By: Roger Conrad, Investing Daily
US Regulatory Environment Remains Levelheaded
Utilities’ ability to stay strong depends on regulators granting a fair return on investment. The alternative, by contrast, is the surest way to undermine both shareholder returns and long-term system reliability.
The good news is cooperation is alive and well. That even includes states such as
And
The Obama administration too seems to be rolling back the rhetoric it has ratcheted up for much of 2012. After months of intimating it would reject the merger of Duke Energy DUK and Progress Energy PGN, the Federal Energy Regulatory Commission (FERC) has now approved the deal.
FERC approval of Duke-Progress with only limited conditions is potentially a good sign for future power sector mergers.
Meanwhile, the replacement of Gregory Jaczko with Alison MacFarlane as head of the Nuclear Regulatory Commission promises less acrimonious and more science-based policy, opening the door to more licenses to build new nuclear plants as well as relicensing currently operating facilities.
There remain thorny issues to be resolved, such as the Federal Communications Commission’s still-to-be-announced ruling on Verizon Communications’ VZ purchase of unused wireless spectrum from cable companies.
TransCanada Corp’s TRPTRP Keystone XL pipeline linking Canadian tar sands output with US Gulf Coast refineries likely won’t be ruled on until after the election.
And
Last month’s actions are a hopeful sign that even in this election year, most regulatory decisions will follow cooperation rather than confrontation. And that’s a good reason to stay bullish on utilities’ long-term invest-to-grow story.
Robust Credit Conditions for US Utilities
In early 2003 more than two-dozen electric companies were either in bankruptcy or on the brink of it. That’s when a new generation of management began systematically cutting debt and operating risk while mending relations with regulators.
Nine years later the industry is in its best financial shape in decades, with low payout ratios, recession-resistant revenue and minimal near-term refinancing needs.
And that’s despite a lingering recession in many parts of the country, environmental challenges and volatile credit markets.
Now, finally, credit raters are starting to recognize the improvement, lifting both ratings and outlooks. That’s allowed companies to further improve balance sheets by issuing very long-term debt at extremely low interest rates.
Last month, for example, NextEra Energy Inc NEE issued 60-year bonds rated BBB by Fitch at a coupon rate of only 5.625 percent. NiSource NI, rated BBB- by S&P, sold 30.5-year paper at 5.25 percent, while BBB-rated PPL Corp PPL sold 10-year notes at 4.2 percent, and Wisconsin Energy Corp WEC, rated A-, sold 29-year notes at 4.5 percent.
That’s a far cry from
Although
Insider Action Suggests Confidence
Executives and other “insiders” sell stock they receive as compensation for many reasons. They buy on the open market for only one: belief their company’s stock is undervalued and headed higher.
Of the 43 stocks in my investment advisory’s portfolio, only three showed a decrease in ownership, all following sizeable run-ups in share price.
Frontier Communications’ FTR insider ownership has risen 41.6 percent over six months. And several Wall Street firms have seconded that vote of confidence with ratings upgrades in recent weeks.
I’m more impressed, however, by the continuing wave of insider buying of fellow wireline telecom Windstream Corp WIN. Insiders have been buying relentlessly since the stock’s early May plunge under $10, and this activity has been accompanied by analyst upgrades. For more safe, high-yield stock picks, check out my High-Dividend Stocks report.
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