America’s regulated pipelines are a marvel not just of engineering but also financial innovation. Their origins date back a century to a debate on how best to finance critical infrastructure. Power utilities and pipelines were built by private capital attracted to “just and reasonable” investment returns in exchange for constrained competition. After all, it makes little sense to build multiple pipelines or wires along the exact same route. In contrast, highways and water systems were owned and financed by governments.
Today, while crumbling civil infrastructure struggles to get desperately needed funding, state-regulated utilities continue to attract capital for expansion and modernization thanks to healthy valuations close to all-time highs that make capital costs competitive. Yet equally critical natural gas pipelines regulated by the Federal Energy Regulatory Commission have been left in the cold with valuations reminiscent of the financial crisis despite steadily rising earnings. Why?