US electricity price ahead
According to the EIA (US Energy Information Administration), retail electricity prices for all sectors in 4Q16 are expected to have witnessed a marginal fall of 1.2%, as compared to the same period one year previously.
However, in 2017, electricity prices are expected to recover by nearly 2%, and higher electricity prices could bode well for utilities’ (XLU) earnings in 2017.
We should note that fuel prices have a significant influence on electricity tariffs. Lately, natural gas price changes have had a great influence on power prices. According to the EIA, residential customers paid 0.7%, or 12.4 cents, less per kilowatt-hour in the first half of 2016 than in 1H15. Lower natural gas (UNG) prices drove this reduction.
You can check out Market Realist’s series Can Higher Wholesale Prices Revive Utilities’ Stocks? for more detail. Continue to the next part for a discussion of utilities’ approved ROE (return on equity).