Buy two electric utility stocks and call me in a decade.
That was the time-tested broker prescription for conservative
investors in need of steady income with no negative side-effects.
Again in 1996, stock market volatility has made the electric
utility stock a favored antidote for investor motion sickness. Yet
it's no longer such an automatic prescription because electric
utilities are no longer a sure thing.
Industrial customers, willing to take business elsewhere, are
demanding that utilities provide them with the lowest-cost energy
possible. Mergers, once rare, are coming fast and furious.
"It's hard to recognize a utility anymore as we move toward
total energy companies that include electricity, natural gas and
other forms of energy," William Griggs, chairman of Duke Power,
told me during a recent interview on "Today's Business" on the CNBC
cable television network. "There's a lot of speculation about
acquisitions, and you'll see more occurring as the market
differentiates winners from losers."
International power and energy trader Enron Corp., a one-time
gas-pipeline company, is buying low-cost electricity producer
Portland General for $2.1 billion in a stock transaction, creating
the seventh-largest electricity seller. It's one of a number of big
merger deals in the past year.
"In the transition from a monopoly to a competitive power
generation market, companies must get together to cut costs,
increase market share and build greater critical mass for future
growth," explained Douglas Fischer, analyst with A.G. Edwards &
Utilities now compete not only against other utilities and
unregulated generators of power but also against marketers that buy
and resell power. Competitive pressure squeezes bottom lines.
"One-third of electric utilities had to cut or eliminate
dividends in the past decade, while Public Service of New Hampshire
and El Paso Electric went bankrupt," said Raymond Moore, analyst
with Dillon Read.
Yet electric utilities retain their pluses. The average
dividend yield is a hefty 6.2 percent, even though there's been
"Electric utilities historically perform better than the
overall market in periods of market uncertainty, though I've been
disappointed in their defensive characteristics this year," said
John Lennon, lead portfolio manager for the Colonial Utilities
Fund, which has half its $1. …