Ringfencing

What is 'Ringfencing'

Ringfencing is when a regulated public utility business financially separates itself from a parent company that engages in non-regulated business. This is done mainly to protect consumers of essential services such as power, water and basic telecommunications from financial instability or bankruptcy in the parent company resulting from losses in their open market activites. Ringfencing also keeps customer information within the public utility business private from the for-profit efforts of the parent company's other business.

BREAKING DOWN 'Ringfencing'

The parent company can also benefit from ringfencing; bond investors prefer to see public utilities ringfenced because it implies greater safety in the bonds. Also, the parent company is usually freer to grow its non-regulated business segments once a ringfence is in place. Individual states are chiefly involved with ringfencing utilities within their borders, as no federal mandate is currently in place requiring that all public services be ringfenced.

A high-profile success story on ringfencing occurred during the Enron meltdown of 2001-2002; Enron acquired Oregon-based Portland General Electric in 1997, but the local power generator was ringfenced by the state of Oregon prior to the acquisition being completed. This protected Portland General Electric's assets, and its consumers, when Enron declared bankruptcy amidst massive accounting scandals.

RELATED TERMS
  1. Wholly Owned Subsidiary

    A company whose common stock is 100% owned by another company, ...
  2. Associate Company

    A corporation whose parent company possesses only a minority ...
  3. Enron

    A U.S. energy-trading and utilities company that housed one of ...
  4. Parent Company

    A company that controls other companies by owning an influential ...
  5. Minority IPO

    An initial public offering in which a parent company spins off ...
  6. Unconsolidated Subsidiary

    A company that is owned by a parent company, but whose individual ...
Related Articles
  1. Retirement

    7 Essential Questions To Ask Aging Parents About Their Finances

    No one wants to think about the aging of his or her parents, let alone plan for their death. Unfortunately, aging is a part of life, and in order to truly support your parents, it's best to start ...
  2. Retirement

    Helping Aging Parents Manage Their Money

    Old age can make dealing with finances difficult. Find out how you can help aging parents manage their finances and estates.
  3. Personal Finance

    The Booby-trapped World of Parental College Loans

    Private parent loans can help families pay for college. But the repayment timeline associated with the loans can hurt parents’ retirement savings.
  4. Investing

    The Enron Collapse: A Look Back

    This was one of the most complex bankruptcies in U.S. history. Ten years later, we look back at what happened and how it permanently impacted the financial markets.
  5. Managing Wealth

    Top Financial Planning Issues for Older Parents

    Clients who have children later in life present an opportunity for advisors. Here are the key the financial planning issues that need to be addressed.
  6. Markets

    Trust In Utilities

    Even in times of economic turmoil, utilities can be a good investment.
  7. Retirement

    How to Protect Your Parents from Financial Fraud

    How do you protect your parents from being victims of financial fraud before it happens? Here are some tips to help you minimize the risk.
  8. Investing

    Enron: The Fall Of A Wall Street Darling

    Enron is a classic example of greed gone wrong and how investors were led astray.
  9. Financial Advisor

    Top Tips for Family Wealth Transfers

    Essential tips for tackling family wealth transfers.
  10. Financial Advisor

    The Pitfalls of PLUS College Loans

    Here's how parents can avoid the pitfalls of PLUS Loans when it comes to funding their children's college education.
RELATED FAQS
  1. How many different types of utility stocks are there?

    Learn more about utility stocks and about some of the differences between different kinds of utility companies, including ... Read Answer >>
  2. What are the most common metrics for evaluating utilities?

    Read about the most common and important methods of evaluating the stocks of utility companies, and learn why regulation ... Read Answer >>
  3. What level of return on assets should an investor look for in the insurance sector?

    Learn why marketing is important to a company in the utilities sector, despite the fact it sells products and services in ... Read Answer >>
  4. How strongly does government regulation impact the utilities sector?

    Read about the impact of government regulation on the utilities sector, particularly as is pertains to the water and electricity ... Read Answer >>
  5. What average annual total return does the utilities sector generate?

    Learn the average annual total return the utilities sector generates for investors and why their returns are dependent on ... Read Answer >>
  6. How is taxation treated for both the parent and subsidiary company during a spinoff?

    Learn how the potential tax implications of a spinoff can affect both parent and subsidiary companies and how taxes may be ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center