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 (EEI) is the association that represents all U.S. investor-owned electric companies. Our members provide electricity for 220 million Americans, operate in all 50 states and the District of Columbia, and directly employ more than 500,000 workers. With $90 billion in annual capital expenditures, the electric power industry is responsible for millions of additional jobs. Reliable, affordable, and sustainable electricity powers the economy and enhances the lives of all Americans. EEI has 70 international electric companies as Affiliate Members, and 270 industry suppliers and related organizations as Associate Members. Organized in 1933, EEI provides public policy leadership, strategic business intelligence, and essential conferences and forums. About EEI s Quarterly Financial Updates EEI s quarterly financial updates present industry trend analyses and financial data covering 55 U.S. shareholder-owned electric utility companies. These 55 companies include 49 electric utility holding companies whose stocks are traded on major U.S. stock exchanges and six 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 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 Bill Pfister Senior Financial Analyst (202) , bpfister@eei.org Future EEI Finance Meetings 49th EEI Financial Conference November 11-14, 2014 Hilton Anatole Dallas, Texas For more information about EEI Finance Meetings, please contact Debra Henry, (202) , dhenry@eei.org 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: 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 55 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. ALLETE, Inc. (ALE) Alliant Energy Corporation (LNT) Ameren Corporation (AEE) American Electric Power Company, Inc. (AEP) Avista Corporation (AVA) Berkshire Hathaway Energy Black Hills Corporation (BKH) CenterPoint Energy, Inc. (CNP) Cleco Corporation (CNL) CMS Energy Corporation (CMS) Consolidated Edison, Inc. (ED) Dominion Resources, Inc. (D) DPL, Inc. DTE Energy Company (DTE) Duke Energy Corporation (DUK) Edison International (EIX) El Paso Electric Company (EE) Empire District Electric Company (EDE) Energy Future Holdings Corp. (formerly TXU Corp.) Entergy Corporation (ETR) Exelon Corporation (EXC) FirstEnergy Corp. (FE) Great Plains Energy Incorporated (GXP) Hawaiian Electric Industries, Inc. (HE) Iberdrola USA IDACORP, Inc. (IDA) Integrys Energy Group, Inc. (TEG) IPALCO Enterprises, Inc. MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) NextEra Energy, Inc. (NEE) NiSource Inc. (NI) Northeast Utilities (NU) NorthWestern Corporation (NWE) 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) 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) Unitil Corporation (UTL) UNS Energy Corporation (UNS) Vectren Corporation (VVC) Westar Energy, Inc. (WR) Wisconsin Energy Corporation (WEC) Xcel Energy, Inc. (XEL)

4 Companies Listed by Category (as of 12/31/2013) Please refer to the Quarterly Financial Updates webpage for previous years lists. iven the diversity of utility holding company corporate strategies, no single company categorization approach will be G 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 49 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 six 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 (39 of 55) ALLETE, Inc. Alliant Energy Corporation Ameren Corporation American Electric Power Company, Inc. Avista Corporation Black Hills Corporation Cleco Corporation CMS Energy Corporation Consolidated Edison, Inc. DPL, Inc. DTE Energy Company Duke Energy Corporation Edison International El Paso Electric Company Empire District Electric Company Entergy Corporation Great Plains Energy Incorporated Iberdrola USA IDACORP, Inc. Integrys Energy Group IPALCO Enterprises, Inc. Northeast Utilities NorthWestern Energy OGE Energy Corp. Otter Tail Corporation Pepco Holdings, Inc. PG&E Corporation Pinnacle West Capital Corporation PNM Resources, Inc. Portland General Electric Company Puget Energy, Inc. Southern Company TECO Energy, Inc. UIL Holdings Corporation Unitil Corporation UNS Energy Corporation Westar Energy, Inc. Wisconsin Energy Corporation Xcel Energy, Inc. Mostly Regulated (13 of 55) Berkshire Hathaway Energy CenterPoint Energy, Inc. Dominion Resources, Inc. Exelon Corporation FirstEnergy Corp. MGE Energy, Inc. NextEra Energy, Inc. NiSource Inc. PPL Corporation Public Service Enterprise Group, Inc. SCANA Corporation Sempra Energy Vectren Corporation Diversified (3 of 55) Energy Future Holdings Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. Note: Based on assets at 12/31/2013

5 Q Dividends COMMENTARY HIGHLIGHTS Six of the 49 publicly traded companies tracked by EEI raised their dividend in Q2, resulting in 26 that raised or reinstated their dividend during the first six months of the year. The number is just below the 28 that did so during the first half of 2013, and remains at the top of the 23 to 28 range that has held since The industry s average dividend increase during the first half of 2013 was 5.3%, with a range of 1.4% to 14.5% and a median increase of 4.4%. Total aggregate industry-wide cash dividends paid to common shareholders fell by $121 million, or 2.3%, in Q compared to the year-ago period. The industry s dividend payout ratio was 59.6% for the 12 months ending June 30, 2014, leading all other U.S. business sectors. At June 30, 2013, all 49 publicly traded companies in the EEI Index were paying a common stock dividend. The shareholder-owned electric utility industry extended its near-decade-long trend of widespread dividend increases during Q2. Six of the 49 publicly traded companies tracked by EEI raised their dividend, resulting in a total of 26 that either raised or reinstated their dividend during the first six months of the year. The number was just below the 28 that did so in the year ago period and remained at the high end of the 23 to 28 range that has held since The total of 36 companies that raised or reinstated their dividend during the 2013 calendar year was also at the top end of the 32 to 37 range of the previous four years. While 2013 s total was a step down from 2007 s 43 companies, it I. Sector Comparison, Dividend Payout Ratio Q Sector Payout Ratio (%) EEI Index Companies * 59.6 Utilities 59.6 Consumer Staples 49.4 Materials 37.2 Industrial 35.3 Energy 30.6 Technology 30.5 Consumer Discretionary 29.1 Financial 29.1 Health Care 28.1 *For this table, EEI (1) sums dividends and (2) sums earnings of all index companies and then (3) divides to determine the comparable dividend payout ratio (DPR). EEI Index Companies payout ratio based on LTM common dividends paid and income before nonrecurring and extraordinary items, as of 6/30/2014. S&P sector payout ratios based on estimated 2014 dividends and earnings per share as of 6/30/2014. For more information on constituents of each S&P sector see Source: AltaVista Research, SNL Financial, EEI Finance Department II. Sector Comparison, Dividend Yield at 6/30/14 Sector Yield (%) EEI Index Companies * 3.5 Utilities 3.5 Consumer Staples 2.6 Industrial 2.0 Energy 1.9 Financial 1.9 Materials 1.9 Technology 1.9 Health Care 1.6 Consumer Discretionary 1.5 *EEI Index Companies yield based on last announced, annualized dividend rates (as of 6/30/14); S&P sector yields based on 2014E cash dividends (estimates as of 6/30/14). For more information on constituents of each S&P sector see Source: AltaVista Research, SNL Financial and EEI Finance Department 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* % % % % % % % % % % % % % % % % % % % % % mo % Avg. Increase 11.1% 5.8% 18.7% 8.4% 9.2% 7.4% 9.4% 7.2% 8.2% 6.8% 7.2% 5.3% Avg. Decrease 48.3% 38.4% 47.4% 40.0% NA NA 45.7% 46.4% NA 100% NA 41.0% 6 mo % 34.5% * Prior to 2000: Total industry dividends/total industry earnings. Starting in 2000: Average of all companies paying dividend. Current year figures reflect dividend changes (raised, lowered, etc.) through 6/30/14 and earnings and dividends through 6/30/14 (payout ratio). / 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. Source: SNL Financial and EEI Finance Department. IV. Category Comparison, Dividend Payout Ratio Calendar Year (Unless Noted) Category * 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 *2014 figures reflect earnings and dividends through 6/30/14. Source: EEI Finance Department, SNL Financial and company reports. remained well above the 27 companies that raised or reinstated their dividend in full-year The percentage of companies that raised or reinstated their dividend in 2013 was 73.5%, up from 72.5% in 2012, 58% in 2011 and 60% in The 2013 result is the highest on record, based on data going back to The 15% dividend tax rate has supported the high number of increases in recent years. V. Category Comparison, Dividend Yield at 6/30/14 Category Dividend Yield (%) EEI Index 3.5 Regulated 3.6 Mostly Regulated 3.4 Diversified 3.5 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 Source: EEI Finance Department, SNL Financial and company reports. At June 30, 2014, all 49 publicly traded companies in the EEI Index were paying a common stock dividend. Table III shows the industry s dividend paying patterns over the past 21 years. Each company is limited to one action per year. For example, if a company raised its dividend twice during a year, that counts as one in the Raised column. Companies generally use the same quarter each year for dividend changes, typically the first quarter for electric utilities.

7 DIVIDENDS 3 VI. Dividend Summary U.S. Shareholder-Owned Electric Utilities (at 6/30/14) Company Annualized Payout Yield Last Date Company (Stock Symbol) Category Dividend Ratio (%) (%) Action To From Announced ALLETE (ALE) R $ Raised $1.96 $ Q1 Alliant Energy (LNT) R $ Raised $2.04 $ Q1 Ameren (AEE) R $ Raised $1.60 $ Q4 American Electric Power (AEP) R $ Raised $2.00 $ Q4 Avista Corp. (AVA) R $ Raised $1.27 $ Q1 Black Hills Corp. (BKH) R $ Raised $1.56 $ Q1 CenterPoint Energy (CNP) MR $ Raised $0.95 $ Q1 Cleco Corporation (CNL) R $ Raised $1.60 $ Q2 CMS Energy (CMS) R $ Raised $1.08 $ Q1 Consolidated Edison (ED) R $ Raised $2.52 $ Q1 Dominion Resources (D) MR $ Raised $2.40 $ Q1 DTE Energy (DTE) R $ Raised $2.76 $ Q2 Duke Energy (DUK) R $ Raised $3.12 $ Q2 Edison International (EIX) R $ Raised $1.42 $ Q4 El Paso Electric (EE) R $ Raised $1.12 $ Q2 Empire District Electric (EDE) R $ Raised $1.02 $ Q4 Entergy (ETR) R $ Raised $3.32 $ Q2 Exelon (EXC) MR $ Lowered $1.24 $ Q2 FirstEnergy (FE) MR $ Lowered $1.44 $ Q1 Great Plains Energy (GXP) R $ Raised $0.92 $ Q4 Hawaiian Electric (HE) D $ Raised $1.24 $ Q1 IDACORP (IDA) R $ Raised $1.72 $ Q3 Integrys Energy Group (TEG) R $ Raised $2.72 $ Q1 MDU Resources (MDU) D $ Raised $0.71 $ Q4 MGE Energy (MGEE) MR $ Raised $1.09 $ Q3 NextEra Energy, Inc. (NEE) MR $ Raised $2.90 $ Q1 NiSource (NI) MR $ Raised $1.04 $ Q2 Northeast Utilities (NU) R $ Raised $1.57 $ Q1 NorthWestern Corporation (NWE) R $ Raised $1.60 $ Q1 OGE Energy (OGE) R $ Raised $0.90 $ Q4 Otter Tail (OTTR) R $ Raised $1.21 $ Q1 Pepco Holdings (POM) R $ Raised $1.08 $ Q1 PG&E (PCG) R $ Raised $1.82 $ Q1 Pinnacle West Capital (PNW) R $ Raised $2.27 $ Q4 PNM Resources (PNM) R $ Raised $0.74 $ Q4 Portland General Electric (POR) R $ Raised $1.12 $ Q2 PPL Corp. (PPL) MR $ Raised $1.49 $ Q1 Public Svc. Enter. Group (PEG) MR $ Raised $1.48 $ Q1 SCANA Corporation (SCG) MR $ Raised $2.10 $ Q1 Sempra Energy (SRE) MR $ Raised $2.64 $ Q1 Southern Company (SO) R $ Raised $2.10 $ Q2 TECO Energy, Inc. (TE) R $ Raised $0.88 $ Q1 UIL Holdings (UIL) R $ Raised $1.73 $ Q1 Unitil Corporation (UTL) R $ Raised $1.38 $ Q1 UNS Energy (UNS) R $ Raised $1.92 $ Q1 Vectren Corporation (VVC) MR $ Raised $1.44 $ Q4 Westar Energy (WR) R $ Raised $1.40 $ Q1 Wisconsin Energy (WEC) R $ Raised $1.56 $ Q1 Xcel Energy (XEL) R $ Raised $1.20 $ Q1 Industry Average Categories R = Regulated (greater than 80% of total assets are regulated), MR = Mostly Regulated (50 to 80% of total assets are regulated), D = Diversified (less than 50% of total assets are regulated); based on assets at 12/31/13. Dividend Per Share Per share amounts are annualized declared figures as of 6/30/14. Dividend Payout Ratio Dividends paid for 12 months ended 6/30/14 divided by net income before nonrecurring and extraordinary items for 12 months ended 6/30/14. Dividend Yield Annualized Dividends Per Share at 6/30/14 divided by stock price at market close on 6/30/14. NM applies to companies with negative earnings or payout ratios greater than 200%. While net income is after-tax, nonrecurring and extraordinary items are pre-tax, as there is no consistent method of gathering these items on a tax adjusted basis under current reporting guidelines. On an individual company basis, the Payout Ratio in the table could differ slightly from what is reported directly by the company. Source: EEI Finance Department and SNL Financial

8 4 DIVIDENDS VII. Free Cash Flow U.S. Shareholder-Owned Electric Utilities ($ Billions) mo Net Cash Provided by Operating Activities Capital Expenditures (48.4) (59.9) (74.1) (82.8) (77.6) (74.2) (78.6) (90.3) (90.3) (22.0) Dividends Paid to Common Shareholders (15.1) (16.1) (15.4) (16.5) (17.1) (18.0) (19.3) (20.5) (20.9) (5.2) Free Cash Flow (13.2) (6.6) (28.4) (38.0) (11.8) (14.4) (13.5) (26.8) (23.5) (8.5) Source: SNL Financial and EEI Finance Department 2014 Increases Average 5.3% The industry s average dividend increase during the first half of 2014 was 5.3%, with a range of 1.4% to 14.5% and a median increase of 4.4%. CenterPoint Energy (+14.5% in Q1), Cleco (+10.3% in Q2) and UNS Energy (+10.3% in Q1) posted the largest percentage increases. CenterPoint Energy, based in Houston, Texas, increased its quarterly dividend from $ to $ per share. The company said the increase is supported by longterm financial stability and growth of the company s regulated utility operations combined with cash flow from Enable Midstream Partners, in which it has a 58.3% limited partnership interest. The company s intention is to target a payout ratio at 60% to 70% of sustainable earnings from its regulated utility and 90% to 100% of net after-tax cash distributions it receives from Enable Midstream Partners. Pineville, Louisiana-based Cleco Corporation increased its quarterly dividend from $ to $0.40 per share. The increase marks the fifth time in the last three years that the company has raised its dividend. Cleco also increased its target payout ratio range to 55% to 65% from 50% to 60%. UNS Energy, located in Tucson, Arizona, raised its quarterly dividend from $0.435 to $0.48 per share during the first quarter. On August 15, 2014, Canadian-based Fortis Inc. completed its acquisition of UNS Energy. UNS primary subsidiaries, Tucson Electric Power and UniSource Energy Services, will remain headquartered in Tucson under local control with current management and staffing levels and no planned changes to existing operations. FirstEnergy Corp., based in Akron, Ohio, lowered its quarterly dividend by $0.19 per share, or 34.5%, from $0.55 to $0.36, effective in Q1. FirstEnergy said the dividend change is expected to preserve a solid and sustainable payment for its shareholders, while also providing the company with additional financial flexibility to pursue regulated growth opportunities over the next several years. Payout Ratio and Dividend Yield The industry s dividend payout ratio was 59.6% for the 12 months ending June 30, 2014, surpassing all other U.S. business sectors, while matching the broader Utilities sector (consisting of electric, gas and water utilities). The industry s payout ratio was 61.2% when measured as an un-weighted average of individual company ratios; 59.6% represents an aggregate figure. While the industry s net income has fluctuated from year to year, its payout ratio has remained relatively consistent after eliminating non-recurring and extraordinary items from earnings. From 2000 through 2013, the annual payout ratio (using the un-weighted average) ranged from 61.5% to 69.6%, with the highest result coming in 2009 due to the weak economy and the weather s negative impact on earnings. We use the following approach when calculating the industry s 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 3.5% on June 30, This was higher than all other business sectors except the broader Utilities sector, which also yielded an average of 3.5%. The industry s yield was 4.0% at year-end 2013, 4.3% at year-end 2012, 4.1% at year-end 2011, 4.5% at year-ends 2010 and 2009, and 4.9% at year-end We calculate the industry s aggregate dividend yield using an unweighted average of the 49 publicly traded EEI Index companies yields. The strong dividend yields prevalent among most electric utilities have helped support their share prices in recent years, especially given the period s historically low interest rates. The EEI Index rose by 18.0% during the first half of 2014, following returns of 13.0%, 2.1%, 20.0%, 7.0% and 10.7% in 2013, 2012, 2011, 2010 and 2009, respectively. Business Category Comparison As shown in Table V, the Regulated company category had the highest dividend yield by category on June 30, 2014, at 3.6%, compared to the Mostly Regulated category s 3.4% and the Diversified s 3.5%. Note that Diversified category metrics have become less meaningful indicators of broad industry trends in recent years since category membership

9 DIVIDENDS 5 has fallen to just two publicly traded companies, as industry business models migrate back to a Regulated emphasis. The yields for all three categories are below their levels at December 31, 2013, when the Regulated, Mostly Regulated and Diversified yields were 4.0%, 4.1% and 2.3%, respectively. The lower yields were due to the EEI Index s 18.0% gain during the first half of The yields for each category were also impacted by a slight migration of companies between categories; category membership is updated annually with year-end asset data from business segmentation reporting. The Mostly Regulated group recorded a dividend payout ratio of 65.0% for the 12 months ended June 30, 2014, compared to 59.8% for the Regulated group and 8.3% for the Diversified group (see Table IV). The Regulated group usually produces the highest annual payout ratio, having done so in 2010 and 2011 and each year from 2003 through It was exceeded by the Mostly Regulated group in 2009, 2012 and Share Repurchases Remain Low After 2007 Spike Ten of the industry s publicly traded companies repurchased an aggregate $410 million of common shares during 2013 as an alternate way of returning cash to shareholders. Share repurchases were $821 million in 2012, $1.8 billion in 2011 and ranged from $908 million to $2.7 billion over the 2008 through 2011 period, after falling sharply from $11.9 billion in The 2007 repurchases were 90% higher than the $6.3 billion spent in The industry s common share repurchases exceeded $6.0 billion in 2004, 2005 and 2006 after rising from only $120 million in Free Cash Flow Deficit Continues in 2014 The industry s aggregate free cash flow deficit continued in 2014 with a negative $8.5 billion result in Q1, exactly matching the year ago period. Calendar-year free cash flow was negative $23.5 billion in 2013, compared to negative $26.8 billion in 2012 and negative $13.5 billion in 2011 and marking the ninth consecutive year of deficits. The change in 2013 was driven by a $3.7 billion, or 4.4%, increase in net cash from operations. Capital expenditures were unchanged, while dividends inched forward by $344 million, or 1.7%. The industry s capital spending remains historically high due to elevated levels of investment in environmental compliance, transmission and distribution upgrades, and new generation capacity. While some analysts define free cash flow as the difference between cash flow from operations and capital expenditures, we also deduct common dividends due to the utility industry s strong tradition of dividend payments. EEI s latest projections for industry capex are $103.3 billion in 2014, $95.8 billion in 2015 and $90.6 billion in These figures are based on a review of the latest capex projections for our entire universe of companies. Total aggregate industry-wide cash dividends paid to common shareholders fell by $121 million, or 2.3%, in Q compared to the year-ago period. On a calendar year basis, dividends increased by $341 million, or 1.7%, to $20.9 billion in 2013 from $20.5 billion in From 2003 through 2013, total industry-wide cash dividends rose 70%, to $20.9 billion from $12.3 billion.