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Electric utilities in the Middle West can no longer count on recovery of plant investments or a fair rate of return with deregulation and the onset of competition in the industry. All utilities, even those with low cost structures, will face stranded cost problems and this has become an issue in a number of states. These stocks have little investment appeal in 1998 due to their trading range and uncertainties in the industry.

Electric utility stocks have lost ground during the 2nd qtr of 1998, though valuations have increased due to lower interest rates, and weather in the Midwest has had an economic impact as well. Legislation has been adopted in a number of states restructuring electric utilities, and the industry should be deregulated within the next five years. These stocks are stable, although risky, investments in 1998.

A general plan for deregulation and competition in the electric utility industry was announced for congressional consideration by the Clinton administration in Mar 1998, although passage is not likely. Utilities, as a result, will need to find new revenue sources as growth will be slow and rate reduction is expected from state-level deregulation. Investors need to focus on companies with limited risk, low costs, and good finances.

Electric utility deregulation laws have been enacted in only a few states by late 1997, but restructuring legislation is expected to increase in many jurisdictions in 1998 and 1999. Tighter emissions standards and new taxes will impact the industry, and regular revenue streams cannot be ensured by future regular rate increases, as well. Investors should select only those stocks which are supported by solid financial and management structures.

The electric utility industry is being deregulated at both the federal and state levels in the mid-1990s, and this will have an impact on dividends, earnings, and revenues. Pollution, financial stability, service access, costs, and pricing are other deregulation issues that utilities will face, as well. This industry has matured in the US, and investors must be selective before making financial commitments.

The electric utility industry will face an important year in 1997 when the issues of stranded cost recovery and jurisdiction over transmission and distribution are dealt with by Congress. The playing field between private, federal, and other utilities will also be leveled, and many utilities are taking steps to improve their economic structures. Only stocks with strong finances and stable operations should be considered by investors.

Rules governing transmission capacity, stranded costs, wholesale and retail competition, and other items concerning electric utilities were issued by the Federal Energy Regulatory Commission in Apr 1996. A bill to repeal the Public Utility Holding Company Act of 1935 and to reduce regulatory red tape is also being considered by the US Senate. Investors must be cautious when selecting utility stocks, as the industry is changing rapidly in 1996.

Proposals for electric utility competition are being reviewed and several states may enact 'retail wheeling' programs in 1996. Guidelines are needed at the federal level for asset recovery, conservation, and other issues. Merger procedures at the Federal Energy Regulatory Commission are being revamped, and competition for utility customers is being implemented in some states. Investors may find several individual utility stocks attractive.

Competition for electric utilities is increasing with regulatory changes at the state level. The Public Utility Regulatory Policies Act and the Public Utility Holding Company Act of 1935 at the federal level may be repealed or amended. Decreased regulation has led to greater consolidation in the industry through mergers. Investors must consider stocks with modest payout ratios, low debt burdens, and competitive rates.

Electric utilities are changing from a monopolistic to a competitive environment. This is leading to more incentive ratemaking, greater cost reduction efforts, increased foreign investment, and further industry consolidation. These stocks are trading near the upper level, and investors need to be selective when choosing electric utility issues. Dividend growth, debt ratio, and other factors must be considered.

Electric utilities are changing from a regulated to competitive industry, due, in part, to the Energy Policy Act enacted in 1992. Several states are discussing new retail and wholesale power wheeling regulations. Utilities have reduced capital expenditures, downsized workforces, and refinanced their indebtedness. Well-financed utilities, such as Allegheny Power and Southern Co, are good selections for investment.