The FYI on the 2Q: Utility Earnings Spill the Black, Red and Invisible Ink

Utilities came out mostly winners as the second-quarter earnings season rounded the home stretch in the past weeks.  

DTE, Southern, WEC, American Electric Power, ITC and Dominion Resources all reported profits above the same three months last year, while Public Service Enterprise Group, NextEra Energy, PG&E, Eversource, Edison International, Tennessee Valley Authority, Duke and Sempra were all down but still made profits. First Energy and Calpine Corp. suffered net losses for the second quarter.

Following is a brief alphabetical rundown on how these utilities and related companies did in the second quarter. Some will include comments by their CEOs.

AMERICAN ELECTRIC POWER

Columbus, Ohio-based AEP reported $502 million, or $1.02 per share, in second-quarter earnings, compared with $430 million, or 88 cents per share, in same three months of 2016. The earnings were impacted by a federal tax audit settlement, final accounting for the fourth-quarter 2015 sale of AEP’s commercial barge operations and the mark-to-market impact of hedging activities.

“We are investing in transmission infrastructure through our regulated utilities and our transmission business,” CEO Nicolaus Akins said. “Net plant investment in AEP Transmission Holding Co. has grown more than $840 million, an increase of 32 percent, since June 2015. This segment contributed 19 cents per share to earnings this quarter, an increase of 6 cents per share over the same period last year,” Akins said.

CALPINE CORP.

The independent generator suffered a net loss of $29 million, or 8 cents per share, compared to $19 million in profit in 2015’s second quarter. The red ink so far totals $227 million for the first half of 2016, primarily due to booked losses on increases in forward power and natural gas price contracts.

DOMINION RESOURCES

Richmond, Virginia-based Dominion reported $452 million in second-quarter earnings, compared to $413 million in the same three months last year. Operating earnings totaled $441 million, $12 million higher than 2015. The principal difference between reported earnings and operating earnings for the quarter is related to Dominion’s investments in nuclear decommissioning trust funds, the company said

CEO Thomas Farrell’s comments focused on strong operational and safety performances. It also commenced commercials at the 1,385-MW Brunswick County Power Station (just south of Washington D.C. in Virginia) ahead of schedule.

It also began construction on the 1,588-MW Greensville County combined cycle power station

“We are looking forward to getting this state-of-the-art power station operating and providing energy to more than 400,000 customers,” Farrell said.

DTE ENERGY

Detroit-based DTE gained $152 million in earnings, up from $109 million in same period 2015. Hotter weather drove higher earnings.

DTE Energy raised its 2016 operating earnings per share guidance to $4.91 to $5.19 from $4.80 to $5.05.

“We feel confident in raising our 2016 earnings guidance from a midpoint of $4.93 to $5.05 per share based on our strong ongoing performance.  This confidence is further evidenced by our Board of Directors’ action in June to increase the annualized dividend 5.5 percent to $3.08 per share. The dividend continues the company’s more than 100 year history of issuing a dividend,” said Peter Oleksiak, DTE Energy senior vice president and chief financial officer.

DUKE ENERGY

Charlotte-based utility giant Duke reported net income of $509 million, down from $543 million in the same time last year. The four cent drop in earnings per share, from 78 cents to 74, was impacted by charges related to an impairment in Central America, costs to achieve mergers and cost savings initiative. Duke is buying Piedmont Natural Gas.

“Our solid second quarter performance reflects the strength of our regulated utilities driven by strategic investments, dedicated cost management and a relentless focus on operational excellence,” said Lynn Good, Duke Energy chairman, president and CEO. “The execution of our long-term strategy to modernize the energy grid and generate cleaner energy creates value for customers, delivers growth for shareholders and enhances our position as a leader in the industry.

“Looking ahead, we are on track with our proposed acquisition of Piedmont Natural Gas and the marketing of our Latin American assets,” Good added. “The successful completion of both transactions will align our portfolio to focus on domestic infrastructure businesses that drive more stable earnings and cash flow growth.”

EDISON INTERNATIONAL

Southern California Edison’s parent firm made money but was down for the comparative quarter. EIX reported $276 million in second-quarter net income, compared to $379 million last year.

Edison’s report shrugged off the comparison, saying it was “not meaningful because of the delay in receiving SCE’s 2015 general rate case decision.

“Today, we reaffirmed our full-year earnings guidance based on second quarter results and more favorable SCE earnings expected for the balance of the year,” said Ted Craver, chairman and chief executive officer of Edison International.

SCE’s net income for the six months ended June 30, 2016 decreased $88 million, or $0.27 per share, from the same period in 2015, primarily due to $100 million, or $0.31 per share, of income tax benefits from revisions to liabilities for uncertain tax positions recorded in the second quarter of 2015 and higher operation and maintenance costs, partially offset by the implementation of the 2015 GRC decision and 2016 incremental return on the pole loading rate base.

EVERSOURCE ENERGY

The New England utility reported earnings of $203.6 million, compared with $207.5 million in the second quarter of 2015. Eversource’s transmission segment bested its comparative period by earning $92.5 million in the second quarter, well above the $80.4 million same time last year.

Eversource Energy’s electric distribution and generation segment earned $102.8 million in the second quarter of 2016 and $211.3 million in the first half of 2016, compared with earnings of $120.9 million in the second quarter of 2015 and $251.4 million in the first half of 2015.

EXELON

Exelon Corp., fresh off its acquisition of Pepco Holdings , reported lower comparative earnings despite the favorable impacts of rate increases. Net income totaled $267 million for the quarter, down from $638 million during the same time last year.

The positive financial factors were offset by higher operating and maintenance costs at Baltimore Gas & Electric due to disallowances contained in rate case orders, according to the earnings release. The company also had higher nuclear decommissioning amortization in its generation unit.

Exelon faced costs overruns with its Zion nuclear facility in Illinois during past years. The company also is buying the 849-MW FitzPatrick nuclear plant in New York from Entergy for about $110 million, according to reports.

FIRST ENERGY

FirstEnergy reported a $1.1 billion net loss in the second quarter, citing asset impairments and plant exit costs in the company’s competitive business. These results compare to second quarter 2015 net income of $187 million, or $0.44 per basic and diluted share of common stock, on revenue of $3.5 billion.  

For the full year, Ohio-based FirstEnergy expects losses of 75 to 55 cents per basic share, primarily reflecting the asset impairment and plant exit costs recognized in the second quarter. CEO Charles Jones sounded an optimistic, yet cautious tone in his comments.

“We continue to make steady progress on our strategic initiatives, while positioning FirstEnergy for stable, predictable, and customer-service oriented growth,” Jones said.  “At the same time, we have made difficult but necessary decisions to address the continuing impact of challenging market conditions on our competitive business.”

The $1.5 billion in impairments includes charges associated with deactivating W.H. Sammis Units 1-4 and Bay Shore Unit 1.

ITC HOLDINGS

The Michigan-based transmission firm earned $70.7 million in second-quarter profit. The results were down only slightly from $72 million last year although operating earnings were up by about $8 million.

ITC invested $374.5 million in capital projects during the six month period ended June 30. The company is in the midst of work to merge with Fortis Inc.

NEXTERA ENERGY

Florida-based NextEra gained $540 million, compared to $716 million in the second quarter of 2015. On an adjusted basis, NEE were actually up to $777 million in earnings, but the company booked the effects of hedges and impairments on a Spain solar project.

Florida Power & Light, NEE’s principal rate-regulated electric utility subsidiary, generated $448 million in net income, compared to $435 million same period last year. Growth driven by continued investment in the business was offset by share dilution and a negative impact relating to the Florida Supreme Court’s decision to reverse the Florida Public Service Commission’s (PSC) approval of the company’s natural gas reserves program.

“NextEra Energy delivered another successful quarter of strong operational and financial results, highlighted by a seven percent increase in adjusted earnings per share versus the same period last year,” said Jim Robo, chairman and chief executive officer of NextEra Energy. “At FPL, we had strong growth in the underlying business. Average regulatory capital employed grew 8.4 percent over the same quarter last year, reflecting our continuing commitment of investing new capital in the business to deliver even more value to our customers.”

PG&E CORP.

The San Francisco-based parent of Pacific Gas & Electric generated $206 million in second-quarter net income, down nearly 50 percent from same period 2015. The earnings included a charge of $190 million pre-tax for pipeline-related capital expenditures that PG&E Corporation believes are probable of disallowance as a result of the phase one decision in the 2015 Gas Transmission and Storage (GT&S) Rate Case.

Other impacts included $148 million pre-tax for safety-related capital expenditures disallowed as part of the San Bruno penalty, $49 million pre-tax for Utility expenses related to the Butte fire, $27 million pre-tax for work to clear pipeline rights-of-way, $24 million pre-tax for the gas distribution record-keeping fine, and $14 million pre-tax for legal and regulatory costs related to natural gas matters and regulatory communications. These costs were partially offset by $260 million pre-tax accrued as probable insurance recoveries in connection with the Butte fire.

PUBLIC SERVICE ENTERPRISE GROUP

New Jersey-based PSEG reported $187 million in net income, compared to $345 million in 2015’s second quarter. Its main utility, PSE&G, was up slightly earning $179 million in net

Ralph Izzo, chairman, president and chief executive officer said “PSEG’s second quarter earnings benefited from its expanded investment program and an alignment of costs with current power market dynamics. We remain focused on investments that meet customers’ demand for reliable, efficient, and clean energy as well as drive long-term value creation.”

SEMPRA ENERGY

The parent of San Diego Gas & Electric reported $16 million in earnings, compared to $295 million in 2015’s second quarter. The massive decrease reflected several negative impacts, including forward natural gas price movements, lower earnings on the company’s stake in the Rockies Express Pipeline and a $13 million after-tax impairment on the North-South Pipeline plan rejected by California regulators earlier this year.

Sempra Energy’s earnings for the first six months of 2016 were $335 million, or $1.33 per diluted share, compared with $732 million, or $2.91 per diluted share, in the first six months of 2015.  On June 23, the CPUC issued a final General Rate Case decision for San Diego Gas & Electric (SDG&E) and SoCalGas for 2016-18 that, largely, was consistent with the settlement agreements entered into last year by the two utilities

“We are pleased to have received the final rate case decision for our California utilities from the CPUC and to have completed the sale of our stake in the Rockies Express Pipeline during the quarter,” said Debra L. Reed, Chairwoman and CEO of Sempra Energy.  “With the addition of the Mexican marine pipeline and the acquisition of a new wind farm in Michigan, we continue to add new projects both domestically and internationally that support our long-term growth strategy. :

SOUTHERN CO.

Atlanta’s Southern reported $638 million in second quarter earnings, compared to $629 million in 2015. Half-year profits are nearly even at $1.12 billion.

Those earnings were impacted by debt-financing costs for the acquisition of AGO Resources, now known as Southern Co. Gas. Taking out those costs, Southern reported, the company earned $716 million in the period, nearly $70 million over same time last year.

Even so, kilowatt-hour sales to retail customers in the four-state service area fell by 1.6 percent. Commercial and industrial energy sales dropped the most, by about 2 percent.

“We look forward to the years ahead, when both Southern Company Gas and —subject to federal approval—our announced investment in Southern Natural Gas begin to contribute

to our results,” Southern CEO Thomas Fanning said.

TENNESSEE VALLEY AUTHORITY

TVA’s fiscal year net income fell by $37 million, year over year, to $572 million for the first nine months of the year. Power sales were down about 5 percent for the first three quarters, mainly due to a wind winter within the service territory.

 “Even though the Tennessee Valley experienced a warm spring, it was not enough to offset a very mild winter in terms of revenue,” said TVA President and CEO Bill Johnson. “As we noted at the end of the second quarter, despite the challenges we are maintaining a healthy financial picture and we continued to improve in the third quarter.”

Compared to the same period last year, total operating expenses decreased over $400 million, or approximately 7 percent, largely driven by savings from lower fuel and purchased power costs. This was in part the result of lower market prices for natural gas as well as changes in TVA’s generation mix.     

TVA also highlight progress in completing Watts Bar Unit 2, which will be the first new U.S. nuclear power facility of the 21st Century. The unit, which achieved initial criticality on May 23, is undergoing final ascension testing in preparation for commercial operation expected later this summer.  

WEC ENERGY GROUP

Milwaukee-based WEC more than doubled its profits, tallying $181.4 million in net income, compared to $80.9 million in 2015’s second quarter. WEC was formed a year ago when Wisconsin Energy competed its acquisition of Integrys.

WEC Energy Group’s earnings per share for the second quarter, excluding acquisition costs, decreased by 1 cent per share, from 58 cents in the second quarter of 2015 to 57 cents in the second quarter of 2016.

“Our focus on customer service, operating efficiency and financial discipline contributed to results that place us on track for the year,” said Allen Leverett, chief executive officer. Longtime Wisconsin Energy CEO Gale Klappa retired earlier this year.

XCEL ENERGY

Minneapolis-based XCEL reported ongoing quarterly earnings of $197 million, basically even with the same time last year. Higher electric and gas margins in the second quarter of 2016 were primarily due to higher retail electric and natural gas rates across various jurisdictions, non-fuel riders and the impact of favorable weather. These positive factors were offset by higher depreciation, interest charges and property taxes, the company reported.

“While we continue to see lower than expected sales across much of our operating territory, our teams continue to carefully manage our O&M expenses and take a thoughtful approach to delivering on our business objectives. As a result, we fully expect to deliver ongoing earnings solidly within our 2016 guidance range,” said Chairman, President and CEO Ben Fowke.

“We’ve made significant progress in our regulatory initiatives including filing a resource plan, a decoupling proposal and a distribution grid modernization program, all in Colorado,” he added.  “In addition, we received strong support for our Rush Creek wind project and are making good progress in working towards a settlement in our Minnesota rate case.”

 

 

 

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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