Mr. Agha: We divide the power/utilities universe into three categories. First are regulated utilities, companies whose fortunes are largely tied to various state regulatory commissions. Second are independent power/merchant companies, whose fortunes are largely tied to the commodity cycle for power, coal and gas. Third are hybrid utilities that have a mixture of both. What you're finding is that investors are clearly concerned about companies that do have more of that merchant commodity exposure because forward commodity prices have been coming down and that's been putting a lot of pressure on the earnings outlook for those companies. And so I think from an investor perspective, the focus is first on what's happening in the commodity cycle because it impacts a lot of companies; and then second, what's happening on the regulatory front, both at the states level and at the federal level, which has implications for a number of companies.
TWST: We'll start on the commodity side. What's the impact at this point and what's the outlook?
Mr. Agha: The outlook, at least for the next three years, is quite challenging, and that's being driven by a couple of factors. Number one, you've got a supply-demand imbalance. There is overcapacity in the market and we expect that will continue for at least the next three to four years. Number two, you've seen a decline in gas prices, in terms of the forward curves over the last several weeks and months. And that has implications for power prices, which tend to follow gas prices. And so power prices have been coming down. And then number three, the key variable is how fast does electric demand growth come back? Interestingly enough, electric demand has actually been negative in three of the last four years. And so that clearly has had a major impact on that supply-demand equation. And so we'll have to see how fast that comes back. So you put it all together and the picture is not looking very pretty for the next several years.
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