It served up dependable electricity and in return was allowed to charge a certain rate. To keep the juice flowing, state regulators permitted electric companies to earn a fixed rate of return on funds spent on new generators or on purchases of power from others. Enter deregulation, which for much of the decade has brought to the business the harsh reality of competition. In places like California, for instance, it has crimped profits and made it hard for utilities to recover stranded costs. That hard truth has divided utilities into two groups.
Some power companies can produce electricity cheaply enough to compete with all comers.
Analysts say that members of that group are looking to snare additional generating capacity, then land industrial companies or other utilities as customers. The growth spurt comes at a price, however. Since most of the increase in profits will be used to fund expansion, investors in these utilities may have to kiss dividend growth good-bye. The second group of new utilities is made up of companies looking to shed costly generating capacity that hurts their profits. These companies are likely to become primarily transmission and distribution networks that shoot electricity to factories and homes.