Green shoots are good, but must be nurtured
At last week’s Edison Electric Institute Financial Conference, a group of electrical utility chief financial officers and those offering credit to utilities sat down together and discussed the financial pressures on companies relating to credit access, financing challenges in the new banking environment, and the weak economic recovery.
Over and over throughout the day, I heard the phrase “green shoots” used to describe the first indications of an economic recovery, and this panel was no exception.
“I think the recession is over. The green shoots are growing,” said David McHale, senior vice president and CFO of Northeast Utilities. But he tempered his optimism with caution: “I’m not sure that’s going to translate into immediate sales growth.”
That may be the bad news. However, there was good, as well. According to J. Nicholas McKee, managing director and co-head of power investment banking for Citigroup Global Markets Inc., “There is not going to be a challenge as far as the cost of capital goes in terms of competing against other industries. I think the industry will still have strong access to capital, both short- and long-term.”
Jay Horine, managing director and head of power and utilities for JPMorgan Securities, agreed with McKee. While he noted we are seeing a lot of pushback to annual rate cases, “capital markets, both debt and equity, remain very open to the electricity industry.”
Smart grid technology, and its potential uses, also occupied this panel’s collective thoughts last week. Many utilities are beginning to add smart meters in their territories, but not many have yet indicated they will use this technology for real-time pricing. The panel’s CFOs were asked if their companies will be leaning in this direction.
Lynn Good, Duke Energy’s group executive and CFO, said Duke has received approval to put smart meters in Ohio. “Over time, we expect to see all kinds of benefits,” she added, noting that she wouldn’t put real-time pricing at the top of that list.
On the other hand, Northeast Utilities’ McHale said, “For our state, it is going to be about pricing – we just finished a pilot in Connecticut that was all about pricing.” According to McHale, the question for utilities becomes this: How much do you really want to vary those peak time prices?”
According to Horine of JPMorgan, energy efficiency, technology, and the ability to enable real-time pricing are all tied together. “This industry has a unique position of being a strong voice at the (smart grid technology) table,” he told participants. “There is so much money and interest going into this, and the electric industry sits at the center of this discussion.”
And energy efficiency is a unique part of the financial equation, as Bill William Rogers, NV Energy’s senior vice president, CFO and treasurer, so succinctly pointed out: “Energy efficiency is a very low capital cost compared to building generation,” he said. “We can either capture that opportunity, or we can allow others to do so.”
With green shoots now appearing on our economic horizon, we obviously have reason to be hopeful. But still, we're learning a belt-tightening lesson that will repeat itself. With new technology, we have the opportunity to be more aware of our energy use, and better able to manage that resource. Utilities and their customers have the opportunity to partner in this, and to nuture that green shoot growth.