Dividends Q FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. SHAREHOLDER-OWNED ELECTRIC UTILITY INDUSTRY

Transcription

1 Dividends Q FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. SHAREHOLDER-OWNED ELECTRIC UTILITY INDUSTRY

2 About EEI The Edison Electric Institute is the association of U.S. shareholderowned electric companies. Our members serve 95% of the ultimate customers in the shareholder-owned segment of the industry, and represent approximately 70% of the U.S. electric power industry. We also have 79 international electric companies as Affiliate members and more than 190 industry suppliers and related organizations as Associate members. About EEI s Quarterly Financial Updates EEI s quarterly financial updates present industry trend analyses and financial data covering 69 U.S. shareholder-owned electric utility companies. These 69 companies include 58 electric utility holding companies whose stocks are traded on major U.S. stock exchanges and eleven electric utilities who are subsidiaries of nonutility or foreign companies. Financial updates are published for the following topics: Dividends Stock Performance Credit Ratings Construction Rate Case Summary SEC Financial Statements (Holding Companies) FERC Financial Statements (Regulated Utilities) Fuel For EEI Member Companies The EEI Finance and Accounting Division is developing current year and historical data sets that cover a wide range of industry financial and operating metrics. We look forward to serving as a resource for member companies who wish to produce customized industry financial data and trend analyses for use in: We Welcome Your Feedback EEI is interested in ensuring that our financial publications and industry data sets best address the needs of member companies and the financial community. We welcome your comments, suggestions and inquiries. Contact: Mark Agnew Director, Financial Analysis (202) , magnew@eei.org Aaron Trent Manager, Financial Analysis (202) , atrent@eei.org Erin Hailes Financial Assistant (202) , ehailes@eei.org Future EEI Finance Meetings 45th EEI Financial Conference October 31-November 3, 2010 Desert Springs JW Marriott Resort & Spa Palm Desert, California For more information about EEI Finance Meetings, please contact Debra Henry, (202) , dhenry@eei.org Investor relations studies and presentations Internal company presentations Performance benchmarking Peer group analyses Annual and quarterly reports to shareholders Edison Electric Institute 701 Pennsylvania Avenue, N.W. Washington, D.C

3 The 69 U.S. Shareholder-Owned Electric Utilities The companies listed below all serve a regulated distribution territory. Other utilities, such as transmission provider ITC Holdings, are not shown below because they do not serve a regulated distribution territory. However, their financial information is included in relevant EEI data sets, such as transmission-related construction spending. Allegheny Energy, Inc. (AYE) ALLETE, Inc. (ALE) Alliant Energy Corporation (LNT) Ameren Corporation (AEE) American Electric Power Company, Inc. (AEP) Avista Corporation (AVA) Black Hills Corporation (BKH) CenterPoint Energy, Inc. (CNP) Central Vermont Public Service Corporation (CV) CH Energy Group, Inc. (CHG) Cleco Corporation (CNL) CMS Energy Corporation (CMS) Consolidated Edison, Inc. (ED) Constellation Energy Group, Inc. (CEG) Dominion Resources, Inc. (D) DPL, Inc. (DPL) DTE Energy Company (DTE) Duke Energy Corporation (DUK) Duquesne Light Holdings, Inc. Edison International (EIX) El Paso Electric Company (EE) Empire District Electric Company (EDE) Energy East Corporation Energy Future Holdings Corp. (formerly TXU Corp.) Entergy Corporation (ETR) Exelon Corporation (EXC) FirstEnergy Corp. (FE) FPL Group, Inc. (FPL) Great Plains Energy Incorporated (GXP) Green Mountain Power Corporation Hawaiian Electric Industries, Inc. (HE) IDACORP, Inc. (IDA) Integrys Energy Group, Inc. (TEG) IPALCO Enterprises, Inc. Kentucky Utilities KeySpan Corporation Louisville Gas and Electric Maine & Maritimes Corporation (MAM) MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) MidAmerican Energy Holdings Company Niagra Mohawk Power Corporation NiSource Inc. (NI) Northeast Utilities (NU) NorthWestern Corporation (NWE) NSTAR (NST) NV Energy, Inc. (NVE) OGE Energy Corp. (OGE) Otter Tail Corporation (OTTR) Pepco Holdings, Inc. (POM) PG&E Corporation (PCG) Pinnacle West Capital Corporation (PNW) PNM Resources, Inc. (PNM) Portland General Electric Company (POR) PPL Corporation (PPL) Progress Energy (PGN) Public Service Enterprise Group Inc. (PEG) Puget Energy, Inc.* SCANA Corporation (SCG) Sempra Energy (SRE) Southern Company (SO) TECO Energy, Inc. (TE) UIL Holdings Corporation (UIL) UniSource Energy Corporation (UNS) Unitil Corporation (UTL) Vectren Corporation (VVC) Westar Energy, Inc. (WR) Wisconsin Energy Corporation (WEC) Xcel Energy, Inc. (XEL) * Puget Energy was acquired by Puget Energy LLC on February 6, Puget Energy LLC was formed by a group of infrastructure investors led by the Macquarie Group.

4 Companies Listed by Category (as of 12/31/08) Please refer to the Quarterly Financial Updates webpage for previous years lists. iven the diversity of utility holding company corporate G strategies, no single company categorization approach will be useful for all EEI members and utility industry analysts. Never-theless, we believe the following classification provides an informative framework for tracking financial trends and the capital markets response to business strategies as companies depart from the traditional regulated utility model. Regulated Mostly Regulated Diversified 80%+ of total assets are regulated 50% to 80% of total assets are regulated Less than 50% of total assets are regulated Categorization of the 58 publicly traded utility holding companies is based on year-end business segmentation data presented in 10Ks, supplemented by discussions with company IR departments. Categorization of the 11 non-publicly traded companies (shown in italics) is based on estimates derived from FERC Form 1 data and information provided by parent company IR departments. The EEI Finance and Accounting Division continues to evaluate our approach to company categorization and business segmentation. In addition, we can produce customized categorization and peer group analyses in response to member company requests. We welcome comments, suggestions and feedback from EEI member companies and the financial community. Regulated (44 of 69) ALLETE, Inc. Alliant Energy Corporation Ameren Corporation American Electric Power Company, Inc. Avista Corporation Central Vermont Public Service Corporation CH Energy Group, Inc. Cleco Corporation CMS Energy Corporation Consolidated Edison, Inc. DPL, Inc. DTE Energy Company Duquesne Light Holdings, Inc. El Paso Electric Company Empire District Electric Company Energy East Corporation Great Plains Energy Incorporated Green Mountain Power Corporation IDACORP, Inc. IPALCO Enterprises, Inc. Kentucky Utilities KeySpan Corporation Louisville Gas and Electric Maine & Maritimes Corporation Niagara Mohawk Power Corporation Northeast Utilities NorthWestern Energy NSTAR NV Energy, Inc. PG&E Corporation Pinnacle West Capital Corporation PNM Resources, Inc. Portland General Electric Company Progress Energy Puget Energy, Inc. Southern Company TECO Energy, Inc. UIL Holdings Corporation UniSource Energy Corporation Unitil Corporation Vectren Corporation Westar Energy, Inc. Wisconsin Energy Corporation Xcel Energy, Inc. Mostly Regulated (19 of 69) Black Hills Corporation CenterPoint Energy, Inc. Dominion Resources, Inc. Duke Energy Corporation Edison International Entergy Corporation Exelon Corporation First Energy Corp. FPL Group, Inc. Integrys Energy Group MGE Energy, Inc. MidAmerican Energy Holdings NiSource Inc. OGE Energy Corp. Otter Tail Corporation Pepco Holdings, Inc. Public Service Enterprise Group, Inc. SCANA Corporation Sempra Energy Diversified (6 of 69) Allegheny Energy, Inc. Constellation Energy Group, Inc. Energy Future Holdings Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. PPL Corporation Note: Based on assets at 12/31/08

5 Q Dividends COMMENTARY HIGHLIGHTS nutilities added to a six-year-long trend of widespread dividend increases in Q The quarter s 16 increases were just below the 18 and 20 in the first quarters of 2009 and 2008, respectively. nat March 31, 2010, only one (1.7%) of the 58 publicly traded companies in the EEI Index was not paying a common stock dividend. This is the lowest percentage in our data set (going back to 1988), and the only time when less than two companies were not paying a dividend. nthe quarter s dividend increases ranged from 1.1% to 34.5%, and averaged 8.4%. The median increase was 5.3%. UniSource Energy and CMS Energy posted the largest percentage increases. nthe industry favors extension of the current 15% tax rate on dividends. Higher financing costs may disrupt utilities plans to make needed capital expenditures, which are also a source of good domestic job creation. Dividends Remain Strong in Q Utilities added to a six-year-long trend of widespread dividend increases in Q The quarter s 16 increases were just below the 18 and 20 in the first quarters of 2009 and 2008, respectively. The 32 companies that raised or reinstated their dividend during full-year 2009 was down from 37 and 43 in 2008 and 2007, but well above the 27 in The 15% dividend tax rate has supported the high number of increases in recent years. At March 31, 2010, only one (1.7%) of the 58 publicly I. Sector Comparison, Dividend Payout Ratio For 12-month period ending 12/31/09 Sector Payout Ratio (%) EEI Index Companies 69.6 Utilities 54.0 Consumer Staples 43.0 Industrial 36.0 Materials 32.0 Energy 26.3 Health Care 24.5 Consumer Discretionary 23.8 Technology 23.7 Financial 20.7 Note: EEI Index Companies payout ratio based on LTM income before nonrecurring and extraordinary items./ Source: AltaVista Research, SNL Financial, EEI Finance Department II. Sector Comparison, Dividend Yield at 3/31/10 Sector Yield (%) EEI Index Companies 4.7 Utilities 4.5 Consumer Staples 2.9 Health Care 2.0 Industrial 2.0 Energy 1.9 Materials 1.8 Technology 1.5 Consumer Discretionary 1.4 Financial 1.2 Note: EEI Index Companies yield based on LTM cash dividends paid; other sectors yields based on 2010E dividends. Source: AltaVista Research, SNL Financial and EEI Finance Department traded companies in the EEI Index was not paying a common stock dividend. This is the lowest percentage in our data set, which goes back to 1988, and marks the first time that fewer than two companies were not paying a dividend. Table III shows the industry s dividend paying patterns 1

6 2 DIVIDENDS III. Dividend Patterns U.S. Shareholder-Owned Electric Utilities Dividend Raised No Change Lowered Omitted Reinstated Not Paying Total Payout Ratio* % % % % % % % % % % % % % % % % % Q % Q Average Increase 30.5% 6.1% 11.1% 5.8% 18.7% 8.4% 9.2% 7.4% 9.4% 7.2% 8.4% Average Decrease 42.8% 43.7% 48.3% 38.4% 47.4% 40.0% 0% 0% 45.7% 46.4% NA *Prior to 2000 = total industry dividends/total industry earnings, starting in 2000 = average of all companies paying dividend payout ratio updated for earnings and dividends through 12/31/ figures also reflect earnings and dividends through 12/31/09, but changes (raised, lowered, etc.) are through 3/31/10. Source: EEI Finance Department and SNL Financial Note: Only one action per company per year is counted. If a company raised its dividend twice, this counts as one in the Raised column. IV. Category Comparison, Dividend Payout Ratio Calendar Year (Unless Noted) * EEI Index Regulated Mostly Regulated Diversified Regulated: greater than 80% of total assets are regulated Mostly Regulated: 50 to 80% of total assets are regulated Diversified: less than 50% of total assets are regulated *2009 payout ratios updated for earnings and dividends through 12/31/09. Source: EEI Finance Department, SNL Financial and company annual reports. over the last 17 years. Each company is limited to one action per year. For example, if a company raised its dividend twice during a year this counts as one in the Raised column. Companies generally use the same quarter each year for dividend changes, typically the first for electric utilities. Increases Average 8.4% The quarter s dividend increases ranged from 1.1% to 34.5%, and averaged 8.4%. The median increase was 5.3%. UniSource Energy and CMS Energy posted the largest percentage increases. UniSource Energy, based in Tucson, Arizona, led all companies with a 34.5% increase, boosting its quarterly dividend V. Category Comparison, Dividend Yield at 3/31/10 Category Dividend Yield (%) EEI Index 4.7 Regulated 4.6 Mostly Regulated 4.7 Diversified 4.1 Source: EEI Finance Department and SNL Financial from $0.29 to $0.39. This followed an increase of 20.8% in 2008, which was that year s second highest in the industry. UniSource s primary subsidiaries include Tucson Electric Power, which serves more than 400,000 customers in southern Arizona, and UniSource Energy Services, provider of natural gas and electric service for about 236,000 customers in northern and southern Arizona. CMS Energy, headquartered in Jackson, Michigan, increased its quarterly dividend by 20.0%, marking a significant increase for a third consecutive year. CMS posted the industry s largest percent increases 2009, at 38.9%, and in 2008, at 80%. The company attributed the increases over the past three years to its improving financial strength and the fundamental soundness of its business strategy. CMS plans to invest more than $6 billion in its utility operations over the

7 DIVIDENDS 3 VI. Dividend Summary U.S. Shareholder-Owned Electric Utilities (at 3/31/10) Company Annualized Payout Yield Last Date Company (Stock Symbol) Category Dividend Ratio (%) (%) Action To From Announced Allegheny Energy (AYE) MR $ Raised $0.60 $ /4/07 ALLETE (ALE) R $ Raised $1.76 $1.72 1/22/09 Alliant Energy (LNT) R $ Raised $1.58 $1.50 4/16/10 Ameren (AEE) R $ Lowered $1.54 $2.54 2/13/09 American Electric Power (AEP) R $ Raised $1.64 $ /23/07 Avista Corp. (AVA) R $ Raised $1.00 $0.84 2/12/10 Black Hills Corp. (BKH) MR $ Raised $1.44 $1.42 4/27/10 CenterPoint Energy (CNP) MR $ Raised $0.78 $0.76 4/22/10 Central Vermont Public Svc. (CV) R $ Raised $0.92 $0.88 1/12/04 CH Energy Group (CHG) R $ Raised $2.16 $2.14 6/26/98 Cleco Corporation (CNL) R $ Raised $0.90 $0.88 4/26/02 CMS Energy (CMS) R $ Raised $0.60 $0.50 4/19/10 Consolidated Edison (ED) R $ Raised $2.38 $2.36 4/15/10 Constellation Energy Group (CEG) D $0.96 NM 2.7 Lowered $0.96 $1.91 2/18/09 Dominion Resources (D) MR $ Raised $1.83 $ /17/09 DPL, Inc. (DPL) R $ Raised $1.21 $ /9/09 DTE Energy (DTE) R $ Raised $2.12 $ /7/06 Duke Energy (DUK) MR $ Raised $0.96 $0.92 6/23/09 Edison International (EIX) MR $ Raised $1.26 $ /10/09 El Paso Electric (EE) R Omitted 5/2/89 Empire District Electric (EDE) R $ Raised $1.28 $ /22/92 Entergy (ETR) MR $ Raised $3.00 $2.16 7/31/07 Exelon (EXC) MR $ Raised $2.10 $ /24/08 FirstEnergy (FE) MR $ Raised $2.20 $ /18/07 FPL Group (FPL) MR $ Raised $2.00 $1.89 2/12/10 Great Plains Energy (GXP) R $ Lowered $0.83 $1.66 2/10/09 Hawaiian Electric (HE) D $ Raised $1.24 $1.22 1/20/98 IDACORP (IDA) R $ Lowered $1.20 $1.86 9/18/03 Integrys Energy Group (TEG) MR $ Raised $2.72 $2.68 2/17/09 Maine & Maritimes (MAM) R $ Reinstated $0.20 $ /5/08 MDU Resources (MDU) D $ Raised $0.63 $ /12/09 MGE Energy (MGEE) MR $ Raised $1.47 $1.45 8/21/09 NiSource (NI) MR $ Lowered $0.92 $1.16 8/26/03 Northeast Utilities (NU) R $ Raised $1.03 $0.95 4/13/10 NorthWestern Corporation (NWEC) R $ Raised $1.36 $1.34 4/23/10 NSTAR (NST) R $ Raised $1.60 $ /19/09 NV Energy (NVE) R $ Raised $0.44 $ /29/09 OGE Energy (OGE) MR $ Raised $1.45 $ /3/09 Otter Tail (OTTR) MR $ Raised $1.19 $1.17 2/5/08 Pepco Holdings (POM) MR $ Raised $1.08 $1.04 1/24/08 PG&E (PCG) R $ Raised $1.82 $1.68 2/19/10 Pinnacle West Capital (PNW) R $ Raised $2.10 $ /18/06 PNM Resources (PNM) R $ Lowered $0.50 $0.92 8/11/08 Portland General Electric (POR) R $ Raised $1.02 $0.98 5/13/09 PPL Corp. (PPL) D $ Raised $1.40 $1.38 2/26/10 Progress Energy (PGN) R $ Raised $2.48 $ /10/08 Public Svc. Enter. Group (PEG) MR $ Raised $1.37 $1.33 4/20/10 SCANA Corporation (SCG) MR $ Raised $1.90 $1.88 5/6/10

8 4 DIVIDENDS Company Annualized Payout Yield Last Date Company (Stock Symbol) Category Dividend Ratio (%) (%) Action To From Announced Sempra Energy (SRE) MR $ Raised $1.56 $1.40 2/20/09 Southern Company (SO) R $ Raised $1.75 $1.68 4/20/09 TECO Energy, Inc. (TE) R $ Raised $0.80 $0.78 4/30/08 UIL Holdings (UIL) R $ Raised $1.73 $1.69 2/26/96 UniSource Energy (UNS) R $ Raised $1.56 $1.16 5/5/10 Unitil Corporation (UTL) R $ Raised $1.38 $1.36 1/19/99 Vectren Corporation (VVC) R $ Raised $1.36 $ /29/09 Westar Energy (WR) R $ Raised $1.24 $1.20 2/24/10 Wisconsin Energy (WEC) R $ Raised $1.60 $1.35 4/22/10 Xcel Energy (XEL) R $ Raised $0.98 $0.95 5/20/09 Industry Average Categories R = Regulated, MR = Mostly Regulated, D = Diversified; based on assets at 12/31/09. Dividend Per Share Per share amounts are annualized declared figures as of 3/31/10. Dividend Payout Ratio Dividends paid for 12 months ended 12/31/09 divided by net income before nonrecurring and extraordinary items for 12 months ended 12/31/09. Dividend Yield Annualized Dividends Per Share at 3/31/10 divided by stock price at market close on 3/31/10. NM applies to companies with negative earnings or payout ratios greater than 200%. Source: EEI Finance Department and SNL Financial VI. Dividend Summary (cont.) U.S. Shareholder-Owned Electric Utilities next five years, with an emphasis on improved customer service, energy efficiency, renewable energy and new generation. CMS reinstated its dividend in Q after a four-year suspension to strengthen liquidity, improve its balance sheet and achieve greater financial flexibility. Industry Seeks 15% Dividend Tax Rate Extension Originally enacted in 2003, the current 15% individual tax rate on dividend income expires at the end of Without action, pre-2003 dividend tax rates return in 2011 (up to 39.6%, depending on income). This will make dividend paying companies, like utilities, less attractive to investors and raise the companies cost of capital. Higher financing costs may disrupt utilities plans to make needed capital expenditures, which are projected to remain at a historically high level of approximately $80 billion annually to finance new and cleaner generating capacity, major transmission and distribution upgrades, smart grid investments, and additional environmental and energy efficiency improvements. Cutting these programs will have a negative impact on U.S. job creation and reduce the number of related manufacturing jobs and other local employment in regions where utility investment will take place. The 15% dividend tax rate has certainly contributed to the relative outperformance of utility stocks in recent years. From July 1, 2003 (after enactment of the new rate) through June 30, 2010, the EEI Index of U.S. shareholder-owned electric utilities generated a total return of 68.5% compared to a 29.6% return for the Dow Jones Industrial Average. Of course, there are many factors that influence utility stock performance and dividend tax policy is only one. Nevertheless, the numbers serve to highlight the importance of the 15% dividend tax rate to the industry s ability to attract capital for funding its strong capital spending. Payout Ratio and Dividend Yield The electric utility industry typically pays out a higher percentage of earnings than does any other business sector. This was the case for calendar year 2009, when the industry s payout ratio was 69.6% up from 66.8% in 2008 and above the 62% to 68% range in each of the previous nine years. While the industry s net income has fluctuated from year-toyear, its payout ratio has remained relatively consistent after eliminating non-recurring and extraordinary items from the denominator. We use the following approach when calculating the dividend payout ratio: 1. Non-recurring and extraordinary items are eliminated from earnings. 2. Companies with negative adjusted earnings are eliminated. 3. Companies with a payout ratio in excess of 200% are eliminated. The industry s average dividend yield was 4.7% on March 31, 2010, leading all U.S. business sectors and up slightly from 4.5% on December 31, The industry s average yield was 4.9% at year-end While total dividends paid to common shareholders rose to $17.1 billion in 2009 from $16.5 billion in 2008, a 3.5% increase, this was offset by rebounding stock prices. The EEI Index, a market-cap weighted index, had a 10.7% total return in 2009 followed by a -2.5% return in Q The industry s average dividend yield held in a fairly consistent

9 DIVIDENDS 5 VII. Free Cash Flow U.S. Shareholder-Owned Electric Utilities ($ Billions) r 2008r 2009 Net Cash Provided by Oper. Activities Capital Expenditures (47.4) (57.2) (49.0) (43.0) (41.1) (48.4) (59.9) (74.1) (82.8) (77.8) - Dividends Paid to Common Shhlders (14.6) (13.1) (13.4) (12.3) (13.2) (15.1) (16.1) (15.4) (16.5) (17.1) Free Cash Flow (19.9) (14.8) (6.0) (13.2) (6.6) (28.4) (38.0) (12.1) Source: SNL Financial and EEI Finance Department / r =revised range over the previous three calendar years at 4.1% in 2005, 3.6% in 2006 and 3.7% in The industry s widespread dividend increases during this period matched its stock price gains, supporting dividend yields. We calculate the industry s aggregate dividend yield using an un-weighted average of the 58 publicly traded EEI Index companies yields. Payout Ratio The Mostly Regulated group recorded a dividend payout ratio of 72.2% in 2009 compared to 68.2% for the Regulated group and 69.2% for the Diversified group (see Table IV). The Regulated group produced the highest payout ratio in each of the previous five calendar years. As seen in Table V, the Mostly Regulated group had the highest dividend yield, at 4.7% on March 31, 2010, compared to 4.6% and 4.1% for the Regulated and Diversified groups. The Mostly Regulated and Regulated group s dividend yields were unchanged at the end of Q1 2010, but the Diversified group s rose from 3.6% at year-end 2009, as its -2.6% first quarter total return trailed that of the other groups for the quarter. Rising Capex Reduces Free Cash Flow The industry s capital expenditures remain elevated at a historically high level, which continues to significantly impact free cash flow. Although annual capex fell from $82.8 billion in 2008 to $77.8 billion in 2009, the first year-to-year decline since 2004, it remains approximately twice as high as the $41.1 billion invested in Before last year s 6.0% decline, capex grew by 17.8%, 23.8%, 23.7% and 11.7% in 2005, 2006, 2007 and 2008, respectively. The strong growth reflects the industry s increased spending on environmental compliance, transmission and distribution upgrades, and new generation capacity. Net cash provided by operating activities increased for the second consecutive year in 2009, rising to $82.9 billion from $61.3 billion in 2008, a $21.6 billion or 35.2% jump. Total aggregate industry-wide cash dividends paid to common shareholders rose by $581 million, or 3.5%, to $17.1 billion in 2009 from $16.5 billion in (Note: The percentage gains referenced earlier are arithmetical averages of individual company actions). From 2003 through 2009, total industry-wide cash dividends rose 39%, to $17.1 billion from $12.3 billion. As shown in Table VII, the industry had a negative $12.1 billion in consolidated free cash flow in This marked the fifth straight year of negative free cash flow due in large measure to high capital spending following positive results in 2003 and Many industries measure free cash flow as the difference between cash flow from operations and capital expenditures, however we also deduct common dividends due to the industry s strong tradition of dividend payments. Predividend free cash flow rose to a positive $5.0 billion in 2009, after falling into negative territory the prior two years.