Business & Money

Sticking to the Knitting:

A review of three years of post-Enron stock performance by electric utilities.

Immediately following the Enron collapse, investors dumped the stock of any electric power company that appeared to be pursuing non-traditional growth strategies. Any company that emphasized unregulated businesses-investments in overseas assets, merchant power plant development, and energy marketing and trading-was suspect. In response, these companies and the overall industry turned to the back-to-basics strategy, refocusing on core, regulated utility businesses.

But some companies never had to go "back-to-basics" because they never left. Other companies went against the back-to-basics trend and continued to pursue a growth agenda.

As we end the third year of the back-to-basics era, what does the performance track-record for the industry look like? What were the key performance drivers for the most successful players? Do certain nuances of the back-to-basics strategy appear more successful than others, and why?

To answer these questions, we considered the performance of 57 electric companies. To examine the impact of alternative strategies on investor performance, we grouped these companies into three categories:^1,2

Recent Converts. In response to a massive sell-off by investors and pressure from rating agencies, companies in the Convert category turned from their growth strategies and adopted a back-to-basics strategy.