The United States has an aging power grid, and efforts to bring it into modern times could benefit utility exchange traded funds (ETFs).
The target is for electric power providers to spend $17 billion on upgrades by 2010, reports Steve Gelsi for MarketWatch. The alternative, if the industry doesn’t start making improvements, is increased blackouts and power-quality problems.
Utility providers are stuck, though, between the effects of an economic slowdown and uncertainty about climate legislation. Even so, while the power industry has often been criticized for its pokiness, it has stepped up efforts to go high-tech. But some still fault the industry for only stepping up their efforts after a crisis.
For example, the summer 2003 power outage that affected much of the Northeast. First Energy’s (FE) territory in Ohio was found to be the cause.
Dominion (D) has been offering “smart meters” to homes in Virginia that allows users to tell them how much energy they’re consuming and what it costs. But many of these improvements aren’t coming for free. Florida’s provider, FPL (FPL), got the go-ahead to raise monthly bills by 8% from August through December to offset rising fuel costs.
But even with all the problems of high cost and a creaky system, energy demand continues to rise. Kevin Law, CEO of the Long Island Power Authority, says that on Long Island alone, yearly demand is going up 2% in Nassau and Suffolk counties, and 7% on the eastern end of the island.
Will high-tech translate into high returns for utility ETFs?
- Utilities Select Sector SPDR (XLU): down 2.7% year-to-date; Dominion is 5.7%; FPL is 6.2%; First Energy is 5.3%
- iShares Dow Jones US Utilities (IDU): down 3.3% year-to-date; Dominion is 4.3%; FPL is 4.1%; First Energy is 3.9%
- Vanguard Utilities (VPU): down 3.5% year-to-date; Dominion is 4.3%; FPL is 4.4%; First Energy is 3.8%
- Utilities HOLDRs (UTH): down 1.6% year-to-date; Dominion is 7.5%; FPL is 7.9%; First Energy is 5.8%
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.