Preparing for a Financial Crisis, Electric Utilities Unlikely to Spend Despite Critical Needs, Says Analyst Scotto (Part 1 of 2)
Submitted by EnergyTechStocks.com
The needs are everywhere – more power plants, more transmission lines, major upgrades to the existing grid. But even as the threat of blackouts grows daily, in the wake of Wall Street’s meltdown the capital-intensive electric utility is unlikely to carry out desperately-needed improvement projects.
So says Daniel Scotto, veteran Wall Street electric utility financial analyst, one of the few on the Street who understands how Wall Street’s woes are likely to impact the Byzantine, multi-trillion-dollar electric utility industry.
“They’re already preparing for a financial crisis,” Scotto said in an interview with EnergyTechStocks.com, citing last week’s announcement by Duke Energy that it is drawing approximately $1 billion under its $3.2 billion Master Credit Agreement that expires in 2012. While the utility said it took the step to improve its “flexibility” as it continues to carry out its business plans, Scotto said the action was more likely precipitated by the utility’s fear that, with credit markets seizing up, it mightn’t still have access to that credit in a few weeks or months.
Overall, Scotto said he expects that most utilities will soon be operating under budgets that call for no new “baseload” units, those 24-7 power plants that are the backbone of American power generation. He said that utilities aren’t just trying to cope with the uncertainty on Wall Street. They’re also struggling with uncertainty caused by state regulatory commissions that aren’t providing clear guidance on how many plants should be built and which fuel sources should be used. This regulatory uncertainty, Scotto emphasized, is caused by the failure of state legislatures to provide clear directions.
“Nobody’s planning for the future,” he said.
As utilities recoil from taking financial risk, Scotto said that some time before 2015 there won’t be enough electrical generating capacity in the U.S. Transmission lines represent an even more immediate danger, he said, noting that power is now routinely being pushed though high voltage lines at up to 95% or more of their capacity. “That’s too high,” he said, warning about the line stress that produces.
