At last week’s FERC open meeting, Commissioner McNamee (R) announced that he would not seek another term once his current one expires at June-end. This would leave just Chairman Chatterjee (R) and Commissioner Glick (D) remaining at FERC unless other nominations are confirmed. Recall that FERC General Counsel James Danly (R) was nominated to the commission last year, but was not confirmed in time, and thus is waiting on re-nomination amid the impeachment proceedings this year. Democrats have been pushing hard for the nomination of energy lawyer Allison Clements, but no action has been taken on that front either. Once again, FERC could be staring at the lack of a quorum, which has not been unfamiliar territory under the Trump administration. Amazingly, FERC has only been fully staffed for essentially 10 months over the last 3 years – from the time Glick/McIntyre were confirmed until Powelson left.
Search Coverage List, Models & Reports
Search Results1-10 out of 2487
NEP closed Friday (1/24/20) down 1% on its earnings update. Despite the Q4 miss, there were no changes to the long-term growth outlook. Importantly, NEP remains a unique play on the exploding renewables thematic – yielding 3.8% and growing distributions at 15%. Notably, NEP stock has lagged NEE by 1700bps over the last twelve months. Given its value to NEE and it is a beneficiary of NEE’s ever-growing backlog of renewables projects, there ultimately should be some form of catch-up trade. Price Target up to $63 on a slightly lower discount rate in today’s environment. NEP remains a top idea.
The ESG narrative is likely to dominate much of the focus on YE calls. We expect to hear a lot on utilities carbon reduction initiatives especially transition to renewables away from coal. The debate on how natural gas fits in this decarbonization trend will likely elevate as gas names have started to trade at discounts. Electrification opportunities will also likely be an increasing focus. It will be interesting if any companies can change the narrative on their nascent ESG positioning.
NEE’s 2019 results were in-line, while the renewables backlog continues to grow. Meanwhile the stock has been on fire, as NEE is increasingly viewed as a clear winner in an ESG-focused world. This was only heightened by the Blackrock letter focused on climate as the #1 ESG issue (see our new note on EPS coal exposure). We thought CEO Jim Robo hit on NEE’s success best: “living proof that you can be clean and low cost, and financially successful at the same time.” The stock outperformed Friday (1/24/20) and is already outperforming by 300bps this year and 1900bps over the last twelve months.
We highlighted ESG going from mainstream to viral as a key theme for 2020. This is already starting to play out based on stock performance and the Blackrock letter. For utilities, the natural focus is on the “E” especially given that climate seems to have risen above all else in terms of ESG issues. We have had a flurry of investor calls asking about utilities’ coal exposure. In the past, we have shown this on MWs and MWhs. This is our first take at what matters more: coal exposure in ratebase and earnings (Exh 1-3).
Post market close (01/21/20), CNP filed an 8K detailing stipulations of the settlement for Houston Electric’s rate case. Headline items include a 9.40% ROE and 42.5% equity ratio – both up from the 9.25% ROE and 40% equity ratio in the PUCT’s initial proposal. The new outcome is clearly better, but revenue looks light and we think the company will need to do meaningful cost cuts to achieve the allowed ROE. CNP will not file a DCRF in 2020 (i.e., more lag) likely due to the timing of the final order, which isn’t expected until mid-Q1.
Power forwards towards the front of the curve fell in Q4 across the country. PJM, New England, and New York were down most significantly at 8-9% in 2020. ERCOT was down only modestly at 1-2%. Important to remember though is that most of the IPPs and Integrateds are close to fully hedged in 2020. Further out on the curve, there was modest improvement in Q4 – ERCOT 2021/2022 contracts were up 1-2%, while PJM 2022 moved up 1% (2021 was down 2%). New England and New York prices were flattish in 2021/2022.
This morning (01/21/20), Elliott Mgmt. disclosed a 5% stake in EVRG and issued a letter to the Board (link). At a high level, the Elliott plan is simple and mirrors a lot of what investors have been harping on – cost cuts, accelerated coal shutdowns, renewables build-out, and grid investments in MO. Elliott sees this as achievable via standalone-basis or merger with a strategic partner, but new Board/mgmt. involvement is necessary. EVRG’s response acknowledged openness to value-creation opportunities, but confidence in its existing plan. The stock closed up 2% on the day – a muted response considering Elliott’s past involvement in the sector, resulting in outperformance (see Exhibit 8).
From our investor meetings and surveys, most seem to agree with our underweight utilities view. Nonetheless, the sector is keeping pace with a strong bull market YTD and most investors are asking why? We think: 1) Rates are staying stubbornly low – 1.8% on the 10-yr; 2) Protection from risk of a market correction; 3) Protection from the risk that Trump has a setback and the Presidential race gets closer; and 4) Utilities are momentum stocks now. On the last point, utilities became the second highest weighting after Tech in the ishares MSCI Momentum ETF (MTUM) in December. We wonder if this means they won’t be that defensive if the market corrects.
We thought NI could get past the 2018 Mass. gas explosion last year, but more operational concerns and lingering regulatory and B/S issues got in the way. We like the risk/reward here and see 2020 as a de-risking year for NI as it removes equity overhang and resolves lingering MA reviews. But it’s not just de-risking – we think NI has upward bias to its 5-7% EPS growth rate long-term, with visibility on renewables opportunities at NIPSCO coming into view later this year. NI currently trades at a full turn discount to the electric average; we see potential to re-rate closer to its historic 5-10% premium as these catalysts play out.
- 1 of 249
- next →