Hurricane Isabel's Dominion

09/19/2003 12:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

As we go to press with this issue of the Digest, Hurricane Isabel is hitting the coast of North Carolina, and will soon be at the  Virginia offices of Roger Conrad, the leading authority on utility investing. Here we feature Roger's last minute assessment of how the hurricane could impact Dominion Resources, the leading utility in the region.

"For the utility industry, storms can wreak incredible havoc on systems. In severe storms, high-voltage power lines can be shredded like paper. It will be a while before we know what kind of damage Isabel will do. Early indications are that 300,000 people are already without power in the Carolinas, with a lot more to come. At this point, the storm's path is mainly focused on the system of a single company - Dominion Resources (D NYSE).

"The company happens to be a favorite of both my Utility Forecaster newsletter and Personal Finance. The company has been battening down the hatches for days, declaring a state of emergency and bringing in hundreds of repairmen from neighboring states to get things back up and running again as soon as possible once the damage is done. Some will no doubt criticize the company's actions no matter what happens. But with public awareness at an extremely high level, a strong performance in Isabel's wake will earn it kudos, and only a very poor one will pose any real threat.

"The other good news for Dominion is utilities almost always wind up recovering the cost of storm damage to their systems, either through insurance or higher rates. Given its solid financial position and strong earnings, the company may elect to defer recovery or even swallow some of the cost for the sake of regulatory goodwill. In any case, utilities rarely if ever take meaningful financial hits from storm damage, and well-run, well-regulated Dominion shouldn't be any exception. The stock remains a solid value at prices below 65. We would consider the shares a steal on any dip due to misplaced fears about Isabel damage."

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