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

Transcription

1 Cash Flow Statement 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 59 electric utility holding companies whose stocks are traded on major U.S. stock exchanges and ten 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 Manager, Financial Analysis (202) , magnew@eei.org Future EEI Finance Meetings EEI International Utility Conference March 15-17, 2009 London Hilton on Park Lane London, United Kingdom Dividends Stock Performance Credit Ratings Construction Rate Case Summary Fuel Income Statement Balance Sheet Cash Flow Statement Business Segmentation 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 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) Ipalco Enterprises, Inc. Integrys Energy Group, Inc. (TEG) Kentucky Utilities ** KeySpan Corporation (KSE) Louisville Gas and Electric ** Maine & Maritimes Corporation (MAM) MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) MidAmerican Energy Company Niagra Mohawk Power Corporation NiSource Inc. (NI) Northeast Utilities (NU) NorthWestern Corporation (NWEC) NSTAR (NST) 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. (PSD) SCANA Corporation (SCG) Sempra Energy (SRE) Sierra Pacific Resources (SRP) 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) Note: Includes the 59 shareholder-owned electric utility holding companies plus an additional 10 electric utilities (shown in italics) that are not listed on U.S. stock exchanges for one of the following reasons i. they are a subsidiary of an independent power producer, ii. they are a subsidiary of a foreignowned company, or iii. they were acquired by an investment firm. Stock symbols are shown in parentheses. *Portland General transitioned from private ownership to become a publicly traded company on April 3, The EEI Index includes Portland General beginning on January 1, **Kentucky Utilities and Louisville Gas and Electric, both subsidiaries of E.ON AG, were added to the EEI coverage universe effective January 1, EEI s historical industry financial data now includes their results. ^TXU (now Energy Future Holdings Corp.) was acquired by the Texas Energy Future Holdings Limited Partnership (TEF) on 10/10/2007. TEF was formed by a group of investors led by Kohlberg Kravis Roberts and Texas Pacific Group to facilitate the merger.

4 Companies Listed by Category (as of 12/31/07) 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 59 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 10 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 (43 of 69) ALLETE, Inc. 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. 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 MGE Energy, Inc. Niagara Mohawk Power Corporation Northeast Utilities NorthWestern Energy NSTAR PG&E Corporation Pinnacle West Capital Corporation PNM Resources, Inc. Portland General Electric Company Progress Energy Puget Energy, Inc. Sierra Pacific Resources 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) Alliant Energy Corporation CenterPoint Energy, Inc. Dominion Resources, Inc. DTE Energy Company Duke Energy Corporation Edison International Entergy Corporation Exelon Corporation First Energy Corp. FPL Group, Inc. Integrys Energy Group MidAmerican Energy Holdings NiSource Inc. OGE Energy Corp. Otter Tail Corporation Pepco Holdings, Inc. PPL Corporation Public Service Enterprise Group, Inc. SCANA Corporation Diversified (7 of 69) Allegheny Energy, Inc. Black Hills Corporation Constellation Energy Group, Inc. Energy Future Holdings * Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. Sempra Energy Note: Based on assets at 12/31/07 * TXU (now Energy Future Holdings Corp.) was acquired by the Texas Energy Future Holdings Limited Partnership (TEF) on 10/10/2007. TEF was formed by a group of investors led by Kohlberg Kravis Roberts and Texas Pacific Group to facilitate the merger.

5 Q Cash Flow Statement HIGHLIGHTS m Net Cash Provided by Operating Activities decreased by $4.4 billion, or 23.8%, in Q3. The measure declined for 55% of companies and 39% posted a double-digit percentage decrease, extending the recent trend of declining cash flow from operating activities. m Net Cash Used in Investing Activities rose 509%, from $3.7 billion in Q to $22.3 billion in Q The increase was mostly due to asset transactions at Duke Energy. In addition, capital expenditures rose almost 20%. mmany companies have made downward revisions to 2009 capex projections since the end of Q3 due to the financial crisis that overwhelmed global markets in Q4. About two-thirds of companies reduced their 2009 projection, with downward revisions ranging as high as 40%. The consolidated impact for 2009 is expected to be about a 10-15% decline from the $84.3 billion estimate published in EEI s Spring 2008 capex survey. COMMENTARY Net Cash Provided by Operating Activities Net Cash Provided by Operating Activities decreased by $4.4 billion, or 23.8%, to $14.0 billion in Q from $18.4 billion in Q The measure declined for 55% of companies and 39% (24 companies) posted a double-digit percentage decrease, extending the recent trend of declining cash flow from operating activities. This metric decreased year-to-year for the second straight quarter and in each of the last three quarters of 2007, after increasing in Q and in every quarter of $ Billions (10.0) (20.0) (30.0) $ Billions U.S. Shareholder-Owned Electric Utilities Net Cash Provided by Operating Activities Capital Expenditures (49.0) (43.0) (41.1) (48.4) (59.9) (69.1) Dividends Paid to Common Shares (13.4) (12.3) (13.2) (15.1) (16.1) (16.6) Free Cash Flow (6.0) (13.2) (6.6) (24.1) Source: SNL Financial and EEI Finance Department / r = revised $ Billions (14.8) (19.9) (6.0) I. Free Cash Flow (13.2) II. Capital Spending Trailing 12 months U.S. Shareholder-Owned Electric Utilities 2003 Q Q Q Q Q4 Source: SNL Financial and EEI Finance Department (6.6) (24.1) (2.2) 2007 Q Q3 Q (16.5) (19.7) (4.1) (2.2) (9.9) Q (4.2) (9.9) 1 EEI Q Financial Update

6 2 CASH FLOW STATEMENT $ Billions III. Net Change in Long-Term Debt U.S. Shareholder-Owned Electric Utilities IV. Consolidated Cash Flow Statement U.S. Shareholder-Owned Electric Utilities Q Q Q Q1 Source: SNL Financial and EEI Finance Department Note: Figures taken from Consolidated Balance Sheet 2007 Q Q1 As shown in Table IV, the key driver of the decline was a $7.2 billion decrease in the cash contribution from Change in Working Capital, which was somewhat offset by a $5.3 billion net increase in Deferred Taxes and Investment Credits. Net Income fell by $276 million, or 2.0%, from $13.7 billion in Q to $13.5 billion in Q3 2008, with 58% of companies showing a year-to-year decline. Cash Flows from Investing Activities Net Cash Used in Investing Activities rose 509%, from $3.7 billion in Q to $22.3 billion in Q The increase was mostly due to a negative $55.5 billion swing in cash provided by asset sales and a $3.2 billion, or 19.6%, increase in capital expenditures. These were somewhat offset by a positive $40.3 billion swing in cash used for asset purchases. The big changes in the Asset Sales and Asset Purchases line items can be traced to Duke Energy, which showed offsetting net changes of $30.9 billion for each. This activity mostly relates to the purchase and sale of availablefor-sale securities and fair value accounting treatment for these investments. Rising Capex Sixty-one percent of shareholder-owned electric utilities increased capital spending relative to last year s third quarter. OGE Energy (+360%), MidAmerican Energy (+137%) and Westar Energy (+101%) showed the largest percentage gains. In dollar terms, the industry s year-to-year gains were led by Edison International (+$145 million), NV Energy (formerly Sierra Pacific Resources, +$124 million) and Portland General Electric (+$117 million). Industry-wide capex began to rise in 2005, which showed the first significant full-year increase since the industry s competitive generation build-out peaked in 2001 ($56.8 ($Millions) Q Q % Change Cash Flows from Operating Activities: Net Income $ 13,451 $ 13, % Depreciation and Amortization 9,265 9, % Deferred Taxes and Investment Credits 5,174 (99) NM Operating Changes in AFUDC (161) (76) 110.4% Change in Working Capital (7,158) 83 NM Other Operating Changes in Cash (6,541) (4,519) 44.7% Net Cash Provided by Operating Activities 14,031 18, % Cash Flows from Investing Activities: Capital Expenditures (19,747) (16,508) 19.6% Asset Sales (22,469) 33, % Asset Purchases 20,744 (19,526) % Net Non-Operating Asset Sales and Purchases (1,724) 13, % Change in Nuclear Decommissioning Trust (152) Investing Changes in AFUDC Other Investing Changes in Cash (730) (980) Net Cash Used in Investing Activities (22,318) (3,667) Cash Flows from Financing Activities: Net Change in Short-term Debt 7,459 (3,527) Net Change in Long-term Debt 9,832 1, Proceeds from Issuance of Preferred Equity Preferred Share Repurchases (0) (25) Net Change in Preferred Issues Proceeds from Issuance of Common Equity 1, Common Share Repurchases (297) (8,118) Net Change in Common Issues 977 (7,482) Dividends Paid to Common Shareholders (4,175) (4,122) 1.3 Dividends Paid to Preferred Shareholders (19) (18) 4.5 Other Dividends (204) (154) 31.9 Dividends Paid to Shareholders (4,397) (4,294) 2.4 Other Financing Changes in Cash (326) (78) Net Cash (Used in) Provided by Financing Activities 13,544 (14,044) Other Changes in Cash (10) (5) 97.7 Cash and cash equivalents at beginning of period 10,971 16, Cash and cash equivalents at end of period 16,218 17, Net increase (decrease) in cash and cash equivalents 5, Source: SNL Financial and EEI Finance Department / r= revised billion was spent on capex in 2001). The recent steady increase in capex is depicted in Table II. The $77.8 billion spent during the 12 months ending September 30, 2008 is nearly double the $40.2 billion spent during the 12-month period ending September 30, 2004, which marked the cyclical low following the competitive generation build-out. Companies have boosted spending in recent years on EEI Q Financial Update

7 CASH FLOW STATEMENT 3 environmental compliance, transmission and distribution upgrades, and generation projects in many power markets to ensure adequate reserve margins over the long term. In addition to companies strategic decisions to boost capital spending, capex has also been impacted by construction material cost inflation. Capex and the Financial Crisis EEI s 2008 study of industry capital spending (based on K data, company presentations and discussions with companies) projected that: Industry capex would reach approximately $86.5 billion in 2008, $84.3 billion in 2009 and $84.1 billion in Moreover, the 2008 and 2009 projections were revised sharply upward (+16% for 2008 and +11% for 2009) from last year s study, which was completed in the late spring of All components of capex would rise in dollar terms from 2007 to s total capital spending would be allocated as follows: Generation, 36%; Distribution, 24%; Environmental, 14%; Transmission, 12%; Natural Gasrelated, 9%, Other, 5%. However, many companies have made downward revisions to their 2009 capex projections since the end of Q due to the financial crisis that overwhelmed global markets during the fourth quarter. About two-thirds of companies reduced their 2009 projection, with downward revisions ranging as high as 40%. The aggregate industry impact for 2009 is expected to be about a 10-15% decline from the projection shown above. Tighter and more expensive financing along with the anticipation of slower power demand growth in a weakened economy are driving these revisions. Construction Cost Inflation It is unclear whether the recent sharp fall in global prices for many commodities will translate into reduced construction material costs and, by extension, impact plant delays and cancellations. Construction costs had risen steadily in recent years. According to the latest Handy-Whitman Index of Public Utility Construction Costs, such costs increased by an average of 7.4% per year from 2000 through 2007 (a total of 59%) for transmission and 8.9% per year (a total of 71%) for distribution. Cancellations of planned new generation can somewhat offset rising spending in other areas, although plant cancellations have been a relatively low 1,498 MW (mostly natural gas and coal) during the first nine months of Almost 61% more generation capacity was cancelled in 2007 than in 2006, with the majority (84%) being coalpowered. Although capacity cancellations rose significantly in 2007, the 16,577 MW cancelled was below the levels of 2003 (27,110 MW) and 2005 (20,209 MW), which mostly consisted of natural gas-fired generation. The relative impact of each of these three forces an increase in strategic capex, rising construction costs and cancellations or delays that reduced original projections is difficult to assess. The bottom line is that overall capex has been on a steady climb since 2004 and (unless the financial crisis and slowing demand growth radically reshapes current expectations) is forecast to stay at a high level well into the future. A 2008 study by the Brattle Group projects that capital spending by the entire power industry (including public power and IPPs) could total $1.5 trillion from , and that s without incorporating the effects of likely climate legislation. Cash Flows from Financing Activities Net Cash Provided by Financing Activities showed a positive $27.5 billion swing, from a negative $14.0 billion in Q to a positive $13.5 billion in Q The increase was due to higher debt levels, with net swings of $11.0 billion for short-term debt and $8.6 billion for long-term debt, as well as a significant decline in common share repurchases. The industry s total short-term debt continued to rise in 2008, as it has each year since Two-thirds of companies showed a larger increase in short-term debt this year than during last year s third quarter. The industry also saw accelerating growth in long-term debt up $9.8 billion in Q versus $1.2 billion in Q This extends the trend from last year when the net change in long-term debt swung into positive territory for the second straight year after declining in 2004 and Given the industry s rising capital spending, it is not surprising that long-term debt is also on the rise after the sizeable debt pay-downs from 2003 through mid Total long-term debt fell from $333.0 billion at the end of 2003 to $302.6 billion at June 30, 2006, and has since risen to $353.3 billion at September 30, 2008 (with securitization amounts removed from the totals). Even though the back-to-basics story of selling non-core assets and using the proceeds to pay down debt is still in play for a handful of companies, most that needed to repair their balance sheet through debt reduction have done so, and have usually been rewarded by the credit ratings agencies. However, in a trend that developed in 2007 and has continued in 2008, more downgrades and credit watch situations (outlooks and watches) have involved the subject company s ability to finance and manage the projected rise in capital expenditures in coming years. Proceeds from the Issuance of Common Equity increased from $636 million in Q to $1.3 billion Q Common equity issuance fell by $5.2 billion, or 51.9%, EEI Q Financial Update

8 4 CASH FLOW STATEMENT in 2007 from the level of This metric surged the previous five years, from $5.0 billion and $5.6 billion in 2000 and 2001, respectively, to $13.1 billion in 2002 and averaged $10.3 billion between 2002 and The industry s strong stock performance over the period, in addition to a widespread desire to strengthen debt-to-capitalization ratios, drove the higher stock issuance. EEI Q Financial Update