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Electric utilities are taking divergent actions, such as expansion, contraction, and investment in nonelectric operations in order to meet the changing retail environment due to deregulation in a growing number of states. Management mind-sets, regulatory practices, financial strength, and company size are factors which determine which course each company takes. Investors need to evaluate individual stocks in this industry as the new environment is changing the industry's approach to doing business.

The electric utility industry is expected to be one of the worst performers over the next 6 to 12 months. In an effort to create more competition in the electric utility industry, some states have signed retail restructuring plans into law. Regulators and legislators alike want to break down monopolies, maintain system reliability, decrease pollution and bring rate relief to residential customers. Among central-US utility companies, CIPSCO Inc. is a favored investment, due to its dividend growth prospects, large customer base and modest debt burden.

Electric utilities, with only a few exceptions, appear to offer very little rewards for investors in the coming years until the middle of the next decade. With federal and state deregulation almost a certainty, electric utility administrators have been attempting to cut costs and diversify in order to achieve better capital gains and provide favorable returns. A few diversified companies may attract some investors, but the industry as a whole carries a low rating.

Electric utilities with low electricity prices, little exposure to nuclear radiation, financial success in nonregulated areas and large distribution networks are considered to be the best investment sources. New proposed laws and regulations, coupled with greater competition and layoffs among electric utilities could make this industry's stocks less attractive an investment than they are presently.

Electric utilities in the central US are facing greater competition and higher interest rates, factors which have led to lower share prices. Lowered debt, consolidation, cost-cutting, and internal efficiencies are among the economic options for these companies. Greater risk is one disadvantage in investing in utilities through the 1990s, but several stocks offer possibilities for dividend growth by the year 2000.

The electric utility industry in the Central US is not recommended for investment in the short-term. The industry is faced by several severe economic threats, including looming interest-rate increases and fierce industry competition. However, certain of these equities might present a good opportunity for investors who are looking for 3- to 5-year dividend growth.

Many electric utility stocks have reached prices as low in 1994 as they were in 1991. Greater competition and higher interest rates are largely responsible for these low stock prices. Utilities are merging in order to handle the increasing competition. There are very few stocks available for those individuals interested in conservative investments as well as income-oriented investments.

Performance of electric utilities based in the central US has been slow in 1994 and is expected to remain so in the near future. The Value Line Geometric Average, which measures these utilities stock performance, has fallen 22% from its high point in the middle of Sep 1993. As a group, these electric utilities are not expected to cut their dividends, although such occurrences are not to be unexpected.

Electric utility stocks remain unattractive because of prospects for limited growth in earnings and sales. A number of utilities are diversifying into other businesses in an attempt to boost earnings. Utility companies have diversified into nonutility businesses through investments in paper recycling plants, coal mining, independent power-generation plants and other industry sectors. Electric utilities rank the lowest of all industries in terms of timeliness.

Investors who select carefully may find the stocks of electric utilities are a bargin in 1994 since investors slowed down on their purchases of the stocks in late 1993. Since many utilities have an inflated payout ratio and since the prospect of earnings growth is poor, investors will need to use caution when selecting these stocks. Other factors affecting the industry include a Northeast power glut and new regulations on allowed returns.