By Pam Boschee, Managing Editor
Same market, different players-very different results.
The rankings for the year 2000 reveal financial evidence of the effects of deregu-lation, restructuring, transition and, in some cases, the disaster that resulted.
The good news is apparent with a quick glance at the first four holding companies listed on Table 1. Enron and Duke Energy more than doubled their total revenues while Dynegy and Reliant Energy nearly doubled theirs. These companies made out like bandits (some allege they are bandits) in part by being at the right place (California), at the right time (summer 2000 with skyrocketing wholesale power prices).
Those same factors heralded the end for Pacific Gas & Electric Co., which succumbed to bankruptcy in April 2001. Edison International’s Southern California Edison remains on the edge of bankruptcy. California’s third investor-owned utility, San Diego Gas & Electric, a subsidiary of Sempra Energy, sidestepped a similar catastrophe because it had not yet completed its transition to deregulation.
Table 1 also reflects Avista Corp.’s struggle during the same time period with similar market conditions. Sustained peaks in energy prices throughout the Pacific Northwest and California in May and June of 2000 contributed to Avista’s second quarter loss of more than $90 million in gross margin due to additional power costs. Problems were compounded when an Avista Utilities energy trader entered into excessive levels of short-term, fixed-price contracts for wholesale sales for delivery of power through October 2000 without making matching purchases at the time. Avista Utilities was forced to buy additional power at prices significantly higher than the selling prices to cover those contracts.
Who’s who in holding companies
Mergers and acquisitions changed the names of companies included in the 1999 listing to the following in the 2000 listing:
IPALCO was absorbed into AES Corp. in Q3 2000.
Minnesota Power Inc. began doing business under the name ALLETE in September 2000. Its regulated electric business continues as Minnesota Power.
Citizens Utilities changed its name to Citizens Communications in May 2000 following its transformation to a pure telecommunications service provider. Consequently, it is no longer included in the data.
With closing of a merger in September 2000, CMP Group became a wholly owned subsidiary of Energy East Corp.
Unicom (parent company of ComEd) and PECO merged to become Exelon.
Northern States Power and New Century Energies merged to become part of Xcel Energy in August 2000.
LG&E is now the North American headquarters for the U.K.’s Powergen plc. It was not included in this listing of U.S. holding companies.
United Illuminating is included as part of UIL Holdings Corp.
St. Joseph Light & Power is included as part of UtiliCorp United holding company.
CP&L Energy’s acquisition of Florida Progress Corp. (Florida Power) was completed in November 2000. The new company is named Progress Energy.
On Jan. 1, 2001, Puget Sound Energy Inc. reorganized into a holding company structure. This reorganization resulted in the creation of a new holding company, Puget Energy.
TNP Enterprises, parent company to Texas-New Mexico Power Co. and First Choice Power, is not included this year because it is now a private company.
Terms of endearment (in some cases)
It’s important to bear in mind that the companies listed in these tables are holding companies. As such, much of the data not separated as “electric” (for example, total revenues) reflects all diversified business activities found under the umbrella of the parent holding company.
The following definitions provide a quick primer to help in the interpretation of the data included in this report:
- Revenue: All the money that came into the holding company during the year. Includes proceeds from the sale of a subsidiary, sales, interest income, etc. If it helped to fill the coffer, it was revenue.
- Operating income: Earnings from normal operations minus everyday costs of doing business. Nonrecurring items, such as proceeds from an asset sale, are not included. Investors get a glimpse of how much money a company makes from its business operations in this data.
- Net income: Earnings or profit. Here’s where it all comes down to the nitty gritty-making money. Net income is probably the most closely watched item in a company’s financial reports. However, net income may ultimately be influenced by corporate managerial and accounting decisions. It can also be inflated by earnings from discontinued operations, meaning net may be much less impressive next year.
- Earnings per share: Net income divided by common shares outstanding. EPS represents how much of earnings each share is entitled to and is important as the basis for various calculations, such as price/earnings (P/E) ratio (which relates share price to earnings per share), used to assess whether a stock is over- or undervalued.
- Dividends: Payments made to shareholders out of earnings.
Zooming in on the top 10
Enron and Duke Energy held steady as numbers one and two, respectively, in total revenues (Table 1). Southern and Entergy dropped below the top 10 cutoff into slots 11 and 12. AEP took over the number 8 position and Xcel Energy moved into slot 10. (Northern States Power, now part of Xcel Energy, was in the number 37 position last year.) The remaining slots show a mild jostling of last year’s occupants.
The average total revenue for the top 10 nearly doubled in 2000. Including Enron, the average was about $32.3 billion in 2000 compared to $17.9 billion in 1999. Comparison of the remaining top 9 (not including Enron) showed an increase, although not as dramatic. The 2000 average of total revenues for companies in positions two through 10 is about $24.7 billion compared to $15.4 in 1999.
Looking at average net electric operating income for the top 10 in Table 1, Edison International’s net electric operating income of nearly minus $1.7 billion skews the average in 2000, precluding a valid comparison with 1999. Comparing the average of the remaining top 9 companies in 2000 to the top 10 companies in 1999 provides the best available contrast: the average of about $607 million in 2000 (not including Edison International) compares with the 1999 average of about $784 million.
Table 2 shifts the focus from total revenues derived from the holding companies’ broad spectrum of subsidiary businesses to the more narrowly defined area of electric revenues.
Again, the top 10 slots are claimed by many of last year’s leaders. This year, American Electric Power Co. (AEP) bumped Southern Co. from the top slot. AEP and Central and South West Corp. completed their merger in June 2000.
AEP’s electric revenues more than doubled from last year’s $5.8 billion to $12.3 billion. Its portfolio now includes more than 38,000 MW of generation capacity and it is also an active wholesale energy marketer and trader.
Last year, Unicom was number five ($6.8 billion) and PECO was number 17 ($4.1 billion). This year, the company resulting from their merger, Exelon Corp., is in slot seven ($7 billion).
The merger of New Century Energies (last year’s number 22 with $3 billion) and Northern States Power (last year number 23, $2.7 billion), seemed to reflect corporate’s predicted synergies between the two companies. The resulting company, Xcel Energy, is in position eight ($6.8 billion) this year.
The most significant (but not unexpected) dive in rank was seen for PG&E Corp. Number 69 ($74.6 million) this year, PG&E was in the number four slot last year with electric revenues increased to about $7.3 billion.
Table 3 ranks the companies by operating income as a percent of total revenues. In other words, how much did overall “business as usual” contribute to the bottom line. As defined earlier, operating income does not include nonrecurring items, such as proceeds from the sale of an asset.
DPL Inc., a diversified regional merchant energy company that owns Dayton Power & Light and DPL Energy, holds the number one position with nearly 31 percent.
DPL remains in the top 10 in Table 4, which ranks net income as percent of total revenues.
Other companies holding positions in the top 10 in both Tables 3 and 4 are Kansas City Power & Light, IDACORP, Southern Co. and Potomac Electric Power Co.
Earnings per share (EPS) are ranked in Table 5. The averages for EPS and dividends (Table 6) per common stock for the group of holding companies are unchanged from last year. Alliant Energy is number one with an EPS of $5.03, double compared to last year ($2.51). UIL Holdings, FPL Group and TXU Corp. were top 10 companies in 2000 and 1999.
The average EPS for the top 10 in 2000 is $3.79; in 1999, it was $3.56.
TOP IOU FINANCIAL RANKINGS
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