Once classified as safe investments suitable for “widows and orphans,” gas and electric utility stocks interest a broader cross section of investors, more interested in how well their investments perform and appreciate in value instead of the dividend yields or management performance, according to a new survey by Deloitte & Touche.

The Deloitte & Touche National Survey of Individual Utility Investors, which was conducted jointly with International Consumer Research, Inc., found that 8% of more than 5,000 individuals surveyed now own electric or gas utility stocks. The survey also found that investors are likely to invest in local utilities; base their investment decision on a combination of factors; and compare the performance of utilities against other utilities.

“Utility investors have been on a roller coaster throughout the past few years,” said Greg Aliff, national managing partner of the Energy Resources Group of Deloitte. “The introduction of retail competition, industry restructuring, the collapse of some wholesale electric markets and failed diversifications have all contributed to unprecedented credit downgrades and great losses in shareholder value in many companies.” Aliff noted that the losses occurred at the same time that utilities need to attract new capital and improve the U.S. power grid.

“Looking more closely at the data, the survey’s findings support market trends to dispute the old notion that utility stocks are only held by widows and orphans,” he said. “In fact, while slightly more men (61%) than women own utility stock, our survey shows that electric and gas utility stocks are held by a broad diversity of Americans of all ages and across income groups.”

The Deloitte survey found that while nearly half, 45%, owned stock in their local utility companies, most (21%) based their decisions to own utility stocks on recommendations. Another 17% purchased utility stock based on its price. Other factors for buying the stocks included inheritance or gift (8%), reputation of the company (8%), and the fact that the purchaser or spouse worked for the utility (7%).

The most likely factors for selling the stocks were a drop in price (20%) or a price increase (14%). Another 16% said they sold their stocks when a cash need arose. Meanwhile, 10% did not plan to sell.

“As auditor for many utilities, we were interested in knowing what sections of the annual reports the individual investors found most useful,” said Aliff. “Last fall, we learned that most investors read selected sections of the annual report and the proxy statement, and find both useful. Interestingly, the 2002 survey showed that investors are more focused on comparable performance and summary tables and charts than on financial footnotes and management discussion sections.”

Branko Terzic, who directs regulatory studies for Deloitte’s Energy group, said he found it “surprising” to see “performance against other utilities, stock price appreciation and annual return each rated higher than the size of the dividend when measuring how well corporate management performed.”

Terzic, who once worked for the Federal Energy Regulatory Commission and the Wisconsin Public Service Commission, believes that “regulators and government policymakers should take note that it will be the actual performance of utilities under regulation which will entice investors to put additional funds into utilities for needed electric and gas infrastructure reliability enhancement and capacity expansion programs.”

The complete results of the survey are available by contacting Deloitte’s Sally Wilson at (703) 251-4333 or swilson@deloitte.com.

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