Report says regulation a worry for utility investors

19 April 2005 – According to Under Pressure, the seventh annual PricewaterhouseCoopers Global Utilities Survey, regulatory worries top the list of concerns expressed by investors about funding the industry. While a majority of investors believe deregulation is helping the investor climate, more than a third (39 per cent) say market reforms are damaging confidence, highlighting the dangers of inconsistent regulation, energy, tax and environmental policies.

This anxiety within the utilities industry means that despite its growth prospects, it is failing to attract the investment it needs. Meeting projected supply needs will require an investment of $12.7 trillion in the period to 2030 in the power generation, transmission and distribution and gas-supply infrastructure. However, the utilities sector is failing to rise above the pack when it comes to attracting investment. The PricewaterhouseCoopers report finds that the utilities sector is rated as attractive as several other sectors, including financial services, consumer and retail and pharmaceuticals. Worryingly, this was the sentiment echoed by investors that already focused on utilities.

Utility leaders feel that without regulatory certainty and high levels of investment, blackouts could become a more frequent occurrence. In fact, two thirds of utility company respondents in the report believe the likelihood of blackouts will increase or remain the same. These concerns about security of supply are spreading across the industry. Nearly three-quarters (72 per cent) of utility company respondents say supply security and transmission capacity are major concerns facing the sector – up from 65 per cent in 2004.

The regulatory uncertainty is also affecting investment in renewables. While the focus on renewables is increasing, with the industry trying to change the fuel mix, investors feel this area will face the biggest funding challenge creating a new vulnerability for the sector. In this climate, more than half (52 per cent) of utility respondents expect a nuclear revival.

Manfred Wiegand, Global Utilities Leader, PricewaterhouseCoopers, commented:”The challenge for the utilities sector is immense. We urge governments, utility companies, investors and consumers to work together to find a truly sustainable and long-term strategy for the industry. This means getting the equation right in the market through a balanced view of renewables and a streamlined regulatory environment, generating market rates of return for investors and encouraging transparent and well-communicated business strategy among utility companies.”

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