Trader Talk

Utility Stocks Take It On The Chin


Demand for energy remains weak-and utility stocks are taking it on the chin today.

FirstEnergy, which operates largely in Ohio, uses an auction method to partially sell output from its power plants. The results of the auction were announced last night: $61.50 a megawatt hour, from June 2009 through May 2011.

This was well below the prior auction price of $67 a megawatt hour.

The price was low by historic standards, but even more surprising is how little of it was taken--51 percent of the available power, which indicates that there is a large supply of low-cost power (coal, nuclear, gas) on the market .

What's causing this? Lower demand for energy. For example, analysts estimate that natural gas has see a 20 percent decline in usage for industrial purposes, which has left a huge amount of gas in storage--one reason natural gas prices are just coming off 6-year lows.

Recently, forward prices for energy appear to have been rising, but that is not helping prices in the near term.

There is additional concern that First Energy may have to issue equity to preserve its credit rating.

The only good news here? Lower utility prices for Ohio residents!

First Energy down 10 percent midday.

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