Profiting From The Future Growth In Electricity

As the world continues to become more digital, the demand for overall electricity will increase. While this may not sound like a big deal, the reality is that the nation's electric infrastructure is in desperate need of an update in order to handle this future demand. In an effort to modernize the electric grid, Congress included $11 billion in funding for this critical area in the economic stimulus package that was passed in February. For many electric producers, this means that the increase in government spending will help provide a much-needed upgrade to their industry. Whenever you see massive government spending there will always be those who benefit from it; this leads to an increase in profits over the long term.
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Companies Seeking Rate Hikes
Xcel Energy (NYSE: XEL) reported that it is awaiting approval on electric rate increases because it is spending $1.7 billion on improving electric generation, transmission and distribution in the state of Colorado.

American Electric Power (NYSE: AEP) announced that its subsidiary Southwestern Electric Power will be acquiring a 50% stake in the Oxbow Mine and all associated equipment. This is an attempt by the company to ensure that its Dolet Hills power station has an affordable fuel supply through 2026.

Then there is Consolidated Edison (NYSE: ED), which is asking state regulators for rate hikes that will take place between 2010 and 2013 and will pay for necessary improvements of electric infrastructure to help cover New York City's future demand for electricity. CEO Kevin Burke noted that "the needed funding will improve electric infrastructure and energy efficiency, while fueling growth and spurring the city's economic recovery."

Capital Investments Strong Despite Recession
One thing stands out when comparing what is happening with all three companies; despite the tough economic conditions, all three are taking steps to benefit from the increases in future electric demand through rate hikes, which will help pay for infrastructure improvements, or by taking ownership in those industries that can supply them with the necessary fuel supply for future electric generation.

Two Other Companies To Watch
FPL Group Inc (NYSE:FPL) announced that it would be seeking a rate increase to pay for the future infrastructure upgrades and to cover smart grid technology, which would help customers manage as well as control their electric usage. Meanwhile, Southern Company (NYSE:SO) announced that it has installed one million smart meters in an effort to save its customers money, and as a part of its plan of upgrading the company's energy infrastructure. Once again, these are clear examples that many different electric utilities are continuing to spend money upgrading their electric infrastructure so that they will be able to meet future electric demand.

Bottom Line
Even as the economy continues to go through challenges, electric infrastructure is still receiving heavy investment. This is an effort from both the federal government and the electric utilities to prepare for the future stress that will be put on the electric grid. If you're a long-term investor, it may be prudent to look at companies making strong capital expenditures today, in contrast to companies that have pared down spending and are just looking to survive the current economic climate. (If you're interested in investing in utilities, also take a look at Utitlies Funds: A Bright Choice In Bear And Bull Markets.)