Abstract
Public utility commissions across the country granted large rate increases in 1980 and 1981, in spite of recession, inflation, and a consequent strong pressure to protect consumers and industry. Arguments in favor of rate relief were also very powerful. In spite of numerous cancellations and postponements, utilities' construction expenditures remained very substantial, but their ability to obtain the necessary external financing was seriously constrained by rising interest rates, which drove the cost of debt up and coverage ratios down. Coverage ratios were close to the specified minimums, so utilities had to balance increases in debt with increases in equity. However, utility stocks sold far below book value, and again, high interest rates played a central role. The next 10 years look to be less difficult for electric utilities, assuming that the current economic weakness does not drag on and that inflation can be kept under control. The future course of demand is still uncertain; however: 1. Oil prices should follow a more moderate course. 2. Slower demand growth should ease. 3. The pressure to build should be less intense. 4. Financing should be less difficult. Appendices.