Fitch: Solid 2Q for U.S. Utilities Ahead of Mild Summer
NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: A Bright Spot Before Summer Sluggishness
(2Q14 Earnings Calls Wrap-Up)
The recently concluded 2Q14 earnings season highlights the continuation of a strong earnings trend in the U.S. utilities sector, according to Fitch Ratings. The median earnings for Fitch's sample of utilities, power and gas companies grew by 7% over the same period last year. A majority of utility companies reaffirmed their 2014 earnings guidance, and a few indicated they could hit the upper end of the guidance range, a mild summer notwithstanding.
Key credit metrics across the sector remain on track and broadly in line with Fitch's expectations on a trailing 12-month basis. The funds flow from operations (FFO) fixed-charge coverage ratio continued to improve for the sector as a whole, boosted by utilities' refinancing initiatives and the low interest rates.
While mild weather affected residential and, to some extent, commercial sales, industrial sales continued to show improvement. Based on Energy Information Administration (EIA) data, the year-over-year change in industrial sales turned positive, albeit modestly, in 2Q14, the first positive uptick in the last eight quarters. A few companies, such as American Electric Power Company, Inc. (AEP) and FirstEnergy Corp. (FirstEnergy), noted a jump in industrial sales due to shale gas activity. Several utilities reported continued strength in natural gas deliveries from their local distribution companies (LDCs). The principal driver behind this trend has been the improving economy in certain states and customers switching from propane to natural gas.
Utilities continued to divert attention and investment dollars to transmission opportunities, having received further impetus with the implementation of Federal Energy Regulatory Commission (FERC) Order 1000. Many utilities have created new subsidiaries focused on transmission. FERC's recent order lowering the returns on equity (ROEs) for Northeast transmission companies has so far not dampened the utilities' enthusiasm to pursue transmission-related opportunities.
A special report, titled "A Bright Spot Before Summer Sluggishness," published today, discusses key takeaways from the second-quarter earnings conference calls.
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.