by Matthew Scanlon, SNL
For the third quarter in a row, gas utilities topped the list of the 25 most profitable utilities in recurring earnings before interest, taxes, depreciation and amortization (EBITDA) as a percentage of recurring revenues.
Overall, the investor-owned utilities sector saw an average year-over-year increase of 1.26 percentage points in recurring EBITDA margins for the 12 months ended June 30. The top five utilities, all operating in the natural gas sphere, have seen a year-over-year increase of 3.83 percentage points in their EBITDA margins.
The median recurring EBITDA margin for the top 25 utilities during the past 12 months was 36.63 percent, up 0.58 percentage point from 36.05 percent for the 12 months ended June 30, 2011.
The mean recurring EBITDA margin was 38.89 percent for the past 12 months, an increase from 37.64 percent during the 12 months ended June 30, 2011, and 37.96 percent for the 12 months ended March 31.
Pittsburgh-based EQT Corp. topped the list, with recurring EBITDA making up 58.62 percent of its recurring revenue of $1.64 billion for the 12 months ended June 30. It is no surprise because EQT has maintained its position on this list for several quarters. With prospects looking up for drilling in the Marcellus Shale as cited in EQT’s second-quarter 2012 earnings release, the company said it has enjoyed “sales volumes of 60.0 Bcfe in the second quarter 2012, which was 28 percent higher than the second quarter 2011 and 11 percent higher than first quarter 2012.”
The company’s natural gas service territory is in the center of the Pennsylvania section of the Marcellus natural gas shale play, which is expected to increase volumes on the market in the coming years.
Energen Corp. had the largest year-over-year change, with an increase of 8.15 percentage points to raise the company’s recurring EBITDA margin to 56.72 percent of its recurring revenues for the 12 months ended June 30, the second-widest margin on the list. Like EQT, Energen has seen a recent increase in production activity and drilling opportunities. The company has advanced drilling operations in the Permian Basin in West Texas, increasing production there by 54 percent year over year, as cited in its earnings release for the second quarter of 2012.
NV Energy Inc. had the second-largest year-over-year change, with an increase of 6 percentage points. Nevada-based NV Energy attributed successes in the second quarter to unusually warm weather. The company in its second-quarter 2012 earnings release said, “Cooling degree-days in southern Nevada in the second quarter of 2012 were 44 percent greater than the same period in 2011, and 23 percent greater than normal.”
TransCanada Corp., with interests in natural gas and oil pipelines in the U.S. and Canada, as well as power generation assets, took the third spot on the list of top 25 utilities by past 12 months recurring EBITDA margin, with a margin of 52.18 percent of its sizable recurring revenues of C$8.63 billion for the 12 months ended June 30. TransCanada’s year-over-year increase in recurring EBITDA margin amounted to only 0.26 percentage point, lifting the recurring EBITDA margin from 51.92 percent from the previous 12-month period.
Although TransCanada showed only a slight increase in recurring EBITDA margin for the 12 months ended June 30, earnings increased for some of the company’s natural gas and oil pipelines, including the Keystone oil pipeline. The company in its second-quarter 2012 earnings release mentioned that the “comparable EBITDA of CA$178 million and CA$352 million for the three and six months ended June 30, 2012, respectively, increased CA$24 million and CA$99 million, compared to 2011,” for the pipeline.
Exelon Corp. and Southern Co. claimed the top two amounts of recurring revenues among the 25 companies, with $19.97 billion and $17.03 billion, respectively, for the 12 months ended June 30. The companies also made the list, with recurring EBITDA margins of 35.61 percent (Exelon) and 37.29 percent (Southern) for the same period.
Despite a year-over-year decrease in recurring EBITDA margin of 3.14 percentage points, Exelon continues to boast the highest recurring EBITDA among the 25 companies, at about $7.11 billion. The third-highest recurring revenue belonged to American Electric Power Co. Inc., with $15.51 billion. It had a recurring EBITDA margin of 33.95 percent for the 12 months ended June 30.
Seven companies on the list of top 25 utilities by recurring EBITDA margin lost ground over the past 12 months, with an average decrease of 3.16 percentage points. Algonquin Power & Utilities Corp. and Entergy Corp. witnessed the largest and second-largest decreases during the period, with reductions of 5.56 percentage points and 4.14 percentage points, respectively.