Power Engineering - Regulators predicted energy company bankruptcies

HAUPPAUGE, N.Y., March 25, 2003 -- While the recent spate of energy company bankruptcies and threatened bankruptcy filings seem to have taken the industry by surprise, regulators predicted the trend a decade ago.

In the years 1993 through 1995, R.J. Rudden Associates, Inc. conducted a series of surveys of state regulatory commissions on their attitudes and opinions towards the then impending restructuring of the energy industry.

Regulators first expressed their fear of the potential for bankruptcies in 1993, when about a third of the respondents stated there would be an increased risk as a result of deregulation. As the patterns of restructuring better defined themselves in the subsequent years, by 1995, fully 62% of the regulators shared this concern.

An analysis of other components of the survey also shows that regulators clearly saw the beginnings of what the public has only relatively recently come to know as the industry's higher-risk profile. In the years during which the surveys were conducted, nearly 60% of the respondents saw decreasing debt service coverage as a consequential risk of deregulation. Almost all respondents (90%) expected utility costs of capital to increase, primarily reflecting the higher-risk premiums created by a competitive marketplace. About 70% felt that the rates of return actually realized by utilities would decrease.

"While regulation has not always been perfect," stated Richard J. Rudden, CEO of R.J. Rudden Associates, Inc., "it certainly appears that the regulators got the issue of increasing financial risk right. Ironically, and somewhat oxymoronically, 85% of the respondents also believed that deregulation would require increased levels of regulatory vigilance. Enron could have used some of that."

R.J. Rudden Associates, Inc. is among the world's premier strategic, economic and management consulting firms specializing in energy matters. Throughout its history, Rudden has assisted clients in such mission-critical areas as: economic and financial analysis; strategic, management and marketing services; industry restructuring support; litigation and regulatory support; technical analysis; and implementation support. Serving more than 300 clients worldwide, Rudden's energy industry professionals include experienced energy company senior executives, energy economists, senior policy experts and regulatory officials, engineers, renowned futurists, and internationally respected subject matter experts.

Many are widely published and each is highly regarded for his or her unique insight and targeted approach to problem solving. Rudden's clients encompass the full range of the energy value chain and cut across all market sectors, including energy producers, the financial community, the legal and regulatory community, new business ventures, and large energy consumers.

Rudden has offices in New York; Washington, D.C.; Houston; Atlanta; Augusta, Maine; and San Francisco.

Add RSS Feed