Fitch Publishes 2Q15 Earnings Wrap-Up for U.S. Utilities

NEW YORK--()--Earnings for electric and gas utilities continued their steady growth in second-quarter 2015 (2Q15). On a year-over-year basis, the median 2Q earnings per share (EPS) and YTD EPS grew by 4% and 3%, respectively, for Fitch Ratings' sample of electric and gas utility companies, despite mostly unfavorable weather comparisons due to an unusually cold winter in early 2014, as shown in Fitch's new report.

Earnings Guidance Affirmed or Increased: The majority of utilities in Fitch's study affirmed their full-year 2015 EPS guidance, and nearly one-fifth of the utilities increased their guidance. Strong financial results during 1H15 and expectations for good performance for the remainder of 2015 prompted the increased EPS guidance. Weather normalization, constructive rate outcomes, cost controls, and relatively modest net sales growth continue to be embedded in 2015 expectations.

Stable Financial Metrics: Key financial metrics across the utilities, power and gas sector remain broadly in line with Fitch's expectations. Continued low interest rates and refinancing of higher-cost maturing debt have kept coverage ratios healthy. Competitive generation companies showed mixed results, with FFO-based ratios moderately weaker and EBITDAR-based ratios stronger compared with 2014 year-end ratios.

Flat Retail Electric Sales: According to the U.S. Energy Information Administration (EIA), total retail electric sales nationwide increased 0.1% in 2Q15 compared to the prior year. Commercial electric sales increased 0.5%, while residential and industrial electric sales each decreased 0.2%. The flat overall retail electric sales growth was a positive change from declines in sales the previous few quarters. Record warm weather along the coasts may have overcome relatively cool spring weather in the middle of the country to provide a beneficial impact on retail electric sales.

Industrial Demand Weakens: After several quarters of strong industrial electric sales, 2Q15 showed signs of weakness. Mediocre economic growth had been supported predominantly by oil and gas shale drilling activity, which has since slowed down as a result of the dramatic drop in oil prices that began in 4Q14. So far, low oil prices seem to have had a greater effect on oil and gas service companies and other industries that rely on energy sector capex. Weak demand at chemical, steel, and pipeline companies has decreased utilities' industrial electric sales. However, residential and commercial load growth is still evident in service territories exposed to oil and gas production.

Merchant Generators Affirm Guidance: Most merchant generation companies performed better during 2Q15 than the prior year. Higher capacity factors and higher hedged-energy prices benefited many generators, and independent power producers (IPPs) all reaffirmed the midpoint of their full-year adjusted EBITDA guidance. Less liquidity in the traded wholesale markets over the last couple of years continues to pose a challenge for hedging, yet some IPPs may have found a natural hedge through their retail energy marketing businesses.

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Additional information is available on www.fitchratings.com

U.S. Utilities: Winning at Halftime (Second-Quarter 2015 Earnings Wrap-Up)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870481

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Contacts

Fitch Ratings
Kevin L. Beicke, CFA
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
+1-212-908-0618
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Kevin L. Beicke, CFA
Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
+1-212-908-0618
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com