Chapter 3
UTILITIES SECTOR COMPOSITION
Now you have an understanding of the basic characteristics that define Utilities and have reviewed the sector’s historical development. In this chapter, we’ll take a closer look at how the Utilities sector fits into the global stock market as well as at the different industries that make up the sector. We’ll also take a peek at some of the sector’s biggest firms and discuss some of the most important characteristics and earnings drivers for each industry.
GLOBAL INDUSTRY CLASSIFICATION STANDARDS (GICS)
We’ve talked a lot about sectors and a little about industries thus far, so before we go any further, let’s define exactly what we mean by those terms. The Global Industry Classification Standard (GICS) is a widely accepted framework for classifying companies into groups based on similarities. The GICS structure consists of 10 sectors, 24 industry groups, 68 industries, and 154 sub-industries, thus this structure offers four levels of hierarchy:
1. Sector
2. Industry group
3. Industry
4. Sub-Industry
But because the Utilities sector is so narrowly focused on the production and delivery of just three basic commodities (electricity, gas, and water), it has a much simpler hierarchy, with just one industry group that includes five different industries—and no differentiated sub-industries. The following are the five GICS industry categories in the sector:
1. Electric Utilities
2. Independent Power Producers & Energy Traders (IPPs)
3. Gas Utilities ...