S&P Remains Positive on Independent Power Producers
By Craig Shere
Standard & Poor's continues to recommend that investors overweight the independent power producer segment. Shares in the group have fallen sharply recently on concerns over California's power meltdown.
But fears of slowed growth and asset write-offs are overblown -- and ignore the strength of broader industry fundamentals. The firms' exposure to California utility receivables is minimal. And receivables from next summer's power sales will have credit priority if utilities go into bankruptcy now.
Also working in the group's favor: The Federal Energy Regulatory Commission's (FERC) support of free markets, the U.S. Constitution's protection of private property -- and ultimately, economic reality -- limit what local politicians can do.
Our top picks in the group, each ranked ***** (buy): Dynegy (DYN ), Calpine (CPN ) and AES Corp. (AES ).
Shere is an equity analyst for Standard & Poor's