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Market volatility in October caught many off-guard and the hope was things would settle down post earnings.  Well they got much worse spurred by the disruption of the CA fires.  PCG and EIX ended November down 44% and 20%, respectively, on the heels of the destructive fires.  These were popular value names in the utility space and their sharp stock collapses clearly caused investor pain.  However, the second derivative impact was just as meaningful.  The “Anything but California” trade took over amidst utilities, lifting already expensive low-risk utilities to higher levels.  Many investors got just as hurt by being short or underweight these names as being long CA.  With investors suffering and year end approaching, the last two weeks have showed signs of portfolios shrinking and extreme risk-aversion which has only exacerbated the problem.  Everyone needs a holiday.

EEI was held in San Fran this week with the Camp Fire still burning and the host utility PCG unable to attend.  EIX attended but there was not much they could really say.  The CA situation cast a pall over many investors and it made every other utility story sound pretty darn good relative.  The other big event was the FE coming out party as a fully regulated utility with an earlier than expected dividend growth resumption.  As the CEO said, after 40 years of digging out of holes, FE is finally out and plans to never dig a new one.  Higher capital plans, renewables growth, rising equity ratios, and portfolio restructuring were other key themes at the conference.

The big focus of EVRG’s Q3 update was progress on its share repurchase plan thus far. The company has used a combination of accelerated share repurchases and open market transactions to buyback an expected 9.5M shares through November-end (mostly ASR) – equating to ~2.4M shares per month since the buyback began in August. While the month-to-month timing may be choppy, EVRG is right on pace for the 60M target over 24 months (2.5M/month). This may have been disappointing given the stock’s lack of outperformance recently, but EVRG is doing exactly what it had said. It’s also worth noting that banks conducting future ASRs could be buying shares at a slower pace than EVRG actually retires its shares. Bottom line – there is still over 50M shares left to buyback – 19% of expected shares outstanding as of November-end. We still see this as compelling. Outperform.

This week we take a look at power prices ahead of Q3 reports, as generators often mark their guidance to forward curves around the end of each quarter. This is particularly meaningful for both NRG and VST, who are expected to issue / refresh 2019 guidance. Aside from ERCOT 2018, the forward pricing story in Q3 was largely positive when compared to 2Q18, even amidst flattish natural gas. While ERCOT contracts were down 10% in 2018, further out on the curve (2019-2021) was up 5-10%. This dynamic is likely explained by a summer that failed to yield scarcity pricing despite peak demand records, but the recognition that supply/demand conditions are likely to remain tight for the foreseeable future. Gas plant new build has failed to move forward and core demand growth remains robust. In PJM, contracts were up 5-7% in 2019-2020, while 2018/2021 contracts were up only modestly at 1-2%. Finally, out West (NP-15/SP-15/Mid-C) forwards were up 10% for 2019, while more mixed in outer years.