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 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 Rate Case Summary COMMENTARY HIGHLIGHTS Twenty-two rate cases were filed in Q2 2009, breaking the previous record of 21 filings in the third quarter of 2008 and resulting in the most active quarter in decades. The economic recession, weakness in the financial markets and rising spending on infrastructure formed the context for many filings in Q Attempts to recover new infrastructure investments in wind power and emission reduction technologies were evident. The inability of several companies to achieve their authorized ROE, in part due to regulatory lag, was also an issue. A number of the quarter s general rate case filings sought to implement tracking mechanisms. Many of the decided cases in Q2 of 2009 were settled, and consequently silent on many of the ratemaking issues. However, like the filed cases, decided cases reflected the economic environment in the country. Filed Cases Investor-owned electric utilities filed 22 new general rate cases in Q2 2009, breaking the previous record of 21 filings in the third quarter of 2008 and resulting in the most active quarter in decades. Consistent with the trend in recent years, capital investment in infrastructure additions and upgrades, including new generation, was a prominent driver of the quarter s filed cases. Wind generation accounted for a large part of those investments. Infrastructure spending has historically been a frequent reason for new filings, yet within the past two quarters economic conditions have also emerged as a factor. Costs related to the economic recession such as higher cost of I. Number of Rate I. U.S. Cases Electric Filed: Output 1990 (GWh) Q (Quarterly) % II. Average Awarded ROE : 1990 Q (Quarterly) capital and higher pension expenses associated with the declining financial asset values, reduced sales, and increased uncollectible accounts were cited among the quarter s filed cases. Several filings also mentioned utilities efforts to mod- 1

6 2 RATE CASE SUMMARY III. Average Requested ROE: 1990 Q (Quarterly) IV. Average Regulatory Lag: 1990 Q (Quarterly) % Months % Jan-80 V. 10-Year Treasury Yield: 1980 Q Jan-83 Source: U.S. Federal Reserve Jan-86 Jan-89 Jan-92 erate requested rate increases in order to minimize the impact on customers during this time of economic stress. Other issues mentioned as prompting new case filings included implementation of new tracking mechanisms, reliability improvements, operation and maintenance expenses, and energy efficiency investments. Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 ROE At 10.55%, the second quarter s average awarded ROE remained at the low end of a 20-year downward trend. While declining interest rates have contributed heavily to this, a general resistance by many state commissions to higher rates, particularly given current economic conditions, has also been a factor. Many of Q2 s decided cases were settled with unspecified ROEs. Of those that were specified, New York State awarded the lowest, at 10%, to both Consolidated Edison Company of New York and Central Hudson Gas & Electric. These reflect, in part, the commission s attempt to encourage austerity measures within the utilities in response to harsh economic conditions. The second quarter s average requested ROE was similarly at the low end of a two-decade-long declining trend. Low requested ROEs also reflect efforts on the part of utilities to minimize the rate impact on customers during a time of economic stress. Regulatory Lag Regulatory lag, at 9.1 months, was the lowest in over a year, but near the average of recent years. Regulatory lag became quite volatile in the late 1990s and early 2000s during industry restructuring. Before and since, it has averaged around 10 months. Since regulatory lag is the time between when a rate case is filed and when it is decided (a rough proxy for the time between when a utility needs revenue and when it can be collected in rates), long lag times are a challenge given the industry s increasing costs. Some commissions allow utilities to moderate lag by permitting cost recovery between rate cases through adjustment clauses, other tracking mechanisms, interim rate increases, recovery of construction work-in-progress (CWIP), and by allowing utilities to use projected costs in rate cases. Several of the quarter s general rate case filings sought to implement tracking mechanisms. Utilities also requested that commissions determine rates based on a forecasted year. Public Service Company of Colorado is seeking a forecasted test year in its filing. If approved, this will be a first in Colorado. In New Hampshire, Public Service Company of New Hampshire is similarly seeking a rate determination based on forecast expenses. Filed Cases The economic recession, weakness in the financial markets and rising spending on infrastructure formed the context for many filings in Q Factors related to the economy and financial markets included recovery of expenses related to a higher cost of capital, higher pension expenses resulting from declining financial asset values, lower sales and lack of

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 NA = Not available sales growth, and rising numbers of uncollectible accounts. Delmarva s filing in Maryland and Wisconsin Power and Light s filing in Wisconsin reflected the companies desire to recover a higher cost of capital. Wisconsin Power and Light s filing also seeks recovery of a revenue shortfall due to lower-than-expected demand. Potomac Electric Power s filing in Washington, DC cited stressful economic times and the utility s need for access to capital. Many of the quarter s filings were sensitive to the plight of customers facing trying economic times. Madison Gas and Electric s filing in Wisconsin expressly tries to minimize the impact on the customer by deferring many expenses it would otherwise have sought to recover in the current year. Puget Sound Energy s filing in Washington could have supported an ROE in the 11% to 11.5% range, but the company moderated the request to 10.8% due to the difficult economic circumstances facing its customers. Attempts to recover new infrastructure investments in wind power and emission reduction technologies were also evident in the quarter. PacifiCorp filed in Oregon to recover new wind plant investment while Kansas Gas and Electric and Westar Energy in Kansas each filed for recovery of incremental costs associated with wind generation. Filings for tracking mechanisms reflect current economic conditions as well as the attempt to reduce regulatory lag. Delmarva Power & Light s filing in Maryland includes a request for a surcharge for recovery of pension and other post-employment benefit costs. Public Service Electric and Gas s filing in New Jersey requests a pension expense tracker, largely to track the effects of the market on pension investment asset values. Other filings reflect current efforts to encourage customers and the utilities themselves to efficiently use electricity: Public Service Company of Colorado filed for residential inverted block rates (i.e., the price per unit increases with greater use). The company is also attempting to expand its time-of-use rates. Several utilities requested decoupling mechanisms that attempt to remove some of the disincentive for utilities to encourage energy efficiency. Narragansett Electric in Rhode Island and Public Service Company of New Hampshire each filed for decoupling mechanisms. The inability of several companies to achieve their author-

9 RATE CASE SUMMARY 5 ized ROE, in part due to regulatory lag, was also an issue. Potomac Electric Power s filing in Washington, DC referenced the company s current earned ROE of 6.1% and Narragansett Electric in Rhode Island referenced an earned ROE of 1.2%. Public Service Company of New Hampshire s filing suggested several mechanisms for dealing with its earnings attrition, such as an ROE adder and a collar that would allow rates to be adjusted based on the difference between earned and allowed return. Decided Cases The Economy Many of the decided cases in Q2 of 2009 were settled, and consequently silent on many of the ratemaking issues. However, like the filed cases, decided cases reflected the economic environment in the country. In both of the cases in New York Consolidated Edison s case and Central Hudson Gas & Electric s case the commission s decision reflected its desire that the companies implement austerity measures to reduce the impact of rates on customers in the current economic environment. In both decisions, the commission asked the utilities to describe the austerity measures they are undertaking. Consolidated Edison s decision reduced recovery by $60 million due to an austerity imputation adjustment. The commission said, We generally allow some level of costs that are discretionary... Expenditures that are reasonable during average or good economic times are not necessarily reasonable... when consumers are experiencing the extraordinary harsh economic realities we see today.... Con Ed could achieve these savings by reducing... management and executive compensation and benefits; research and development; and informational advertising. Incentive Compensation Incentive compensation was also an issue in other proceedings. The Minnesota commission reduced Minnesota Power s employee incentive compensation by $1.5 million. In Nevada, the commission disallowed expenses associated with long-term incentive pay, part of short-term incentive pay and supplemental executive retirement plan expenses. Customer Charges Commissions often seek to achieve goals with electric utility rates beyond a strict economic recovery of costs. If rates were based solely on cost causation principles, the fixed portion of rates would be much higher. Consequently, utilities often push to increase the customer charge, which is one of the few fixed portions of the customer s bill. The quarter saw a few efforts by utilities to increase the customer charge at least partially rewarded. The Arkansas commission allowed Oklahoma Gas & Electric s residential customer charge to increase from $6.50 to $7.15, and the Wyoming commission allowed PacifiCorp s residential customer charge to increase from $10.80 to $20.