Having been eyewitnesses to a wave of debt rating downgrades, anemic wholesale power prices and the collapse of the once-mighty Enron over the past year, a majority of power industry executives recently surveyed don’t expect the sector to rebound until 2004 at the earliest.

In the meantime, these same executives believe that power companies next year will focus their attention on boosting dividends, and the decisionmakers remain fairly bullish that power company stock prices will finish on an up note by the end of 2003.

Results from the Gale Force Quarter (GFQ) survey were unveiled last Tuesday by Washington, DC-based GF Energy LLC. The GFQ is a regular survey of decisionmakers in the U.S. electric energy industry and is designed to provide the industry with early direction on new financial trends, analysis of current industry issues, insight into peer perceptions and information about the strategies companies use to manage their business.

Among other things, the survey asked respondents to agree or disagree with several statements about regulatory and market pressure on company performance. “There was strong agreement that in 2003 liquidity would be constrained and that there would be pressure on electric power companies to focus on dividends,” the survey said. About three respondents in four agreed that companies would begin to raise dividends.

The survey also asked respondents to forecast the market in several important areas, including how many months it will take for the pace of competition to increase and for the industry to financially recover. The survey also asked what percentage change executives expect to see in the S&P 500 Index and the Dow Jones Utility Index by the end of 2003.

With respect to competition, the survey found that the mean number of months forecast until the pace of competition increases is 19. However, that figure was distorted by a single prediction that an increase in competition will take 10 years. In the area of financial recovery, the mean expectation in the power industry is that such a rebound will take 16 months.

On a brighter note, only 11% of respondents to the survey expect to see a decrease in stock values over the next year. The mean value of that forecast decline is 22 percentage points, but half of the predictions were for a decline of five percentage points or less. Also, 14% of respondents said that there would be no net change in stock value.

Among the 75% of respondents who expect to see higher stock prices at the end of 2003, the mean expectation is for an increase of 11 percentage points. The most common answer, given by 35% of respondents, is an increase of 10 percentage points.

The survey also asked energy company decisionmakers about industry trends over the next quarter, taking into consideration 12 key metrics of market performance including electricity industry earnings, power prices, market volatility, utility stock prices and price/earnings (P/E) ratios of utility stocks.

Most respondents do not foresee a change in market volatility, but among those who do expect change, the weight of opinion is strongly toward higher volatility. Most respondents believe the number of mergers and acquisitions will not change over the next quarter.

With respect to P/E ratios of utility stocks, opinion is evenly split between those who expect change, and those who do not. Among those who expect change in this area, opinion is evenly split among those who expect an increase and those who expect a decrease.

Respondents were evenly split on whether there will be federal electricity restructuring legislation in 2003, although there was a strong consensus that repeal of the Public Utility Holding Company Act of 1935 will not take place. Meanwhile, more than half the respondents said that they do not expect FERC to implement its proposed standard market design for U.S. wholesale power markets by the end of next year.

GF Energy administered a telephone survey to senior decisionmakers in the power industry starting the week of Nov. 11, 2002 and ending on Nov. 27. PA Consulting’s survey research center in Madison, WI, managed the survey process. The survey lists contained names of senior management at domestic electric energy companies. In a number of cases, CEOs and other senior executives delegated the responses to others in their offices.

The total number of surveys completed was 68. PA Consulting attempted to contact 394 senior managers and completed interviews with 57. GF Energy tried to contact 83 senior managers and completed interviews with 11.

The response rate for the study was 16.3%. “While low compared to response rates of general population surveys, it is not unusual for elite populations,” GF Energy said. “Nevertheless, this rate of response to the survey raises a cautionary flag with respect to interpreting the findings because, although we are not aware of any systematic bias in the response, we cannot rule out bias.”

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