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UIL Holdings
(NYSE: UIL)
Nathaniel Woodson, 58
Chairman and CEO
157 Church Street,
New Haven 06506
Phone: (203) 499-2000
www.uil.com
Revenues:
(2000) $880.9 million
Earnings: $60.8 million.
Employees: 1200
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Business New Haven
2/19/2001
By: Mitchell Young
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The California power crisis has put the utility industry on center-stage for investors. And while the “market” may seem to love the marketplace nothing beats the warm security of a monopoly for many investors.
Deregulation of the electric utility industry has been a tortuous process for investors. The uncertainty of the face of deregulation with its stranded costs, power plant sales, rate guarantees and ongoing regulatory structure helped to drive down utility shares.
Compounding difficulties for New Haven's United Illuminating stock were problems at Northeast Utilities Millstone nuclear plants. UI stock took a hit on the chin by association, an association that included UI's investment in the NU's Millstone and Seabrook nuclear power plants.
Shares of the United Illuminating Company, dropped to $20 per share in the fall of 1997 creating a yield of more than 10%..
Deregulation did finally move forward and the utilities' lobbying helped craft a plan that investors embraced.
Connecticut's deregulation forced the utilities to separate their distribution, production and transmission services. Unsold nuclear power-plant assets would stay within the regulated company. Under deregualtion “distribution” (the wires to your home or business) remains a regulated monopoly.
In spite of the rhetoric about California not building power plants, much of the problem was caused by utilities not signing long-term contracts because of a glut in power earlier in the decade and an Internet boom fueling California's economy.
United Illuminating claims it has protected itself from supply cost problems with fixed price contracts through 2003. New England's power supply has recouped as Millstone powered back up and several new gas fired powered plants are coming online.
Today just as deregulation is beginning on the retail level, shares of UI have picked up considerably. They reached a five year high of 56 in December, before dropping back to about $50 per share in mid February. UI's dividend of $2.88 per share still yields over 5.7%.
What we've long known as UI is now really two companies, under UIL Holdings Corporation, the regulated distribution company (the wires) which recently elevated VP Anthony Vallilo (of New Haven Chamber fame) to president.
Regulators allow the company a healthy 11.5% return on assets. UI can boost that yield by reducing costs, but they must share those costs with ratepayers and by writing down assets quicker. (reducing the future regulated rate base).
The company did achieve such gains in 2000 and customers will receive $18 million in rate reductions in 2001. On Jan. 22 UIL reported operating earnings of $4.26 per share for 2000, up approximately 16 percent compared to $3.67 per share in 1999. Total earnings for 2000 were $4.32 per share compared to $3.71 per share for 1999.
Almost all those earnings came from the regulated electric utility which earned $4.25 per share from operations, compared to 1999 earnings of $3.83 per share. The company cited an improved Connecticut economy that boosted sales. Warmer weather (in 2000 Vs '99) and costs for a refueling outage at the Seabrook nuclear plant, (which UI is a partner in) were negatives with the outage costing .33 per share.
Shareholders seeking continued gains will likely have to look at the potential for success of UIL's unregulated business, as the company will soon wring out any remaining excess costs from its regulated subsidiary.
UI's non-regulated subsidiary United Resources is made up of four principal components.
Xcelecom a provider of “tailored” electrical and voice-data-video design, construction, systems integration and services to customers in the Eastern US.
American Payment Systems (APS) provides automated payment systems to utilities and other billers across the nation.
A 33% non-operating investment in The Bridgeport Energy combined cycle merchant power plant in Bridgeport, Connecticut and an investment arm, United Capital Investments.
The non-regulated businesses of UIL earned $.01 per share from operations in 2000, an increase of $.17 per share from a 1999 loss of $0.16 per share. Operating business units - American Payment Systems, Inc. and Xcelecom, Inc. - improved operating earnings by $.40 per share over last year, which was substantially offset by lower results from United Bridgeport Energy and the financial leveraging, strategic and administrative costs associated with the parent, United Resources, Inc.
UI is anticipating profits of $4.40 - $4.50 per share. in 2001 based on $3.75-$3.85 per share in the regulated business units and $.60-$.70 per share. non-regulated.
Distribution profits will be down due to increased write down of assets under deregulation.
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