Exelon Corporation (EXC), Duke Energy Corp (DUK): The Scariest Graph for Utility Investors Everywhere

Page 1 of 2

Keep your lights on and your fridge open if you know what’s good for your investments. According to a recent report, electricity demand growth is dropping – fast. Let’s take a look at the numbers, and whether this report is fuel on the fire for this overvalued sector.

Going, going, gone

In the 1950s, the U.S. experienced electricity demand growth rates of 10%. That’s greater than China’s current GDP growth and smacks of yesteryear economic prosperity, when Mr. and Mrs. Smith probably did leave their lights on.

Since 2000, electricity demand growth has averaged a minuscule 0.7% per year, and dropped into the red for the first time since WWII during the Great Recession. The Energy Information Administration’s (EIA) projections for the next 40 years don’t look any peachier. From now through 2040, annual growth rates are expected to hit just 0.9% a year, just over a third of our currently estimated GDP growth rate.

Source: EIA.gov

So why, then, have utilities stocks been skyrocketing over the last year? And why shouldn’t investors be listening to overvaluation fears of utilities bears? In two words: creative destruction.

Exelon Corporation (NYSE:EXC)

Growth isn’t everything

The era of baby boomer electricity use is over, but utilities are making major moves to keep bottom lines intact as top-line growth fizzles. This is a good move for utilities everywhere. Electricity use comes and goes with economic fortune and failings, and the only way utilities can keep pulling profits is to improve their own efficiency.

Exelon Corporation (NYSE:EXC) is the nation’s largest owner and operator of nuclear energy, with just over 19,000 MW of nuclear capacity comprising 55% of the utility’s total energy portfolio.

Source: exeloncorp.com

The company announced last week that it has filed renewal applications for two of its nuclear power stations, which collectively account for 13% of Exelon Corporation (NYSE:EXC)’s overall capacity and 24% of its nuclear energy. The applications are likely to be approved, allowing Exelon Corporation (NYSE:EXC) to prolong the life of its current capacity without adding on unnecessary (and expensive) major new projects.

Similarly, Duke Energy Corp (NYSE:DUK) recently announced that it would hold off on new North Carolina nuclear facilities the utility had previously been pushing. “Our most recent forecast indicates two additional nuclear units at Harris will not be needed in the next 15 years,” noted Duke Energy Corp (NYSE:DUK) President Dhiaa Jamil in a statement. Instead, the utility will continue to make the most of its $9 billion modernization project, which includes combined-cycle and “clean coal” plants.

More recently, improved technology and production tax credits have pushed power companies to ramp up their renewables efforts. It should come as no surprise that NextEra Energy, Inc. (NYSE:NEE) is adding on to its 10,000 net MW of wind capacity with General Electric Company (NYSE:GE)‘s  newest turbines, but other traditional companies are making the renewables leap, as well. Atlantic Power Corp (NYSE:AT) bought a renewables business from Veolia Environnement SA (ADR) (NYSE:VE) in 2012 that added 150 net MW of wind to its power portfolio. With over 350 net MW of wind power and 195 MW of biomass under its belt, the “growth by acquisition” utility is trying its hand at renewable energy efficiency.

Source:nexteraenergyresources.com

American Electric Power Company, Inc. (NYSE:AEP) was recently awarded accolades for the successful completion of its new 600 MW “clean coal” power plant. With a $1.7 billion price tag and seven years of regulatory battles to boot, this new facility promises to be the most efficient coal energy converter to date. Its “advanced ultra-supercritical steam cycle technology” will squeeze more from less, converting 39% of low-sulfur coal’s energy into electricity.

Source: AEP.com

Don’t keep your lights on

Economic recessions are never a good thing, but in this case, it’s caused power companies to take a critical closer look at their production processes. Whether it’s improving efficiencies or carefully calculating new expansions, utilities know that less can still mean more.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!