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Power Crunch Creates Winners, Losers by Amy Baldwin, Associated Press The Oregonian, January 21, 2001

Stocks of big utilities take a battering,
but companies selling power to them enjoy rising profits and stock prices

NEW YORK -- The West's energy crisis has created some clear winners and losers on Wall Street.

The stocks of Pacific Power & Gas and Edison International, the debt-ridden parents of California's two largest public utilities, are hurting. But the companies that sell power to the utilities are enjoying higher profits and stock prices.

The power troubles, which included state-ordered blackouts in California this past week, have caused the Dow Jones utility index to lose the gains it had been building since August. The index reflecting the performance of 15 utility stocks closed Friday at 351.30 after recently soaring above 400.

Utilities that serve Oregon and Washington have been caught in the slide. Stock of Spokane-based Avista Corp. is down 19 percent since Jan. 2 after closing at $16.63 on Friday. Shares of Scottish Power, which owns PacifiCorp, fell nearly 20 percent from $31.44 on Jan. 2 to $25.19 on Friday.

Shares of Sierra Pacific Resources of Reno, Nev., which is expected to complete the purchase of Portland General Electric from Enron this quarter, fell from $16 on Jan. 2 to a Friday close of $14.25, a drop of almost 11 percent. Shares of Houston-based Enron, the world's largest energy trader, have fallen from $79.88 at the start of the year to $70.88, an 11.3 percent decline.

California's utilities -- PG&E and Southern California Edison -- blame their problems on the state's 1996 deregulation plan, which was supposed to lead to lower rates for consumers. Under the plan, utilities were forced to sell their power plants and buy electricity from companies such as Duke Energy Corp.

But wholesale prices for electricity have soared and rate caps imposed under deregulation prevent utilities from passing those costs to customers. PG&E and SoCal Edison, which estimate they have lost more than $11 billion, have defaulted on millions of dollars in bills and warned they're headed toward bankruptcy.

The situation has been a boon to power generators such as Duke and Dynegy Inc., which have the energy California lacks and which have benefited from soaring wholesale energy costs.

Stocks of companies such as Ballard Power Systems Inc. and FuelCell Energy Inc., which make alternative forms of energy, are also up on hopes they'll profit from California's problems.

The list of stock market losers, however, could get much longer as the power woes persist.

Retailing stocks could suffer if rising energy costs make cautious consumers more nervous. High power prices and energy blackouts stand to pinch the weakened profits of the many technology companies in California.

"If consumers are faced with high energy costs in California and reduce their spending, that can have a big impact on the U.S. economy because it is such a large state," said Hugh Johnson, chief investment officer at First Albany Corp. "If businesses have problems and have to shut down every other day, there can be meaningful reduction in supplies sent to other parts of the country."

Banks and financial institutions also could be hurt, Johnson said, if PG&E or SoCal Edison go bankrupt.

"It can create real money problems," Johnson said.

Wall Street has reaffirmed the winners and losers. PG&E lost 11.9 percent for the week, closing at $10.19. Edison, the parent of SoCal Edison, rose 3.6 percent, ending the week at $8.94. Both companies' stocks already were depressed because of their financial struggles.

Meanwhile, Duke gained 5.3 percent after closing Friday at $72.81, and Dynegy advanced 10.7 percent after finishing at $47.19. FuelCell rose 23.2 percent after closing at $77.19, and Ballard picked up 16.2 percent, ending at $75.31.

Duke also got a boost from a strong earnings report this past week, announcing results that beat Wall Street expectations by a solid 6 cents a share.

Charlotte, N.C.-based Duke benefited handsomely from the energy price spike because it owns four California power plants that generate with a total capacity of 3,300 megawatts, enough to supply nearly 500,000 homes.

Whether the stock market gains for Duke and FuelCell and the losses for PG&E and Edison hold up will rest on how the power crisis is resolved.

"It depends on whether or not the generators end up signing long-term contracts and whether the (large) margins they were able to achieve in 2000 are sustainable," said Paul Fremont, electric utility analyst for Jefferies & Co.

However, Duke and its competitors, such as Reliant, Dynegy and Southern Energy, which Friday became Mirant Corp., might not be able to count on California for big profit margins in the future, Fremont said. They would lose if the state returned to more regulation -- for example, if legislators capped the prices generators can charge for supplying power to California utilities.