Wall Street Transcript Interview with Timothy Winter, All Star Analyst with GAMCO Investors: Nuclear Power Plant Construction Creates Opportunity for 11% Utility Returns

Wall Street Transcript

67 WALL STREET, New York - August 27, 2012 - The Wall Street Transcript has just published its Utilities, Alternative Energy and Water Services Report offering a timely review for serious investors and industry executives. This special feature contains expert commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Outlook for Biofuels and Biochemicals - Asia Pacific Demand for Solar Energy - Grid Parity Timelines for Alternative Energy - Water Infrastructure Development - Irrigation and Metering Technology - Water Industry Consolidation

Companies include: PG & E Corp. (PCG), SCANA Corp. (SCG), Dominion Resources, Inc. (D), Duke Energy Corp. (DUK), Southern Company (SO), Northeast Utilities (NU), Exelon Corp. (EXC), NRG Energy, Inc. (NRG), CH Energy Group Inc. (CHG) and many others.

In the following excerpt from the Utilities, Alternative Energy and Water Services, expert analysists discuss the outlook for the sector and for investors.

TWST: You mentioned we're in a time when the utility industry is addressing global warming. Which companies from your group are doing the most effective or most interesting or innovative approaches to address this phenomenon?

Mr. Winter: Some successful investment approaches to address global warming include wind and solar generation, transmission investment, and potentially, nuclear development. In addition, regulated utilities can earn returns by retrofitting old coal plants as state politicians and regulators - commissions - want them to be in compliance, thus allowing environmental quarterly, semiannual or annual rate increases. While coal-fired utilities, which are heavy in the Midwest, must invest a lot of money to put on pollution-control equipment, they're earning immediate returns for shareholders.

Our favorite idea remains NextEra Energy (NEE), the biggest owner and operator of wind in the United States with significant pipeline of future development should the renewable tax credit be extended. And if it isn't, they have moved to build a significant amount of solar in California. They even are doing a project in Spain. That will be sort of a one-off international project, but it's a nice project. They're building wind in Canada. They're building transmission in Texas, where they already own a bunch of wind, so they have a lot of levers to the positive dynamics going on in the industry. That is one of our favorite ideas. It's been for sometime.

On the nuclear front, there are two new nuclear plants being built in the United States - two unit expansions at two sites, one in South Carolina, one in Georgia; South Carolina, SCANA (SCG). Nuclear is environmentally friendly for the most part as far as emissions and climate change go. The U.S. needs baseload generation and most new generation is going to be or has been gas fired. The U.S. can't add coal anymore given new EPA rules. So nuclear is really the best baseload generation there.

South Carolina has legislation passed on a regulatory compact where SCANA is building this nuclear plant that they got a license for earlier in the year, been developing at least five years and is suppose to go online in 2017 and 2018. SCG is allowed to file updated investments costs every May, update how much they spent on a plant and on November 1, the commission gives them a rate increase at 11% return on equity. So basically, they have annual earnings growth as a result until 2017 and 2018. I believe that makes the company very attractive to the larger electric utilities around them. So you have earnings growth and dividend growth because of this rate-based investment.

At the same time, the larger electric utilities around them - Dominion (D), Duke (DUK) - all want to add nuclear. Southern (SO) is building at the same time in Georgia, but the other utilities are behind. I think that SCANA's shareholders could benefit. So that's another name we like.

Northeast Utilities (NU) is taking advantage of transmission, and they're just the largest distribution utility in the Northeast. They recently, April of this year, merged within NSTAR. So you have the Connecticut utility, Connecticut and NSTAR utility merging with a Massachusetts utility out of Boston, significant synergies over the next couple of years. They are building a series of New England transmission projects, including a very large one that's going to bring - it's on the Northern Pass - that will bring low-cost hydro capacity from Quebec into New England. And as a result, we're going to see some earnings growth, dividend growth.

TWST: In your electric outlook report, one of the factors you discussed is consolidation throughout the utility sector. What is your current outlook for M&A? And what kinds of deals are we likely to see?

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers, and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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