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High dividend yields have been a major rationale for the purchase of electric utility stocks by investors for many years as they were higher than those paid by other industries. However, earnings and price/earnings ratios have become more important and both the industry and investors will be paying more attention to earnings in the future. Few of these stocks are appealing to investors as returns for the next three to five years are below average in spite of lower interest rates and share prices.

Generation, transmission, and distribution of electric power have been the major functions of electric utilities over the years, but several have decided to leave the generation business due to stranded costs and other factors. Retrenchment and entrance into the gas utility business are other trends of the investor-owned electric utilities in the 1990s. Dividend growth is the main attraction of these stocks for investors in 1998.

Constrained transmission capacity, tight generation capacity, and extremely hot weather allowed Midwestern wholesale electricity prices to surge in the summer of 1998. Companies which were able to transmit electricity to those utilities that needed power gained the most, and this may lead to additional capacity by independent power producers. However, few of these stocks are attractive for investors although many have high safety rankings.