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The Hercules of the power sector in a falling market

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Weak US markets last week

The US markets were weak throughout the week ended January 2, 2015. The SPDR S&P 500 ETF Trust (SPY) fell by 1.4% for the week. The weakness in the power sector was more evident as the Utilities Select Sector SPDR (XLU) tumbled by 2.3% for the week.

The SPDR S&P 500 ETF Trust (SPY) is an ETF tracking the S&P 500 (SPX) benchmark index. The Utilities Select Sector SPDR (XLU) is a key ETF in the power utility industry.

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Unregulated power producer turns Hercules

Only three power companies generated positive weekly returns for the week ended January 2, 2015. Dynegy Inc. (DYN) was the biggest gainer of the power sector for the week. It surged 3.8% during the week. Dynegy closed the week at $30.72.

After Dynegy, Calpine Corporation (CPN) registered the second highest gains among all power companies for the week. It gained 1.7% in the week ended January 2, 2015.

Although Dynegy’s and Calpine’s last week’s gains are not very large, their returns stood out in a falling US market for the week ended January 2, 2015. Unregulated power companies had underperformed the benchmark indices and the power industry in the last couple of months.

Both Dynegy and Calpine are pure unregulated power companies operating in the United States. Earnings of unregulated power producers are volatile compared to traditional regulated power companies. This is because the profits of unregulated power producers are based on market forces, while profits of regulated utilities are based on cost of service.

The only other US power company besides Dynegy and Calpine that gained last week was New Jersey-based Covanta Holding Corporation (CVA).

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