The Mandatory Debt Bill

(Environmental Trust Financing (ETF)]

What the legislation would do:

Private companies, including utilities, can only finance projects through capital (money from investors) or debt (money borrowed from others).  This proposal would allow the Public Service Commission to mandate borrowing (over shareholder funding) for “environmental control activities.”

Impact of the Proposal:

The Mandatory Debt Bill:

-      Forces debt on healthy companies.  Governments are dealing with the effect of carrying too much debt when tough times come around.  The Mandatory Debt Bill would drive our utilities into more debt than they can afford.

-      Eliminates any return on investment for the projects funded with forced debt. Investors make dividends on investments, not debt. Shareholders would bear the risk of the whole company and a potential dividend from a shrinking share.

-      Reduces the value of stocks. Investors want company borrowing limited.  As the debt of Wisconsin companies rises, our company’s value would drop, hurting investors and the ability of the company to raise funds for future projects.

-      Raises the cost of borrowing for companies. Massive increases in state debt have lowered the state’s bond rating and increased interest rates on new borrowing.  The same thing will happen if the state forces Wisconsin utilities into too much borrowing.

The bill was originally proposed last session when money was easy to borrow and few people worried about the effects of too much debt.  With low interest rates and available money to borrow, forcing borrowing looked like a way to reduce project costs.  The economic meltdown has shown us that strong companies aren’t built on borrowed money.

Any short term benefit to excessive borrowing is destroyed by the negative impact this bill could have on stock prices and the ability of Wisconsin utilities to compete with other states for investment dollars.

Status:

The bill failed last session and may be introduced this session.

WUI Position:

WUI opposes giving the state the ability to mandate borrowing on private companies.