Financial and Regulatory Trends for Gas LDCs

Transcription

1 Financial and Regulatory Trends for Gas LDCs Lillian Federico Research Director S&P Global Market Intelligence American Gas Association State Affairs Committee Scottsdale, Arizona Oct. 11, 2017 Copyright 2017 by S&P Global Market Intelligence. All rights reserved.

2 Who is Regulatory Research Associates? Independent research Established in 1982 Acquired by SNL Financial in 2005 SNL acquired by McGraw Hill in 2015/rebranded as part of S&P Global Market Intelligence Identify financial and regulatory trends shaping the utility industries Electric/gas/water Primarily state, but also federal Assess the level of regulatory risk associated with utility investments Regulatory policies Rate cases RRA State Regulatory Evaluations Contact information: Lillian Federico: Sales & subscriptions: Editorial enquiries: written approval of S&P Global Market Intelligence. Not for distribution to the public. Copyright 2017 by S&P Global Market Intelligence. 2

3 Capital Expenditures Power And Gas RRA 53-company universe aggregate actual/estimated capital expenditures ($B) E2018E2019E Source: Regulatory Research Associates (RRA), an offering of S&P Global Market Intelligence. As of March

4 Capital Expenditures Power & Gas Segments CapEx by Business Category 2017E 2019E Aggregate CapEx by Business Category 2017E 2019E Annual Breakdown Renew. 5% Environ. 3% Other 8% Generation 19% 30% 25% 20% 15% Gas* 20% Electric trans. 19% 10% 5% 0% 2017E 2018E 2019E Generation Electric trans. Electric distr. Gas* Electric distr. 26% Generation Electric trans. Electric distr. Gas* Environ. Renew. Other Environmental Renewables Other *Gas includes pipeline, storage, distribution and other gas infrastructure. Information as of March Source: RRA and SNL Energy, offerings of S&P Global Market Intelligence. 4

5 Capital Expenditures Gas Utility Holding Companies Historical and forecast capital spending by gas utility holding companies E Historical capital expenditures ($M) Forecast cap ex ($M) Company E 2018E 2019E ATMOS ENERGY CORP BLACK HILLS CORP CENTERPOINT ENERGY CHESAPEAKE UTILITIES MDU RESOURCES GROUP INC NATIONAL FUEL GAS NEW JERSEY RESOURCES NISOURCE NORTHWEST NATURAL GAS ONE Gas # NA NA NA NA NA NA SCANA CORP SEMPRA ENERGY SOUTH JERSEY INDUSTRIES SOUTHWEST GAS HOLDINGS SPIRE INC VECTREN CORP WGL HOLDINGS Total Gas # ONE Gas was formed in Proforma historical data not available. Source: Regulatory Research Associates (RRA), an offering of S&P Global Market Intelligence. As of March

6 Drivers of Capital spending Gas Utilities Remediating aging infrastructure Storm restoration costs Reliability system hardening Service extension programs Physical safety and security Cyber security New technologies written approval of S&P Global Market Intelligence. Not for distribution to the public. Copyright 2017 by S&P Global Market Intelligence. 6

7 Est NUMBER OF CASES State Rate Case Activity Power And Gas Sector Major Rate Case Decisions E YEAR Electric Gas Source: RRA, an offering of S&P Global Market Intelligence. As of Oct. 5,

8 Est NUMBER OF CASES Rate Case Outcomes Authorized ROE YEAR Electric Gas Source: RRA, an offering of S&P Global Market Intelligence. As of Oct. 5,

9 Drivers Of Authorized ROE Interest rates at or near historical lows Economic hardship for customers Risk-reducing mechanisms Impact/timing of quantitative easing? Economic uncertainty for utilities Utility liquidity/financial health Incentive ROE premiums 9

10 Regulatory Lag > 12 months 6% 7 to 12 months 66% No limit 19% < 7 months 9% Hybrid, 19% Full Forecast 17% Fully Historical 64% Rate case time frame Rate case test year Date Certain 2% Year-End 45% Average 53% Regulatory Lag Rate base valuation Source: RRA, an offering of S&P Global Market Intelligence. As of May

11 Rider Mechanisms/Adjustment Clauses Commodity costs Conservation/ demand-side management program costs Renewables expense Environmental compliance FERC transmission (RTO) charges Other Expenses Municipal taxes and franchise fees Pension/ other post-employment benefits (OPEB) costs Off-system sales sharing Extraordinary storm restoration costs Uncollectibles New Capital Investment Electric generation/delivery Gas infrastructure written approval of S&P Global Market Intelligence. Not for distribution to the public. Copyright 2017 by S&P Global Market Intelligence. 11

12 Alternative Regulation Plans Formula-based ratemaking/multi-year rate plans AL, AR, CA, GA, IL, LA, MS, NY, TX, VT Earnings-based sharing IA, NY, ME, OK, WI Incentive ROEs for certain rate base additions VA, IA for specific types of generation Fuel/gas procurement retention of cost savings Gas examples IN, IA, KS, KY, MD, MO, MT, NJ, OR, VA, WY Incentives for achieving certain operational goals Demand-side management/renewables/emissions reductions Service quality -- In recent years have seen more penalties than premiums Capacity release/off-system sales benefits sharing DE, IN, IA, KY, MA, MO, ND, NJ, PA, TN, TX, UT Merger savings retention Less prevalent since cost savings are not what is driving mergers written approval of S&P Global Market Intelligence. Not for distribution to the public. Copyright 2017 by S&P Global Market Intelligence. 12

13 Rate Design Issues How do you set prices to recoup the approved revenue requirement Inter-class subsidies Moves to ameliorate? Commodity costs Generation O&M Variable Costs Intra-class allocation Fixed Costs Fixed vs. variable costs Depreciation T&D O&M Intra-class allocation Property taxes Decoupling Mechanisms Full/Partial written approval of S&P Global Market Intelligence. Not for distribution to the public. Copyright 2017 by S&P Global Market Intelligence. 13

14 Merger Activity Utility M&A transactions completed in 2016 Transaction Comp. date Buyer Target value ($M) 3/23/2016 Exelon Corp. Pepco Holdings Inc. 12,026 7/1/2016 Southern Company AGL Resources Inc. 11,533 10/14/2016 Fortis Inc. ITC Holdings Corp. 11,329 7/1/2016 Emera Inc. TECO Energy Inc. 10,183 10/3/2016 Duke Energy Corp. Piedmont Natural Gas Co. Inc. 6,513 9/16/2016 Dominion Resources Inc. Questar Corp. 5,882 4/13/2016 Investor group Cleco Corp. 4,578 2/12/2016 Black Hills Corp. SourceGas Holdings 1,890 9/12/2016 Spire Inc. EnergySouth Inc /31/2016 Corning Natural Gas Holding Co. Pike County Light and Power Co. 16 9/13/2016 Investor group DQE Holdings NA Source: SNL Energy, an offering of S&P Global M arket Intelligence. As of Oct. 5, 2017 Utility M&A announced transaction values ($B) Utility M&A transactions completed in 2017 Comp. date Buyer Target 1/1/2017 Algonquin Power & Utilities Corp. Empire District Electric Company 6,382 9/20/2017 Peoples Natural Gas Company LLC Delta Natural Gas 217 Source: SNL Energy, an offering of S&P Global Market Intelligence. As of Oct. 5, 2017 Transaction value ($M) YTD Source: SNL Energy, an offering of S&P Global M arket Intelligence. As of Oct. 5, 2017 Pending mergers Buyer/Target Deal Announcement Date Transaction Value (M) Sempra Energy/Oncor Electric Delivery Company LLC 8/21/ ,448 Hydro One/Avista Corporation 7/19/2017 5,300 Great Plains Energy/Westar Energy, Inc. 7/9/ ,000 Eversource Energy/Aquarion Water 6/2/2017 1,675 AtlaGas Ltd./WGL Holdings 1/25/2017 6,382 Source: Regulatory Research Associates, an offering of S&P Global M arket Intelligence. As of Oct. 5,

15 Mergers Approval authority Time frame for review Conditions imposed written approval of S&P Global Market Intelligence. Not for distribution to the public. Copyright 2017 by S&P Global Market Intelligence. 15

16 Financial and Regulatory Trends for Gas LDCs Lillian Federico Research Director S&P Global Market Intelligence QUESTIONS??? Copyright 2017 by S&P Global Market Intelligence. All rights reserved.

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