Long Term Perspective

Utility stocks had a phenomenal year in 2000 posting a 45 percent spurt after declining modestly in 1999. Unfortunately, this also reversed sharply in 2001. As a result, the 10-year average came to 4.7 percent in 2001.

Short Term Perspective

The 15 utilities included in this index are: AES Corp., AEP, Consolidated Edison, Dominion Resources, Duke Energy, Edison International, Exelon Corp., FirstEnergy Corp., NiSource Inc., PG&E, Public Service Enterprise, Reliant Energy, Southern Co., TXU Corp., and Williams Cos.

The utility sector is highly sensitive to interest rates - even more than the rest of the market. This is because utility stocks have historically competed with the bond market. Deregulation of the utilities industry may change some of these old relationships. Indeed, 2001 wasn't a very good year for utilities even though the Federal Reserve decreased the federal funds rate target from 6.5 percent to 1.75 percent during the year. Yields on long-term securities didn't decline as much as one would have expected; consequently it didn't help utility stocks. By the way, until its fall from grace, Enron was included in this index. It was recently replaced by FirstEnergy Corp. But there's no question that it hurt the entire industry.

The Dow Jones Utility index rose modestly in November. This index has only risen in four of the past twelve months, the worst among the Dow family.