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

Transcription

1 Rate Case Summary Q FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. INVESTOR-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 U.S. members provide electricity for 220 million Americans and operate in all 50 states and the District of Columbia. EEI also has dozens of international electric companies as International Members, and hundreds of industry suppliers and related organizations as Associate Members. Safe, reliable, affordable, and increasingly clean energy enhances the lives of all Americans and powers the economy. As a whole, the electric power industry supports more than 7 million jobs in communities across the United States and contributes 5 percent to the nation s GDP. 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 49 U.S. investor-owned electric utility companies. These 49 companies include 43 electric utility holding companies whose stocks are traded on major U.S. stock exchanges and six electric utilities who are subsidiaries of non-utility or foreign companies. Financial updates are published for the following topics: Dividends Stock Performance Credit Ratings Rate Case Summary SEC Financial Statements (Holding Companies) FERC Financial Statements (Regulated Utilities) EEI Finance Department material can be found online at: For EEI Member Companies The EEI Finance and Accounting Division maintains 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 Senior Director, Financial Analysis (202) , magnew@eei.org Bill Pfister Director, Financial Analysis (202) , bpfister@eei.org Michael Buckley Senior Financial Analyst (202) , mbuckley@eei.org Future EEI Finance Meetings EEI Financial Conference November 11-14, 2018 Hilton San Francisco Union Square San Francisco, California For more information about future EEI Finance Meetings, please contact Debra Henry at (202) or dhenry@eei.org, or Devin James at (202) or djames@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 49 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) AVANGRID, Inc. (AGR) Avista Corporation (AVA) Berkshire Hathaway Energy Black Hills Corporation (BKH) CenterPoint Energy, Inc. (CNP) Cleco Corporation 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) Entergy Corporation (ETR) Eversource Energy (ES) Exelon Corporation (EXC) FirstEnergy Corp. (FE) Great Plains Energy Incorporated (GXP) Hawaiian Electric Industries, Inc. (HE) IDACORP, Inc. (IDA) IPALCO Enterprises, Inc. MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) NextEra Energy, Inc. (NEE) NiSource Inc. (NI) NorthWestern Corporation (NWE) OGE Energy Corp. (OGE) Oncor Electric Delivery Company Otter Tail Corporation (OTTR) 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) Unitil Corporation (UTL) Vectren Corporation (VVC) WEC Energy Group, Inc. (WEC) Westar Energy, Inc. (WR) Xcel Energy, Inc. (XEL)

4 Companies Listed by Category (as of 12/31/2017) 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 80% or more of total assets are regulated Less than 80% of total assets are regulated Categorization is based on year-end business segmentation data presented in SEC 10-K filings, supplemented by discussions with 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 (35 of 49) Alliant Energy Corporation Ameren Corporation American Electric Power Company, Inc. Avista Corporation Berkshire Hathaway Energy Black Hills Corporation Cleco Corporation CMS Energy Corporation Consolidated Edison, Inc. Duke Energy Corporation Edison International El Paso Electric Company Entergy Corporation Eversource Energy FirstEnergy Corp. Great Plains Energy Inc. IDACORP, Inc. IPALCO Enterprises, Inc. NiSource Inc. NorthWestern Corporation OGE Energy Corp. Oncor Electric Delivery Company Otter Tail Corporation PG&E Corporation Pinnacle West Capital Corporation PNM Resources, Inc. Portland General Electric Company PPL Corporation Puget Energy, Inc. Southern Company Unitil Corporation Vectren Corporation WEC Energy Group, Inc. Westar Energy, Inc. Xcel Energy Inc. Mostly Regulated (14 of 49) ALLETE, Inc. AVANGRID, Inc. CenterPoint Energy, Inc. Dominion Resources, Inc. DPL Inc. DTE Energy Company Exelon Corporation Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. MGE Energy, Inc. NextEra Energy, Inc. Public Service Enterprise Group Incorporated SCANA Corporation Sempra Energy Note: Based on assets at 12/31/2016

5 Q Rate Case Summary HIGHLIGHTS Electric utilities filed 12 new rate cases in Q Along with 23 decided cases, it was a busy quarter for rate regulation. The average awarded return on equity (ROE) in Q4 was 9.73%, a level little changed from recent quarters. The average requested ROE was 10.33%. Electric utilities desire to recover expenses related to customer service and customer experience initiatives was the most frequently cited broad reason for filings after recovery for capex. This was followed by expenses related to the evolution in electric utility business models and utilities desire to recover for declining sales. Q4 s low average regulatory lag, at 6.91 months, resulted from an unusual number of special cases. COMMENTARY Electric utilities filed 12 new rate cases in Q4 2017, a number consistent with the increased pace of quarterly filings since the industry s restructuring nearly 20 years ago. Along with 23 decided cases, it was a busy quarter for rate regulation, as the fourth quarter often is. The average awarded return on equity (ROE) in Q4 was 9.73%, a level little changed from recent quarters. The average requested ROE was 10.33%. Declining interest rates since the early 1980s have resulted in a longterm secular decline in both requested and approved ROEs. Average regulatory lag, at 6.91 months, was considerably below the industry s approximate ten-month long-term average since restructuring. However, this does not appear to indicate a change in a trend, but instead results from an unusual number of special cases. Average regulatory lag will likely continue to hold near the ten-month average unless state commissions accelerate the speed of rate case decisions I. Number I. U.S. of Electric Rate Cases Output Filed (GWh) (Quarterly) Source: S&P Global Market Intelligence / Regulatory Research Assoc. and EEI Rate Department % II. Average Awarded ROE (Quarterly) Source: S&P Global Market Intelligence / Regulatory Research Assoc. and EEI Filed Cases in Q Broadly speaking, the primary reason for rate case filings is the recovery of capital expenditures (capex), and this was the case in Q4. The second and third most common reasons for filings are utilities desire to establish rate mechanisms and to recover operation and maintenance (O&M) expenses; this was not the pattern in Q4. Instead, electric utilities desire to 1

6 2 RATE CASE SUMMARY III. Average Requested ROE (Quarterly) IV. Average Regulatory Lag (Quarterly) % 14 Months Source: S&P Global Market Intelligence / Regulatory Research Assoc. and EEI Rate Department % V. 10-Year Treasury Yield (1/ /2017) Source: U.S. Federal Reserve recover expenses related to customer service and customer experience initiatives was the second most frequently cited broad reason for filings. This was followed by expenses related to the evolution in electric utility business models and utilities desire to recover for declining sales. These drivers are largely related. While recovery of investments in generation plants and distribution and transmission infrastructure are mainstay drivers of case filings, growth in the use of renewable generation and other emerging technologies are increasingly driving capex and other spending. Some of these new technologies allow customers to generate electricity and offer greater control over electricity use. This has fostered interest in new industry business models. Consequently, electric utilities are proposing to build and recover for the infrastructure that allows customers to have that control and that creates a better customer experience. Yet these technologies often allow customers to use less central-station electricity and therefore reduce utility electricity sales. New Electric Utility Business Model Initiatives Public Service Colorado has embarked upon an Advanced Grid and Intelligence Initiative, which includes infrastructure investments and other costs related to improving productivity. These include costs related to Colorado s Clean Source: S&P Global Market Intelligence / Regulatory Research Assoc. and EEI Rate Department Air Clean Jobs Act. The Act requires the state s electric utilities to convert or retrofit coal plants to gas or retire them up to the lesser of 900 megawatts or 50% of the utility s coal assets by January 1, In Q4, the company filed for a four-step increase to recover the associated costs, explaining the rate increases would fund investments to better integrate renewable energy, boost grid reliability, offer customers more information for greater control over their energy budget, reduce system fuel and energy costs, and put in place technology to keep costs low over the long term. Similarly, Narragansett Electric in Rhode Island proposed a Power Sector Transformation Plan (PSTP) consistent with the state s Power Sector Transformation Initiative (PSTI). The PSTI responds to the state governor s directive that stakeholders collaborate to create a more dynamic regulatory framework that enables a cleaner, more affordable, and more reliable energy system for the 21st century and beyond. A report issued by stakeholders proposes shifting the traditional electric utility business model to a more performance-based model, aligning incentives with customer demand and public policy. Recommendations included multi-year rate plans and budget and revenue caps to incentivize cost savings. The company s PSTP has four main components: investments in advanced metering, grid modernization, electric vehicle infrastructure, and energy storage and solar demonstration projects. In its initial comment on the company s proposal, the commission said, As Rhode Island navigates the transition from an old one-way energy system to a new one, based as much on information as infrastructure, we need to consider fresh solutions, new partners and bring the best know-how in the world to our doorstep. Maui Electric in Hawaii filed to Maintain the quality of electric service to customers, improve customer service and achieve transformational and State energy policy goals. Miscellaneous Emera Maine filed in Q4 to remove a 50-basis-point ROE reduction ordered in its last rate case for management inefficiencies associated with the company s billing system, cus-

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 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 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 Q Q Q Q Q Q Q Q Q Q Q NA = Not available / Source: S&P Global Market Intelligence/ Regulatory Research Assoc. and EEI Rate Department

9 RATE CASE SUMMARY 5 tomer service and reliability. The company says it has made improvements to address these issues and is filing partly to recover for investments made related to customer experience and service levels and to recover costs relating to the roll-off of amortizations of employee medical plan savings. Virginia Electric & Power filed to recover expenditures associated with universal solar generation plants. Otter Tail Power filed in North Dakota partly to increase the residential customer charge from $8.00 to $ The company also wants to launch a residential time of day rate class. Connecticut Light & Power s filing included a request to reopen the case to address changes in federal health care or tax laws. Decided Cases in Q Return on Equity In Potomac Electric Power s case in Maryland, the company had requested an ROE of 10.1% and the commission awarded 9.5%, saying, in each of its previous four cases, the company requested an ROE of 10.10% or greater. Each time we declined to adopt the Company s recommendation in view of the economic and risk factors faced by the Company at the time. This time is no different.... Interest rates have generally declined over the last decade. Once again, the Company predicts that interest rates will increase, however,... economists have been forecasting that interest rates would increase for the past ten years, and they have been wrong.... interest rates went up and down between Case No and this case, and are now somewhat higher. The resultant increase however cannot be correctly described as significant.... Thus, although market conditions may have changed, they do not support an increase in authorized ROE.... [The 9.5% ROE is] both adequate and appropriate for Pepco, considering the low level of risk associated with its electric distribution service in Maryland and the current capital market environment. In Tampa Electric s case, a settlement stipulates, but for a few certain circumstances, that the company must freeze rates until after The settlement specifies a range for ROE between 9.25% and 11.25%. If the 30-year U.S. Treasury bond yield stays at or above % for six months or more any time before the end of 2021, the range shifts upward to 9.5% to 11.5%. If the ROE falls outside that range, stakeholders can petition to change rates. Commonwealth Edison and Ameren Illinois in Q4 completed their seventh rate case under their formula rate plans. The commission granted each company an 8.4% ROE, among the lowest ROEs awarded to utilities in the last 35 years. The order in Nevada Power s rate case allows the company to retain earnings associated with earned ROEs between the allowed 9.4% and 9.7%, and requires the company to share equally with customers any earnings greater than 9.7%. The commission said the 9.4% ROE would keep the company financially healthy and Future financial benefits may flow to [the company], such as savings through possible refinancing of its debt at a lower rate in 2018 and 2019 or from the Tax Cuts and Jobs Act recently passed by the United States Congress. New Technology Investments Pepco s settlement in Maryland requires the company to build or buy 700 kw of solar generation at a price capped at $1,650 per kilowatt with recovery to start January 1, 2019 at a 10.5% ROE. The settlement allows the company to initiate a 50 megawatt battery storage project at costs capped at $2,300 per kilowatt. The company will recover those costs in its next rate case. The settlement also requires the company to deploy a minimum of 530 electric vehicle charging stations at an investment of up to $8 million, to be recovered over four years after Tampa Electric s settlement allows the company to implement a solar base rate adjustment mechanism allowing it to install and receive recovery for 600 megawatts of photovoltaic solar generation at a maximum $122.3 million revenue requirement, not to exceed $1,500 per kilowatt, by the end of If the installed cost is less than this amount, the company must share 75% of savings with customers. NSTAR Electric s decision in Massachusetts allows the company to recover $45 million in investments to accelerate the development of electric vehicle infrastructure and up to $55 million to construct both a five-megawatt and a 12- megawatt energy storage facility. The commission said grid modernization is vital for maintaining and improving the reliability of the electric system and offers potential savings to customers.... The Department remains committed to ensuring that electric distribution companies implement appropriate grid modernization technologies and practices to enhance reliability, reduce costs, empower customers to better manage usage, and support a cleaner, more efficient electric system.... These investments should not only enable the market for energy storage in Massachusetts, but also provide data that will be critical in evaluating future energy storage deployments as part of Massachusetts clean energy future. Federal Tax Reform El Paso Electric s settlement includes a mechanism to adjust for changes in corporate income taxes, requiring the company to record as a regulatory liability the difference between income taxes reflected in the approved revenue requirement and the taxes calculated using the new rate. The company is required to file a tariff within 120 days of the law s enactment for accrued liability refund over a 12-month period. Within 90 days of the end of each fiscal year, the company must update and file the refund factor to reflect any over- or under-recovery until reconciliation in the next base rate case. Southwestern Electric Power s order in Texas and Tampa Electric s settlement contain similar conditions. Duke Energy Florida s settlement stipulates the company is to retain 40% of the impacts of federal tax reform,

10 6 RATE CASE SUMMARY which accelerates depreciation of a coal project, and refund the remaining 60% to customers. If the cumulative liability is less than $200 million, the company must distribute to customers the excess deferred taxes over five years. If the liability is more, the company must distribute the excess over ten years. Miscellaneous The Maryland commission allowed Potomac Electric Power to include post-test-year reliability investments in rate base, saying [the commission] adheres to a historic test period methodology in setting rates. However, in past rate cases, we have recognized an exception to allow recovery of post-testyear reliability plant investments made and placed into service prior to evidentiary hearings, and generally including no more than three months of post-test-year reliability plant additions. In order to accept a post-test-year adjustment, the Commission has also required the Company to demonstrate that such investments meet objective standards for safety and reliability, have not generated additional utility revenues, and will provide service to existing rather than new customers. The commission found that improvement in the company s reliability metrics over the past several years supported including these investments in rate base. The commission rejected post-test-year investments it determined did not meet these criteria. Duke Energy Florida s settlement increased rates to reflect $1.1 billion in grid modernization investments intended to enhance reliability, reduce outages, shorten restoration time, support the growth of renewable energy and emerging technologies, install advanced metering infrastructure, and upgrade company systems. The settlement required the company to discontinue a nuclear project resulting in an impairment charge of $135 million in Q The company s court case with the nuclear plant contractor is ongoing. Tampa Electric s settlement freezes rates until the end of 2021, with a few certain exceptions, such as allowing the company to recover storm costs on an expedited basis up to $4 per 1,000 kilowatthours. Additional cost recovery would be subject to hearing. NSTAR Electric s decision in Massachusetts allows the company to consolidate Western Massachusetts Electric into NSTAR Electric. The commission said the proposed merger would provide net savings to ratepayers, long-term strategies that will assure a reliable, cost-effective energy delivery system, potential further improvements in customer service and service quality, and increased financial integrity of NSTAR Electric as the surviving entity. A settlement increased El Paso Electric s residential customer charge from $6.90 to $8.25 per month; the company had requested $ New customers with an expected load of greater than 400 kilowatts must take service under the company s time-of-use rates, with a one-time opportunity to opt out after one year. Customers who opt out will pay the lower of time-of-use rates or standard service rates for the introductory year. Residential customers who generate electricity have the choice of a $30 monthly minimum bill, a time-of-use rate or a demand charge. Under the time-of-use rate option, the customer would pay the greater of total base rate charges (including the customer charge) or a minimum bill of $ Under the demand charge option, the customer would pay the customer charge, a monthly demand charge of $3.16 per kilowatthour based on monthly peak and metered demand, and time of use energy charges. The settlement applies similar changes to the rates of generating customers in the small general service class. The company will not be able to change rates for generating customers beyond those changes applying to all customers for a minimum of three years. Customers who applied to be generating customers before the order date are exempt from minimum bill provisions for 20 years.