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Is your online broker built to trade? Datek Online's advanced technology gives you fast executions, real time quotes and immediate portfolio updates. For a limited-time offer, go to http://www.datek.com/sivy/ Datek Online. Member NASD/SIPC. ***************************************************************** SIVY ON STOCKS from money.com December 8, 2000 Electroshock in California As the electricity shortage in the Golden State reaches a crisis, local utilities are getting badly squeezed. But independent power producers are having a field day. By Michael Sivy The craziness in Florida has overshadowed an even more bizarre story unfolding in California. The Golden State is running out of electricity and on Thursday declared an unprecedented "Stage Three" alert. To conserve power, emergency measures are being considered that would ordinarily be unthinkable. Pumps that move water from Northern to Southern California may be idled for part of the day. Older generating plants may be allowed to run at levels that cause excess air pollution. Extra water may be diverted through hydroelectric dams endangering rare salmon. And it's possible that residents won't be able to turn on their Christmas lights until after 7:30 p.m. California has been forced to contemplate such appalling measures because of a hopelessly bungled electricity deregulation scheme begun in 1998. At the time, experts predicted that competition could eventually cut electricity costs by as much as 30 percent. To help California utilities bolster their financial strength for the new competitive market, consumer prices were left partially fixed until 2002, while wholesale costs were allowed to seek market levels. Since surplus power could be bought fairly cheaply, California electric companies initially profited. But unfavorable weather boosted the demand for electricity, while higher oil and gas prices increased costs for suppliers. Prices for out-of-state power have soared: For example, the cheapest surplus Canadian power that used to go for as little as $10 per megawatt-hour recently hit $1,000 during periods of peak demand. It's all been a catastrophe for California electric companies, which have to pay market prices for power but are limited as to how much they can charge consumers. The big utilities most affected are Edison International, parent of Southern California Edison, and PG&E, parent of Pacific Gas & Electric. Both stocks are down more than 25 percent from their highs. But not all energy companies are suffering. One big beneficiary of this mess is Duke Energy [DUK]. In addition to traditional power operations in the Carolinas, Duke has an unregulated wholesale-energy subsidiary that does extensive business in California and recently signed electricity contracts with both Southern California Edison and Pacific Gas & Electric. The subsidiary is also expanding and modernizing its California plants. Those additions will account for a sizable chunk of the new generating capacity expected to come on line over the next two years. Duke has long been one of my favorite utilities. I recommended the stock in May and again in July at $62 a share (see "Power companies" [ http://www.money.com/money/depts/investing/sivy/archive/000510.html ] and "True value" [ http://www.money.com/money/depts/investing/sivy/archive/000728.html ]). Since then, the share price has risen 38 percent to $85.75. With projected earnings growth of 9.5 percent annually over the next five years and a 2.5 percent dividend yield, the stock offers a potential total return of 12 percent a year. At 19 times next year's estimated earnings, the stock looks pricey for a utility, but the company certainly has a fantastic position. I'd hang on to any that I already owned and buy more on any dips. ======================= CHAT TRANSCRIPTS MONEY's Michael Sivy identifies sectors and stocks that possess true value in a rocky market. http://www.money.com/chat/2000/001204.html Tech Investor David Futrelle discusses the current state of the tech market and the outlook for various sectors. http://www.money.com/chat/2000/001201.html ======================= ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ Earning Releases and Calls For the latest corporate earnings releases and online conference calls click on: http://money.ccbn.com * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! 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