As we approach 2018, the Utilities Select Sector SPDR ETF (XLU) has risen nearly 8%, while the SPDR S&P 500 ETF (SPX-INDEX) (SPY) has risen almost 20%. One company that has persistently outwitted its peers this year is NextEra Energy (NEE). The Florida-based renewables giant has risen 30% so far this year, beating its peers by a wide margin.
NextEra Energy’s solid earnings in the last couple of years have largely fueled its rally. Duke Energy (DUK), the second-largest utility by market cap, has managed to rise 10% this year, while Dominion Energy (D) has risen 6% in the same period.
Southern Company (SO) grappled with power plant woes throughout almost the entirety of the year. It has risen just 2% in 2017. You can read more about SO’s performance in Why Southern Company Stock Has Underperformed Its Peers.
Lower taxes, fewer benefits
The US utilities sector is dominated by regulated players for whom lower taxes could have trivial to no impact. The regulated model allows utilities to claim expenses—including tax expenses—as part of rate recovery. Thus, utilities might end up passing the discounts from lower taxes on to their customers in the form of lower power bills.
The Federal Reserve delivered three quarter-point rate hikes this year, the most in any year since the Fed started rate normalization in 2015. According to the Fed’s target, 2018 is also expected to bring three rate hikes. It will be interesting to see how utilities react to these raises next year.