Transcript 2008 YEAR IN REVIEW (plus a couple months in 2009!) AAI

2008 YEAR IN REVIEW
(plus a couple months in 2009!)
AAI 9th Annual Energy Roundtable
David L. Mohre
Executive Director
Energy & Power Division
NRECA
Current, Expected Industry
Drivers
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The U.S. and world economy
The credit, liquidity crisis
Expected legislative initiatives
Regulatory initiatives, outcomes
Conditions on the ground
Current Economy
• U.S. stocks off 50%, continuing to fall
• U.S. 3rd. Qtr GDP down 6.2%
• Most all countries down, most at faster
pace, as exports to U.S. fall
• Japan exports down 46%!
• Many commodities continue to fall
• What came first, economic meltdown
chicken or credit, liquidity crisis egg?
Credit, Liquidity Crisis
• Complex financial transactions, ties and
guarantees led to falling credit ratings
• Falling credit ratings led to margin calls, to
liquidity problems, to depressed stocks
• Led to “emergency mergers” of those
considered “too big to fail”
• Led to big questions of appropriate
competition policy in those markets
For Electric Sector, Credit and
Liquidity Crisis Led To:
• Initial interest by private equity, M&A
• Much higher capital costs
• Significant movement from commercial
paper and stocks, towards bonds
• Large Cap-Ex reductions in short-run,
while long-run Cap-Ex plans exploding
• Long-term contracts become a must for
investment grade financing per Street
A Recent Wall Street Quote
In this new financial environment, “utilities
will need to have access to longer-term,
more permanent financing and be able to
sell power from new projects pursuant to
long-term contracts and not market-based
rates”
Charles Wortman,
Managing Director, JP Morgan Chase Inc
Another Recent Wall Street Quote
“I think the challenge that we have is
that we are trying to build long-term
assets with short-term pricing, and
that just doesn’t add up, particularly if
you want to get something that’s
investment grade”
Anthony Ianno, Morgan Stanley to
FERC
A Big Question
Can we raise sufficient longterm capital cost-effectively
in this new financial
environment given the
short-term focus of current
centralized market designs?
Current Legislative Initiatives
• Climate Change--- big $$$
• Renewable Portfolio Standards--big $$$
• Transmission for Renewables--big $$$
• Energy Market Transparency
• Transmission Siting--- big $$$
Regulatory Drivers
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Transparency of markets—FERC, CFTC?
Siting after 4th Circuit opinion
Are capacity markets working?
Response to GAO, consumers
Renewable transmission
Smart Grid, Demand Response
Will Street finance w/o market change?
Edison Mission Summary Disposition
Conditions On The Ground
• Physical sales in whsle. market down for twelfth
straight quarter, fell 7.8% in 3rd Q.
• Load: -.8% overall, -5% industrial, 2007 to
2008, February 09 week down 9.7%
• Energy, other commodities prices down
• Downturn buying us time to fix mess
• Consumers lack trust in markets given big rate
increases already, want changes; CO2 hidden
tax will make matters worse
• Md., N.Y., efforts to repeal/change markets