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Feb. 19-23: Utilities take action on tax reform; EQT restructures

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Feb. 19-23: Utilities take action on tax reform; EQT restructures

A look back at successes and setbacks in the energy industry.

Highs

MURRAY ENERGY — Murray Energy Corp. said Feb. 23 it completed a transaction through which its Kentucky subsidiary will hold a full ownership interest in assets formerly operated by Armstrong Energy Inc. The company on Feb. 20 finished an acquisition of a 51% stake in the Illinois Basin coal mines and related property. In exchange for certain second-lien notes of Murray Energy, senior secured noteholders of Armstrong Energy that held 49% of Western Kentucky Coal Resources LLC then agreed to give full ownership to Murray Kentucky Energy Inc.

EQT — EQT Corp. on Feb. 21 announced it is separating its natural gas upstream and midstream businesses and will create a new standalone publicly traded corporation for its pipeline assets. The process would involve a drop-down of EQT's midstream assets to EQT Midstream Partners LP, a merger between EQT Midstream and Rice Midstream Partners LP and the sale of Rice Midstream's incentive distribution rights to EQT GP Holdings LP. Details of the move left some analysts scratching their heads, but management for the Appalachian gas giant said the benefits of the old model for a combined EQT were "diminished" following its $6.7 billion acquisition of Rice Energy Inc.

Between

TAX REFORM — Several large electric utilities and holding companies have reacted to the enactment of federal tax reform by issuing additional equity to sustain credit ratings and pad their balance sheets. Duke Energy Corp. announced it will issue $2 billion in equity this year to support its credit ratings and compensate for the near-term hit to earnings from the lower corporate tax rate. PPL Corp., Southern Co. and Entergy Corp. also announced plans to issue or raise additional equity to strengthen credit and support their growth strategy. FirstEnergy Corp. received a $2.5 billion equity infusion in late January to support parent-level credit metrics and provide support for the company's transition to a fully regulated utility.

Lows

WILDFIRE RISKS — The financial fallout from California's wildfires continues for the state's investor-owned utilities. S&P Global Ratings on Feb. 22 downgraded PG&E Corp. and subsidiary Pacific Gas and Electric Co.'s issuer credit ratings to BBB+ from A- over the risk posed by the October 2017 wildfires in the utility's Northern California service territory. The downgrade reflects the "management's inability to manage this outsized risk well enough to preserve ratings in the 'A' category," the rating agency said. Edison International management called the wildfires "a statewide crisis that needs a statewide solution." Executives are focused on the potentially severe legal and financial fallout related to the devastating wildfires that hit subsidiary Southern California Edison Co.'s service territory in December 2017.

TVA — The Tennessee Valley Authority's use of private planes and a luxury helicopter dominated the agency's most recent quarterly meeting with President and CEO Bill Johnson forced to defend the aircraft purchases. Citing federal records, the Southern Alliance for Clean Energy said in a Feb. 13 blog post that the TVA has spent $40 million since 2015 on two Cessna jets, a Beechcraft plane and a helicopter with a Mercedes-Benz interior. "When you're looking at prospects who want to look at big sites, you've got to get 'em up in a helicopter. ... Our mission is economic development; we commit resources to it," Johnson said.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.