Where will your money be when the lights go out?
Today's Financial News - Posted February 26, 2009
Utility companies are typically a haven for investors during an economic downturn, but they are not posing such a good choice this time around. Things are looking worse every day.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The recession may seem painful now, but it can and likely will get worse. If some of the headlines in today’s newspapers continue to grow, things could be getting much, much worse.
A failing automaker or bank is one thing, but a failing national infrastructure system is an entirely different story.
First, I want to share a story that is becoming familiar news to many Americans. A major regional power provider, PPL Corp (NYSE:PPL), an $11 billion company that generates and sends electricity to much of the northeaster and western United States, has felt the pain of a slowing economy.
Earlier this week, PPL announced it was cutting 6% of its workforce due to a major downturn in wholesale electricity prices. With a severe tightening in the credit markets, the company needs the $25 million or so it will save through the belt-tightening to continue with its capital expenditure plans like building a 500,000-volt transmission line through parts of Pennsylvania.
Without the ability to expand their operations, power companies across the country will be in serious trouble. It will have a dramatic impact on the nation’s economic recovery.
Many power providers have already cut their capital expenditure plans for this year, pushing back essential projects or canceling the marginal ones entirely.
The dam is going to burst
The problem at PPL is small but growing and will not likely be a major problem unless the recession lags on through next year. But of course, the nation’s infrastructure problem is much worse the closer you get to California.
Most of us have heard that a severe drought in the west has greatly lowered the water level in Lake Meade, which supplies about 90% of Las Vegas’ water.
What you may not realize is crews are desperately hurrying to install a new set of pipes that can pull water out of the deepest sections of the lake. They fear unless they get these news pipes in, the old ones may be above water in just a few years.
Unfortunately, the nation’s recession is putting a crimp on their activity. Few investors are willing to take on the millions of dollars in debt necessary to keep the project active.
If this project, and many others just like it, cannot find funding, progress will stop. The recent stimulus package goes a ways to fund a few “pet” projects, but many of the more serious matters will not be resolved.
A lack of infrastructure for even a year or two, will create serious logjams well into the future. Investors need to be aware of this phenomenon and take action.
The utility sector, typically known for its safety and dividends, is in more trouble than most analysts will admit. If you are holding onto any utilities expecting them to help you ride out the storm, you may want to think again.
Utilities are better than the overall market, but still will cost you your hard-earned money.
Next Article: Lithium stocks on the rise
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