The market has not liked recent traditional utility mergers. PPL Corp. was down more than 10 percent after it was announced that it had the winning bid for E.ON’s U.S. assets. FirstEnergy Corp. and Allegheny continued to lose value through April after their February merger announcement. The real surprise was that PPL will be the acquirer, not long-rumored Duke Energy. Conversely, the market appears to have rewarded Calpine Corp.’s proposed acquisition of Pepco’s natural gas-fired assets while punishing Pepco for the same deal. NRG Energy’s announced acquisition of Mirant Corp. also was rewarded. Questar Gas received a nice bump up on its announcement that it is considering spinning off its exploration and production business, pulling El Paso Corp. along with it.
Forty-two natural gas utilities and 55 electric utilities have open general rate cases. The average requested increase for natural gas utilities is 6.3 percent. The average requested increase for electric utilities is 12.85 percent. Several other major rate cases are waiting in the wings, including a rumored $800-million increase to be requested by Georgia Power.
Less regulated natural gas companies continue to lead the upward charge, surpassing the S&P 500 for the first time this year. The Less Regulated Electric Index continues to be laggard, although April was a good month for a number of its components, including NRG and Calpine.
Wind energy is here to stay, however, new gas-fired power plants will be needed to protect the grid against the vagaries of wind. The cost and risk of new coal capacity also is making this alternative less realistic with its logical replacement also being natural gas. While prices are likely to continue to be highly volatile, natural gas is going to play an increasingly important role in North American electricity production.
Methodology and Components of Each Index Tracked by The C Three Group
- Less Regulated Electric Focus. More than 50 percent of revenues come from nonstate-regulated sources and/or more than 33 percent of assets are nonstate-regulated.
- Less Regulated Gas Focus. More than 50 percent of revenues come from nonstate-regulated natural gas distribution and/or more than 33 percent of assets are nonstate-regulated.
- Regulated Electric. No more than 20 percent of revenues can come from natural gas distribution and no more than 49 percent of revenues and 33 percent of assets can be associated with nonregulated activities.
- LDC. No more than 20 percent of revenues can come from electric distribution or generation and no more than 50 percent of revenues and 33 percent of assets can be associated with nonregulated activities.
- Regulated Electric and Gas Combination. More than 20 percent of revenues derived from natural gas distribution, no more than 50 percent of revenues and 33 percent of assets from nonregulated activities.
- The C Three Index. The C Three Index is the nonweighted average of each of the companies included in the groupings above. The C Three Indices are developed based on a straightforward premise: If you invested $100 in each of the stocks of the companies we track, what would those shares be worth after a certain time? Historical share prices are adjusted for dividends, splits and spin-offs.