Utilities to see profit increases in 2012

Analyst says power company profits should rise as new building projects expand the US grid

Associated Press

NEW YORK (AP) -- Shares of power companies appear to be attractive investments this year as the industry invests in new power plants and other infrastructure projects to meet new environmental standards, a Baird analyst said Friday.

Analyst David Parker said he expects the industry will spend $750 billion over the next decade to maintain the electrical grid, meet stronger environmental standards and satisfy expanding or changing customer needs. New building projects are a key driver for power company profits because state regulators typically allow utilities to raise power rates and earn a greater return on their investments.

Parker favors stocks from NorthWestern Corp. and Allete Inc. Both are expected to lead the industry in profitability in coming years.

Northwestern, which delivers electricity and natural gas in Montana, South Dakota and Nebraska, is planning about $2 billion-$3 billion in future projects, including $550-$850 million in near-term opportunities. The near-term projects alone could boost profits by 75 cents to $1.20 per share, Parker said. If its entire project portfolio comes to fruition, it could increase profits by 6 percent-8 percent per year.

Allete, which owns and maintains transmission lines in parts of Wisconsin, Michigan, Minnesota and Illinois, also is expected to benefit from new infrastructure growth. Parker expects ALLETE profits to increase by 8 percent-9 percent per year over the next three to five years.

Share values for many utilities already have been rising on anticipation of these profit increases. Parker downgraded Alliant Energy Corp., Wisconsin Energy Corp., Hawaiian Electric Industries and UIL Holdings Corp. to "Neutral" from "Outperform," saying their shares have risen to the point that they're now fairly valued.

In morning trading, shares of NorthWestern fell by 40 cents to $35 and Allete fell by 15 cents to $40.94. Shares of Alliant fell by 24 cents to $42.68, Wisconsin Energy shares dipped by 25 cents to $34.09, Hawaiian Electric shares fell by 22 cents to $25.73 and UIL Holdings shares dropped by 46 cents to $34.27.

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