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United Illuminating Co. (NYSE: UIL),
157 Church St., New Haven 06506
(203-499-2000, fax 203-499-3664, http://www.uinet.com)
Chairman and CEO: Richard J. Grossi
President and CFO: Robert L. Fiscus
Market capitalization: $616.9 million
Revenues (1997): $710.3 million
Earnings (1997): $45.6 million
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Business New Haven
2/23/1998
By: BNH
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In December, United Illuminating's chairman, Richard J. Grossi, announced his impending retirement after almost 40 years at the electric utility.
Though a search has begun, no successor has been appointed. The question for UI shareholders now is whether new leadership at UI will be able to maintain that performance in the face of deregulation and increasing competition in the consumer electricity market.
Over the last year under Grossi's stewardship, UI has turned in a performance for its shareholders quite unexpected for a utility. After bottoming out at 23 3/4 in April, the stock has since nearly doubled in less than a year, trading now in the lower 40s and still maintaining a dividend yield of 6.5 percent.
Even while UI's stock was performing well, there were dark clouds on the horizon. First, even as 1997's financial results showed a 14-percent gain in total earnings to $45.6 million from $40.6 million the previous year, earnings from operations give a different impression.
Excluding one-time items, 1997's earnings per share were $3.11, down 21 percent from 1996's figure of $3.94 per share. Moreover, 1996's total earnings figure had been depressed by a $23 million early retirement and voluntary severance program aimed at long-term cost cutting. In 1997, on the other hand, the price consumers paid for their electricity dropped, while the shutdown of the Millstone nuclear reactors forced UI to rely more on increasingly expensive fossil fuels for electricity generation.
The more serious long-term challenge for UI is the approaching deregulation of the electricity market, and it is as much a political problem as a business one.
Utilities across the country invested billions of dollars in generating plants under the twin assumptions that their markets were protected and the prices they charged their customers relatively fixed. Now, in an era of approaching unfettered competition, it's up to state governments to determine how to fairly compensate electric utilities for these stranded costs. UI estimates its stranded costs to be $1 billion.
Consumers naturally don't want to foot the bill for any generating facilities, let alone the troubled Millstone reactors. The utilities, on the other hand, have to somehow cover their costs or face extinction in a new competitive environment.Grossi has pushed UI to cut expenses and will remain at the helm of UI for the current legislative session. But it is his successor who will steer UI's course after the transition to a free market in electricity.
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