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Outlook: Regulatory climates bear watching in several states as 2018 marches on

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

Most TV Everywhere Viewing Is Live TV In The Home

Consumer Insights Online Video User Overview

Public Companies Going Private


Outlook: Regulatory climates bear watching in several states as 2018 marches on

High profile regulatory proceedings, upcoming gubernatorial and commissioner elections have the potential to alter the tenor of the regulatory climate for electric power and natural gas utilities in several jurisdictions in the latter part of 2018, according to Regulatory Research Associates, an offering of S&P Global Market Intelligence.

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<<<Read the report>>>

The RRA team evaluates the regulatory climates for energy utilities of the jurisdictions within the 50 states and the District of Columbia, a total of 53 jurisdictions, on an ongoing basis. The evaluations are assigned from an investor perspective and indicate the relative regulatory risk associated with the ownership of securities issued by each jurisdiction's electric and gas utilities.

Federal tax reform

Proceedings are ongoing in virtually every jurisdiction with respect to the treatment to be accorded the impact of the federal tax changes enacted in December 2017 that lowered the corporate federal income tax rate to 21% from 35%. RRA is monitoring these cases and will be on the lookout for jurisdictions that take an innovative approach to this challenge.

Elections

Changes in governors and the make-up of commissions in certain jurisdictions also bear watching, as they could lead to changes in policy. In November, 36 states will hold gubernatorial elections. In 20 of those 36 states, the incumbent governor is seeking re-election. In 16 states, the incumbent governor is either term-limited and not eligible for re-election or is not seeking re-election. In addition to the gubernatorial races, a mayoral race in the District of Columbia will take place where the incumbent is seeking re-election and 19 utility commission seats, across 11 states will be up for grabs.

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At the District of Columbia Public Service Commission, Chair Betty Ann Kane and Commissioner Willie Phillips are serving pending reappointment or replacement; consequently, a change in the Mayor could signal changes in the makeup of the PSC. Similarly, in Texas, all three members of the Public Utility Commission of Texas, or PUCT, Chairman DeAnn Walker, a Republican and Commissioners Arthur D’Andrea and Shelly Botkin are serving pending Senate confirmation, so a change in governor could lead to a complete overhaul of the PUC membership.

In several states, commissioners have been appointed or reappointed and are serving pending senate/general assembly action on their confirmations, including Anastasia Palivos of the Illinois Commerce Commission Jason Stanek of the Maryland Public Service Commission, and Margaret Cheney and Sarah Hofmann of the Vermont Public Utility Commission. The outcome of gubernatorial elections in these states could lead to changes in the respective commissions' make up. In addition, there are vacancies on the New York Public Service Commission and the Public Utilities Commission of Nevada. In both of these states the governor appoints the commission members.

Nuclear and mergers

The Georgia Public Service Commission continues to grapple with nuclear plant related issues related to Southern Co. subsidiary Georgia Power Co.'s Alvin W. Vogtle Nuclear Plant expansion project, which became controversial following the bankruptcy of Westinghouse Electric in 2017. However, support for the Vogtle nuclear expansion has been strong and widespread both at the PSC and in the Georgia political establishment.

In South Carolina, the ongoing controversy surrounding SCANA Corp. subsidiary South Carolina Electric & Gas Co.'s V.C. Summer nuclear plant expansion, which led to two recent rankings downgrades by RRA, continues to be a cause for concern and has the potential to impact the proposed acquisition of SCANA by Dominion Energy Inc. The Federal Energy Regulatory Commission and Georgia Public Service Commission have approved the transaction, but review proceedings are underway in North Carolina and South Carolina.

Ongoing merger review proceedings also bear watching. While regulators in Alaska have already approved the transaction, those in Idaho, Oregon and Washington extended their reviews of the proposed acquisition of Avista Corp. by Canada-based Hydro One Holdings Ltd., following management changes at Hydro One. Settlements have been reached with intervening parties in each of these jurisdictions.

Regulatory reform

Proceedings regarding reforming the electric delivery system and/or regulatory framework are underway in Illinois, Maryland, New Hampshire, Ohio, Oklahoma, Oregon and Pennsylvania, while in Nevada, a measure will be included on the ballot in the November 2018 to amend the state’s constitution to provide for a competitive retail electric market allowing for all customers to choose their electricity suppliers. Under current law, retail competition is permitted only for certain large-volume customers.

In Iowa, legislation was enacted in May, directing the Iowa Utilities Board to develop rulings with respect to certain aspects of the traditional regulatory process, such as test year and rate base valuation. The board opened an investigation in August, and it remains to be seen whether the new rules will incorporate major changes to existing practices.

California wildfires

In California, issues associated with extensive wildfires in both northern and southern California in the fourth quarter of 2017 have taken center stage in recent months. Authorities have not yet established the causes of the wildfires that occurred in late 2017. The California courts have applied inverse condemnation to events involving utility equipment that holds the utilities liable for wildfire damages involving their equipment even without a determination of negligence. In addition, the PUC has ruled that it cannot permit recovery of costs that were the result of imprudence or negligence by the utility, raising the possibility that a utility would be unable to fully recover its costs if inverse condemnation is applied by the courts.

Activity before the California Legislature added another measure of uncertainty, with the introduction of Senate Bill 819, which would prohibit recovery of costs that resulted from imprudence. The situation recently improved somewhat, as on Aug. 31, Senate Bill 901 passed the California State Assembly. The bill would allow state investor-owned utilities to securitize wildfire liabilities, require utilities to adopt wildfire mitigation plans and allocate $1 billion over five years for fire prevention though forest management. In addition, the bill would grant the California Public Utilities Commission the authority to consider a broader range of factors when deciding if costs can be passed on to ratepayers. Gov. Jerry Brown is expected to sign the legislation.

Storm cost recovery

With the first major storm of the hurricane season set to hit the U.S. east coast in a few hours, it is worth noting that investors and utilities will in the coming weeks be focused on not only the operational and societal impacts of the storm, but also on how commissions in each of the affected states address recovery of any extraordinary costs that are incurred by the utilities. The current storm, Hurricane Florence, is expected to have the most dramatic impact on North Carolina, South Carolina and Virginia, but Alabama, Georgia, Kentucky, Tennessee and West Virginia may also feel some of the pain. 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. 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.

Overview of RRA rankings process

RRA's rankings look at various state commission policies, but also take into account actions by state governors, legislatures, courts and intervening parties in major proceedings before the commissions. RRA maintains three principal rating categories: Above Average, Average and Below Average.

An Above Average designation indicates that, in RRA's view, the regulatory climate in the jurisdiction is relatively more constructive than average, representing lower risk for investors that hold or are considering acquiring the securities issued by the utilities operating in that jurisdiction.

At the opposite end of the spectrum, a Below Average ranking would indicate a less constructive, higher-risk regulatory climate from an investor viewpoint.

A rating in the Average category would imply a relatively balanced approach on the part of the governor, the legislature, the courts and the commission when it comes to adopting policies that impact investor and consumer interests.

Within the three principal rating categories, the designations 1, 2, and 3 indicate relative position, with a 1 implying a more constructive relative ranking within the category, a 2 indicating a midrange ranking within the category and a 3 indicating a less constructive ranking within the category.

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RRA attempts to maintain a "normal distribution" of the rankings, with the majority of the states classified in one of the three Average-range categories. The remaining states are the split relatively evenly between the Above Average and Below Average classifications.

In a recently published quarterly evaluations report, RRA discussed four rankings changes: RRA raised the firm's ranking of Missouri regulation to Average/3 from Below Average/1, the team lowered the ranking of South Carolina regulation to Average/3 from Average/2, the ranking of Connecticut regulation was raised to Below Average/1 from Below Average/2 and the ranking of Vermont regulation was lowered to Average/3 from Average/2.

For a more in-depth discussion of the factors RRA reviews as part of its ratings process, see the Sept. 7, report entitled State Regulatory Evaluations--Energy.

For a discussion of the regulatory climate in each jurisdiction, refer to RRA's 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
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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Technology, Media & Telecom
Consumer Insights Online Video User Overview

Highlights

49% of survey respondents use more than one SVOD service.

Sep. 14 2018 — Data from Kagan’s U.S. online consumer surveys shows that 23% of respondents exclusively use one service, while almost half (49%) use more than one SVOD service. The service which is most commonly used exclusively is Netflix, while users of smaller services almost always use at least one other service.

Netflix is so universally used that it is both the most exclusively used service and the service most often used in conjunction with another service. In terms of demographics, Netflix users are very similar to the general population compared to smaller services that tend to have a younger user base.

With the exception of Netflix, most respondents indicated they have never subscribed to the top four services, including Netflix, Hulu, Amazon Prime Video and HBO NOW. Among those who indicated they dropped one of the top services, price was a principal reason for dropping, although content-specific reasons differed by service. Content is one of the most defining characteristics of online streaming services, which can be seen in the content viewed and most enjoyed on each service. In large part users of Netflix, Hulu and Amazon Prime Video most enjoy the content each service is known for.

A broader overview of this data was presented in a recent webcast.

Data presented in this blog is from U.S. Consumer Insights surveys conducted in September 2017 and March 2018. The online survey included 2,526 (2017) and 2,523 (2018) U.S. internet adults matched by age and gender to the U.S. Census. The survey results have a margin of error of +/-1.9 ppts at the 95% confidence level.

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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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