Wall Street has a closer eye on the nation’s energy utility sector and the kind of state regulation impacting it, and so far in the new year it doesn’t necessarily like what it sees, according to John Bohn, a member of the California Public Utilities Commission (CPUC) who recently returned from a week-long series of conferences and meetings with financial analysts in New York City.

Bohn told his CPUC colleagues at their business meeting Thursday that it would be good for the regulators to take some time to reflect on what he called the “concerns” of the analysts on Wall Street.

A central focus in the new year is the recent adverse state regulatory decision for Florida Power & Light (FPL) in which nearly all of a $1 billion rate increase request by the utility was rejected by the state public service commission (PSC) (see Power Market Today, Jan. 27). With the Florida PSC allowing a request of only $75 million and taking away another $375 million from a FPL reserve account, Bohn characterized the mid-January rate decision as “dropping a grenade in the punch bowl, as far as the analysts are concerned.”

Bohn, who met with more than 100 New York analysts recently, said they saw the Florida regulatory situation, which previously had been viewed as favorable, “turn on a dime,” and now they are concerned about the same thing happening in California. Analysts are concerned about both the possibility of “erratic government intervention” and the departure eventually from the “reasonably comfortable environment” in which they think California utilities now operate, said Bohn, a Silicon Valley multi-millionaire entrepreneur and one-time CEO at Moody’s Investors Service.

This perception — correct or not — of the analysts is important, Bohn said, because of “the capital that is going to be needed by the utilities over the next few years to fulfill anywhere close to capital needed for the transformation to our green energy economy.” Ultimately, the analysts’ comfort level with regulators affects the access utilities have to capital.

Bohn reminded his colleagues that the financial community thrives on “continuity and some reasonable sense of expectations,” and is “really set off” by surprises and/or uncertainty.

Another concern from the analysts that Bohn highlighted is the growing cost of various renewable energy and other green programs that are causing utility rates to climb. “Their question that was asked again and again was ‘When do the ratepayers figure out that they don’t want to be that green?'” he said. “When does the real impact of the cost of all of this stuff become a matter of heightened public awareness such that a new set of commissioners could reverse the regulatory continuity?”

Bohn said he raised the analysts’ issues to underscore the fact that Wall Street is watching California regulation very closely. “As we deliberate here, there is heightened awareness and concern about California, triggered largely by the FPL decision in the financial community generally.” He said in his discussions with analysts regulatory fallout was the central theme.

As an aside, Bohn also said in the mergers and acquisition area, there is a “great deal” of interest in transmission projects, and a lot of capital is being put together focused on this sector. But again, he warned that the ability of the state’s utilities to access this capital will directly depend on how the quality of the state’s regulation is perceived by the financial community.

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