Free cash flow
The free cash flow is the difference between the operating cash flow and capital expenditure. The free cash flow is a vital metric for measuring utilities’ (XLU) performance due to their heavy capital expenditure needs. NextEra Energy (NEE) and Dominion Energy (D) recorded negative free cash flows in the last three years.
Utility companies have been seeing flat top-line growth for the past few years due to reduced electricity consumption as a result of energy efficiency initiatives. Many utilities (XLU) witnessed negative free cash flows due to their increased capital expenditure needs and declining operation cash flows. Usually, companies use the free cash flow for dividend payments and expansion projects.
In comparison, top utilities Southern Company (SO) and Duke Energy (DUK) recorded negative free cash flows in the last three years.