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Public Utilities, Second Edition

Old Problems, New Challenges

David E. McNabb

A thoroughly updated introduction to the current issues and challenges facing managers and administrators in the investor and publicly owned utility industry, this engaging volume addresses management concerns in five sectors of the utility industry: electric power, natural gas, water, wastewater systems and public transit.
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Chapter 9: Public utility finance

David E. McNabb

Extract

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 capital. There are few if any industries that are so consistently in need of large infusions of capital. The costs for repairing and replacing these critical infrastructure repairs and improvements must be paid for in the next several decades. Payment for the new equipment and facilities that must be constructed in the next several decades will be spread over very long periods of time—in some cases, as long as fifty 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 rates of return will not be maintained, and investors will not provide the needed capital. describes a 2012 federal grant and loan request for construction of two light rail and one dedicated rapid bus projects planned for the Maryland-Washington, DC area.Today, one of the greatest challenges facing public utility managers is the problem of capital acquisition. Until recently, economies of scale, together with mandated reserve capacity, meant that very large utility plants represented the most economical way to add capacity. Very large plants require...

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