Consultants’ Newsletter Touches on How Credit Crunch Fiasco Could Hurt U.S. Utilities

With global stock markets reeling in the last week, I found a report from Black& Veatch to be quite interesting and worth the read.

Specifically, the report notes how the growing credit crunch could hurt capital-intensive utilities. Constellation Energy and Reliant Energy are but two utilities that have recently suffered. More examples may be on the way.

Richard Rudden, the Senior Vice President of Black & Veatch's Enterprise Management Solutions Division, noted in the report that:

"Regulators will play a critical role in ensuring the appeal of utilities as sound investments and the source of new critical infrastructure. 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."

It’s important that regulators understand the role they play in utility operations, especially given recent events outside their or the utilities control. We believe that utilities are more subject to the vagaries of “disruptive regulations” than many of the other driving forces on the utility landscape, including technology innovations, the aging workforce, fuel and resource procurement, and mergers and acquisitions, to name but a few.

Not only are utilities exposed to the harsh atmosphere of competition or regulation enforcement but on an almost daily basis management and boards of directors are being asked to change their business operations to cost effectively integrate the significant regulatory demands of national, regional and local governments. Companies must also comply with financial regulations from Sarbanes-Oxley Act of 2003 (SOX), European Union (EU) directives, the Kyoto Accords, emissions trading and emissions rights, reliability requirements (e.g., NERC) and environmental mandates from governments.

Utilities are doing their best to comply with the regulations, through integrated, proactive approaches. We’ve written previously about AEP’s effort to harness Microsoft technology to comply with environmental emissions regulations. We envision regulators growing to appreciate how Microsoft and its partner community provide utility compliance solutions that are delivered on an enterprise ready, scalable and secure platform. We encourage utilities to convince regulators they are endeavoring to comply using solutions that take an enterprise-holistic approach. It’s a two way-street and now is a good time to look at improvements in the process.  - Jon Arnold