Electric utilities need more equity

Journal Article · Thu Mar 16 04:00:00 EST 1978 · Public Util. Fortn.; (United States)

OSTI ID:5008954

Seligson, C H

The current investor in electric utility common stock is being paid a substantially smaller premium to assume the risks of ownership than the investor of years gone by. Debt costs for electric utilities have risen not only as a result of general inflationary trends, but also due to the fact that the quality of electric debt is poorer today than it used to be. The major indication of quality is the bond rating, and recent study indicates that less than 45 percent of major electric utilities enjoyed a rating of AA or better, compared to nearly 65 percent just three years ago. Further indication of deterioration in quality is given by interest-coverage ratios. Among other risks are the risk of earning an inadequate return, which leads to common stock prices below book value and consequently a diminution of book value by the sale of additional common stock. Also, the risk of forecasting future load and plant requirements has been increased substantially by the longer lead times required to bring on plant and the regulatory process which, in some cases, has questioned the need for a given level of reserve and suggested that mistakes in forecasting should be at the expense of the common stockholder. Only the regulators have the ability to assure the consumer that safe, adequate, and reliable service will be provided. The author feels they must do this by assuring the investor that his investment will earn a fair and reasonable return. (MCW)

• Research Organization: Merrill Lynch, Pierce, Fenner and Smith, New York
• OSTI ID: 5008954
• Journal Information: Public Util. Fortn.; (United States), Journal Name: Public Util. Fortn.; (United States) Vol. 101:6; ISSN PUFNA
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
296000* -- Energy Planning & Policy-- Electric Power
ACCOUNTING
CAPITAL
CHARGES
CONSUMER PROTECTION
DECISION MAKING
ECONOMICS
ELECTRIC POWER INDUSTRY
ELECTRIC UTILITIES
FINANCING
INCOME
INDUSTRY
INTEREST RATE
INVESTMENT
LEGAL ASPECTS
MANAGEMENT
OWNERSHIP
PUBLIC UTILITIES
RATE STRUCTURE
RISK ASSESSMENT