State regulatory commissions are expected to assert themselves “more vigorously” in the years to come regarding the operations and finances of U.S. electric utilities, according to a report published Thursday by Standard & Poor’s Ratings Services (S&P).

The ratings agency noted that despite the “highly visible and highly damaging actions, or inaction,” that took place in Nevada and California between 2000 and 2002, S&P believes that fixed-income investors “should consider the posture of other jurisdictions as more indicative of regulatory attitudes toward credit quality.”

Analyst Richard Cortright said that “a theme that has been resonating increasingly throughout the power industry in the past year is a ‘back-to-basics’ strategy, which means reinstalling the regulated operation as the central focus of the larger diversified corporation.” For several years, he said, “many players have de-emphasized this business as a burden on the financial juggernaut that unregulated generation and energy trading would create.”

The analyst noted that it has become “manifestly clear, once again, that utility holding companies that stray very far from their traditional core business cannot, on any sustained basis, satisfy their own loftier earnings ambitions, nor those of the financial community that had pushed the industry for better performance during the heyday of the raging bull market.”

The industry has responded to its balance sheet damage and cash flow drainage through a back to basics approach, according to the report. “The repair work is substantial and, in fact, a few may have moved too late, with bankruptcy of the consolidated entity now a real possibility,” Cortright said.

The report, titled “Regulated Operations Back in Fashion for U.S. Electric Utilities,” is available on S&P’s RatingsDirect at www.standardandpoors.com.

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