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Transcript of CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October...
![Page 1: CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October 5, 2009.](https://reader036.fdocuments.us/reader036/viewer/2022082505/56649dc75503460f94abc00c/html5/thumbnails/1.jpg)
CCPUC Annual MeetingCommission Policy and Wall Street
Bill NusbaumManaging Attorney
TURNOctober 5, 2009
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• Investment needs are large with many new requirements, especially in energy
– Energy efficiency; aggressive renewables requirements; smart grid; carbon reduction
– Brattle Group Nov. 2008 report estimates overall industry capital investment requirements through 2030 at approximately $1.5 to $2 Trillion, with the western region ranging between $89 and $189 Billion1
• In telecom – fiber investments, especially for video; 4G wireless networks; “broadband for all”
– USTelecom estimates that carriers are investing $60 Billion a year2
Extremely challenging environment
![Page 3: CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October 5, 2009.](https://reader036.fdocuments.us/reader036/viewer/2022082505/56649dc75503460f94abc00c/html5/thumbnails/3.jpg)
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• Recession is reducing demand
• Financial crisis resulting in tight credit and higher cost of credit
• Only 30% of the energy industry companies have a rating of A or better – average rating for IOUs is in Baa range3
• In many states, regulators are continuing to allow lower energy company returns and rates than requested– Edison Electric Institute: the average ROE in 2008 rate
cases was 10.34%4
Extremely challenging environment
![Page 4: CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October 5, 2009.](https://reader036.fdocuments.us/reader036/viewer/2022082505/56649dc75503460f94abc00c/html5/thumbnails/4.jpg)
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• Need for “clear and supportive” regulation
– Stable revenues, earnings and cash flows
– “Utilities and regulators must keep financial community trust to attract capital at lowest cost to customers.”5
• “Adequate” ROE is critical to attract capital
• In telecom, constant refrain is: any regulation has a chilling effect on investment with spill-over impacts on infrastructure, job creation, valuation and stock price
Key messages being sent to CPUC
![Page 5: CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October 5, 2009.](https://reader036.fdocuments.us/reader036/viewer/2022082505/56649dc75503460f94abc00c/html5/thumbnails/5.jpg)
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CPUC response – minimize risk for energy utilities
• Higher than average ROEs for investor owned utilities6
– PG&E 11.35%– SDG&E 11.1%– SCE 11.5%
• Earnings predictability– Decoupling– Shareholder incentives for EE– Balancing accounts
• Procurement cost protection – AB 57 (P.U. Code §454.5)
• No subsequent prudency review for large capital investments so long as the utility does not exceed the forecast amount
![Page 6: CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October 5, 2009.](https://reader036.fdocuments.us/reader036/viewer/2022082505/56649dc75503460f94abc00c/html5/thumbnails/6.jpg)
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CPUC response in telecom -deregulate
• The assumption of “vibrant” competition has led to almost total deregulation
• Tremendous resistance to any “new” rules that might “deter network investment”
– Example: copper retirements rules
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Ratepayer concerns
• Is the CPUC too generous? – PG&E, Edison and Sempra have all been rated
investment grade with comments from rating agencies such as “reasonable/balanced regulatory environment” (Fitch); “solid regulatory paradigm” (S&P)
– Sanford Bernstein analyst Hugh Wynne has called Southern California Edison "perhaps the fastest-growing, most favorably regulated electric utility in the United States.”7
• Is there an over-reliance on credit ratings?
• “The Street” doesn’t always get it right. How much weight should the CPUC give to investors’ perspectives?
![Page 8: CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October 5, 2009.](https://reader036.fdocuments.us/reader036/viewer/2022082505/56649dc75503460f94abc00c/html5/thumbnails/8.jpg)
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Ratepayer concerns
• Are ROEs too high? Has the balance of risk been shifted too far to ratepayers?
• Are all the investments necessary and provide tangible benefits to consumers?
• Will telecom deregulation actually benefit consumers?
• Who benefits from broadband infrastructure investment and where?
![Page 9: CCPUC Annual Meeting Commission Policy and Wall Street Bill Nusbaum Managing Attorney TURN October 5, 2009.](https://reader036.fdocuments.us/reader036/viewer/2022082505/56649dc75503460f94abc00c/html5/thumbnails/9.jpg)
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1. The Brattle Group “Transforming America’s Power Industry: The Investment Challenge 2010 – 1030, November 2008
2. USTelcom ex parte presentation to the FCC re National Broadband Plan, GN Docket 09-51, September 3, 2009
3. Edison Electric Institute, “2008 Financial Review, Annual Report of the U.S. Shareholder-Owned Electric Utility Industry”
4. Moody’s Investors Service, Florida Municipal Electric Association-Florida Municipal Power Agency Annual Conference – “The Financial Outlook for Public Power Utilities”, July 16, 2009, Dan Aschenbach
5. Robert Boada, VP & Treasurer, Southern CA Edison presentation to NARUC July 21, 2009
6. D.07-12-0497. Barron’s “Boring Beauties With Powerhouse Yields”
Sept. 14, 2009
Sources