Tuesday, September 15, 2009

Legislation imperils utility and rail earnings

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Carbon-reduction legislation approved by the House of Representatives in late June and ready for consideration by the Senate could sharply erode the earnings of coal-fired power generating plants and, by extension, the railroads that deliver their fuel.

henry_waxman.jpgA Standard & Poor’s report suggested that H.R. 2454, the American Clean Energy and Security Act of 2009 (“ACES”), could cut utility earnings by 20%. Reps. Henry Waxman (D-Calif., top), chairman of the House Energy and Commerce Committee, and Edward Markey (D-Mass.), chairman of a key subcommittee, co-sponsored the bill.
 
S&P analysts said the House bill could cause the share of power produced from coal to drop to 33% from 50%. The bill aims to cut fossil fuel emissions from power plants and other users 17% below 2005 levels by 2020.

The report said the bill could also cause coal users to switch to natural gas, pushing up its price.

The importance of coal for rail profitability is indicated by the fact that coal accounts for more than 40% of rail traffic and around 20% of revenues.
 
Economists say that a reduction in the earnings of either utilities or railroads could have ripple effects on their customers, including cuts in capital investment that would affect service and edward-markey.jpgcapacity.