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Feb. 26-March 2: Vistra eyes retail growth; US energy sector blasts tariffs

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Feb. 26-March 2: Vistra eyes retail growth; US energy sector blasts tariffs

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

Highs

AES — AES Corp. said it expects "$100 million in annual cost savings by 2019" as part of the company's reorganization. AES on Feb. 5 announced it is restructuring its business to cut costs and streamline operations, targeting a smaller environmental footprint and stronger financial profile. AES will cut its global workforce by 1,000 employees, or 12%, as part of the plan to simplify the company, management said Feb. 27 on the company's fourth-quarter 2017 earnings call. Executives said they expect AES to achieve investment-grade credit metrics by 2019, a year earlier than their prior forecast, as the company prepays $1 billion in debt in the first half of 2018. In addition, AES aims to reduce carbon intensity 50% by 2030 from 2016 levels.

JEA SALE — Some of the biggest names on Wall Street are working hard to prove they should handle the potential sale of Jacksonville, Fla., utility JEA. An outside consultant hired by JEA's board of directors indicates the city-owned utility could be valued anywhere from $7.9 billion to $11 billion. The Wall Street firms have laid out two main options for JEA: it can be acquired by a buyer, or it can enter into a public-private partnership. "The combined Electric System, Water and Wastewater have considerable strategic value to adjacent utilities looking to expand their service coverage footprint in Florida," Henry Reyes, a JPMorgan Chase & Co. managing director based in Orlando, wrote in response to the city's request for proposals.

VISTRA — Vistra Energy Corp. management said the merchant generator is shifting its strategy toward retail growth beyond Texas as a counterweight to wholesale expansion in northern markets. Vistra is set to become the largest publicly traded power generator in the U.S. once it closes its acquisition of Houston-based Dynegy Inc. "We are embarking on developing a strategy this year in 2018. We're already in the middle of it on our retail business that's outside of Texas ... and it's not rocket science we're going to try to grow organically, and then look for opportunities for acquisitions that we think have a compelling value proposition," Vistra President and CEO Curt Morgan told analysts on a Feb. 26 earnings call.

Between

DUKE ENERGY — Duke Energy Progress LLC on March 2 filed new electric rates with the North Carolina Utilities Commission as the Duke Energy Corp. subsidiary looks to wrap up its first base rate increase in nearly five years. The commission approved a rate increase for Duke Energy Progress, or DEP, that slashes the utility's revised $419.5 million revenue request to less than half while allowing the recovery of about $232 million in coal ash costs spread out over five years. The commission denied DEP's request to recover approximately $129 million annually for ongoing coal ash expenses and imposed a $30 million penalty tied to its mismanagement of coal ash. The commission said it will address federal tax reform and its impact on customer rates in a separate proceeding.

Lows

TARIFFS — President Donald Trump's decision to impose tariffs on steel and aluminum imports outraged much of the U.S. energy industry. Trump said the duties, 25% for steel and 10% for aluminum, are aimed at improving America's national security. The move is likely to increase costs to build wind turbines, solar panels, pipelines and other infrastructure. LNG Allies, a Washington, D.C.,-based trade group, said in a letter to Trump that the U.S. "could easily lose out" on global market share as increased costs for already pricey export terminals threaten the viability of new projects. Import duties, however, are expected to have "an overall positive impact on U.S. metallurgical coal demand," Ramaco Resources Inc. President and CEO Michael Bauersachs said previously.

GAS PRICES — Sanford C. Bernstein & Co. LLC has predicted that "free" gas associated with oil plays such as Texas' Permian Basin coupled with flattened demand for natural gas will keep Henry Hub prices below $2.50/MMBtu from 2021 to 2025. "The major drivers of demand growth — LNG export capacity build, ethane cracker builds at home and abroad, and the gasification of Mexico's power grid come to an abrupt stop at the end of 2020," Bernstein said. "At the same time, our associated gas forecasts, led by the Permian, just keep getting stronger." The supply shock and low prices could suppress growth in dry shale gas plays such as the Marcellus Shale.