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 61 U.S. shareholder-owned electric utility companies. These 61 companies include 56 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: 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 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: 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 61 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) 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) 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) Great Plains Energy Incorporated (GXP) Hawaiian Electric Industries, Inc. (HE) IDACORP, Inc. (IDA) Integrys Energy Group, Inc. (TEG) IPALCO Enterprises, Inc. MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) MidAmerican Energy Holdings Company NextEra Energy, Inc. (NEE) 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)

4 Companies Listed by Category (as of 12/31/10) 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 five 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 62) 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 El Paso Electric Company Empire District Electric Company Energy East Corporation Entergy Corporation Great Plains Energy Incorporated IDACORP, Inc. Integrys Energy Group IPALCO Enterprises, Inc. 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 62) Allegheny Energy, Inc. Black Hills Corporation CenterPoint Energy, Inc. Dominion Resources, Inc. Duke Energy Corporation Edison International Exelon Corporation First Energy Corp. MGE Energy, Inc. MidAmerican Energy Holdings NextEra Energy, Inc. NiSource Inc. OGE Energy Corp. Otter Tail Corporation Pepco Holdings, Inc. PPL Corporation Public Service Enterprise Group, Inc. SCANA Corporation Sempra Energy Diversified (4 of 62) Constellation Energy Group, Inc. Energy Future Holdings Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. Note: Based on assets at 12/31/10 The following companies were removed from the consolidated financial statements for 2009 and 2010 because they did not file Form 10-K with the SEC: Duquesne Light Holdings, Green Mountain Power, KeySpan, Kentucky Utilities, Louisville Gas and Electric and Niagara Mohawk Power.

5 Q Dividends COMMENTARY HIGHLIGHTS nutilities added to a seven-year-long trend of widespread dividend increases in Q The quarter s 17 positive actions were just above the 16 in 2010 and in line with the 18 and 20 in Q and Q1 2008, respectively. nel Paso Electric reinstated its common stock dividend in Q1, marking the company s first common dividend payment since nthe quarter s dividend increases ranged from 0.8% to 30.0%, and averaged 7.9%. The median increase was 6.6%. Wisconsin Energy and Sempra Energy posted the largest percentage increases. npassed in December, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010) extended the 15% individual tax rates on dividends and capital gains for another two years, through The 15% dividend tax rate remains important to the industry s ability to attract capital for its ongoing high capital spending programs. The shareholder-owned electric utility industry added to its seven-year-long trend of widespread dividend increases in Q1. The quarter s 17 positive dividend actions (16 increases and one reinstatement) slightly exceeded the 16 in Q and were in line with the 18 and 20 positive actions in Q and Q1 2008, respectively. During full-year 2010, 34 companies raised or reinstated their dividend, a slight gain over the 32 in 2009 and a modest decrease from the 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. I. Sector Comparison, Dividend Payout Ratio For 12-month period ending 3/31/11 Sector Payout Ratio (%) EEI Index Companies* 58.6% Utilities 55.4% Consumer Staples 43.2% Industrial 32.7% Materials 30.9% Health Care 24.6% Energy 24.5% Consumer Discretionary 24.1% Technology 23.4% Financial 16.1% *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 last twelve months (LTM) common dividends paid and income before nonrecurring and extraordinary items. S&P sector payout ratios based on trailing 12-month dividends and earnings per share. For more information on constituents of each S&P sector, see factsheets/. Source: AltaVista Research, SNL Financial, EEI Finance Department II. Sector Comparison, Dividend Yield at 3/31/11* Sector Yield (%) EEI Index Companies 4.5% Utilities 4.2% Consumer Staples 2.8% Health Care 2.0% Industrials 2.0% Materials 2.0% Energy 1.5% Technology 1.4% Consumer Discretionary 1.4% Financials 1.5% *EEI Index Companies yield based on last announced, annualized dividend rates (as of 3/31/11); S&P sector yields based on 2011E cash dividends (estimates as of 5/31/11). For more information on constituents of each S&P sector, see factsheets/. 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* % % % % % % % % % % % % % % % % % % 2011 Q % Q Average Increase 30.5% 6.1% 11.1% 5.8% 18.7% 8.4% 9.2% 7.4% 9.4% 7.2% 8.2% 7.9% Average Decrease 42.8% 43.7% 48.3% 38.4% 47.4% 40.0% 0% 0% 45.7% 46.4% 0% 0% *Prior to 2000: Total industry dividends/total industry earnings. Starting in 2000: Average of all companies paying dividend figures reflect dividend changes (raised, lowered, etc.) through 3/31/11 and earnings and dividends through 12/31/10 (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) * 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 *2011 figures reflect earnings and dividends through 12/31/10. Source: EEI Finance Department, SNL Financial and company reports. V. Category Comparison, Dividend Yield at 3/31/11 Category Dividend Yield (%) EEI Index 4.5 Regulated 4.4 Mostly Regulated 4.6 Diversified 3.6 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, company reports and SNL Financial As of March 31, all of the 56 publicly traded companies in the EEI Index were paying a common stock dividend (El Paso Electric reinstated its dividend during Q1 2011). Table III shows the industry s dividend paying patterns over the past 18 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 quarter for electric utilities. El Paso Electric Reinstates Dividend On March 22, El Paso Electric announced the reinstatement of its common stock dividend. The quarterly dividend of $0.22 per share was paid during Q2 (EEI s quarterly dividend statistics are based on announcement dates), and marks the company s first dividend payment since El Paso Electric is a regional electric utility that provides generation, transmission and distribution service to approximately 378,000 retail and wholesale customers in the Rio Grande valley of west Texas and southern New Mexico.

7 DIVIDENDS 3 VI. Dividend Summary U.S. Shareholder-Owned Electric Utilities (at 3/31/11) Company Annualized Payout Yield Last Date Company (Stock Symbol) Category Dividend Ratio (%) (%) Action To From Announced ALLETE (ALE) R $ Raised $1.78 $1.76 1/20/11 Alliant Energy (LNT) R $ Raised $1.70 $1.58 1/14/11 Ameren (AEE) R $ Lowered $1.54 $2.54 2/13/09 American Electric Power (AEP) R $ Raised $1.84 $ /26/10 Avista Corp. (AVA) R $ Raised $1.10 $1.00 2/4/11 Black Hills Corp. (BKH) MR $ Raised $1.46 $1.44 1/27/11 CenterPoint Energy (CNP) MR $ Raised $0.79 $0.78 1/20/11 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 $1.00 $0.90 4/30/10 CMS Energy (CMS) R $ Raised $0.84 $0.60 8/6/10 Consolidated Edison (ED) R $ Raised $2.40 $2.38 1/20/11 Constellation Energy Group (CEG) D $ Lowered $0.96 $1.91 2/18/09 Dominion Resources (D) MR $ Raised $1.97 $ /17/10 DPL, Inc. (DPL) R $ Raised $1.33 $ /8/10 DTE Energy (DTE) R $ Raised $2.24 $2.12 7/29/10 Duke Energy (DUK) MR $ Raised $0.98 $0.96 6/22/10 Edison International (EIX) MR $ Raised $1.28 $ /9/10 El Paso Electric (EE) R $ Reinstated $0.88 $0.00 3/21/11 Empire District Electric (EDE) R $ Raised $1.28 $ /22/92 Entergy (ETR) R $ Raised $3.32 $3.00 4/5/10 Exelon (EXC) MR $ Raised $2.10 $ /24/08 FirstEnergy (FE) MR $ Raised $2.20 $ /18/07 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 MDU Resources (MDU) D $ Raised $0.65 $ /11/10 MGE Energy (MGEE) MR $ Raised $1.50 $1.47 8/20/10 NextEra Energy, Inc. (NEE) MR $ Raised $2.20 $2.00 2/18/11 NiSource (NI) MR $ Lowered $0.92 $1.16 8/26/03 Northeast Utilities (NU) R $ Raised $1.10 $1.03 2/8/11 NorthWestern Corporation (NWEC) R $ Raised $1.44 $1.36 2/11/11 NSTAR (NST) R $ Raised $1.70 $ /18/10 NV Energy (NVE) R $ Raised $0.48 $ /28/10 OGE Energy (OGE) MR $ Raised $1.50 $ /2/10 Otter Tail (OTTR) MR $1.19 NM 5.2 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 $1.04 $1.02 5/13/10 PPL Corp. (PPL) MR $ 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 $1.94 $1.90 2/11/11 Sempra Energy (SRE) MR $ Raised $1.92 $1.56 2/22/11 Southern Company (SO) R $ Raised $1.82 $1.75 4/19/10 TECO Energy, Inc. (TE) R $ Raised $0.86 $0.82 2/24/11 UIL Holdings (UIL) R $ Raised $1.73 $1.69 2/26/96

8 4 DIVIDENDS VI. Dividend Summary (cont.) U.S. Shareholder-Owned Electric Utilities Annualized Payout Yield Last Date Company (Stock Symbol) Category Dividend Ratio (%) (%) Action To From Announced UniSource Energy (UNS) R $ Raised $1.68 $1.56 2/28/11 Unitil Corporation (UTL) R $ Raised $1.38 $1.36 1/19/99 Vectren Corporation (VVC) R $ Raised $1.38 $ /5/10 Westar Energy (WR) R $ Raised $1.28 $1.24 2/23/11 Wisconsin Energy (WEC) R $ Raised $1.04 $0.80 1/20/11 Xcel Energy (XEL) R $ Raised $1.01 $0.98 5/19/10 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 12/31/09. Dividend Per Share Per share amounts are annualized declared figures as of 12/31/10. Dividend Payout Ratio Dividends paid for 12 months ended 9/30/10 divided by net income before nonrecurring and extraordinary items for 12 months ended 9/30/10. Dividend Yield Annualized Dividends Per Share at 12/31/10 divided by stock price at market close on 12/31/10. NM applies to companies with negative earnings or payout ratios greater than 200%. Source: EEI Finance Department and SNL Financial Extension of Dividend Tax Rates Supports Industry Capex The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010), passed in December of last year, extended the 15% individual tax rate on dividends and capital gains for two more years, through The Jobs and Growth Tax Relief Reconciliation Act of 2003 temporarily reduced individual tax rates on dividends to 15% for most tax brackets, giving dividend-paying stocks an advantage over bonds as bond interest is still taxed as ordinary income. In May 2006, Congress extended the 15% dividend tax rate through The 15% dividend tax rate remains important to the industry s ability to attract capital for investment in emissions reduction, new transmission lines, distribution upgrades and new generation in many power markets in the years ahead. A key argument for protecting this benefit was preserving the parity between dividend and capital gains tax rates, thereby not disadvantaging dividend-paying companies in their capital raising efforts. EEI will be working to further extend the 15% dividend tax rate beyond Dividend Increases Average 7.9% The first quarter s dividend increases ranged from 0.8% to 30.0%, averaging 7.9%. The median increase was 6.6%. Wisconsin Energy and Sempra Energy posted the largest percentage increases. Wisconsin Energy, based in Milwaukee, led all companies with a 30.0% increase. Along with its dividend increase, the company announced a two-for-one stock split in an effort to maintain an attractive per share market price. For the five years ending December 31, 2010, Wisconsin Energy produced a 71.5% total shareholder return, the fifth highest among EEI Index companies. San Diego s Sempra Energy increased its quarterly dividend by 23.1%, from $0.39 to $0.48 during Q1. The company cited its exit from commodities trading and reduced risk profile, which offers a more predictable earnings stream. NextEra Energy, Avista and DPL implemented the next highest percent increases during the quarter at 10.0%, 10.0% and 9.9% respectively. Payout Ratio and Dividend Yield The industry s dividend payout ratio was 58.6% for the 12 months ending December 31, 2010, surpassing all other U.S. business sectors. (The industry s payout ratio was 63.0% when measured as an un-weighted of individual company ratios; 58.6% represents an aggregated figure). 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 earnings. From , the annual payout ratio ranged from 62.1% 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 4.5% on March 31, 2011, leading all other U.S. business sectors. The yield also stood at 4.5% at the end of 2010 and 2009, after rising to 4.9% at year-end We calculate the industry s aggregate dividend yield using an un-weighted average of the 56 publicly traded EEI Index companies yields.

9 DIVIDENDS 5 VII. Free Cash Flow U.S. Shareholder-Owned Electric Utilities ($ Billions) 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) (77.6) (74.2) - Dividnd. Paid to Common Shrhlders (14.6) (13.1) (13.4) (12.3) (13.2) (15.1) (16.1) (15.4) (16.5) (17.1) (18.0) Free Cash Flow (19.9) (14.8) (6.0) (13.2) (6.6) (28.4) (38.0) (11.8) (14.4) Source: SNL Financial and EEI Finance Department / r =revised Business Category Comparisons As seen in Table V, the Mostly Regulated group had the highest dividend yield, at 4.6% on March 31, 2011, compared to 4.4% and 3.6% for the Regulated and Diversified groups. The Mostly Regulated and Regulated group s dividend yields were relatively unchanged during Q1, but the Diversified group s fell from 4.3% at year-end 2010, as its 8.9% first quarter total return surpassed that of the other groups for the quarter. The Regulated group recorded a dividend payout ratio of 64.1% in 2010 compared to 60.7% for the Mostly Regulated group and 49.7% for the Diversified group (see Table IV). The Regulated group produced the highest payout ratio for each year from , but was exceeded by the Mostly Regulated group in Share Repurchases Remain Low after 2007 Spike Thirteen of the industry s publicly traded companies repurchased an aggregate $2.7 billion of common shares during 2010 as an alternate way of returning cash to shareholders. This was up slightly from 11 companies and $908 million during Share repurchases totaled $2.4 billion in 2008, far below the $11.9 billion level 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 2010 The industry s aggregate free cash flow remained in negative territory in 2010, the fifth consecutive year of negative results. Free cash flow fell to a negative $14.4 billion, down from a negative $11.8 billion in A modest decline in capital expenditures was more than offset by a sharper drop in net cash provided by operating activities; capex fell $3.5 billion, or 4.5%, while net cash provided by operating activities fell $5.2 billion, or 6.2%. Measured on a trailing 12-month basis, capital expenditures have leveled off since Q after rising for the 16 preceding quarters as the industry boosted investment in environmental compliance, transmission and distribution upgrades, and new generation capacity. EEI s latest projections (as of January 2011) for industry capex are $83.3 billion in 2011, $85.0 billion in 2012 and $82.6 billion in These figures are based on a review of the latest capex projections for our entire universe of companies. While many 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. Aggregate pre-dividend free cash flow remained in positive territory during 2010, at $3.6 billion, following a positive $5.3 billion result in This metric had fallen to a negative $20.9 billion in 2008 from a negative $13.0 billion in 2007 (the industry s first deficit year since 2001). Total aggregate industry-wide cash dividends paid to common shareholders rose by $858 million, or 5.0%, to $18.0 billion in 2010 from $17.1 billion in From 2003 through 2010, total industry-wide cash dividends rose 46%, to $18.0 billion from $12.3 billion.