Pacificorp Among Utilities Deregulation Should Help

With the Federal Reserve hiking interest rates six times (from 3 percent to 5.5 percent), utilities got hammered in 1994.

But the Fed’s most recent hike seems to be taking the pressure off. Mutual funds that specialize in utilities have been rebounding as many perceive the increases are nearly over.

These issues are extremely sensitive to interest rates because of their high yields, which look a lot less alluring in an era of surging interest rates.

The Dow Jones utilities index fell nearly 21 percent in 1994.

But many are sniffing the stocks because some utilities still have the characteristics that made them a favorite for investors looking for a relatively safe home.

And deregulation is coming to electric utilities. Low-cost energy prducers may prosper.

“Deregulation may separate the strong from the weak and offer some gains,” said Barry Abramson, utilities analyst at Prudential Securities.

Abramson looks for utilities with cheap resources and cash that can poach customers from high-cost suppliers.

Among his choices is Portlandbased PacifiCorp., which retains 30 percent of its earnings after dividends and has many generating plants near coal mines.

It is a low-cost producer that will be able to sell electricity to large users in nearby California the first state to deregulate.

“They can cherry pick big customers,” Abramson said. “They’re in the right place at the right time.”

Robert Christensen, manager of the $240 million Liberty Financial Utilities fund, looks for appreciation in stock price and dividends, and likes Entergy, a holding company for utilities in Arkansas, Louisiana, Mississippi and Texas.

Brian Kelly, who sees a long-term play in utilities, manages the $120 million Invesco Strategic Utilities fund. “I’ve repositioned the portfolio for the higher-yielding electrics,” he said. He likes Commonwealth Energy Systems. It now sells for about $38.375.