Frugal Utilities Rise to Top in Annual Financial Ranking

But cap-ex trends shifting with economic, regulatory outlook.

VIENNA, Va., Sept. 2 /PRNewswire/ -- America's power and gas companies cut capital spending in 2009 by more than 10 percent compared to 2008, according a closely watched report published in the September issue of Public Utilities Fortnightly magazine (www.fortnightly.com). However, the report also explains that as regulatory and economic uncertainties diminish during 2010 and 2011, many companies are resuming major construction programs that were delayed during the recession.

The sixth-annual Fortnightly 40 Report, sponsored by Accenture, ranked the four-year shareholder value performance of U.S. investor-owned utilities (IOUs) and merchant power companies. The C Three Group of Atlanta, which along with Public Utilities Fortnightly developed the F40 financial model, analyzed the annual reports of 84 power and gas companies to compare a series of shareholder-value metrics -- such as profit margin, dividend yield, return on equity (ROE), return on assets (ROA) and sustainable growth.

Among the F40 study's results, the report showed that cumulative capital expenditures among all 84 companies in the survey declined by nearly $10 billion from 2008 to 2009, with a corresponding improvement in free cash flow. As a whole the industry's cap-ex totaled $83.9 billion in 2009, versus the previous year's expenditure of $93.8 billion. Accordingly, the average F40-ranked company in 2009 generated $300 million in free cash, compared to negative-$100 million in 2008.

Despite the industry's cap-ex retrenchment through 2009, rebounding electricity sales and a stabilizing economic outlook subsequently have allowed some companies to expedite projects that previously were deferred, according to Jean Reaves Rollins, managing partner with the C Three Group. "Well over 10,000 MW of new generating capacity has been announced or placed in the licensing process in the past 12 months," she said. "We expect to see more announcements as the implications of clean air standards become clearer."

F40-ranked Dominion Resources (#9) provides an example; CFO Mark McGettrick told Fortnightly the company purchases more wholesale electricity than almost every other utility in America, but nonetheless the company is proceeding cautiously with construction plans. "We have a lot of catching up to do on the generation side," McGettrick said. "We have a construction plan through 2012 … but environmental regulations are a moving target, particularly regarding CO2 emissions." He said Dominion is "taking a wait-and-see approach" toward investments affected by potential changes in federal environmental and energy policies.

"The industry is in a holding pattern, but the end is in sight," said Michael T. Burr, Public Utilities Fortnightly's editor-in-chief and author of the F40 report. "Companies are waiting to see what happens with the economy and with shale-gas developments. They're waiting on the outcome of elections in November, and they're waiting for energy policy leadership from Washington. Once we get clarity on those issues, we'll know whether the Big Build is returning."

The 2010 Fortnightly 40 Ranking

Companies leading the F40 ranking in 2010 included DPL, Exelon and Energen. Ranked among the top 10 companies for the first time was Mirant (#4) -- which recently agreed to be acquired by RRI Energy. And NRG Energy jumped into the 11^th position after appearing in the top 40 rankings (#32) for the first time last year.

In other trends, Southern Company and Edison International -- both of which increased their cap-ex budgets substantially in 2009 and produced negative cash flow at least two years in a row -- dropped to the bottom half of the F40, after previously holding strong positions in the top 15. And volatility in natural gas prices sent rankings downward for some gas utilities, including Delta Natural Gas, Equitable Resources and New Jersey Resources.

Companies included in the 2010 F40 ranking include: AES Corp., AGL Resources, Allegheny Energy, Allete (Minnesota Power), Alliant, Centerpoint Energy, Constellation Energy, Delta Natural Gas, Dominion Resources (Virginia Power), DPL (Dayton Power & Light), DTE Energy (Detroit Edison), Edison International (Southern California Edison), El Paso Electric, Energen, Energy West, Entergy, Equitable Resources, Exelon (Commonwealth Edison, PECO), FirstEnergy, FPL Group (NextEra), MGE Energy, Mirant, National Fuel Gas, New Jersey Resources, Nicor, Northwest Natural Gas, NRG, NStar, OGE Energy, Piedmont Natural Gas, PPL, Public Service Enterprise Group, Questar, RGC Resources, Sempra Energy (San Diego Gas & Electric), South Jersey Industries, Southern Company, Southern Union, TECO Energy, UGI, WGL Holdings (Washington Gas Light)

"There's no homogeneous answer to what drives long-term performance," said Robert Laurens, senior executive in Accenture's utility practice. "The most successful companies are those that execute a strategy that's consistent with the company's core competencies and its market context—whether it's a regulated or non-regulated business."

A preview of the 2010 Fortnightly 40 Report, including the F40 rankings, is now publicly available at Fortnightly.com, with the full report available to subscribers. Free three-month trial subscriptions available online. Permission to cite the F40 table in whole or in part is granted to publications who acknowledge the source as follows:

Public Utilities Fortnightly magazine, September 2010 (www.fortnightly.com). Sponsored by Accenture, with methodology and analysis provided by the C Three Group.

PUBLIC UTILITIES FORTNIGHTLY (www.fortnightly.com), published by Public Utilities Reports Inc., in Vienna, Va., is the journal of record for the U.S. utility industry, providing authoritative, in-depth analysis of trends in generation, transmission and distribution of electricity and natural gas. For more than 80 years, Public Utilities Fortnightly has delivered exclusive interviews and expert analysis to help utility-industry executives and regulators decide where to invest, how the industry will be regulated and what the future holds. Subscription rate: $287/year.

SOURCE Public Utilities Reports, Inc.