Search Coverage List, Models & Reports

Quietly our Wolfe Yieldco Index has become the top income sector YTD and the only one beating the S&P 500 (see Ex 1). Yieldcos have overcome the huge uncertainty caused by PCG’s bankruptcy filing in January.  Why have they done so well?  1) long-term contracts that are not subject to ROE resets like utilities so should benefit directly as interest rates fall; 2) the neighborhood improved meaningfully as parent companies changed from distressed owners to higher-quality parents (SunEdison to Brookfield, Abengoa to Algonquin, NRG to Global Infrastructure Partners); 3) Its Renewables stupid – the top growth space in energy with huge economic and tax subsidy momentum. While we are a bit wary of competition and financial discipline in renewables, we think the backdrop remains bullish. There is no better way to play all of this than NEP given their connection to industry leader NEE, huge growth backlog, cost-of-capital advantages and visibility on 15% dividend growth for at least the next 5 y

We met with SO mgmt and toured its Vogtle nuclear project in GA. Mgmt said Vogtle is progressing on track and the site was bustling with activity, workers welding, cranes lifting and a lot of equipment in place. From the untrained eye, much has been done but there appears to be much work left. SO sees peak construction from Aug to Mar, with 75 new people added weekly to the 4600 already on site. SO has several different paths to achieve in-service by the regulatory-approved schedule of Nov 2021/22 for Units 3/4. And its “chase” date is May 2021/22, though that appears unlikely. Given its progress and confidence, further overruns may be limited. But we think that is reflected in the stock’s 1250bp of outperformance YTD. With the likely adversarial Staff report imminent, we take a wait-and-see approach on the stock.

Utilities rose 3% in June on the back of continued declines in L-T rates.  But the market left utilities in the dust rising 7% for the month.  The S&P 500 is now up 17.3% for the first half of 2019, the best performance since 1997.  Utilities have held their own up 12.8%, but still trail by 450bps.  At least so far, it appears that lower interest rates are helping the broader market more than utilities.  Lower rates are a double-edged sword for utilities (see our recent report), as they can lead to lower allowed ROEs in rate cases.  Several of the more near-term exposed companies – PNW, CNP, AGR, ED and AEE – were among the worst performers last month. 

Utilities

CAL Watch – Sen Dodd hints at a wildfire fund of $25-50B
CAL Watch – Bill states property losses from fires; costs for 2018 fires appear higher than last update
PCG – Settles with 14 public entities for $1B related to past wildfires; good step
PCG – CPUC seeks comments on proposals to improve safety culture
EIX – Debt issuance pricing reflects wildfire, downgrade risk
SO – GA Court of Appeals hears arguments from advocacy groups against Vogtle
ES – Settlement on temporary rate increase in NH rate case
PEG – Gas explosion at Ridgefield New Jersey home causes 1 fatality; under investigation
POR – OR bill to boost EV adoption heads to Gov; Cap-and-trade bill passes House, heads to the Senate
AWK – AWK in Europe…like selling water in a desert

Midstream

ENB – Minnesota agencies slow Line 3 Replacement permit review process; not a big surprise
Midstream – Canadian Prime Minister Trudeau approves Trans Mountain pipe expansion; expected