More From Matt Phillips
Why Exelon’s recent quarterly earnings were positive
Exelon Corporation (EXC) reported a net income of $440 million in its 2Q14 earnings. The quarterly net income was $14 million lower year-over-year (or YoY).
Why Duke Energy is the largest electric utility in the US
Duke Energy Corporation (DUK) is a heavyweight in the U.S. electric utilities industry. It mainly operates in the U.S. and Latin America. In 2013, its operations had $24.6 billion in revenue.
Must-know: US power sector and its indicators
The power sector is the backbone of any economy. All of the other industries depend on it. In the U.S., the power utilities business is characterized by steady dividends and stable earnings.
Why Exelon’s generating assets are regionally diverse
Exelon Corporation’s (EXC) power generation assets are spread across 18 states in the U.S. and some parts of Canada. Regional diversity is very important.
Must-know: Duke Energy’s generation and fuel mix
Duke Energy’s (DUK) electricity generation portfolio is regionally diversified. The fuel type that’s used to produce electricity is also diversified. Duke has a generation capacity of 57,500 megawatts (or MW) in the U.S.
Must-know: Duke Energy’s operating segments
Duke Energy (DUK) operates in three business segments—Regulated Utilities, Commercial Power, and International Energy. Regulated utilities are responsible for most of Duke Energy’s retail sales.
Why did the market punish Exelon?
Exelon Corporation’s (EXC) stock has been hammered in the last six years. In 2008, the stock was trading at ~$90 per share. Early this year, the stock was available at less than $27 per share.
Must-know: Understanding Duke’s strategy
In recent years, Duke Energy (DUK) made its intent very clear. It concentrates on its regulated utilities—its core business—instead of other areas. The regulated utilities business is Duke’s strength.
Must-know: Duke’s top institutional owners
Duke Energy (DUK) is one of the most popular stocks for institutional investors in the utilities industry. Duke’s strong yields and stable business model have attracted institutional investors.
New England and the Pacific are great regions to produce power
The US is divided into nine divisions. The Pacific and New England divisions had the highest year-over-year, or YoY, growth in electricity prices in September 2014.
Wholesale electricity prices mirrors natural gas price
With the exception of Texas, wholesale prices in all other US regions were low.
Utilities company overview: NextEra Energy
NextEra Energy (NEE) is the second-largest power company in the US after Duke Energy (DUK) in terms of market capitalization.
NextEra to invest in natural gas production
Natural gas prices fluctuate based on changes in demand and supply. Producing its own natural gas will lower NextEra’s gas procurement costs significantly.
First Energy: An overview of a power utility
First Energy’s operations include electricity generation, electricity sales, and transmission and delivery of electricity to six million customers in six U.S. states.
First Energy’s revenue mainly from regulated T&D
First Energy operates in six northeastern U.S. states. This translates to a service territory of 65,000 square miles. These states are allowed deregulation of electricity, but First Energy’s T&D network remains regulated.
Teco and Northeast bleed, dragging power utilities down
Among power utilities, Teco Energy (TE) saw the biggest drop in share prices for the week ended February 13, 2015. Teco share prices fell by 7.0%.
Weekly US electricity production rises, still lower than last year
The US saw a nominal uptick in weekly electricity production for the week ended February 6, 2015. US electricity production increased by 1.6%.
AEP and Entergy see elevated growth in electricity production
Except for the Rocky Mountain, Southeast, and Pacific Southwest, all nine US divisions registered growth in week-over-week electricity production.
Regulated business is Southern Company’s strength
Southern Company manages its regulated utility business through the following four subsidiary companies: Alabama Power, Georgia Power, Gulf Power, and Mississippi Power. These subsidiaries have a combined power generation capacity of 37,000 megawatts (or MW).
Cost structure sets Southern Company above its competitors
Fuel costs per kWh can be used to evaluate the efficiency of a power producer to produce electricity. Southern Company’s fuel cost per kWh is lower than its competitors’ in the regulated utility business.
Must-know: Risks to AES Corporation’s business
Given the nature of its business, AES Corporation (AES) faces risks relating to currency fluctuations, fuel prices, interest rates, and a scattered business model.
US power companies: Comparing valuation multiples
Forward multiples are a useful metric for gauging relative valuation. A higher multiple usually indicates a richer valuation for a company.
Must-know: Who owns Dominion?
Institutional investors hold most of Dominion Resources’ (D) outstanding shares. As of June 30, 2014, a total of 351.2 million shares were held by 1,069 institutions.
Why electricity demand is linked to GDP
Electricity is the backbone of a nation’s progress. All of the industries need electricity to operate—directly or indirectly. When a business flourishes, the electricity consumption increases.
Why electricity prices vary across different regions in the US
Electricity prices also vary across regions and states. Changes in regional electricity prices are also an important factor for the power utilities industry.
Why net capacity additions are important
Capacity is defined as the potential power output that power plants can generate. Each power plant has a shelf life. After the shelf life, they’re replaced with new power plants.
Natural gas pumps up Southern Company’s power generation
Natural gas forms the major source of fuel for Southern Company (SO) and constitutes 42% of its installed capacity. This benefits Southern Company to generate electricity at a lower cost.
A brief overview of Exelon’s power operations
Power generation is a significant segment for Exelon, generating more than 60% of its total revenue. The energy delivery business provides the other 40% of the company’s revenues.
Utilities performance linked to regional electricity output
The South Central and Pacific Northwest divisions saw the highest jump in week-over-week electricity production. Which utilities operate in these regions?
Hawaiian Electric bucks the trend in a weak market
Hawaiian Electric withstood the fall in the markets. It was up 0.6% for the week ending on January 30, 2015. Hawaiian Electric closed the week at $34.30 per share.
NextEra Energy plays in regulated and unregulated utility markets
NextEra Energy is a Florida-based power company. Its subsidiaries are Florida Light & Power and NextEra Energy Resources.
Must-know: 3Q14 revenue composition of AES
Each of AES’ six strategic business units registered revenue growth compared to the same quarter last year, with Brazil showing the highest year-over-year revenue growth for the company.
Why Exelon’s revenue growth has been slow
Exelon Corporation’s (EXC) revenue grew at an annual rate of 4.7% for the last six years. The revenue growth been slow. It’s revenue growth came from mergers and acquisitions.
Why Exelon is limited to transmission and delivery
Exelon (EXC) split its generation business and its utility business. This means Exelon’s utility subsidiaries’ function is limited to the transmission and delivery of electricity.
Must-know: Exelon’s business segments
Power generation is Exelon’s most important operating segment. The segment generates 60% of its revenue. Exelon’s power generation business is operated by its subsidiaries.
Must-know: Exelon’s position in the power industry
Exelon Corporation (EXC) is one of the largest power companies in the U.S. In 2013, Exelon reported operating revenues of $24.9 billion.
Potential opportunities for the electric utilities industry
The power sector is regulated in most of the countries in the world. Entering new markets isn’t easy. Utilities should engage with local governments in long-term strategic partnership models to access these markets.
Must-know: Threats to the electric utilities industry
The electric utility industry in the U.S. has been stable for a long time. The success is a result of its humongous size and the lack of substitutes. However, over the past three years power companies’ electricity sales are down. The drop in sales is concerning.
Must-know: Dynegy’s operational strategy
The PJM and New England regions are unregulated for power producers. After the deal is complete, the markets will represent 25% of Dynegy’s gross margin. Currently, the markets only contribute 11%. The region’s generating capacity will increase significantly from 18% now to 60% after the deal. This will give Dynegy superior pricing power.
Must-know: Regulated versus unregulated players
The electric utility industry is partially unregulated. Only a few states don’t regulate electricity generation. Most of the sector is still regulated. Companies usually operate with a combination of regulated and unregulated activities.
Must-know: The structure of the electric utility industry
Investor-owned utilities (or IOUs) are private companies. They’re subject to state regulation. IOUs are financed by a combination of shareholder equity and bondholder debt. Most IOUs are large. Many of them have multi-fuel—electricity and natural gas—generation and multi-state operations.
Must-know: Why the electric utilities industry is important
The electric utilities industry is important for the economy because all businesses require electricity to operate. The EIA predicts that electricity demand in the U.S. will increase by 29% from 2012 to 2040. It will require more electricity to be generated.
Must-know: Factors that impact electricity demand
The most important factor that affects electricity demand is household income. According to the U.S. Energy Information Administration (or EIA), between 1981 and 2001, household real disposable income increased by 49%—from $17,217 to $25,698.
Must-know: Electric utility tariffs and pricing
The residential tariff for electricity is the most expensive. In contrast, the tariff for industrial electricity is the cheapest in the U.S. Some of the differences in the costs are a result of higher distribution and stepping down—reduction in voltage—cost. The cost is associated with the residential supply of electricity.
Must-know: Cost structures based on fuel choice
A power plant’s setup and costs are determined by the selected technology and fuel. To understand each plant’s competitive advantage, you have to understand the levelized cost of electricity (or LCOE). LCOE is a normalized economic assessment of the energy-generating system’s cost. It includes all the costs over its lifetime.
Must-know: The supply chain delivers electricity
The industry’s supply chain consists of three broad categories—generation, transmission, and distribution. Power generation requires a fuel source—for example, coal, nuclear, natural gas, or wind—and a power plant to convert the fuel source into electricity.
Must-know: The top US electric utility companies
The top electric utility companies in the U.S. include Duke Energy, Exelon Corporation, Southern Company, NextEra Energy, and Dominion Resources. These companies are largest in terms of market cap.
Must-know: Terminology used in the electric utilities industry
Electricity comes from energy sources that are found in nature. These sources are called primary energy sources. They’re the first form of energy. Primary energy sources include coal, gas, oil, wind, and water.