Utilities Turn to Wires in Volatile Markets
Energy needs and high returns are boosting transmission investments.
For many years, investors have counted on utilities for relatively consistent returns in turbulent times. But as markets have fallen this year, utility investors have been caught in the rain with no umbrella.
Why is this time different? First, many utilities now have significant exposure to commodity markets because of states' power market deregulation since the last major economic downturn in the United States. As prices for oil, natural gas, and coal have fallen some 50% from midsummer highs, so too have power prices and utility profits. Second, utilities are capital-intensive businesses. Tight credit conditions in today's markets have raised costs for the capital utilities needed to build power plants, connect new customers, and service networks. Many utilities are cutting back their investment plans, which could reduce future earnings growth.
Travis Miller does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.