Who's on First?

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MEMPHIS -- If I didn't know better, I would have thought David Letterman had ventured into the electric utility analysis business.

At least it appeared that way when I picked up this week's copy of

Public Utilities Fortnightly

, the leading publication on the comings and goings in the electric power business. You see, just like you read

TheStreet.com

every day, I run to my mailbox every other Tuesday morning to catch the week-old gossip from this "dead tree" industry rag.

Don't get me wrong, the

Fortnightly

provides an invaluable service to its readers, mainly executives and consultants to executives in the electric power business. However, with the speed of communications today, you would think a publication that specializes in reporting on wires would figure out how to wire itself to the very people it targets, those who make a living from those same "live wires."

Every now and again, though, it comes up with brilliant analysis and insight that just can't be found elsewhere. Case in point, this week's edition: a ranking of public utilities based on efficiency. The rankings take into account historical fuel costs, operations and maintenance costs, regulatory expense and a utility's capital and labor costs to arrive at an overall cost for fuel production.

The 10 most efficient electric utilities (including ties) as ranked by the

Fortnightly

are:

1.

Idaho Power

(IDA) - Get Report

2.

Ohio Valley Electric

(not public)

3.

Montana Power

(MTP) - Get Report

4.

American Electric Power

(AEP) - Get Report

5.

MidAmerican Energy Holdings

(MEC) - Get Report

and

Washington Water Power

(WWP)

6.

Central & SouthWest Corp.

(CSR)

and

LG&E Energy

(LGE)

7.

Western Resources

(WR)

and

North Central Power

(not public);

8.

Duke Energy

(DUK) - Get Report

9.

Upper Peninsula Energy

(UPEN)

10.

PG&E Corp.

(PCG) - Get Report

The most efficient, Idaho Power, is no surprise. The company remains steadfastly committed to its goal of being the premier low-cost electricity provider in the U.S. (We suggested Idaho Power as a core utility holding in last week's

column.) Its generation costs are among the lowest in the nation, a result of its significant commitment to hydro power production.

The more conservative, traditional utilities like AEP and Western Resources dominate the list. While both have notable nuclear exposure, their core generation remains fossil-fuel based. High-cost producers like

Niagara Mohawk

(NMK)

and

Entergy

(ETR) - Get Report

are to be found way down at the bottom of the list.

Other names familiar to Power Lines readers include Washington Water Power, MidAmerican Energy and Duke Energy. While the

Fortnightly's

list is not an end-all in a search for the perfect criteria for selecting utilities as investments, it certainly is another handy tool to gauge your friendly local utility.

Morgan Stanley 5, Schroders 2

Score one for

Morgan Stanley

. The brokerage firm resumed its coverage of

AES

(AES) - Get Report

on Tuesday, suggesting concern over the company's exposure to Russia and Asia was overdone. The stock surged 5 3/16 to close the day at 29 7/16.

It was just last Friday that perennial AES bull

Ray Niles

of

Schroders

downgraded the stock to neutral from a buy, and removed it from Schroders' recommended list, based on fears of emerging market exposure and the fallout of a possible downgrade by the ratings agencies. Ironically, just days before Niles indicated that he was as bullish as ever on the company's prospects, and believed that investors were exaggerating the impact of Russia and underestimating the company's development of power generation plants in the U.S. The stock lost 2 1/4 on Niles' downgrade.

So, what's really up at AES? Well, both firms are somewhat correct. While the problems associated with Russia, India, Pakistan and other Eurasian exposure should be taken seriously, they appear to already be priced into the stock. Remember, this is a company that should grow at a 20% clip just from new domestic projects as power deregulation surges.

While the company's credit rating may be of concern, the balance sheet remains strong. Look for management to find ways to further strengthen both the balance sheet and cash flows in the near future to address any of these lingering questions. If you believe we are close to the worst overseas, AES must be close to the bottom. Morgan Stanley may have made a very shrewd, even if lucky, call on this one. Schroders may have thrown in the towel a bit early, especially since Niles' original recommendation came when the stock was around 50.

It's the typical "half-full or half-empty" conundrum. From where I sit, it's clearly half full.

The Night the Lights Went Out in . . . Memphis

Passing through the heart of the mid-South on an auto journey to the Peach State, I had to satisfy my curiosity and head to the Memphis airport, dominated by strike-hit

Northwest Airlines

(NWAC)

(and

FedEx

).

I couldn't believe my eyes. At 9:30 p.m., mine was the only car in the passenger unloading area. Only two other people were in sight, a very lonely airport employee and a traffic cop, holding a full book of unused tickets.

What's more, all of the lights down Concourses "A" and "B" were turned off. All 40-plus gates used by Northwest were dark. Talk about powering down. The Memphis airport is awash in black!

Glad I have my car.

Christopher S. Edmonds is the president of Resource Dynamics, a private financial consulting firm based in Topeka, Kan. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At the time of publication, Edmonds holds positions in Western Resources, although these holdings can change at any time. While he cannot provide investment advice or recommendations, he welcomes your feedback at

invest@cjnetworks.com.