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Despite warmer Q1 weather, Fitch says utilities on track for 5% growth

Despite warmer first-quarter weather, U.S. utilities remain on track to hit 5% median earnings growth in 2017, as inferred from the sector's guidance, Fitch Ratings said June 1.

The rating agency said in a news release the weak power demand during the first quarter was largely offset by base rate hikes, cost management programs and decoupling mechanisms, as well as recovery in oil drilling activities which improved industrial load trends for several electric companies. Fitch found that the median earnings of a sample of utilities, power and gas companies grew by about 8% year over year during first-quarter 2017.

Meanwhile, most power producers booked lower EBITDA during the period, plagued by a decline in power prices and persistently lower capacity auction results. Merchant generators are then actively looking for ways to cut down their generation portfolio by retiring, selling or financial restructuring of the facilities. Fitch noted that merchant nuclear plants are particularly vulnerable due to their high fixed operating expenses.

For electric transmission owners, the lack of quorum at the Federal Energy Regulatory Commission has already delayed several infrastructure projects and challenges to return on equity.

Fitch said key financial metrics across the utilities, power and gas sector are mostly stable while funds-from-operations leverage metrics continue to benefit from incentives like bonus depreciation and renewables tax credits. The credit rating agency also found momentum for utility mergers and acquisitions activity "waning" following a string of negative regulatory decisions and uncertainty stemming from the prospects for federal tax reform.