Energy Biz - September/October 2008 - (Page 21) cerning fuel costs, but “companies unable to handle that can get really whacked,” Conrad says. A company that isn’t dependent on its rate base or regulators for growth is Oneok, the largest utility in Kansas and Oklahoma. The company’s unregulated pipeline and storage and processing businesses produce the majority of its revenue and Oneok’s natural gas and natural gas liquids business are currently undervalued, Muir says. With natural gas distribution trading at relatively cheap levels, “we see potential for 15 percent gain in the average price-earnings ratio of natural gas distribution utilities, and since Oneok trades at a discount to its peers, we think it should trade at a 5 percent premium to its peer target,” Muir says. You could also look at the company’s gas-gathering and distribution business as defensive in turbulent times, but Oneok, through a partnership which it controls, continues to invest with good return in gathering and processing, turning the liquids into fuels, and in storage, for which it has substantial capacity. The company also keeps its equity in line with its debt, says Dan Harrison, investor relations vice president, to keep its borrowing costs down. For 2008, S&P predicts earnings of $3.09 a share for the parent company, a 13 percent gain over 2007. “We see earnings growth substantially above that of other utilities and that’s why we see the premium,” Muir says. There are other reasons some utilities and generators should gain value. Entergy, which successfully rebuilt its local distribution companies in Louisiana and Mississippi following Hurricane Katrina, also has a big nuclear fleet that it plans to spin off. The nuclear fleet and overall effective rebuilding has convinced Zack’s Kolb that its share price in 2008 could hit $130, up from $121.06 at the end of May. But with many companies the biggest asset is the customer. FPL Group, even though it had to scuttle its proposed merger with Constellation Energy Group, serves fast-growing and stable Florida utility markets. Zack’s Kolb believes FPL Group can add more customers and expand generating assets and that they will drive earnings higher. Kolb’s concern with the company is an upcoming base rate increase. FPL Group’s fuel costs doubled over the past four years, and a return on equity that at one point in 2007 hit 12 percent may not last. Writes Kolb: “Any cuts in future rates will hurt.” Build Success. Start with a solid foundation. To prepare your workforce for the challenging and dynamic gas and electricity marketplace, start with the basics. Our energy business acumen curriculum will help your employees succeed from day one. And we can deliver it in just about any medium you can imagine. Success doesn’t just happen, it’s built. Seminars. Books. Online. Visit www.enerdynamics.com to view our growing energy business curriculum. Or call 866-765-5432 to launch a customized training program today. www.energycentral.com E n E rgyB i z 21 http://www.enerdynamics.com http://www.enerdynamics.com http://www.energycentral.com
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