Utility investors basing purchase decisions on recommendations, attractive prices, survey says


Washington, D.C., June 16, 2003 — Electric and gas utility stocks, once classified as investments suitable for “widows and orphans” because of their high degree of safety and dividend income, are attracting interest from a broader cross section of investors, according to new survey from Deloitte & Touche LLP.

Also, utility investors are more interested in how well their investments fare against other utilities and appreciate in value rather than dividend yields and management’s performance.

The Deloitte & Touche National Survey of Individual Utility Investors, conducted jointly with International Consumer Research, Inc., found that eight percent of more than 5,000 individuals surveyed own electric or gas utility stock. The survey also reveals, among other things, that investors are likely to invest in local utilities; base their investment decision on a combination of factors; and compare the performance of utilities against other utilities.

Greg Aliff, national managing partner of the Energy Resources Group of Deloitte & Touche, said, “Utility investors have been on a roller coaster throughout the past few years. The introduction of retail competition, industry restructuring, the collapse of some wholesale electric markets and failed diversifications have all contributed to unprecedented credit downgrades and great losses in shareholder value in many companies. These losses have occurred at the same time studies show that utilities will need to attract new capital to expand and improve the nation’s electric grid.

“Looking more closely at the data, the survey’s findings support market trends to dispute the old notion that utility stocks are only held by widows and orphans,” Aliff continued. “In fact, while slightly more men (61%) than women own utility stock, our survey shows that electric and gas utility stocks are held by a broad diversity of Americans of all ages and across income groups.”

The survey also revealed that while 45% of respondents owned stock in their local utility companies, most (21%) based their decisions to own utility stocks on recommendations while 17% purchased utility stock because of its attractive price. Other utility stock ownership reasons include: inheritance or gift (8%), reputation of the company (8%), and the fact that the purchaser or spouse works for the utility (7%).

A price drop (20%) or a price increase (14%) were cited as the most likely factors for selling utility stocks, as well as the need for cash for other things (16%). Ten percent of utility investors said they would not sell their utility stocks.

The survey follows the 2002 Deloitte & Touche Consumer Awareness Survey of Electric Deregulation, which queried respondents about utility stock ownership and annual report usefulness.

“As auditor for many utilities we were interested in knowing what sections of the annual reports the individual investors found most useful,” explained Aliff. “Last fall, we learned that most investors read selected sections of the annual report and the proxy statement, and find both useful. Interestingly, the 2002 survey showed that investors are more focused on comparable performance and summary tables and charts than on financial footnotes and management discussion sections.”

“When studying results from the current survey, it was surprising to see that performance against other utilities, stock price appreciation and annual return each rated higher than the size of the dividend when measuring how well corporate management performed,” reflected Branko Terzic, director of regulatory studies for Deloitte & Touche’s Energy Resources Group and a former member of both the U.S. Federal Energy Regulatory Commission and Wisconsin Public Service Commission.

“Regulators and government policymakers should take note that it will be the actual performance of utilities under regulation which will entice investors to put additional funds into utilities for needed electric and gas infrastructure reliability enhancement and capacity expansion programs.”

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