The electric utility industry represents the second most capital intensive sector in the United States, surpassed only by the railroad industry. Many of the industry’s costs stem directly from investments in and maintenance of the power plants, transmission and distribution lines, equipment, and structures that are used to deliver electricity where it’s needed.
Today, the electric utility industry faces the greatest challenge in its history. In order to meet the projected growth in electricity demand, major investments are needed to expand and modernize most elements of the electric utility business. At the same time, concerns about global climate change and other environmental issues have created a new industry emphasis on more energy-efficient products and services and low emission generation sources. By some estimates, the industry will need to make a total infrastructure investment of $1.5 trillion to $2.0 trillion between 2010 and 2030, net of projected savings from aggressive energy efficiency and demand response programs.
As the industry enters this period of historic capital investment, it confronts two separate but inter-related challenges: first, the industry’s financial and credit strength is substantially lower than when it last entered such a period in the 1980s; second, the capital markets are in turmoil, with unprecedented volatility negatively impacting the availability, terms, and cost of capital.
The current credit crisis facing the electric utility industry has come about for many reasons, including the general state of the economy, contraction of lending by weakened financial firms, fewer financial firms competing for the industry’s financing needs, and the increased risk that many electric industry participants face due to legislative and regulatory uncertainty.
This paper will explore the events leading up to the financial crisis, the character of the crisis itself, the impact on utilities, and the critical role regulators will play in shepherding the industry safely through the turmoil.
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