Utility companies cannot seem to catch a break. In an expansionary stage in the business cycle utility companies are generally set aside for higher growth opportunities that we are seeing driving gains especially from the financials and technology sector. Aside from economic cycles, they seem to be losing their luster due to the industry landscape and specific problems. Already weighed down by debt, future investments may require taking on debt at higher rates as Yellen as hinted. Higher rates may help some companies with large pensions as their liabilities will fall more than their marketable security assets.
Coal plants are shutting down left and right, with over 200 closing in the past ten years. Increased competition from natural gas and renewable energies such as solar and wind are causing power generating companies to lose out on profits. Natural gas is extremely cheap and may become even cheaper as Russia and Qatar ramp up production to make up for other lost revenues. Bloomberg has recently investigated different keyword mentions on the public filings of utility companies with “distributed energy” and “innovation” leading in rises. Distributed energies refer to renewables, but most existing power generating companies are not leading the change. From storage to transportation, electric companies may find new competitors from even a tech/automotive company like Tesla. Utility companies must face major shifts in the way they conduct business. Companies like Duke have already been restructuring for years as the U.S. and world is moving away from nuclear.
Recent, specific events have also been hurting the industries and a select few companies. Customers were outraged in Florida after Hurricane Irma, and Hermine last year, resulted in so many customers losing electricity. Not only that, but there were great delays in restoring energy due to what they say was a lack of talent. So not only is the market changing for most utility company’s business model of coal, but also labor is in shortage with talent veering to different sectors. The company that may have been the most hurt, as well as have to drop in billions in market capitalization on a single day, is PG&E. Pacific Gas and Electric Company fell around ten percent in a single day as it responds to investigations in California wildfires. Officials are considering the company’s power lines which may have started the
Wine Country fires. PG&E is expected to have heavy expenditures in battling these allegations and the possibility of high penalty fees.
Utility companies are part of a changing industry facing stagnation and new forms of competition. The result may be the diminished luster within an expansionary economy and depressed security prices, but it may be indicative of more urgent problems for the aging, consolidated industry.