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

Transcription

1 Rate Case Summary 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 54 U.S. shareholder-owned electric utility companies. These 54 companies include 48 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 EEI Finance Department material can be found online at: 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 Bill Pfister Senior Financial Analyst (202) , BPfister@eei.org Future EEI Finance Meetings EEI Wall Street Briefing February 11, 2015 University Club New York, New York 50th EEI Financial Conference November 8-11, 2015 Westin Diplomat Hollywood, Florida 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 54 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) 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 48 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 (38 of 54) 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 Westar Energy, Inc. Wisconsin Energy Corporation Xcel Energy, Inc. Mostly Regulated (13 of 54) 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 54) Energy Future Holdings Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. Note: Based on assets at 12/31/2013

5 Q Rate Case Summary HIGHLIGHTS Investor-owned electric utilities filed eight rate cases in Q3, a total consistent with the elevated pace of filings that began around the turn of the century. In addition to capital expenditures and rate mechanisms (the typical primary reasons for filings), recovery of costs related to distributed generation (DG) appears for the first time in our quarterly summary. The issue is growing in prominence across the industry due in part to declining costs and increasingly available financing for DG projects such as rooftop solar. The average awarded ROE in Q3 was 9.89%, a number consistent with the long-term decline in awarded ROEs. The average requested ROE, at 10.48%, was similarly low. Decided cases covered a wide range of issues, although storm cost recovery was featured in three (Entergy Louisiana, Central Maine Power and Florida Public Utilities). I. Number I. U.S. of Electric Rate Cases Output Filed (GWh) (Quarterly) Source: SNL Financial / Regulatory Research Assoc. and EEI Rate Department II. Average Awarded ROE (Quarterly) % COMMENTARY Source: SNL Financial / Regulatory Research Assoc. and EEI Rate Department Investor-owned electric utilities filed eight rate cases in Q3, a total consistent with elevated pace of filings that began around the turn of the century. The trend reflects the industry s ongoing construction cycle driven by the need to replace and upgrade infrastructure and reduce the environmental impact of power generation. Capital spending associated with infrastructure investment was the main driver of Q3 s filings. The second most frequently cited cause was a desire to implement riders and other rate mechanisms. The third related to distributed generation (DG) in the form of recovery of payments to customers for DG that they own (mostly rooftop solar systems) and recovery for utility-sited DG. The average awarded ROE in Q3 was 9.89%, a number consistent with the long-term decline in awarded ROE over 1

6 2 RATE CASE SUMMARY III. Average Requested ROE (Quarterly) IV. Average Regulatory Lag (Quarterly) % Months Source: SNL Financial / Regulatory Research Assoc. and EEI Rate Department % V. 10-Year Treasury Yield (1/1980 9/2014) Source: U.S. Federal Reserve our three decades of data. The average requested ROE, at 10.48%, was similarly low. Average regulatory lag for Q3 was 8.67 months slightly below the ten month long-term average. Average lag was higher and more volatile at the end of the 1990s and early 2000s, when the industry was going through a period of restructuring, but has otherwise closely tracked the 10- month average. Filed Cases in Q3 Capital spending associated with infrastructure investment was the main driver of Q3 s filed cases. In Empire District Electric s case in Missouri, the company s desire to recover expenses associated with emissions control equipment for a coal plant ($20 million) drove, in part, the company s decision to file. Union Electric in Missouri also filed to recover for emissions control equipment for a coal plant as well as for equipment replacement at a nuclear plant. The second most frequently cited driver of filings was utilities desire to implement riders and other rate mechanisms. FirstEnergy s companies in Pennsylvania (Metropolitan Edison, Pennsylvania Electric, Pennsylvania Source: SNL Financial / Regulatory Research Assoc. and EEI Rate Department Power and West Penn Power) all filed in part to implement riders, including storm damage recovery mechanisms, smart meter riders, and a rider for a universal service charge for recovery of costs of low-income customer assistance programs. The third most frequently cited driver was recovery of costs related to distributed generation (DG), an issue growing in prominence across the industry due in part to declining costs and increasingly available financing for DG projects such as rooftop solar. However, this is the first time the issue has risen to a point of prominence in quarterly rate case activity. Central Hudson Gas & Electric s filing in New York best exemplifies this driver in Q3. Central Hudson is a subsidiary of CH Energy Group, which in turn is a subsidiary of Fortis, Inc. The New York commission s program called Reforming the Energy Vision (REV) seeks to promote distributed generation (DG) at the distribution level. The commission envisions restructuring utilities at the distribution level, much as utilities in many states (including New York) were restructured at the generation level more than a decade ago. Central Hudson, in its rate filing in Q3, noted that these changes could increase risk to the financial health of the company and that it reserves the right to revise its requested equity return. The company is also filing to implement a community solar garden and to acquire demand response and micro grid resources. Empire District Electric Missouri Empire District Electric filed in Missouri in part to increase residential customer charges from $12.52 to $18.75 and commercial customer charges from $21.32 to $32. The company said in its filing that, if recovery through increased customer charges were to stall, it would file for a revenue decoupling mechanism (RDM) in a future case. The RDM would help protect it from inadequate recovery of fixed charges through the customer charge.

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 NA = Not available Source: SNL Financial / Regulatory Research Assoc. and EEI Rate Department

9 RATE CASE SUMMARY 5 Decided Cases in Q3 Storm Recovery A commission-approved settlement allowed Entergy Louisiana to implement a rider to amortize over ten years $11.5 million in storm costs from hurricanes Katrina, Rita, Gustav and Ike. The settlement also allows the company to accrue a storm reserve at the annual cost of $0.2 million. Central Maine Power s settlement specifies that the company implement a new mechanism for recovery of incremental storm restoration costs, with an annual allocation of $10 million. The settlement specifies a relatively intricate system for allocation of recovery including deferral and sharing of costs for different classifications of storms. The commission said that the sharing mechanism provides CMP with new incentives to control storm costs... [and] should reduce the rate volatility that has resulted from extraordinary storms in the past. Florida Public Utilities settlement requires the company to suspend accruals to storm reserve for two years and use the money to accelerate tree trimming and study the possibility of undergrounding. The settlement also lists reliability improvement projects the company should make prudent efforts to complete. Potomac Electric Power Maryland The Maryland commission adopted a 9.62% ROE for Potomac Electric Power (Pepco) based on commission staff s analysis. The commission found that by eliminating or reducing techniques or metrics designed to increase or decrease a party s ROE, the recommendations of the parties can be brought into relatively close proximity to the Staff s proposal. The commission found this ROE sufficient to allow Pepco to continue to improve reliability at reasonable rates. Staff employed several methodologies plus an averaging of those methodologies to arrive at a 9.62% ROE. One approach added 173 basis points to the calculated ROE to adjust for Pepco s relatively small size, but then subtracted 364 basis points to account for the relatively low risk in the electric utility industry. Because Pepco has not demonstrated the cost effectiveness of its advanced metering initiative to the satisfaction of the commission, only 65,000 of the company s 536,000 meters are reflected in the company s cost of service. The commission rejected the company s efforts to rectify the disparity in this case, saying The appropriate remedy... is for the Company to demonstrate the cost-effectiveness of its [nowcompleted] AMI system as soon as practical. Central Maine Power Central Maine Power s settlement sets the ROE at 9.45%, requires the company to withdraw from its Alternative Regulation Plan (ARP) that had been in effect since 1995, and implements a revenue decoupling mechanism (RDM). The company must cap adjustments owed to it resulting from the RDM at 2% of the distribution revenues, with any additional amount deferred. The company may not cap amounts due customers. During the course of the RDM, the company must collaborate with Efficiency Maine Trust on ways to promote efficiency. The settlement also initiates a separate proceeding on a new customer billing system. This proceeding will focus on the single issue of rate recognition of the system. Green Mountain Power Vermont Green Mountain Power s Memorandum of Understanding (MOU) approves an expanded Alternative Regulation Plan (ARP) and specifies how revenue from an agreement related to a previously sold nuclear plant will be distributed to customers. The agreement called for the company to share with customers revenues above $61/MWh generated by the sold plant during a ten-year period. The approved ARP allows base rate adjustments supported by cost-of-service information. The ARP caps adjustments, but indexes them to inflation as determined by the Consumer Price Index-Northeast Region (less a 1% productivity factor), plus some additional adjustments. An incentive adjustment determined by company operating performance compared to a benchmark group of utilities can offset the productivity factor. The ARP annually adjusts the 9.6% ROE allowed by the MOU to reflect half the change in the 10-year Treasury bond yield. The ARP also incorporates an earnings sharing mechanism and a supply-cost adjustment mechanism that credits to or collects from customers 90% of energy costs beyond a $0.3 million difference from those already included in rates. The MOU also requires the company to work with the commission to advance low-carbon technologies and services consistent with least-cost principles. PacifiCorp Utah PacifiCorp s settlement in Utah authorizes the company to implement a two-step rate increase, but does not allow a net metering surcharge for residential net metered customers. The commission said the record did not provide sufficient evidence to substantiate the costs or benefits of net metering. However, the commission opened another proceeding on net metering. Commissioner Thad Levar dissented on the net metering charge issue, saying he would approve such a charge and that the evidence demonstrated concrete and identifiable net metering costs that exceeded concrete and identifiable net metering benefits. The settlement does not allow the company to file another rate case until January NorthWestern Montana The Montana commission granted NorthWestern recovery for the company s acquisition of hydroelectric facilities. One

10 6 RATE CASE SUMMARY commissioner dissented, saying he is skeptical of the valuation of the facilities. NorthWestern previously owned the facilities but was forced to sell them when the state restructured. Miscellaneous Atlantic City Electric has invested $161.9 million in its distribution system since 2013 and intends to invest another $322 million over the next three years. Florida Public Utilities settlement allows the company to implement an economic development rider that would grant discounts for up to five years to qualifying customers. The decision in South Carolina Electric & Gas s case allows the company a cash return on construction work in progress (CWIP) for nuclear units, bringing the total CWIP balance on these nuclear plants to $2.667 billion. The company s 60% share of the costs of the completed units is an estimated $5.607 billion, including transmission facilities and allowance for funds used during construction.