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Utilities | Sector Analysis

Utilities | Sector Analysis. 02.23.2010. Nihar Shah Michael Song. Recommendation. Decrease weight in SIM portfolio by 72 bps Final: Underweight 150 bps. Introduction. Utilities Sector Size: 1721.2B Industries. Largest Companies in (SPUT). S&P/SIM Weight. (.78)%.

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Utilities | Sector Analysis

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  1. Utilities|Sector Analysis 02.23.2010 Nihar Shah Michael Song

  2. Recommendation • Decrease weight in SIM portfolio by 72 bps • Final: Underweight 150 bps

  3. Introduction • Utilities Sector • Size: 1721.2B • Industries

  4. Largest Companies in (SPUT)

  5. S&P/SIM Weight (.78)%

  6. S&P/Sector Performance (YTD) Outperform

  7. Business Analysis Electric Foreign Diversified Gas Water

  8. Utilities – Catalysts/Risks • Catalysts • Rate Regulation Increase • Weather Patterns • Improvement in Economy • Green Policy (Nuclear/Water) • Risks • Rate Regulation Neutral/Decrease • Inconsistent or over-demand • Commodity Prices • Green Policy (Electric/Diversified/Gas)

  9. Industry vs Sector Performance

  10. Sector vs S&P Performance Correlation: 80.93% Outperform Outperform

  11. Economic Analysis

  12. Economic Analysis

  13. Economic Analysis Forecast: GDP will very slowly increase over the short term

  14. Economic Analysis

  15. Economic Analysis Forecast: Interest Rate will increase in the short term

  16. Economic Analysis

  17. Economic Analysis

  18. Economic Analysis Forecast: Natural Gas Price will stay relatively constant in the short term

  19. Economic Analysis

  20. Economic Analysis Forecast: Potential for long term growth

  21. Regulation • State commissions are responsible for determining utilities’ proper rate bases and allowable operating expenses. Individual states’ rulings often differ with regard to these determinations. They also differ in allowed accounting treatments for depreciation accruals and investment tax credits. Although rulings are often presumed to be based solely on the public interest, commissions actually seek to provide a balance between investor and consumer interests.

  22. Green Policy (Update) • On June 26, 2009, the House of Representatives passed, by a narrow 217–205 margin, its version of a new energy bill, H.R. 2454. Included in the bill, called the American Clean Energy and Security Act, 2005–2050, were provisions for a cap-and-trade system that would incrementally reduce GHG emissions, beginning with a cap on 2012 emissions that is 3% below 2005 levels. The bill, whose principal sponsor was Henry Waxman (D.–California), also included a requirement that utilities get 15% of their electricity from renewable energy sources and, through increasing their energy efficiencies, reduce their electricity use 5% by 2020. Individual states, however, would be allowed to vary these two percentages as long as the total came to 20%.

  23. Financial Analysis Sector

  24. Financial Analysis

  25. Margins Net Profit N/A

  26. Summary Overall: Slightly negative for short term

  27. Recommendation • Decrease weight in SIM portfolio by 72 bps • Final: Underweight 150 bps

  28. Questions

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