When I began my career as an analyst, I covered a number of natural gas utilities for a while. I quickly learned that, ex maybe Arizona, electric utilities were long since mature entities, with little investment appeal other than their dividend yields.

Adding to their potential woes, as public utility commissions began to understand that the utilities’ service areas and customer counts were not increasing, there was no longer a need for them to tap the public markets for expansion funds. So the political calculus changed from granting generous returns that would attract new investors to whittling away at them to court voters through delivering lower utilitiy bills.

This last is the situation we’re in today.

But that’s only half the story.

Utility company managements, as I see it, didn’t just stand idly by and watch their profits erode. They followed three strategies, I think:

–they merged with one another. This allowed them to cut overall administrative expenses, and it permitted them to share support/emergency staffs. If, for example, three local utilities needed to have 100 repairpersons each on staff in case of, say, storm damage, their merger would allow the three to still have 100, but in the aggregate, rather than each. And 1/3 might be in New York, another 1/3 in Ohio and the remainder in Georgia–on the assumption that simultaneous emergencies in three different areas was highly unlikely.

–they cut costs. Maybe they lengthened depreciation schedules and replaced old equipment less often; or they reduced maintenance from gold-plated to silver-; or they introduced innovative machinery less often

–if possible, they separated business segments into different corporations, say, spinning off (high-profit) transmission lines from a (lower-profit) local utility.

boosting solar, too

For some electric utilities, the current situation has been made more difficult by state government requirements that they buy from customers excess power collected by their solar panels.

more tomorrow