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In This List

Wildfires, robust capital plans dominate electric utility focus in Q4

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


Wildfires, robust capital plans dominate electric utility focus in Q4

Electric utilities in the U.S. are funneling billions of dollars into infrastructure to support long-term earnings growth amid the push for cleaner and smarter energy choices.

The massive amount of capital geared toward infrastructure investments is evident in growth plans laid out by utility executives during fourth-quarter 2018 earnings calls.

"We're in one of those boom periods in the sector where there is a lot of cheap capital and infrastructure needs," Morningstar Research Services LLC analyst Travis Miller said in a March 6 phone interview. "That pairing leads to some significant capital spending budgets for almost every utility right now."

Miller pointed to Duke Energy Corp., American Electric Power Co. Inc., Dominion Energy Inc. and Xcel Energy Inc. as some of the key "big spenders" in the sector.

Duke Energy in its earnings presentation reinforced and extended its $37 billion growth capital plan through 2023 as it targets long-term annual earnings growth of 4% to 6% through 2023. Management noted that more than 90% of the company's capital will be spent in its regulated electric and gas businesses with nearly half focused on grid investments.

AEP plans to invest $33 billion in its regulated operations through 2023, with $6.5 billion earmarked for 2019, and 75% of the capital plan allocated to transmission and distribution operations. AEP management told analysts and investors they see "more tailwinds than headwinds" in the capital plan supporting the company's 5% to 7% annual operating earnings growth rate.

AEP in February also agreed to purchase the remainder of Sempra Energy's renewable energy business, Sempra Renewables LLC, and its 724-wind portfolio for $1.1 billion.

For Sempra Energy, Guggenheim Securities LLC analyst Shahriar Pourreza noted that asset sales, cost structure and the Cameron LNG export project "are all part of the mix" in 2019.

"Big hurdles for unlocking value in 2019 will be completion of [South American] utilities sale, [California] regulation and policy, Cameron LNG start-up and cost initiatives," Pourreza wrote.

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'Phenomenal' numbers

Miller highlighted California's Edison International as a "prime example" of the robust spending on infrastructure, even outside of wildfire-related expenses facing the company and its utility Southern California Edison Co. The company's "core plan" calls for investing $4 billion a year on Southern California Edison's distribution network, the analyst noted.

"That's a pretty phenomenal number in just that network," Miller said.

The analyst noted that Edison International has been focused on electric vehicle penetration, distributed generation, solar and smart grid investments outside of the need to mitigate wildfire exposure.

Still, Edison International's wildfire risk remains front and center on the minds of utility analysts.

"[Edison International] closed out the year as expected in terms of non-GAAP EPS, but took a sizeable [$1.8 billion] after-tax, net-of-insurance charge on 2018 wildfire liabilities," Pourreza wrote in a Feb. 28 research report.

Pourreza noted that Edison International continues to await California Public Utilities Commission approval of its Charge Ready II and wildfire mitigation plans, "which could provide upside to the capex and rate base plans, but may challenge the utility to mobilize enough resources in the near term, as priority has been given to safety."

"Overall, this paints a strong fundamental organic growth picture for [Edison International] beyond the 2020 [general rate case] planning period, which is encumbered by the pace of approvals from the CPUC," the analyst added.

Meanwhile, NextEra Energy Inc. is capitalizing on substantial regulated investments at its utility Florida Power & Light Co., while also benefiting from the renewable energy growth plans at yieldco NextEra Energy Partners.

"They are going to add the equivalent of a mid-cap to large utility in the next four to five years if they end up following their investment plan," Miller said.

NextEra Chairman, President and CEO James Robo was not shy about outlining the scale of the company's capital plans during its fourth-quarter 2018 earnings call.

"I mean, when you look at our capital investment plans, I think they are over $12 billion this year," Robo said. "As of the year before last ... we were the fourth-largest investor of capital in the United States in any industry. Only AT&T, Verizon and Amazon invested more in this country than we did in terms of capital investment."

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Emerging trends

Companies have also started to look beyond the standard renewable investments.

"Offshore wind has been a key point of discussion in New York and New England," Miller said.

Public Service Enterprise Group Inc., Eversource Energy and Avangrid Inc. have all been active in the offshore space.

"All told, New England and New York have announced targets or have adopted legislation that could result in the development of up to 15,000 MW of offshore wind by the year 2035," Eversource Chairman, President and CEO James Judge said on the company's fourth-quarter earnings call.

Eversource on Feb. 8 announced an approximately $225 million deal to acquire a 50% stake in Danish wind developer Ørsted A/S' 700-MW Revolution Wind Offshore and 130-MW Deepwater Offshore Wind Energy Center projects and two undeveloped lease areas off Massachusetts that could host at least 4,000 MW.

But even offshore wind development has not quelled the need for new land infrastructure.

Janney Montgomery Scott LLC said Avangrid, which is part of the joint venture developing the 800-MW Vineyard Offshore Wind Project, has signaled somewhat of a shift to grid and technology investments over the next four years with less capital planned for renewables.

Wildfires

The utility garnering the most attention in recent months, however, did not host a fourth-quarter earnings call.

PG&E Corp. said it is incorporating a $10.5 billion pretax charge in its earnings for the full year and fourth quarter of 2018 to reflect the impact of the 2018 Camp Fire. The company also revealed that it is "probable" that its equipment "will be determined to be an ignition point of the 2018 Camp Fire." PG&E Corp. also reported a new $1 billion pretax charge related to the 2017 Northern California wildfires.

PG&E Corp. and subsidiary utility Pacific Gas and Electric Co. on Jan. 29 filed for Chapter 11 bankruptcy protection, citing billions of dollars in potential liabilities from California wildfires.

"Something will come out of the [PG&E Corp.] situation. I think it will set a precedent for the industry," Miller said.