Power and utility valuations likely to fall

Ernst & Young LLP

U.S. Power & Utility valuations, which despite a recent pullback remain well above 10-year historical averages, are not sustainable in the long run, according to a new report by Ernst & Young LLP’s Power & Utilities practice.

The report, The great yield rush: A closer look at total shareholder return in the US Power & Utilities sector, asserts that valuations are likely to continue to drop as the sector grapples with shifting market conditions. The recent pullback was sparked by speculation that the Federal Reserve will taper its bond-buying program before the end of the year, a move that would cause interest rates to rise.

The report highlights several strategies that have developed among sector participants. Some utilities are striving to improve operations and earn maximum allowable ROEs, while at the same seeking growth through capital investments in their regulated businesses. Others are looking to reduce risk by disposing of competitive generation or acquiring additional regulated businesses. The report also examines total shareholder return for the “EY 50″ – the largest 50 U.S. utilities by market capitalization – and breaks down total performance by utility segment.

Click here for report


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