Chapter 10: Utility Finance and Accounting Challenges
10. Utility ﬁnance and accounting challenges The drive for deregulation and restructuring of the public utility industry has brought substantial modiﬁcations to its regulatory structure. This, in turn, has resulted in a host of new challenges being added to the traditional problems of ﬁnancial managers. Public utility ﬁnance oﬃcers must now focus on more than the old questions of return on investment and recovery of investments in the industry; they are becoming more involved in justifying the investment and operating decisions that must be made to meet the needs of a newly designed, unbundled, industry that is characterized by ﬁnancial turmoil. Public utilities have always been heavily dependent upon outside investment. There are few if any industries that are so consistently in need of large infusions of capital. The costs for the following infrastructure improvements must be paid for in the next several decades: ● ● ● ● ● ● ● Designing and constructing huge coal-ﬁred or nuclear generating systems; Constructing dams and reservoirs; Exploring and drilling for natural gas; Constructing an entire new infrastructure to receive, store, and distribute liqueﬁed natural gas (LNG); Laying new natural gas pipelines; Upgrading the North American electricity transmission grid; And more. Payment for these new facilities will be spread over very long periods of time – in some cases, as long as 50 years or more. Repaying the huge loans that will be needed for these utility infrastructure improvements will require public utility commissions to allow utilities to subtract the debt service from operating revenues. Otherwise, reasonable...
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