Rate Case Summary Q FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. INVESTOR-OWNED ELECTRIC UTILITY INDUSTRY

Transcription

1 Rate Case Summary Q FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. INVESTOR-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 U.S. members provide electricity for 220 million Americans and operate in all 50 states and the District of Columbia. EEI also has dozens of international electric companies as International Members, and hundreds of industry suppliers and related organizations as Associate Members. Safe, reliable, affordable, and increasingly clean energy enhances the lives of all Americans and powers the economy. As a whole, the electric power industry supports more than 7 million jobs in communities across the United States and contributes 5 percent to the nation s GDP. 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 49 U.S. investor-owned electric utility companies. These 49 companies include 43 electric utility holding companies whose stocks are traded on major U.S. stock exchanges and six electric utilities who are subsidiaries of non-utility or foreign companies. Financial updates are published for the following topics: Dividends Stock Performance Credit Ratings Rate Case Summary SEC Financial Statements (Holding Companies) FERC Financial Statements (Regulated Utilities) EEI Finance Department material can be found online at: 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 Senior Director, Financial Analysis (202) , magnew@eei.org Bill Pfister Director, Financial Analysis (202) , bpfister@eei.org Michael Buckley Senior Financial Analyst (202) , mbuckley@eei.org Future EEI Finance Meetings EEI Financial Conference November 5-8, 2017 Walt Disney World Swan & Dolphin Lake Buena Vista, Florida For more information about future EEI Finance Meetings, please contact Debra Henry at (202) or dhenry@eei.org. For EEI Member Companies The EEI Finance and Accounting Division maintains 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 49 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) AVANGRID, Inc. (AGR) Avista Corporation (AVA) Berkshire Hathaway Energy Black Hills Corporation (BKH) CenterPoint Energy, Inc. (CNP) Cleco Corporation 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) Entergy Corporation (ETR) Eversource Energy (ES) Exelon Corporation (EXC) FirstEnergy Corp. (FE) Great Plains Energy Incorporated (GXP) Hawaiian Electric Industries, Inc. (HE) IDACORP, Inc. (IDA) IPALCO Enterprises, Inc. MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) NextEra Energy, Inc. (NEE) NiSource Inc. (NI) NorthWestern Corporation (NWE) OGE Energy Corp. (OGE) Oncor Electric Delivery Company Otter Tail Corporation (OTTR) 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) Unitil Corporation (UTL) Vectren Corporation (VVC) WEC Energy Group, Inc. (WEC) Westar Energy, Inc. (WR) Xcel Energy, Inc. (XEL)

4 Companies Listed by Category (as of 06/30/2017) 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 80% or more of total assets are regulated Less than 80% of total assets are regulated Categorization is based on year-end business segmentation data presented in SEC 10-K filings, supplemented by discussions with 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 (35 of 49) Alliant Energy Corporation Ameren Corporation American Electric Power Company, Inc. Avista Corporation Berkshire Hathaway Energy Black Hills Corporation Cleco Corporation CMS Energy Corporation Consolidated Edison, Inc. Duke Energy Corporation Edison International El Paso Electric Company Entergy Corporation Eversource Energy FirstEnergy Corp. Great Plains Energy Inc. IDACORP, Inc. IPALCO Enterprises, Inc. NiSource Inc. NorthWestern Corporation OGE Energy Corp. Oncor Electric Delivery Company Otter Tail Corporation PG&E Corporation Pinnacle West Capital Corporation PNM Resources, Inc. Portland General Electric Company PPL Corporation Puget Energy, Inc. Southern Company Unitil Corporation Vectren Corporation WEC Energy Group, Inc. Westar Energy, Inc. Xcel Energy Inc. Mostly Regulated (14 of 49) ALLETE, Inc. AVANGRID, Inc. CenterPoint Energy, Inc. Dominion Resources, Inc. DPL Inc. DTE Energy Company Exelon Corporation Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. MGE Energy, Inc. NextEra Energy, Inc. Public Service Enterprise Group Incorporated SCANA Corporation Sempra Energy Note: Based on assets at 12/31/2016

5 Q Rate Case Summary HIGHLIGHTS Electric utilities filed 21 new rate cases in Q2 2017; with 19 rate case decisions in addition to the new cases, it was a very busy quarter for rate regulation. The average approved return on equity (ROE) in Q2 was 9.63%. The average requested ROE was 10.32%. In Q2, capital expenditures continued to be the primary reason for filings. However, the second place driver of rate reviews was utilities desire to recover for shortfalls caused by declining sales, which eclipsed O&M expense recovery and other motivations during the quarter. Average regulatory lag in Q2 was 8.9 months, near the ten-month average over our data set. COMMENTARY Electric utilities filed 21 new rate cases in Q2 2017; with 19 rate case decisions in addition to the new cases, it was a very busy quarter for rate regulation. The average awarded ROE in the quarter, at 9.63%, was very near the low end of a long-term declining trend in awarded ROEs. The average requested ROE was 10.32%, consistent with the long-term decline in approved ROEs. Declining interest rates since the early 1980s account for much of the long-term decline in requested and awarded ROEs. Average regulatory lag, at 8.89 months, was near the 10- month long-term average over the history of our dataset. Regulatory lag has only temporarily fluctuated away from this average and will likely hold near it unless state commissions accelerate the speed with which they decide cases I. Number I. U.S. of Electric Rate Cases Output Filed (GWh) (Quarterly) Source: S&P Global Market Intelligence / Regulatory Research Assoc. and EEI Rate Department % II. Average Awarded ROE (Quarterly) Source: S&P Global Market Intelligence / Regulatory Research Assoc. and EEI Rate Department Filed Cases in Q Broadly speaking, the primary reason for rate case filings is usually recovery of capital expenditures (capex). The second and third most common reasons are utilities desire to establish rate mechanisms and to recover operation and mainte- 1

6 2 RATE CASE SUMMARY III. Average Requested ROE (Quarterly) IV. Average Regulatory Lag (Quarterly) % 14.0 Months Source: S&P Global Market Intelligence / Regulatory Research Assoc. and EEI Rate Department Source: S&P Global Market Intelligence / Regulatory Research Assoc. and EEI Rate Department % V. 10-Year Treasury Yield (1/1980 6/2017) for investments made to modernize the electric system and generate cleaner power, to respond to major storms, and to prevent the closure of ash basins. In all, Duke filed for $253 million in significant plant additions and $195 million related to coal ash plant. Recovering for Lower Sales Interstate Power & Light in Iowa filed partly to recover for declining residential consumption. Two-thirds of its service territory is rural, and these areas are not growing as fast as its urban areas. Northern States Power in Wisconsin filed partly to adjust for lower forecasted sales. Similarly, Avista in Idaho filed partly to adjust for a decrease in usage. Source: U.S. Federal Reserve nance (O&M) expenses. In Q2, capital expenditures continued to be the primary reason for filings. However, the second place driver of rate reviews was utilities desire to recover for shortfalls caused by declining sales, which eclipsed O&M expense recovery and other motivations during the quarter. Capital Expenditures Among the companies filing for capital expenditure recovery was Niagara Mohawk in New York, which filed partly for capital investments in safety and reliability improvements, saying New delivery prices will allow the company to modernize its... networks to further enhance reliability and resiliency, improve customer service including [service to] vulnerable customers and promote economic growth. Indiana Michigan Power in Michigan filed to recover costs associated with a nuclear plant, including costs of upgrades and modifications required by the nuclear regulatory commission, which would be reflected in rates for the first time. In addition, the company filed to recover expenses associated with enhanced cyber security and delivery system upgrades such as strengthened poles and wires and with technology that improves the resiliency of its system to weather events and that reduces the impact of outages. Similarly, Duke Energy in North Carolina filed partly to recover Customer Charges and Rate Design Interstate Power & Light in Iowa filed partly to increase the residential customer service charge from $10.50 to $13.50 and the general service charge from $17.80 to $ Further, the company filed to initiate a pilot program for residential and general service demand billing. Indiana Michigan Power in Michigan filed partly to increase the residential customer charge from $7.25 to $18 to better align fixed costs with fixed charges. Similarly, Duke Energy Progress in North Carolina filed partly to raise the residential customer charge from $11.15 to $ Return on Equity (ROE) In Illinois, Commonwealth Edison and Ameren requested an 8.4% ROEs under the companies formula rate plans. This is among the smallest ROEs requested or awarded over the past 35 years. Ameren also requested a rate reduction, the fifth requested reduction for the company since the formula rate plan started in Other companies requested an ROE increase in Q2: Public Service Oklahoma requested a 10% ROE. The company s earned ROE in 2016 was 8.52%. Nevada Power requested an ROE increase (from 9.8% to 10.0%) with base rates unchanged. DTE Electric in Michigan was among the other companies requesting an increased ROE (from 10.1% to 10.5%).

7 RATE CASE SUMMARY 3 VI. Rate Case Data: From Tables I-V Number of Average Average Average Average Quarter Rate Cases Filed Awarded ROE Requested ROE 10-Year Treasury Yield Regulatory Lag Q NA NA Q NA NA Q NA NA Q NA NA Q NA NA Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q NA Q Q NA Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

8 4 RATE CASE SUMMARY VI. Rate Case Data: From Tables I-V (cont.) Number of Average Average Average Average Quarter Rate Cases Filed Awarded ROE Requested ROE 10-Year Treasury Yield Regulatory Lag Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q NA = Not available / Source: S&P Global Market Intelligence/ Regulatory Research Assoc. and EEI Rate Department

9 RATE CASE SUMMARY 5 Decided Cases in Q Fourteen of the 19 cases decided in Q were settled. Settlements often do not reveal much about how decisions were made or even what the final numbers are. Much of the details about those cases are sparse, but overall, the quarter s decided cases do provide some indication of the regulatory thinking governing rate reviews. Customer Charges Below is a table indicating the results of residential customer charge filings and decisions in Q2. Both Kentucky Utilities and Louisville Gas & Electric entered into settlements that would have raised the residential customer charges to $11.50 on 7/1/2017 and then $12.25 on 7/1/2018. However, the commission orders moved the charges directly to $12.25 on 7/1/2017, arguing that two-step increases in the customer charge would confuse customers. Rate Design As a result of settlements for Liberty Utilities Granite State and Unitil Electric Systems in New Hampshire, the companies are phasing out their two-block, inclining-block rate structure and implementing a flat kilowatthour charge. In Arkansas, Oklahoma Gas and Electric s partial settlement does not permit the company to implement its requested $2.75 per kilowatthour per month residential demand charge until the company conducts a study and pilot program on demand charges to evaluate customer acceptance, understanding, and ability to respond to a rate design that includes demand charges. ROE In Oklahoma Gas and Electric s review in Arkansas, the administrative law judge (ALJ) suggested 9.7% as a floor for an allowed ROE because that was the ROE recently awarded in a rate review in Texas. The ALJ said, if a lower ROE than 9.7% was awarded in Arkansas, investor funds may move to Texas.... The Commission has constitutional and statutory duties to set the lowest reasonable rates reflecting the lowest reasonable cost-for-service, but the Commission must balance that obligation with the Commission s duty to the utility to set rates and charges that reasonably allow the utility to attract investor capital. However, the Commission authorized a 9.5% ROE, finding it sufficient to allow OG&E to maintain and support its credit, assure confidence in its financial integrity, and allow it to continue to attract capital. The commission also said 9.5% was within several of the parties specified ranges. Kentucky Utilities and Louisville Gas & Electric s settlements would have awarded the companies ROEs of 9.75%. However, the commission reduced those to 9.7%, saying In 2017 the economic environment has shown signs of relative improvement. In response to increased economic growth and low unemployment, the Federal Reserve increased interest rates in March and June 2017, and current outlooks, including comments from government agencies, show that investors anticipate additional interest rate increases.... Even with the current uptick in economic conditions, the economy remains in an era of historically low interest rates and slow economic growth. Therefore, irrespective of the agreement by the parties that a 9.75 percent ROE is appropriate for [the companies], the Commission finds that a slightly lower ROE is a better reflection of current economic conditions and investor expectations. Based on the entire record... we find that [the companies ] required ROE falls within a range of 9.2 percent to 10.2 percent, with a midpoint of 9.70 percent.... While the Commission does not rely on individual returns awarded in other states in determining the appropriate ROE for Kentucky jurisdictional utilities, the Commission does find it reasonable to expect that other state commissions, each with its own attributes, evaluate expert witness testimony which uses the same or similar cost-of-equity models as those presented by the parties participating in this rate proceeding, and reach conclusions based on the data provided in the records of individual cases. The [Regulatory Research Associates] reports introduced in to the record of this proceeding summarize conclusions reached by state utility regulatory commissions, including this Commission, with regard to reasonable ROEs and contain explanatory reference points as to individual circumstances, all of which are available to investors. To the extent that investors expectations are influenced by such publications, and we believe they are, we also find it appropriate to use that information to put their expectations in context. Residential Customer Charge Activity in Q Company State Original Requested Allowed Interstate Power & Light Iowa $10.50 $13.50 Indiana Michigan Power Michigan $7.25 $18 Duke Energy Progress North Carolina $11.15 $19.50 Liberty Utilities Granite State New Hampshire $11.80 $14.50 Unitil Electric Systems New Hampshire $10.27 $15 $15.24 Oklahoma Gas and Electric Arkansas $13 $26.54 $13 Delmarva Power & Light Delaware $11.70 $17.47 $11.70 Kentucky Utilities Kentucky $10.75 $22 $12.25 Louisville Gas & Electric Kentucky $10.75 $22 $12.25

10 6 RATE CASE SUMMARY Oklahoma Gas and Electric Arkansas Oklahoma Gas and Electric in Arkansas had requested a transfer of $57 million of wind-farm-related production tax credits (PTCs) from base rates to the fuel adjustment clause (FAC). The commission allowed a transfer of only $8.8 million, the amount due to expire at year end. The commission said, the amount of PTCs generated are (i) highly variable and directly tied to the volume of energy produced from the wind farms; (ii) wind power is commonly referred to as variable renewable energy in that it is non-dispatchable, due to its fluctuating nature; (iii) wind generation output varies by hour, day, month, and season; and (iv) because PTCs are directly related to production and that production is variable, it is appropriate to include PTC credits in the FAC. The commission accepted the company s capital structure incorporating a 53.31% equity component. However, the commission said it was concerned with the company s equityto-debt ratio, which it said was not in alignment with the average of the other utilities. The commission said the company should further evaluate adjusting its equity-to-debt ratio to maximize the benefits of lower cost debt, similar to that of other utilities, by its next rate base proceeding. Kentucky Utilities and Louisville Gas & Electric In Kentucky Utilities and Louisville Gas & Electric s settlements in Q2, the commission disallowed certain employee retirement costs for employees in the categories of exempt, manager, non-exempt, and officer and director. The commission said eligible employees participating in the company s defined benefit pension plan enjoy generous retirement plan benefits, making the matching 401(k) Plan amounts [additional retirement funds] excessive for ratemaking purposes. The settlements also called for approval to recover the companies advanced metering infrastructure. However, a collaborative is being conducted to explore project merits and appropriate rate treatment. Miscellaneous Gulf Power s settlement in Florida allows the company to establish electric vehicle (EV) charging stations on a revenue neutral basis as a pilot program for the lesser of five years, or until the company files a permanent EV charging station program. Liberty Utilities Granite State s settlement in New Hampshire stipulates that the company s customer service performance is to be measured between 2017 and 2019 based on call answer time, billing and customer satisfaction. If performance does not meet certain levels, the company must provide a $1 credit to each customer. The commission in New Mexico rejected Southwestern Public Service s rate review as incomplete, noncompliant with state rules for use of a future test year, and unable to show a cost of service application to New Mexico customers. Two commissioners dissented on the rejection. Northern States Power s settlement in Minnesota implemented revenue decoupling for residential and non-demandmetered commercial customers for Delmarva Power & Light s settlement in Delaware stipulated that work groups will be convened to discuss the company s proposed prepay program, including program design, estimated budget, deposits, recovery mechanisms and tariff provisions and modifications, among other topics.