Fitch: Mild Winter Hurts First-Quarter US Utility Earnings

NEW YORK & CHICAGO--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: U.S. Utilities: Mild Winter Hurts Earnings (First-Quarter 2016 Earnings Calls Wrap-Up)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882399

Exceptionally warm winter weather hurt first-quarter 2016 US utility earnings, according to Fitch Ratings. The lack of winter was especially stark as it followed a colder-than-usual winter the previous year.

Median earnings slipped by 4% during the first quarter from a year earlier for Fitch's sample of utilities, power & gas companies, but most utilities expect to make up the earnings shortfall before year end by controlling operating costs, a reasonable assumption in Fitch's opinion. All but six companies under Fitch's coverage affirmed their 2016 guidance and only one lowered the midpoint of its guidance due to weaker operating performance.

The decline in industrial sales, observed throughout 2015, extended into the first quarter, mainly driven by the impact of the soft global economy and strong US dollar on the export-oriented industries and metals and mining sectors. The downturn in steel production and coal mining caused sharp decline in industrial load in Appalachia and Missouri while service areas with significant shale activities still reported positive year-on-year growth despite the low oil and gas commodity prices.

Industry consolidation continues unabated despite the regulatory hurdles as companies seek to deliver mid-single-digit earnings growth in a flattish demand load environment. A handful of mergers crossed the finish line in the quarter including Exelon Corp.'s acquisition of Pepco Holdings, Inc. The respective management teams remain confident that Southern Co.'s acquisition of AGL Resources, Inc. and Duke Energy Corp.'s acquisition of Piedmont Natural Gas Co., Inc. will close prior to year-end 2016. Four additional acquisitions have been announced thus far this year, which include acquisitions of Empire District Electric Co., ITC Holdings Corp, Questar Corp and Westar Energy, Inc.

Efforts by some hybrid merchant generators to obtain regulatory and/or legislative support to continue operating economically challenged merchant nuclear and coal capacity are polarizing the industry. Lobbying intensified as power prices hit new record lows and the stay of the Clean Power Plan delays any potential relief from carbon constraints. Programs to assist nuclear assets in New York are progressing at a relatively smooth pace, but retail rate riders to support coal-fired assets in Ohio hit another roadblock, namely an adverse FERC decision, shortly after receiving approval by the state commission.

For more takeaways from first-quarter 2016 earnings calls, please see Fitch's special report titled "U.S. Utilities: Mild Winter Hurts Earnings," which is available on our website at www.fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160601006285/en/

Fitch Ratings
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Source: Fitch Ratings

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