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Utilities Get Off to a Good Start this Year, Gained in January

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Aug. 18 2020, Updated 3:39 a.m. ET

Market performance

After a lackluster performance in 2015, utilities have started off better this year. Conservative investors have turned back to safe-haven utilities after considering the volatility in global markets. After losing more than 8% last year, almost all utility stocks showed positive movement in January 2016. The slower-than-expected rate of rising interest rates can continue the rally in 2016.

The chart below shows the stock movement of DTE Energy Company (DTE), CMS Energy (CMS), and the Utilities SPDR ETF (XLU) during January 2016. DTE has gained more than 9% so far this year.

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Capital spending

DTE Energy Company intends to spend $13 billion on growth projects through 2020. The majority of this capital spending plan has been allocated to the electric segment. New generation facilities remain the focal point of the spending plan. Currently, more than 50% of the power that DTE generates comes from coal-fired plants.

DTE is striving to add more gas-fired plants and renewable by retiring coal plants. By 2030, coal is expected to contribute only 25% of the total power DTE generates. Natural gas and renewables are forecasted to generate ~60% of its total power.

Fueling the growth by gas

Considering the slow business growth of the electric segment, DTE is planning to spend more actively on its gas segment. According to DTE’s recent capital spending plan, it is expected to spend 15% more on the electric segment than its 2011–2015 spending. On the other hand, investment in the gas segment is expected to increase by more than 45% in the next five years compared to 2011–2015.

Adverse weather and energy efficiency programs can continue to dent the power business of these utilities (FXU). Thus, utilities are actively increasing their natural gas operations to tap the growth opportunities. Last week, Dominion Resources (D) announced its merger with Questar Corporation to fortify its gas business. Last year, major player Duke Energy (DUK) announced it would acquire Piedmont Natural Gas (PNY) while Southern Company (SO) announced its merger with AGL Resources (GAS).

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