A newly released Black & Veatch analysis addresses issues faced by U.S. electric and natural gas utilities in light of the country's financial uncertainties.
A special edition of Black & Veatch's Energy Strategies newsletter (http://www.rjrudden.net/EnergyStrategies.pdf) outlines how utilities are currently in the midst of a variety of risks and other fundamental cross currents.
"The utility industry is not immune to the current financial conditions that government, business and consumers face, even though utility securities are often considered safe havens in times of economic difficulty," said Richard Rudden, Senior Vice President of Black & Veatch's Enterprise Management Solutions Division. "Utilities have huge capital requirements. Trouble in the capital and credit markets could lead to less reliable service if system improvements and expansion plans are held up because financing is not available."
Rudden noted that Black & Veatch's surveys of key industry issues over the last three years show rapidly increasing needs for the development of new, capital-intensive infrastructure in natural gas pipelines and power generation, transmission, and distribution systems. The industry contemplates spending hundreds of billions of dollars on these and related assets over the next five years.
"A number of factors will be critical to the development and financing of utility infrastructure, including adequate credit, affordable insurance, reasonable risk premiums and capital costs, relatively stable commodity and material prices, and rate increases," Rudden said. "However, as discussed in Energy Strategies, there is significant uncertainty about these enablers."
The special edition of Energy Strategies also identifies potential positive developments for the industry that could rise out of the financial crisis. Compared to other investments, utilities are regarded as somewhat safe. In a period of uncertainty, there could be an increase in utility market capitalizations and the availability of equity, particularly if borrowing is deemed too aggressive or too expensive by regulators.
"Regulators will play a critical role in ensuring the appeal of utilities as sound investments and the source of new critical infrastructure, said Rudden. "Without proper regulatory treatment of the costs of infrastructure investment all the good that utilities might do as safe havens for more conservative investors and pension funds could be negated."
About Black & Veatch
Black & Veatch is a leading global engineering, consulting and construction company specializing in infrastructure development in energy, water, telecommunications, management consulting, federal and environmental markets. Founded in 1915, Black & Veatch develops tailored infrastructure solutions that meet clients' needs and provide sustainable benefits. Solutions are provided from the broad line of service expertise available within Black & Veatch, including conceptual and preliminary engineering services, engineering design, procurement, construction, financial management, asset management, program management, construction management, environmental, security design and consulting, management consulting and infrastructure planning. With $3.2B in revenue, the employee-owned company has more than 100 offices worldwide and has completed projects in more than 100 countries on six continents. The company's Web site address is www.bv.com.
Enterprise Management Solutions (EMS) is the management consulting division of Black & Veatch. EMS provides tailored strategic, process and technology solutions to deliver improved operations, cost savings, new revenue streams and greater customer loyalty. For more information on EMS, go to www.bv.com/consult.
SOURCE: Black & Veatch