Houston (Platts)--13Feb2009
A panel at CERAWeek in Houston Thursday unsurprisingly agreed on one
thing Thursday. The US economy has worsened at a dramatically faster rate than
any of them had expected. But, they said, the US power generation sector will
likely be less badly hurt in the coming months than other sectors.
Speaking on the prospects of financing the power sector, the group agreed
that there is unlikely to be any significant upturn in the US economy in 2009.
They disagreed on when an asset buying spree may be launched, but only in
terms of months. The strength of the sector rides heavily on the streams of
revenues, they said. And they all agreed that the worst possible nightmare is
an unchecked surge in job cuts.
Jeffrey Holzschuh, vice chairman at Morgan Stanley, said that the metrics
of the utility and power generating industry today are almost "irrelevant."
He said that the "traditional power business," by which he means mainly
electric utilities, but also the half dozen or so remaining merchant
generators, will suffer from the tough economic times and an ongoing squeeze
on credit, but, won't suffer as much as some other business sectors.
Holzschuh said carbon emissions regulations will come "next year,
probably not this year," but whenever it comes it will have "the largest
financial impact this industry has ever faced." He projected that impact at
between $500 billion to $1 trillion.
Jim McGinnis, managing director of hedge fund Harbinger Capital Partners,
agreed, saying that CO2 will be "a big deal, and there will be winners and
losers." McGinnis also said the generation business faces a challenge with
PJM's new capacity market, as well.
George Bilicic, chairman of the power, utilities and infrastructure
practice at M&A advisory firm Lazard, said he is asking companies, "do you
have enough money to cover your operations for the next 24 months, and if you
do not, where are you going to get it?"
Bilicic questioned how big power projects in the future will be built if
there is no consolidation of big players in the industry. He said, however,
the US power industry is "hard to consolidate quickly."
Peter Rigby, a director of Standard & Poor's, which, like Platts, is a
division of The McGraw-Hill Companies, said that the electric utility sector
is in "a better position than most."
Still, he said, "any pressure regulators bring to dampen rates" to help
out distressed consumers caught in the recession, will pose "a big challenge."
He said utilities' capital expenditures pose a difficult problem, which
is not changed by a recession. He said the problem with replacing aging
equipment only gets bigger when it gets delayed. "Spending plans are a big
strategic issue with utilities," Rigby said.
Morgan's Holzschuh said he believed the second half of 2009 could
represent a bigger "opportunity to invest" than any other time he has seen in
25 years in the business.
Bilicic, however, said he believed the second half of 2009 is "too
early." He said its possible that the economy will have to suffer more hits
that take the wind out of its sails, before it is time to buy. Bilicic said
that might be late 2009, or not until 2010.
--Jeffrey Ryser, jeffrey_ryser@platts.com
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