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As Florence makes its way to US coast, concerns swirl about cost recovery

Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming

Can ComScore Break Nielsen's Near-Monopoly On Ratings?

Most TV Everywhere Viewing Is Live TV In The Home

Public Companies Going Private


As Florence makes its way to US coast, concerns swirl about cost recovery

As hurricane seasons kicks off with Florence approaching the U.S. mainland, utilities and their investors are focused on the financial, operational and societal aftermath of the storm. How the storm impacts affected utilities' bottom lines will depend on the regulatory mechanisms in place in each state to address the recovery of the associated restoration costs.

Current projections show the storm hitting North Carolina, South Carolina and Virginia the hardest and weakening as it moves inland.

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According to a preliminary review conducted by Regulatory Research Associates, an offering of S&P Global Market Intelligence, North Carolina and South Carolina are typical of most states across the country in that ongoing base rates generally include some assumed/historical average level of storm remediation costs. To the extent that actual costs above that level are so significant as to be deemed "extraordinary," the companies would be permitted to defer the incremental amounts, creating a regulatory asset, the recovery of which would be addressed in a base rate case. Generally, the costs would be amortized over a period of time, with a return authorized on the unamortized balance. The specific time period and return used would be at the discretion of the North Carolina Utilities Commission and Public Service Commission of South Carolina for the companies under their respective jurisdiction.

For the most part, in Virginia, a base amount of storm/restoration costs is included in the utilities' annual revenue requirements. Extraordinary costs above and beyond those already reflected in base rates may be expensed or deferred, with recovery of the deferrals to be addressed in future rate cases. It would be up to the company whether to expense or defer/capitalize the costs, and this decision would likely be based on whether the company is over-earning relative to its authorized return as demonstrated in its annual information filing submitted to the Virginia State Corporation Commission for the year in question.

However, for Dominion Energy Inc. subsidiary Virginia Electric and Power Co. and American Electric Power Co. Inc. subsidiary Appalachian Power Co., which are subject to an evolving periodic earnings review framework, storm costs above and beyond those reflected in base rates would be expensed and reflected through the assessment of under- or over-earnings in the periodic review covering the year in which the expenses occurred. To the extent that these costs cause the company to earn below the lower end of the allowed range under the review framework, recovery would occur as part of the earnings true-up process in the subsequent periodic review and could be deferred for recovery over a period determined by the commission, with a return permitted on the unamortized balance. The specific time period and return used would be at the discretion of the commission. Pursuant to legislation enacted in 2018, the next earnings review proceeding for Appalachian Power is to be conducted in 2020, looking at earnings for the calendar 2017, 2018 and 2019 test years. For Virginia Electric and Power, the next review will be conducted in 2021 and will look at earnings for calendar years 2017, 2018, 2019 and 2020. Thereafter, the reviews are to be conducted every three years.

Other states expected to be impacted by Florence are Alabama, Georgia, Kentucky and Tennessee. It is RRA's understanding that in Georgia, Kentucky and Tennessee, the commissions take a traditional approach, whereby extraordinary costs may be deferred, with recovery of the deferrals to occur in a subsequent base rate case. In Alabama, however, it appears that the utilities have reserves in place, funded by ratepayers, to cover extraordinary storm costs. The level of funding collected from ratepayers on an annual basis to fund the reserve has been established by the Alabama Public Service Commission. If the costs incurred exceed the amount accrued in the reserve, the commission may approve recovery of the incremental amounts over a period of time selected by the commission through a surcharge outside the formula ratemaking mechanisms that are in place.

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With respect to recovery of deferrals, to our knowledge, there is no set standard in any of these states, and the length of time selected would likely depend on the magnitude of the costs; based on the research conducted by RRA, it appears that recovery periods have generally been between three and 10 years. Another important factor is that the amount of deferrals to be recovered will also be subject to a prudence review at the time recovery is sought, and a portion of any deferrals could be disallowed as a result.

While the mid-Atlantic is not expected to be materially affected by Hurricane Florence, the region has been prone to hurricane activity in recent years and so bears mentioning briefly at this juncture. It appears that Delaware, the District of Columbia, Maryland, New Jersey, New York and West Virginia generally rely on the more traditional framework where extraordinary storm costs may be deferred, with treatment of the related regulatory asset addressed in a future base rate case. However, in Pennsylvania, PPL Corp. subsidiary PPL Electric Utilities Corp. since 2012 has had an expedited recovery mechanism in place that allows rates to adjust outside of a rate case to reflect costs associated with "reportable" storms that deviate from a benchmark amount that is included in base rates. Costs above the threshold are generally amortized over three years. If costs are below the benchmark, the excess is returned to customers. Costs associated with "non-reportable" storms are recovered through base rates.

Similarly, while Florence is not expected to impact the Gulf Coast states, these states bear mentioning as the season begins since they have historically seen the most hurricane activity and, as such, have more robust mechanisms in place to deal with post-storm regulatory issues. In Florida, Louisiana, Mississippi and Texas, at least some, if not all, of the utilities, in addition to having a representative level of storm costs in base rates, have reserves in place that are funded through customer rates that are earmarked for recovery of extraordinary storm costs as they arise. Arkansas, Florida, Louisiana, Mississippi and Texas allow or have allowed the utilities to securitize extraordinary storm remediation costs.

For additional detail, please refer to the RRA state Commission Profiles.

For a complete, searchable listing of RRA's in-depth research and analysis, please go to the S&P Global Market Intelligence Energy Research Library.


Technology, Media & Telecom
Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Sep. 20 2018 — Spending on home entertainment is rising toward levels not seen since 2004, when consumers spent $24.37 billion building massive home-video libraries of DVDs and VHS cassettes. Since then, the optical-disc market saw more than a decade of significant declines as consumers shifted to digital entertainment. By 2012, total spending on home entertainment was down to $20.13 billion, with $4.13 billion coming from online video while DVDs and Blu-ray discs accounted for $12.88 billion and multichannel PPV/VOD contributed the remaining $3.13 billion.

Fast forward to 2017 and the mix of consumer spending has changed significantly. Consumers spent a total of $22.62 billion on home entertainment from multichannel, online and disc retail/rental sources. Online spending accounted for $13.00 billion of that total while spending on discs dropped to $6.84 billion and multichannel PPV/VOD shrank to $2.79 billion.

While the data might seem like good news for traditional providers of home entertainment, a key component of the growth in digital spending is the rise of subscription video on demand. The majority of online spending is going to over-the-top services like Netflix, Hulu and Amazon Prime, which increasingly have focused on creating original programming (mainly episodic TV) rather than licensing content from Hollywood studios.

Removing subscription streaming from the consumer spending pool paints a less favorable picture for traditional content providers. In 2012, consumers spent just $1.43 billion on non-subscription online video purchase/rental, and a total of $17.44 billion excluding the SVOD component. By 2017, while consumer spending on online video overall had risen to $13.00 billion, some $10.47 of that came from streaming subscriptions versus $2.53 billion from online video purchase/rental, and total home-entertainment spending was just $12.16 billion excluding SVOD.

Spending on sell-through home video peaked in 2006 when consumers shelled out $16.53 billion for DVDs and VHS cassettes. Since then spending has declined by hundreds of millions (sometimes billions) each year. In 2017, consumers spent $6.50 billion on DVD and Blu-ray sell-through and electronic sell-through. This seems to suggest that people are becoming less and less interested in adding to their home-video libraries and are turning to the more affordable streaming options. The story is similar for the home-video rental segment, which saw consumer spending peak in 2001 at nearly $8.45 billion before dropping to $2.87 billion by the end of 2017.

This has to be a somewhat unsettling trend for the major film studios, and is likely a key factor in shifting their strategy to focus on major franchise films and low-cost genre fare. The former tend to have broad worldwide appeal and can still move enough video units to help offset their high production and distribution costs. The low-cost genre fare, on the other hand, may be more risky and not sell as well internationally, but has a fair chance to break even. If the latter films lose money, the successful franchise films typically cover the losses.

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US Online Video Outlook To Eclipse $15B In 2018

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DVD, Blu-ray Spending Down $1B-plus For 11th Year In A Row

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Technology, Media & Telecom
Can ComScore Break Nielsen's Near-Monopoly On Ratings?

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Sep. 17 2018 — Advertising agencies are becoming increasingly frustrated with the inability of Nielsen Holdings PLC's Nielsen Media Research to convince the major media companies to embrace its new cross-platform measurement system, called Total Audience Measurement. This creates a huge opportunity for comScore Inc., formerly Rentrak.

ComScore is trying to reinvent itself following its delisting in 2017 — it was relisted June 1 — following an accounting scandal. The company's stock has fallen from $65 per share intraday on Aug. 17, 2015, to close at just $18.06 per share on Sept. 6. It currently has a total enterprise value of less than $1.2 billion, paltry in comparison to Nielsen Holdings' $12.9 billion.

In April, comScore named Bryan Wiener, previously executive chairman of Dentsu's digital media agency 360i LLC, as its CEO. On Sept. 5, the company announced that it hired Sarah Hofstetter to serve as president and head up commercial strategy, including sales and marketing.

Wiener and Hofstetter have worked together for two decades, most recently at 360i, where Hofstetter was CEO and chairwoman. The two executives' deep ties to the advertising community may be just what is needed to bring a competing cross-platform measurement system to the broadcast and cable network industries.

Cable network ad revenue grew for decades before stumbling, albeit modestly, during the last recession. More recently, despite a booming economy the cable network ad industry has faltered, in part due to cord cutting and cord shaving but also because current ratings do not include all of online viewing and out-of-home viewing.

Currently, the ratings only include online viewing within a three-day period, which includes the exact same commercial load as linear. Many media companies do not believe that online viewers will tolerate the huge ad load that exists on linear TV and do not include the same commercial pods that appear on linear TV when serving up the shows online.

Although negotiations between Nielsen Media Research and the major media companies have been going on for some time, many in the industry are tired of the delays in adopting a new system and are looking at alternate ways to measure viewing.

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Technology, Media & Telecom
Most TV Everywhere Viewing Is Live TV In The Home

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Summary: subscribers to telco operators were more likely to indicate they streamed TV Everywhere content compared to cable and DBS subscribers.

Sep. 17 2018 — Streaming live TV Everywhere to a mobile device inside the home is the TV Everywhere activity most often performed at 52% of multichannel TV respondents, according to data from Kagan’s MediaCensus online consumer survey.

While 58% of respondents surveyed in multichannel homes viewed TV Everywhere in the last three months, just 46% did so out of their home. Click here for the full Kagan report.

Viewing live TV inside the home was not only the TV Everywhere activity performed by the most respondents; it was also the most frequently performed.

Subscribers to telco operators were more likely to indicate they streamed TV Everywhere content compared to cable and DBS subscribers. Subscribers to some operators are more likely to stream TV Everywhere content, with AT&T U-verse (64%) being the highest and WOW! (42%) the lowest among operator subscribers surveyed.

Younger subscribers, especially Millennials, were more likely to stream TV Everywhere content compared to older subscribers.

For more information about the terms of access to the raw data underlying this survey, please contact support@snl.com.

Data presented in this article is from the MediaCensus survey conducted in February 2018. The online survey included 20,035 U.S. internet adults matched by age and gender to the U.S. Census, with additional respondents subscribing to the top multichannel video operators in the U.S. The survey results have a margin of error of +/-0.7 ppts at the 95% confidence level. Generational segments are as follows: Gen Z: 18-20, Millennials: 21-37, Gen X: 38-52, Boomers/Seniors: 53+.

Consumer Insights is a regular feature from Kagan, a group within S&P Global Market Intelligence's TMT offering, providing exclusive research and commentary.

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Capital Markets
Public Companies Going Private

Sep. 14 2018 — The recent tweet from Elon Musk has understandably made big news, but it is worth pointing out that the appetite for taking public companies private has been a key area of activity this year. S&P Global Market Intelligence’s data shows that 2018YTD is already at 39% of 2017 numbers, standing at €17.8bn of deal value across 32 completed deals, globally. Going-private closed deal count is at a healthy 49% compared to full 2017 numbers.

In terms of most popular sectors for going-private deals, since 2013 - Information Technology has been leading the pack with €108.9bn of aggregate deal value recorded across 104 deals, while Consumer Discretionary* is trending as a distant second with €49.7bn of total deal value.

The top target location for going private deals is the US, and interestingly – China comes in at second place, with UK following. The three regions have seen total deal size of €218.8 during the period of 2013 through 2018YTD. The popularity of these locations is further supported by the fact that after going private, average target’s EBITDA values have increased compared to when those companies were public. The US-based going private targets grew their EBITDA by average of 56% since leaving the public market, while Chinese and the UK-located companies grew EBITDA by 10% and 38%, respectively. Overall, the going private moves proved to be successful for ex-public companies globally within the 2013 – 2018YTD deals’ time frame, where their average Net Income values grew by 58% while EBITDA values grew by a smaller but yet attractive 29%.

In terms of the deal pipeline, 18 going-private deals were announced globally since 1st January 2018 and would add €25.8bn of aggregate deal value to already closed €17.8bn.

The following was originally published on Angel News on August 16, 2018: Public companies going private, S&P Global comment

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