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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Sun May 20, 2007 4:27 pm Post subject: Utility Stocks, REITs, Canadian Trusts, Carbon Regulation, I |
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Utility Stocks, REITs, Canadian Trusts, Carbon Regulation, Interest Rate Outlook, Enerplus Resources & ETFs
QUESTIONS & ANSWERS : Greetings from the Las Vegas Money Show conference. For attendees, investment seminars are always a golden opportunity to learn a range of perspectives. At the same time, it gives advisors like me a chance to better know readers' concerns and interests so we can do our job better.
In addition to several other events, I gave three presentations in Vegas on Canadian trusts, utility stocks and the likely beneficiaries of almost certain carbon regulation. Here's a sampling of the questions I received during my own presentations at the show, along with my answers.
Q. GIVEN THEIR EXPLOSIVE RUN OF THE PAST SEVERAL YEARS, DO UTILITY STOCKS HAVE MORE UPSIDE LEFT?
A. Some have likely run out of gas, but others still present compelling, long-term values. The key question going forward is going to be capital spending. The sector has had a major investment deficit for more than three decades, dating back to the 1970s when rising costs began to convince regulators to deny returns on investment in the name of lower customer rates.
That ended the regulatory compact that existed in the '50s and '60s and allowed companies to really build out the US system. Now we're starting to see a major revving up of spending on a range of issues, particularly environmental ones.
In the '50s and '60s, greater capital spending always flowed through to the bottom line as regulators routinely allowed a fair return.
That didn't happen in the '70s, '80s and '90s. But since the demise of deregulation, officials in most parts of the country at least have been allowing decent returns.
Most states—as well as the federal government through the Federal Energy Regulatory Commission—have come to the conclusion that a fair return is essential to meeting the investment needs of the sector.
As a result, utilities are getting compensated for things such as environmental cleanup, transmission investment and other matters, in addition to recovering things like fuel costs.
As long as that continues, higher levels of capital spending will mean rising earnings for utilities. The trick will come later on, after much of the new investment is passed into rates that are likely to be somewhat higher.
At that point, regulators may change their mind and revert back to the mentality of past decades. That will no doubt kill off further capital spending for utilities. But it will also be very bad news for shareholders of utilities.
Consequently, monitoring the mood of regulators will be increasingly important in coming years. The simple truth is companies that get along with the officials who oversee their rates will enjoy rising earnings, dividends and share prices in coming years. Those who run afoul are going to be hurt, possibly very badly.
http://www.marketoracle.co.uk/Article1033.html |
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