Favorable weather to boost consumption
Weather plays an important role in driving utilities’ earnings. According to the EIA (US Energy Information Administration), the average residential electricity usage is expected to rise 4% from December 2016 to March 2017, as compared to the same period one year previously.
Winter temperatures during this period are expected to be lower than normal, which should increase consumption. Generally, electricity consumption during winter increases because the days in winter are shorter, resulting in more lighting usage. Increased consumption may boost utilities’ earnings in 4Q16 and 1Q17.
Impact on 4Q16 and 1Q17 earnings
According to the EIA’s, Short-Term Energy Outlook issued in December 2016, cooling degree days are expected to be 38% and 5% higher in 4Q16 and 1Q17, respectively, as compared to the previous ten-year average. Similarly, the weather in subsequent quarters in 2017 is expected to drive electricity utilization, which may help utilities’ earnings.
That said, higher electricity utilization is not expected to increase consumers’ spending on electricity due to the fall of residential electricity prices.
According to the EIA, total US electricity generation averaged ~11,000 gigawatt-hours per day in 2015. It is estimated to grow by 0.2% in 2016 and by 0.7% in 2017.
It will thus be interesting to watch the earnings of utility giants like NextEra Energy (NEE), Duke Energy (DUK), and Exelon (EXC). NextEra has been posting strong earnings for several quarters, and favorable weather may boost its quarterly performance. Duke Energy is expected to post its maiden earnings with Piedmont Natural Gas, and such better-than-expected earnings could motivate investors, pushing utilities’ stock prices up.
Continue to the next part for more on electricity prices in 2017.