Stock Performance Q FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. SHAREHOLDER-OWNED ELECTRIC UTILITY INDUSTRY

Transcription

1 Stock Performance 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 58 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: Dividends Stock Performance Credit Ratings Construction Rate Case Summary Fuel SEC Financial Statements (Holding Companies) FERC Financial Statements (Regulated Utilities) Business Segmentation (Holding Companies) 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 Senior Financial Analyst (202) , atrent@eei.org Future EEI Finance Meetings 44th EEI Financial Conference November 1-4, 2009 Westin Diplomat Resort & Spa Hollywood, Florida EEI International Utility Conference March 14-16, 2010 London Hilton on Park Lane London, United Kingdom 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 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) Integrys Energy Group, Inc. (TEG) IPALCO Enterprises, Inc. Kentucky Utilities KeySpan Corporation Louisville Gas and Electric Maine & Maritimes Corporation (MAM) MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) MidAmerican Energy Holdings Company Niagra Mohawk Power Corporation NiSource Inc. (NI) Northeast Utilities (NU) NorthWestern Corporation (NWEC) 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) * Puget Energy was acquired by Puget Energy LLC on February 6, Puget Energy LLC was formed by a group of infrastructure investors led by the Macquarie Group.

4 Companies Listed by Category (as of 12/31/08) 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 11 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 (44 of 69) 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 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 Niagara Mohawk Power Corporation 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 69) Black Hills Corporation CenterPoint Energy, Inc. Dominion Resources, Inc. Duke Energy Corporation Edison International Entergy Corporation Exelon Corporation First Energy Corp. FPL Group, Inc. Integrys Energy Group MGE Energy, Inc. MidAmerican Energy Holdings NiSource Inc. OGE Energy Corp. Otter Tail Corporation Pepco Holdings, Inc. Public Service Enterprise Group, Inc. SCANA Corporation Sempra Energy Diversified (6 of 69) Allegheny Energy, Inc. Constellation Energy Group, Inc. Energy Future Holdings Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. PPL Corporation Note: Based on assets at 12/31/08

5 Q Stock Performance COMMENTARY HIGHLIGHTS The EEI Index s 9.1% second quarter return markedly trailed those of more economically sensitive and cyclical economic sectors, which bounced vigorously off severely depressed bear-market lows. Despite steady and conservative business models, utilities are not immune from the weak economy. Electricity demand actually fell 4.0% year-to-year during 2009 s first half, a rare occurrence for an industry that generally experiences low single-digit demand growth. EEI s Regulated group, with an average second quarter return of 7.5%, trailed the Mostly Regulated (+11.3%) and Diversified (+22.7%) groups, whose shares had fallen farther over the previous year. The 10-year Treasury yield rose sharply in Q2 in response to government stimulus plans while natural gas prices stayed depressed, although these factors were likely less important to share values than were more generic market cycle factors. Utility stocks as a group significantly underperformed the major market averages during the second quarter, as a powerful stock market rebound that began in early March drove share prices sharply higher across many of the past year s most beaten-down sectors. The EEI Index s 9.1% second quarter return ranked near the bottom of returns by industry, topping only Telecommunications 4.5% return, and markedly trailed sectors that are more sensitive to a prospective economic rebound such as Basic Materials (+24.0%), Industrials (+20.5%) and Technology (+20.3%) and the I. Index Comparison (% Return) Index EEI Index Dow Jones Inds S&P Nasdaq Comp.^ *Through June 30, 2009 ^Price gain/loss only. Other indices show total return. Note: Full year, except where noted. Source: EEI Finance Department II. Category Comparison (% Return) 2009* Index * All Companies Regulated Mostly Regulated Diversified *Through June 30, Note: Returns shown here are unweighted averages of constituent company returns. The EEI Index return shown in Table I above is cap-weighted. Source: EEI Finance Department, SNL Financial and company annual reports. III. Total Return Comparison Value of $100 invested at 12/31/03 close, dividends reinvested. *Through June 30, Note: Full year, except where noted. Source: EEI Finance Department 1

6 2 STOCK PERFORMANCE IV. 10-Year Treasury Yield Monthly % Average Monthly Yield, 1/1/00 through 6/30/09 VIII. Returns by Quarter Index Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 EEI Index Dow Jones Ind S&P Nasdaq Comp.^ ^Price gain/loss only. Other indices show total return. Source: EEI Finance Department Source: U.S. Federal Reserve V. 10-Year Treasury Yield Daily % Daily Yield, 1/1/07 through 6/30/ Category* Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 All Companies Regulated Mostly Regulated Diversified * Returns shown here are unweighted averages of constituent company returns. The EEI Index return shown above is cap-weighted. Source: EEI Finance Department, SNL Financial and company annual reports. IX. Sector Comparison, Trailing 12 mo. Total Return Source: U.S. Federal Reserve VI. Natural Gas Spot Prices $/mmbtu 1/1/05 through 6/30/09, Henry Hub Sector For the twelve-month period ending 6/30/09 Total Return Healthcare -10.4% Consumer Goods -12.7% Technology -16.9% Consumer Services -17.5% Telecommunications -21.6% EEI Index -25.1% Aggregate Index -26.4% Utilities -29.7% Industrials -33.7% Financials -35.1% Oil & Gas -41.6% Basic Materials -47.2% * As defined by WSJ Market Data Group, includes electric, gas, water utilities. Source: EEI and WSJ Market Data Group. X. Sector Comparison, Q Total Return For the three-month period ending 6/30/09 Source: SNL Financial $/mmbtu VII. NYMEX Natural Gas Futures August 2009 through December 2013 Jun 30, 2009 Dec 31, 2008 Dec 31, 2007 Sector Total Return Financials 29.5% Basic Materials 24.0% Technology 20.5% Industrials 20.4% Aggregate Index 16.7% Consumer Goods 14.7% Consumer Services 12.8% Oil & Gas 12.7% Utilities 11.4% Healthcare 9.6% EEI Index 9.1% Telecommunications 4.5% * As defined by WSJ Market Data Group, includes electric, gas, water utilities. Source: EEI and WSJ Market Data Group. Source: SNL Financial

7 STOCK PERFORMANCE 3 XI. Market Capitalization at June 30, 2009 (in $ Mil.) U.S. Shareholder-Owned Electric Utilities Company Stock Symbol Market Cap % Total Exelon Corporation EXC 33, % Southern Company SO 24, % FPL Group, Inc. FPL 22, % Dominion Resources, Inc. D 19, % Duke Energy Corporation DUK 18, % Public Service Enterprise Group Incorporated PEG 16, % Entergy Corporation ETR 14, % PG&E Corporation PCG 13, % PPL Corporation PPL 12, % Sempra Energy SRE 11, % FirstEnergy Corp. FE 11, % American Electric Power Company, Inc. AEP 11, % Progress Energy, Inc. PGN 10, % Edison International EIX 10, % Consolidated Edison, Inc. ED 10, % Xcel Energy Inc. XEL 8, % Ameren Corporation AEE 5, % Constellation Energy Group, Inc. CEG 5, % DTE Energy Company DTE 5, % Wisconsin Energy Corporation WEC 4, % Allegheny Energy, Inc. AYE 4, % SCANA Corporation SCG 3, % CenterPoint Energy, Inc. CNP 3, % Northeast Utilities NU 3, % MDU Resources Group, Inc. MDU 3, % NSTAR NST 3, % NiSource Inc. NI 3, % Pinnacle West Capital Corporation PNW 3, % Pepco Holdings, Inc. POM 2, % Company Stock Symbol Market Cap % Total Alliant Energy Corporation LNT 2, % CMS Energy Corporation CMS 2, % OGE Energy Corp. OGE 2, % DPL Inc. DPL 2, % NV Energy, Inc. NVE 2, % TECO Energy, Inc. TE 2, % Integrys Energy Group, Inc. TEG 2, % Westar Energy, Inc. WR 2, % Vectren Corporation VVC 1, % Great Plains Energy Inc. GXP 1, % Hawaiian Electric Industries, Inc. HE 1, % Cleco Corporation CNL 1, % Portland General Electric Company POR 1, % IDACORP, Inc. IDA 1, % PNM Resources, Inc. PNM % Avista Corporation AVA % UniSource Energy Corporation UNS % ALLETE, Inc. ALE % Black Hills Corporation BKH % NorthWestern Corporation NWE % Otter Tail Corporation OTTR % MGE Energy, Inc. MGEE % CH Energy Group, Inc. CHG % El Paso Electric Company EE % UIL Holdings Corporation UIL % Empire District Electric Company EDE % Central Vermont Public Service Corporation CV % Unitil Corporation UTL % Maine & Maritimes Corporation MAM % Total Industry 343, % Source: EEI Finance Department and Wall Street Journal XII. EEI Index Market Capitalization (at Period End) $ Billions U.S. Shareholder-Owned Electric Utilities Note: Change in EEI Index market capitalization reflects the impact of buyout and spin-off activity in addition to stock market performance. Source: EEI Finance Department and Wall Street Journal EEI Index Market Cap (in $Billions) Q ,484 Q ,546 Q ,035 Q ,200 Q ,668 Q ,238 Q ,331 Q ,553 Q ,598 Q ,454 Q ,073 Q ,324 Q ,601 Q ,193 Q ,460 Q ,305 Q ,663 Q ,989 Q ,727 Q ,825 Q ,899 Q ,848 Q ,281 Q ,858 Q ,088 Q ,565 Q ,946 Q ,486 Q ,711 Q ,024 Q ,472 Q ,921 Q ,070 Q ,844

8 4 STOCK PERFORMANCE XIII. Comparative Category Total Annual Returns U.S. Shareholder-Owned Electric Utilities, Value of $100 invested at close on 12/31/2003 Annual Returns * EEI Index Annual Return (%) (20.93) (4.01) EEI Index Cumulative Return ($) Regulated EEI Index Annual Return (15.59) (4.88) Regulated EEI Index Cumulative Return Mostly Regulated EEI Index Annual Return (27.00) (1.98) Mostly Regulated EEI Index Cumulative Return Diversified EEI Index Annual Return (33.90) (5.28) DiversifiedEEI Index Cumulative Return * At June 30, 2009 Note: Returns shown above are unweighted averages of constituent company returns. Financial sector (+29.5%), the second quarter s market leader and main beneficiary of taxpayer-supported government bailouts. The Utility sector with its conservative, stable business models and large regulated asset base suffered less in the crushing bear market than did many other industries, and predictably trailed those that bounced off very depressed bear market lows. The EEI Index s second quarter gain offset a first quarter decline to bring its return for first half of the year to a modest 2.8%, close to the Dow Jones Industrial s 2.0% but well below the more economically sensitive S&P 500 s 3.2% return and the tech-heavy Nasdaq s 16.4% jump. Power Demand Falls in Weak Economy Utilities, despite the essential nature of electricity to every aspect of our lives, are not immune to the impact of the weak economy. Electricity demand actually fell 4.0% during the first half of the year versus the same period in 2008, a rare occurrence for an industry that generally experiences low sin- XIV. EEI Index Top Ten Performers For the 6-month period ending 6/30/09 Company Category % Return CMS Energy Corporation R 22.0 Sempra Energy MR 18.3 FPL Group, Inc. MR 15.0 Public Service Enterprise Group Incorporated MR 14.3 OGE Energy Corp. MR 12.9 NV Energy, Inc. R 11.3 NiSource Inc. MR 10.9 PPL Corporation D 9.8 PNM Resources, Inc. R 9.1 Constellation Energy Group, Inc. D 8.1 Source: EEI Finance Department Note: Return figures include capital gains and dividends. R = Regulated, MR = Mostly Regulated, D = Diversified

9 STOCK PERFORMANCE 5 gle-digit demand growth. Wall Street analysts noted that many companies revised their 2009 earnings outlooks downward during the second quarter in response to a ratcheting down of the expected demand strength for the remainder of the year. This likely was a depressing force on the stocks as well. Interest Rates and Commodities Largely Neutral Other fundamental factors impacting the industry during the second quarter were also mildly antagonistic to share prices, although they likely had far less impact than did technical factors relating to fund flows among sectors during the quarter s powerful rally. The 10-year Treasury yield jumped from 2.7% in late March to 3.5% by quarter-end in response to growing federal deficits caused in part by the government s huge stimulus program passed to counteract the recession s crushing impact on private sector demand. Regulated utilities, in particular, with their strong dividend yields and steady dividends, are often viewed by investors as bond substitutes that offer the prospect of capital gains through long-term dividend growth. And rising interest rates tend to act as a headwind on utility share prices much as they do on bond prices. However, Treasury yields are still quite low by historical standards and corporate borrowing costs (as opposed to the government s risk-free rate) fell as investors tolerance for risk returned with vigor during the second quarter. Despite rising Treasury yields, Wall Street analysts during the second quarter began noting that regulated utility dividend yields relative to Treasuries had reached levels that suggested the shares were now modestly undervalued. While global spot oil prices firmed up noticeably during the quarter, natural gas spot prices remained near multi-year lows, which impacted competitive generators in markets where gas power is the marginal price-setting fuel. The close -dated segment of the gas futures curve, like spot prices, also fell markedly during the first half of the year, but futures prices for maturities from mid-2011 and beyond were relatively unchanged. In retrospect, commodity prices were probably not much of an impediment to utility stocks during Q2, yet nor were they a source of much support. The long-term trends there remained in place and, other than spot gas remaining weak due to the likelihood of a tepid economic rebound, nothing much seemed to change from a long-term fundamental standpoint. Market volatility driven by perceptions of the state of the economy and confidence in global credit conditions likely exerted a much more powerful impact on utility shares. XV. Share Ownership by Investor Category (% of total) U.S. Shareholder-Owned Electric Utilities Institutional Retail Insider Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Institutional Insider Retail Total Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Institutional Insider Retail Total Jun Sep Dec Mar Source: SNL Financial and EEI Finance Department. Note: Institutional figures represent end-of-quarter, unweighted average of the 58 publicly traded EEI Index companies. Insider data reported annually. Retail data defined as 100% - (Institutional data % + Insider %). Totals may not add to 100 due to rounding.

10 6 STOCK PERFORMANCE Regulated Companies Underperform As shown in Chart VIII, EEI s Regulated group, with an average return of 7.5% during the quarter, trailed the Mostly Regulated (+11.3%) and Diversified (+22.7%) group returns. (These figures represent the unweighted average for each group. The EEI Index is cap-weighted.) The shares of companies with competitive generation subsidiaries and exposure to competitive electricity markets generally suffered more in the bear market for stocks and commodities over the past year than did purely regulated utilities. As with industries and companies across the broader economy, those whose shares had fallen the most were often leaders in the powerful rally that began in early March. The trend is evident in the list of the top ten EEI Index gainers in Q2, seven of which are companies in the Mostly Regulated or Diversified company categories. Dividends at Risk? Many corporations across all business sectors have cut dividends in recent months in response to the economic recession and the turmoil in global credit markets. Given elevated capex spending across much of the utility industry, slightly lower power demand relative to last year and reduced expectations for 2009 and 2010, dividend cuts have recently emerged as a concern for utility investors as three utilities cut their dividend in mid-february whereas the prior five years saw only four total cuts. Yet the first quarter also saw 18 dividend increases, and five of the 58 publicly traded companies raised their dividend during the second quarter, resulting in a total of 23 companies that either raised or reinstated their dividend during the first six months of This is on par with first half increases by 26 companies in 2008, 28 in 2007, 25 in 2006 and 24 in While dividend cuts may yet become a necessity for more companies, depending on the strength of the economy later this year and into 2010, industry analysts generally commented that most dividends appear safe and that fears of cuts probably overstated probabilities. While the changed economic landscape since mid-2008 has diminished the industry s near-term earnings prospects, analysts continue to believe that many companies offer potential for 10%+ earnings growth supported by rate base growth and rate relief from cases decided in recent months when the economy emerges from recession. This positive long-term outlook and the industry s attractive dividend yields will likely continue to appeal to investors looking for stable investments in today s difficult economic environment.