Long-term electricity investments will be local, report claims

Boston, MA, July 9, 2003 — All electricity investments will ultimately be local in the long-term. All will be hybrids of regulated and market risks, according to ESAI in its recent Northeast Power Quarterly report.

“Over the next ten years, there will be two kinds of investors in electricity assets in the Northeast: those who invest because they can, and those who invest because they must,” said Ed Krapels, ESAI’s Director of Energy Development Services.

Those who can invest in electricity right now are mostly financial groups that specialize in buying distressed assets, valued at 25 cents on the dollar of equity invested. The sales are occurring because many companies are in a “sell or die” situation.

Those who must invest are mostly utilities with obligations to serve their customers. In many cases, we must carefully distinguish between the obligations these utilities are recognizing, and the investments they are making.

“There will be certain key drivers that will determine the returns on investment in electricity over the long-term,” said Krapels.

“These include the fact that there will be more RTOs nationwide than are economically efficient, there will be an inevitable imposition of locational marginal pricing, merchant power facilities will be significantly devalued, capacity markets will remain regulated or be re-regulated, and a high level of regulatory risk will remain.”