Like producers, local distribution companies are under the weather, too, judging by their year-end results. “It’s dismal,” said Merrill Lynch analyst Rebecca Followill, who follows LDCs.

“The thing to keep in mind is it’s weather, and weather is a short-term phenomenon,” she noted. “I think the whole view of the industry right now is everything seems to be going in the wrong direction.. People have pretty much just given up on weather for the winter. Folks that we’re talking to are just sitting it out until winter’s over. I think people have given up on the stocks until the spring, which I don’t necessarily think is the right thing to do.”

Some companies Followill watches had decent results. “Two of the LDCs that have reported have come in better than last year. Cascade Natural Gas, and New Jersey Resources.” For the year, New Jersey Resources posted a total net income of $43 million, which represents a $2 million increase over 1997 earnings. The majority, however, have little to crow about, except perhaps that a year from now their performance should look great compared with 1998. “I think, generally, most folks are coming in lower than expected,” Followill said.

She pointed to Bismarck, ND-based MDU Resources Group, parent of Montana-Dakota Utilities and Williston Basin Interstate, as one shining example. “They were one of the only two stocks in our universe that outperformed the S&P 500 last year, and the other was Enron.” To its credit, Followill said, MDU over the last few years has diversified into construction materials. While the company has exploration and production operations, less than 10% of its 1998 earnings were derived from E&P.

Phil Borish, senior financial advisor to the Gas Index Fund, concurred that 1998 was a bad year, but things could be looking up, he said. “.[A]s soon as some of the other sectors lose their forward momentum we’re going to benefit. The gas fund is down this year.. Energy is out of favor. But as soon as you have a hiccup, we’re going to come back. I think it’s a buying opportunity.” Borish noted that as companies become more diversified, it takes a more careful examination to determine what earnings came from gas and what came from other businesses.

One prime example of this is MidAmerican Energy Holdings Company, which posted 1998 earnings that almost matched 1997. For the year, the company posted a net income of $131 million versus $135 million the previous year. Yet while its electric sales increased 2.7% from the previous year to 16,088 MWh, its gas sales plummeted 12.6% to 81,984 MMBtus.

Other, companies share many analysts’ sentiments that a light does exist at the end of the tunnel. “Clearly, earnings during [this] quarter reflected weather-driven events rather than any underlying change in the fundamentals of our business,” said James DeGraffenreidt, CEO of Washington Gas. “We are confident in our prospects for continued earnings growth, assuming normal weather.” For the quarter, Net income applicable to common stock was down $13.2 million from the same period last year to $24.6 million. For 1998, Washington Gas reported a net income of %54.1 million, which was $27.3 million less than 1997’s earnings.

©Copyright 1999 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.