Benefits May Result from Electric Power Shortage

By John Cunniff, Ap | THE JOURNAL RECORD, June 28, 1989 | Go to article overview

Benefits May Result from Electric Power Shortage


John Cunniff, Ap, THE JOURNAL RECORD


Talk of looming power shortages and brownouts around the country has many people worrying about the problems those circumstances might cause.

But some financial analysts and stock-market investors also are looking into who might stand to benefit, acting on the time-honored Wall Street precept that every crisis contains an opportunity.

The electric power situation hasn't yet reached crisis proportions. But as the Merrill Lynch Market Letter observes in a special report on the subject:

``Supplies of electricity are gradually tightening in many regions, especially in New England, on New York's Long Island and in some mid-Atlantic states.

``The problem reflects unexpectedly strong demand in recent years, operating difficulties that have forced some generating stations out of service and the reluctance of some local governments to allow completed plants to operate.''

A team of analysts at IDS Financial Services, the big Minneapolis-based money management firm, asserts, ``The United States faces the very real threat of a substantial shortage of electricity, on a national scale, by the mid-1990s.''

In most industries, an investor's response to such a forecast would be simple - buy stocks of companies that own and produce the commodity or product in question.

But electric utilities are a special case, since they lack the ability to set their prices simply on the basis of supply-and-demand market forces. The rates they can charge are set by state regulators.

``It's unlikely that many utilities will benefit substantially from higher sales of electricity. Regulatory authorities often make it difficult for companies to keep extra profits,'' says Merrill Lynch.

Any gain in revenues and profits, IDS says, is likely to occur at a utility that has a large ``reserve margin'' - capacity to provide extra power at periods of peak demand. …

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