry’s cap-ex increased 17 percent to nearly $94 billion. At the same time, equity returns among the top 40 companies declined only slightly, from 15.4 percent in FY2007 to 14.6 percent in 2008.

Notwithstanding these strong figures, economic forces are putting pressure on balance sheets. Kilowatt-hour deliveries have declined rapidly in many parts of the country — with residential consumption falling by as much as 8 percent in the second quarter of 2009, and industrial sales dropping at double-digit rates. These trends, combined with the costs of ongoing cap-ex programs, pushed the industry’s total net cash flow deeper into negative territory, from -$10.2 billion in FY2007 to -$19 billion in FY2008. Yet, despite this decline in free cash, utilities have continued growing their dividend payouts — albeit at a slower pace in the first half of 2009.

To protect dividends, companies are delaying spending projects and tightening operating budgets. “We’ve consolidated spending decisions among our plants,” said Paul Barbas, CEO of number-one ranked DPL Inc., parent of Dayton Power & Light in Ohio. “We have an engineering team for our entire business that stacks up investments on a fleet-wide basis.”

Additionally, some utilities have cut their payroll, and a few have been forced to slash dividends — a move applauded by rating agencies but abhorred by shareholders. The Fortnightly 40 study concludes that future financial performance — including the sector’s generous dividends — will depend as much on regulatory relationships as it does financial management.

“Utilities need regulators to make them whole for lost revenues, and also to finance the industry’s transition to a greener operating model,” said Michael T. Burr, Fortnightly’s editor-in-chief and the F40 study’s author. “The result will be rising rates — an unpopular move in any economy, and a political nightmare during a recession. Continued strong performance will depend on balancing customers’ need for clean and affordable energy supplies against utilities’ need for low-cost capital.”

The 2009 Fortnightly 40 Ranking
Copyright 2009, PUR Inc., Vienna, VA, All Rights Reserved. Permission to cite the F40 table in whole or in part is granted to publications that acknowledge the source as follows:

Public Utilities Fortnightly magazine, September 2009 (www.fortnightly.com). Sponsored by Accenture, with methodology and analysis provided by the C Three Group.

1  DPL
2  Energen
3  PPL
4  National Fuel Gas
5  Exelon
6  FirstEnergy
7  Entergy
8  New Jersey Resources
9  Southern Company
10  Questar
11* CLECO
11* Equitable Resources
13  Edison International
14* MDU Resources
14* TECO Energy
16  Dominion Resources
17  Public Service Enterprise Group
18* Allegheny Energy
18* Sempra Energy
20  AGL Resources
21  Mirant
22  Nicor
23  OGE Energy
24  UGI
25  NStar
26  South Jersey Industries
27  Delta Natural Gas
28  Centerpoint Energy
29* DTE Energy
29* PG&E
31  El Paso Electric
32* NRG
32* SCANA
34  WGL Holdings
35  MGE Energy
36  Vectren
37  AES
38  Northwest Natural Gas
39* Alliant
39* Ameren

* Indicates statistical tie among category ranks. Because the 39th position was a tie, the 2009 Fortnightly 40 contains no 40th rank.

PUBLIC UTILITIES FORTNIGHTLY (www.fortnightly.com), published by Public Utilities Reports Inc., in Vienna, Va., is the journal of record for the U.S. utility industry, providing authoritative, in-depth analysis of trends in generation, transmission and distribution of electricity and natural gas. For more than 70 years, Public Utilities Fortnightly has delivered exclusive interviews and expert analysis to help utility-industry executives and regulators decide where to invest, how the industry will be regulated and what the future holds. Subscription Rate: $169/year.

Posted: September 2nd, 2009 under Current News, Uncategorized, credit crunch, investment banks, recession, utility stocks.
Comments: 1

-Mark T. Williams, Boston University Finance & Economics Department

For several decades, the top four U.S. independent investment banks—Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers—have been instrumental to the growth of America’s power and gas utility industry. With the sudden shotgun marriage of Merrill Lynch, the bankruptcy of Lehman, and the transformation of Goldman Sachs and Morgan Stanley into bank holding companies, the investment banks are now history.

Additionally, Wall Street investment banking has been consolidated rapidly with “the Big Three” commercial banks—Barclays PLC, Bank of America and J.P. Morgan—taking advantage of bottom-feeding opportunities.

This dramatic reshaping of Wall Street has come too swiftly to fully comprehend, yet it will have an immediate and lasting impact on the utility sector.

With immediate job losses among investment bankers, a decline in their ranks will reduce competition for underwriting utility bond deals. Less competition will equate to higher fees. This might not be immediately visible in a weak economy, but it will show up as the economy eventually rebounds.

Significant investment banking consolidation and downsizing will result in a loss of institutional knowledge as older experienced investment bankers are forced to take severances.

Having a banker who knows the history of the utility, and the company’s management and its level of corporate risk-taking, can be invaluable when structuring and underwriting bonds, as well as providing M&A guidance. Utilities will need to begin building new relationships.

The recent market crisis, including the bankruptcy of Lehman, has resulted in significant market uncertainty. The proposed $700 billion Treasury Department bailout has raised additional concerns about how such a plan will be funded. Such events have placed increased pressure on interest rates, raising the cost of both short-term and long-term capital. In addition, as more of the investment banking business falls in the hands of fewer commercial banks, it remains uncertain whether utilities can count on the same level of service they enjoyed previously. The corporate cultures of investment and commercial banking can be quite different, and Wall Street’s reshaping might result in customers losing out.

Prior to the weekend shotgun wedding with Merrill Lynch, Bank of America CEO Kenneth Lewis was less than enthusiastic about how investment banking activities might fit inside his institution. Moreover, it’s unclear whether these banks will view serving the gas and power utility industry as a strategic priority. For example, although Barclays is buying Lehman’s defunct investment bank, the European bank reportedly hasn’t decided which divisions it would keep and build a franchise around.

In the weeks and months ahead, one trend to watch closely is whether the investment bankers who are able to find new homes will be randomly scattered around Wall Street, or whether the Big Three banks will make it a priority to keep these utility teams intact.

Now that the Big Three hold more of the cards, they should reach out to the utility industry and pronounce their intentions. What will be their level of commitment? Will they devote the capital needed to adequately service this industry? We might be in a recession, but the market will recover eventually, and the utility industry will continue to grow and prosper. Having a knowledgeable investment banker ready, able and willing to underwrite or structure a merger will be crucial.

So the message to Barclays, Bank of America and the other institutions that may be the future home to our power and utility industry investment bankers: Whatever you do, be good to them, as they are an endangered species, and vital to this industry’s future.

Editor’s note: Williams previously was a senior vice president of Citizens Power LLC, a Boston based energy trading company, and a vice president with Edison Mission Energy. Prior to that worked at the Federal Reserve Bank as a full examiner.

Posted: September 24th, 2008 under Uncategorized, credit crunch, investment banks, recession.
Comments: none