Antiquated Power Grids

Sector & Sovereign Research

October 25, 2017

What Can Age of Plant Tell Us About Future Rate Base Growth?

How might the age of a utility’s transmission and distribution network affect its potential for investment in new transmission and distribution assets and thus its long term outlook for rate base growth? In this note we estimate the relative ages of the transmission and distribution networks of the U.S. regulated electric utilities and rank the utilities accordingly. Among the primarily regulated utilities whose aging electricity grids may lift long term rate base growth, the stocks of AEE, AVA, NWE and PNM may offer the most attractive opportunities, while AGR stands out among the hybrid electric utilities. We have also identified those utilities whose planned capital expenditures over 2017-2021 seems to fall well short of what could be required to replace aging plant, and where the potential may exist, therefore, to ramp up capex and rate base growth in the medium term. The utilities that appear most attractive on this basis are NWE, where planned T&D capex over 2017-2021 is equivalent to less than half of the estimated cost to replace pre-1988 T&D plant, and HE and OGE, where planned capex covers only three quarters of the estimated replacement cost of pre-1988 assets.