With energy companies delivering weak earnings statements to Wall Street and the cost of credit rising as a result of recent credit downgrades, the Federal Energy Regulatory Commission (FERC) recently expressed concerns before a Senate committee that new power plant construction will fall behind, exacerbating current problems with the nation’s transmission grids.
Energy firms have put on hold plans to build almost 92,000 MW of construction since the start of 2002, according to Sen. Frank Murkowski (R-Ala.), and most of those shelved projects are located in the West, where power shortages continue to plague energy users.
According to Pat Wood, chairman of FERC, announcements of new power plant buildouts have “dropped off dramatically.” He blames credit downgrades for escalating the cost of credit in the electrical distribution industry, contributing to many companies’ reticence to make capital investments. Recent news of lackluster earnings in the energy sector have also hurt those companies’ stock prices, forcing them to cut budgets for expansion.
Despite the bleak outlook FERC presented to the committee last week, some Wall Street analysts still believe there is hope, particularly if groups like FERC more aggressively investigate improprieties like price manipulation, sham power trades, and long-term power contracts. “Though much maligned, we believe energy trading is still a viable business,” says Carol Coale, senior vice president at Prudential Securities.