Fitch: Hot Summer Heated Up 3Q Earnings for U.S. Utilities

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: U.S. Utilities: Hot Summer Heats Up Earnings (Third-Quarter 2016 Earnings Wrap-Up)

https://www.fitchratings.com/site/re/890842

Hot summer months boosted median third-quarter 2016 (3Q16) earnings for the utility holding companies (UHCs), according to a Fitch Ratings report. Median earnings for 3Q16 grew by 11% year over year (YoY), compared with negative 4% in the 1Q and an 8% increase in the 2Q. Eighty percent of Fitch's sample UHCs affirmed their 2016 earnings per share (EPS) guidance, while the balance raised their guidance. Nearly 25% of the companies that affirmed the guidance expect to close the year in the upper end of the guidance.

Besides favorable weather, higher margins from base rate increases and infrastructure investments and O&M reduction also drove growth, offset by continued weakness in industrial sales particularly in mining, oil and gas shale sectors, continuing the trend observed throughout the year.

Hybrid utility companies continue to exit the competitive generation business and focus on their traditional, regulated operations, which Fitch views positively. AEP announced the sale of its 5.2GW of merchant assets to a joint venture of Blackstone Group LP and ArcLight Capital Partners LLC. FirstEnergy Corp. announced that it is reviewing strategic options for its merchant generation business, including bankruptcy.

Delays of several large infrastructure projects, such as the Atlantic Coast Pipeline, the Cameron LNG project and the Access Northeast project, during the third quarter highlight the inherent risks associated with environmental, legal and regulatory reviews and unforeseeable construction difficulties.

Investments in the renewable sector continue to be robust and distinctly pivot toward wind, as noted by Southern Power Co. in its five-year capex guidance. NextEra Energy, Inc. noted continued strong customer demand for wind generation. Xcel Energy Inc. continues to invest a significant amount in wind generation in its service territory, particularly in Colorado and Minnesota.

Merchant power producers reported continued low energy and capacity margins in most competitive markets. Favorable weather failed to boost power prices due to low load growth and low gas basis. However, merchants that have retail operations and/or announced or executed asset acquisitions have been and will be able to somewhat neutralize or even improve earnings.

For more takeaways from 3Q16 earnings calls, please see our special report titled, "U.S. Utilities: Hot Summer Heats Up Earnings" which is available on our website at www.fitchratings.com or by clicking on the link.

Additional information is available at www.fitchratings.com

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Fitch Ratings
Julie Jiang
Director, Corporates - US Utilities, Power & Gas
+1-212-908-0708
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Shalini Mahajan, CFA
Managing Director
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or
Media Relations
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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