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Good weather expected to drive strong Q3'19 earnings for electric utilities

Favorable weather in the third quarter of 2019 is expected to drive strong earnings overall for the U.S. electric utility sector, with some companies likely to use conference calls to update capital expenditure plans.

"It should be a very strong quarter for a lot of utilities," Guggenheim Securities LLC analyst Shahriar Pourreza said in an Oct. 17 phone interview.

Other electric utility analysts agreed.

"The weather was terrific this summer," John Bartlett, portfolio manager and electric utility analyst at Reaves Asset Management, said in an Oct. 18 phone interview.

"Within the utilities sector, we broadly see companies as being well-positioned to hit 2019/2020 expectations thanks to a combination of favorable weather, cost controls, and improving regulatory setups (more defensive/predictable rate designs)," Scotia Capital (USA) Inc. analyst Andrew Weisel wrote in an Oct. 18 earnings preview.

Those predictions were borne out initially by NextEra Energy Inc., which kicked off earnings season Oct. 22 with results that topped Wall Street estimates by a healthy margin.

Also, several companies likely could have updated their guidance plans following the first half of the year based on stronger earnings, Pourreza noted.

"Many of the utilities have kind of been ahead of the plan," Pourreza said, adding that many "just stopped short" of updating earnings guidance.

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Analysts named Entergy Corp. and DTE Energy Co. as companies that could update earnings guidance and capex plans, with NiSource Inc., Eversource Energy and FirstEnergy Corp. also looking at some potential CapEx upside.

"On 2020 EPS, we expect a stronger-than-expected 'early look' for DTE and in-line initiations for [Alliant Energy Corp.] and [CMS Energy Corp.]," Weisel wrote.

DTE will hold its earnings conference call on Oct. 28, less than two weeks after subsidiary DTE Midstream agreed to purchase a gathering system and gathering pipeline in Louisiana's Haynesville Shale for $2.25 billion.

"DTE stated the gathering system will be $0.15 accretive in 2020 growing to $0.45 by 2024, and, while it is not incremental to existing [compound annual growth rate] guidance, it provides a nice tailwind," Mizuho Securities USA LLC analyst Anthony Crowdell wrote in an Oct. 21 research report.

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Eyes on EEI

Many utility management teams also typically use the upcoming Edison Electric Institute Financial Conference in November to provide updates on their financial and strategic plans.

"Though several companies will roll forward EPS/capex guidance, we don't expect to see many surprises with 3Q19 and EEI updates — seems like this has become a trend recently," Weisel wrote.

Most companies "roll out guidance" on their fourth-quarter calls, Bartlett said.

He Bartlett said that while "it will be nice to hear from California," San Francisco-headquartered PG&E Corp. and utility subsidiary Pacific Gas and Electric Co. are not expected to hold a third-quarter earnings call, although executives are expected to attend the EEI Financial Conference.

PG&E Corp. and its utility are mired in a Chapter 11 bankruptcy reorganization as they face billions of dollars in potential liabilities from California wildfires.

Edison International and its utility subsidiary Southern California Edison Co. also face potential wildfire liabilities, but executives will hold a third-quarter earnings call on Oct. 29 to discuss new legislation, regulatory reform and grid strengthening efforts.

On second-quarter earnings calls, executives from both American Electric Power Co. Inc. and Southern Co. expressed concerns about the impact of the global trade war and tariffs on industrial sales. Analysts said they have not seen a material impact on company earnings or EPS growth plans from these macroeconomic factors.

"For now, I'm not particularly concerned," Bartlett said.


Outside of retail sales and weather, some companies will be pressed for details on potential industry consolidation.

Avangrid Inc. and PPL Corp. are reportedly considering merging all or parts of their businesses. A full merger, which could create a company worth more than $67 billion, would be the biggest deal in the utility space this year.

"Is there validity to it? Likely," Guggenheim's Pourreza said in an Oct. 16 phone interview. "Whether something transpires, I don't know."

Duke Energy Corp. and NextEra Energy Inc. are among the companies in the running for Florida municipal utility JEA and South Carolina government-owned utility Santee Cooper, known legally as South Carolina Public Service Authority.

In addition, Duke Energy executives are expected to update the investment community on rate cases in North Carolina, Indiana and Kentucky designed to recover investments in electric infrastructure, clean energy generation and coal ash management.

Dominion Energy Inc., also active in the deal space, is planning significant investments in offshore wind and solar.

Analysts and executives will likely zero in on the U.S. Supreme Court's decision to take on the permitting battle for the Dominion-led, 600-mile Atlantic Coast Pipeline LLC project.