Friday, April 27, 2007
Loraine, Ohio, was enjoying a beautiful August day when disaster hit the Republic Engineered steel mill in town.
At about 4 o'clock that afternoon, the power went out... and stayed out. After roughly 30 minutes in the dark, the Republic mill lost its ability to cool the iron inside its furnace. Molten metal burned through the side of the furnace, pouring into the building and igniting fires throughout the facility.
No one was injured in the incident, and company workers extinguished the fires. But the Northeast Blackout of 2003, the largest power failure in North American history, proved a debilitating blow for the steel company.
Rising steel imports and listless auto sales had hurt the steel bar industry, but Republic shipments had risen recently and profitability was on the horizon.
And then on August 14, the lights went out in Ohio... and Michigan, Ontario, New York, New Jersey, and Connecticut. The cascading outage left 50 million people without electricity for nearly four days, resulted in the loss of 61,800 megawatts of power, and cost the region's economy at least $6 billion... And it forced Republic Engineered into bankruptcy.
The threat of similar catastrophic failures continues to dog the U.S. power industry and threaten the nation's economic health. The ability to efficiently transmit electricity is what separates an industrialized economy from a third-world nation.
By this measure, the U.S. is on the verge of becoming a banana republic.
Right now, our nation's power grid can't keep up. Demand for electricity in the U.S. is expected to rise 19% during the next 10 years, while transmission capacity will only rise 9%, according to the North American Electric Reliability Council.
Not only that, but the capacity that exists is aging and increasingly unreliable. During the past five decades, U.S. utilities have concentrated on expanding their networks. They have spent very little to refurbish existing facilities.
The good news is the Northeast Blackout appears to have served the industry with a much-needed wakeup call. Electric utilities have earmarked $24 billion per year over the next 10 years to improve the transmission and distribution of electricity.
And lawmakers in Washington have, for once, found a way to help. President Bush signed The Energy Policy Act of 2005. The law guarantees minimum rates of return to utilities that invest in transmission and distribution systems. It promises full repayment of construction work. It also streamlines the permitting process to allow new power plants to come online.
This is a remarkable development. Utilities put up the money to build the infrastructure – which they'll own. And the government promises full repayment of the investment, through a combination of consumer rate increases, tax credits, and accelerated depreciation schedules.
The energy bill is the best thing to happen to utilities since Thomas Edison invented the light bulb. It's a no-risk investment for the companies and virtually guarantees the money will be spent as planned.
That means blue skies ahead for infrastructure companies such as Quanta Services (PWR), EMCOR Group (EME), and Pike Electric (PEC).
I like this trend so much, I named Pike Electric as my top recommendation at our subscribers-only Alliance meeting last year in Aspen. Just this week, Pike broke out to new all-time highs, and Big Trend Report subscribers are up 27% on the position.
I think there's plenty more gains to come for Pike Electric and companies like it. They've got a huge amount of work to complete in the next few decades. The uptrend is in place. More importantly, they've got the government on their side.
Best regards and good trading,
Blue chips at new highs: Nokia, Morgan Stanley, Apple, Boeing, and Raytheon.
Shipping continues to soar... Danaos, Teekay, DryShips, and Tsakos Energy Navigation at fresh new highs.
Energy stocks at new highs... ExxonMobil, Dril-Quip, Tesoro, Valero, Marathon Oil, GulfMark Offshore, Holly Energy, Martin Midstream, and Magellan Midstream.