Although interest rates are at a plateau and inflation is moderating, utilities are facing a new challenge: the impact of mild weather and the need for capital prioritization in their operations.
For companies that do not have decoupled rates—for example, those with a higher dependency on fixed charges rather than volumetric levels for revenue, which is the majority of companies—weakened performance has increased pressure on already strained expense budgets. In this environment, capital prioritization is essential to ensure that utility companies are investing in the most impactful projects.
We have seen this before, many times over the last few decades. But what is different now is the presence of the largest capital programs seen since the nuclear buildout of the 1970s and 1980s. As utilities manage these large projects, capital prioritization will determine which investments are most critical for long-term sustainability.
While exposure to interest rate increases may have been moderated by term borrowing a year or two ago, those debt facilities will eventually roll off, and rate cases will be required to rebalance in this changed financial environment. Since rate cases often take 12-24 months to complete (taking into account test years), with the immediate impacts of inflation, capital programs have become stressed. More and more we hear talk of capital prioritization as a way to manage this growing financial pressure.
Tangibl has significant experience prioritizing capital projects in their programs for clients, specifically when agreed-to reliability improvements in terms of cost per customer have been the binding constraint. Our expertise in capital prioritization ensures that your utility can optimize its investments to maximize value and minimize risk.
If your team is soon to be or actively engaged in such a program, our experience can help you evaluate your program and create the most value for each capital dollar deployed.
Please contact Tonia Graham for more details or to schedule an exploratory call.