Mr. de Croisset: It's definitely holding them back. The investing fundamentals for utilities shifted dramatically over the last several years. The perception of ever-rising electricity demand and imminent brownouts largely receded in 2009. The utility sector is now at overcapacity and continues to invest in infrastructure just as demand lags and ratepayers react to their rising bills. To boot, abundance of natural gas and a possible rise in interest rates has further eroded the investment narrative for this sector. So yes, there has been trepidation about the space. That said, selective opportunities exist and significant pessimism is reflected in the stocks, but not in the broader market, in our view.
TWST: What happened to the shortage scenario? Was it overstated at the time or has the falloff in the economy really changed the dynamics here?
Mr. de Croisset: The falloff in the economy really did change the dynamics. It resulted in a drop-off in electricity demand that was unprecedented over the last 20 years. To give you a sense here, electricity demand declined by about 4% in 2009, led primarily by a decline in industrials of about 13%. This was a very rapid change that happened in a short period of time and left the entire sector at overcapacity.
Tickers included in this excerpt: AYE, ETR, EXC, FE, MIR, PCG, RRI, SCG
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