Business Segmentation

Transcription

1 Business Segmentation Q FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. SHAREHOLDER-OWNED ELECTRIC UTILITY INDUSTRY

2 About EEI The Edison Electric Institute is the association of U.S. shareholderowned electric companies. Our members serve 95% of the ultimate customers in the shareholder-owned segment of the industry, and represent approximately 70% of the U.S. electric power industry. We also have 79 international electric companies as Affiliate members and more than 190 industry suppliers and related organizations as Associate members. About EEI s Quarterly Financial Updates EEI s quarterly financial updates present industry trend analyses and financial data covering 61 U.S. shareholder-owned electric utility companies. These 61 companies include 56 electric utility holding companies whose stocks are traded on major U.S. stock exchanges and eleven electric utilities who are subsidiaries of nonutility or foreign companies. Financial updates are published for the following topics: We Welcome Your Feedback EEI is interested in ensuring that our financial publications and industry data sets best address the needs of member companies and the financial community. We welcome your comments, suggestions and inquiries. Contact: Mark Agnew Director, Financial Analysis (202) , magnew@eei.org Aaron Trent Manager, Financial Analysis (202) , atrent@eei.org Erin Hailes Financial Assistant (202) , ehailes@eei.org Dividends Stock Performance Credit Ratings Construction Rate Case Summary SEC Financial Statements (Holding Companies) FERC Financial Statements (Regulated Utilities) Fuel For EEI Member Companies The EEI Finance and Accounting Division is developing current year and historical data sets that cover a wide range of industry financial and operating metrics. We look forward to serving as a resource for member companies who wish to produce customized industry financial data and trend analyses for use in: Investor relations studies and presentations Internal company presentations Performance benchmarking Peer group analyses Annual and quarterly reports to shareholders Edison Electric Institute 701 Pennsylvania Avenue, N.W. Washington, D.C

3 The 61 U.S. Shareholder-Owned Electric Utilities The companies listed below all serve a regulated distribution territory. Other utilities, such as transmission provider ITC Holdings, are not shown below because they do not serve a regulated distribution territory. However, their financial information is included in relevant EEI data sets, such as transmission-related construction spending. ALLETE, Inc. (ALE) Alliant Energy Corporation (LNT) Ameren Corporation (AEE) American Electric Power Company, Inc. (AEP) Avista Corporation (AVA) Black Hills Corporation (BKH) CenterPoint Energy, Inc. (CNP) Central Vermont Public Service Corporation (CV) CH Energy Group, Inc. (CHG) Cleco Corporation (CNL) CMS Energy Corporation (CMS) Consolidated Edison, Inc. (ED) Constellation Energy Group, Inc. (CEG) Dominion Resources, Inc. (D) DPL, Inc. (DPL) DTE Energy Company (DTE) Duke Energy Corporation (DUK) Edison International (EIX) El Paso Electric Company (EE) Empire District Electric Company (EDE) Energy East Corporation Energy Future Holdings Corp. (formerly TXU Corp.) Entergy Corporation (ETR) Exelon Corporation (EXC) FirstEnergy Corp. (FE) Great Plains Energy Incorporated (GXP) Hawaiian Electric Industries, Inc. (HE) IDACORP, Inc. (IDA) Integrys Energy Group, Inc. (TEG) IPALCO Enterprises, Inc. MDU Resources Group, Inc. (MDU) MGE Energy, Inc. (MGEE) MidAmerican Energy Holdings Company NextEra Energy, Inc. (NEE) NiSource Inc. (NI) Northeast Utilities (NU) NorthWestern Corporation (NWE) NSTAR (NST) NV Energy, Inc. (NVE) OGE Energy Corp. (OGE) Otter Tail Corporation (OTTR) Pepco Holdings, Inc. (POM) PG&E Corporation (PCG) Pinnacle West Capital Corporation (PNW) PNM Resources, Inc. (PNM) Portland General Electric Company (POR) PPL Corporation (PPL) Progress Energy (PGN) Public Service Enterprise Group Inc. (PEG) Puget Energy, Inc. SCANA Corporation (SCG) Sempra Energy (SRE) Southern Company (SO) TECO Energy, Inc. (TE) UIL Holdings Corporation (UIL) UniSource Energy Corporation (UNS) Unitil Corporation (UTL) Vectren Corporation (VVC) Westar Energy, Inc. (WR) Wisconsin Energy Corporation (WEC) Xcel Energy, Inc. (XEL)

4 Companies Listed by Category (as of 12/31/09) Please refer to the Quarterly Financial Updates webpage for previous years lists. iven the diversity of utility holding company corporate G strategies, no single company categorization approach will be useful for all EEI members and utility industry analysts. Never-theless, we believe the following classification provides an informative framework for tracking financial trends and the capital markets response to business strategies as companies depart from the traditional regulated utility model. Regulated Mostly Regulated Diversified 80%+ of total assets are regulated 50% to 80% of total assets are regulated Less than 50% of total assets are regulated Categorization of the 58 publicly traded utility holding companies is based on year-end business segmentation data presented in 10Ks, supplemented by discussions with company IR departments. Categorization of the five non-publicly traded companies (shown in italics) is based on estimates derived from FERC Form 1 data and information provided by parent company IR departments. The EEI Finance and Accounting Division continues to evaluate our approach to company categorization and business segmentation. In addition, we can produce customized categorization and peer group analyses in response to member company requests. We welcome comments, suggestions and feedback from EEI member companies and the financial community. Regulated (38 of 63) ALLETE, Inc. Alliant Energy Corporation Ameren Corporation American Electric Power Company, Inc. Avista Corporation Central Vermont Public Service Corporation CH Energy Group, Inc. Cleco Corporation CMS Energy Corporation Consolidated Edison, Inc. DPL, Inc. DTE Energy Company El Paso Electric Company Empire District Electric Company Energy East Corporation Great Plains Energy Incorporated IDACORP, Inc. IPALCO Enterprises, Inc. Maine & Maritimes Corporation Northeast Utilities NorthWestern Energy NSTAR NV Energy, Inc. PG&E Corporation Pinnacle West Capital Corporation PNM Resources, Inc. Portland General Electric Company Progress Energy Puget Energy, Inc. Southern Company TECO Energy, Inc. UIL Holdings Corporation UniSource Energy Corporation Unitil Corporation Vectren Corporation Westar Energy, Inc. Wisconsin Energy Corporation Xcel Energy, Inc. Mostly Regulated (20 of 63) Allegheny Energy, Inc. Black Hills Corporation CenterPoint Energy, Inc. Dominion Resources, Inc. Duke Energy Corporation Edison International Entergy Corporation Exelon Corporation First Energy Corp. Integrys Energy Group MGE Energy, Inc. MidAmerican Energy Holdings NextEra Energy, Inc. NiSource Inc. OGE Energy Corp. Otter Tail Corporation Pepco Holdings, Inc. Public Service Enterprise Group, Inc. SCANA Corporation Sempra Energy Diversified (5 of 63) Constellation Energy Group, Inc. Energy Future Holdings Hawaiian Electric Industries, Inc. MDU Resources Group, Inc. PPL Corporation Note: Based on assets at 12/31/09

5 Q Business Segmentation COMMENTARY Revenue increased in 2010 for the two largest business segments, Regulated Electric and Competitive Energy, and fell for two of the three natural gas-related businesses. Assets grew for each of the industry s five primary business lines. Continuing a multi-year trend, the industry moved to a more regulated asset base in The Regulated Electric segment, which grew to a 62.8% share of total assets, provided most of the industry s asset growth. Regulated Electric revenue increased 2.4% due largely to favorable summer weather, recovering from a 4.4% decline in 2009 due to the severe economic recession, unfavorable weather and the impact of lower natural gas prices on the fuel component of rates. Natural Gas Distribution revenue fell $1.5 billion, the largest decline of all business segments in dollar terms Revenue by Segment Regulated Electric revenue rose by $5.6 billion, or 2.4%, to $241.4 billion from $235.8 billion in The segment s share of total industry revenue grew to 62.2% from 61.5% in 2009, well above the 52.1% of Natural Gas Distribution revenue decreased $1.5 billion, or 3.6%, from $41.7 billion in 2009 to $40.3 billion in Natural gas distribution revenue has historically fluctuated due to significant swings in natural gas prices. Total regulated revenue the sum of the Regulated Electric and Natural Gas Distribution segments rose $4.1 billion, or 1.5%, to $281.7 billion. Total regulated revenue decreased by $20.6 billion, or 6.9%, in 2009, after rising by $22.5 billion, or 7.7%, in 2008 and by $14.4 billion, or 5.2%, in Regulated operations accounted for 72.6% of total industry revenue in 2010, just above the 72.4%, 68.3%, 69.0% and 68.9% levels in 2009, 2008, 2007 and 2006 respectively, up from 65.3% in Chart III presents the industry s revenue breakdown by business segment. I. Revenue Distribution 2010 Natural Gas and Oil E&P, 0.5% Other, 3.2% Natural Gas Pipeline, 1.3% Natural Gas Distribution, 10.4% Competitive Energy, 22.4% Source: EEI Finance Department and company reports. II. Asset Distribution at December 31, 2010 Other, 9.4% Natural Gas and Oil E&P, 0.4% Natural Gas Pipeline, 2.2% Natural Gas Distribution, 8.1% Competitive Energy, 17.0% 62.2% 62.8% 1 Source: EEI Finance Department and company reports.

6 2 BUSINESS SEGMENTATION III. Revenue by Business Segment ($ Millions) $ Change % Change Regulated Electric 241, ,794 5, % Competitive Energy 86,988 85,962 1, % Natural Gas Distribution 40,252 41,740 (1,489) -3.6% Natural Gas Pipeline 5,139 5,338 (199) -3.7% Natural Gas and Oil Exploration & Processing 1,862 1, % Other 12,236 12,875 (639) -5.0% Eliminations/Reconciling Items (16,905) (17,859) % Total Revenue 370, ,422 5, % Source: EEI Finance Department and company reports. (r) = revised IV. Assets by Business Segment ($ Millions) 12/31/ /31/2009 $ Change % Change 12/31/2008 $ Change % Change Regulated Electric 754, ,408 31, % 713,913 40, % Competitive Energy 204, , % 201,772 2, % Natural Gas Distribution 96,971 89,585 7, % 103,773 (6,802) -6.6% Natural Gas Pipeline 26,618 24,625 1, % 23,675 2, % Natural Gas and Oil Exploration & Processing 4,730 4, % 5,435 (705) -13.0% Other 113, ,588 (5,315) -4.5% 131,655 (18,382) -14.0% Eliminations/Reconciling Items (73,170) (68,857) (4,313) 6.3% (75,282) 2, % Total Assets 1,127,515 1,096,293 31, % 1,104,940 22, % Source: EEI Finance Department and company reports Assets by Segment Regulated Electric assets increased from 62.1% of total industry assets at December 31, 2009 to 62.8% at December 31, 2010, increasing by $31.1 billion, or 4.3%, over the yearend 2009 level. Competitive Energy assets were nearly unchanged, up only $157 million, or 0.1%, while the three natural gas-related categories showed the highest percent growth of all business segment categories. Total regulated assets (Regulated Electric plus Natural Gas Distribution) accounted for 70.9% of total industry assets at year-end 2010, up from 69.8% on December 31, This aggregate measure has grown steadily from 61.6% at year-end 2002, underscoring the significant regulated rate base growth in recent years and the fact that several companies sold off non-core businesses during the period, often using proceeds to pay down debt.. Regulated Electric Regulated Electric segment operations include the generation, transmission and distribution of regulated electricity to residential, commercial and industrial customers. Forty-five companies, or 73% of the industry, had higher regulated electric revenue in 2010, with 15 companies, or 24%, experiencing double-digit percentage increases. The revenue increase was driven by favorable weather and a recovering economy. U.S. electric output grew 3.7% in 2010 after falling 3.7% in 2009 and 0.9% in The economic downturn, unfavorable year-to-year weather and lower natural gas prices drove the sharp decline in Year-to-year output declines are very rare events for an industry that typically experiences low single-digit annual percentage demand growth. Each of the country s geographic regions experienced hotter-than-normal summer weather in This is reflected in the aggregate 22% increase in cooling degree days in 2010, which was also 22% above the historical average. During 2010, 58% of companies increased regulated assets as a percentage of total assets (or maintained a 100% regulated structure). PPL Corp. raised its regulated percentage from 42% on December 31, 2009 to 62% on December

7 BUSINESS SEGMENTATION 3 V. Revenue Distribution (2009 and 2008) Natural Gas and Oil E&P, 0.4% Other, 3.4% Natural Gas Pipeline, 1.4% Natural Gas and Oil E&P, 0.5% Other, 4.0% Natural Gas Pipeline, 1.4% Natural Gas Distribution, 10.9% 61.5% Natural Gas Distribution, 11.9% 56.7% Competitive Energy, 22.4% Competitive Energy, 25.5% % of Total, Year Ending 12/31/2009 % of Total, Year Ending 12/31/2008r Source: EEI Finance Department and company reports. / r = revised VI. Asset Distribution (2009 and 2008) Natural Gas and Oil E&P, 0.4% Other, 10.2% Natural Gas and Oil E&P, 0.5% Other, 11.2% Natural Gas Pipeline, 2.1% Natural Gas Pipeline, 2.1% Natural Gas Distribution, 7.1% Natural Gas Distribution, 7.6% Competitive Energy, 17.5% 62.1% 61.2% Competitive Energy, 17.4% % of Total, at 12/31/2009 % of Total, at 12/31/2008 Source: EEI Finance Department and company reports. / r = revised 31, 2010, moving it from the Diversified to the Mostly Regulated group. The change is due mostly to the company s acquisition of E.ON U.S., consisting of Kentucky Utilities and Louisville Gas & Electric. Announced on April 28, 2010, the acquisition closed about six months later. PPL anticipates that the two utilities, which operate in the constructive Kentucky regulatory environment, will diminish its overall business risk, lead to improved access to capital, strengthen its credit profile and lead to solid, investment-grade credit ratings in each of its businesses. To further its strategy of becoming a more regulated company, PPL announced and completed the acquisition of E.ON UK s Central Networks electricity distribution business in early The purchase of the United Kingdom s second-largest electric distribution business raises PPL s regulated asset percentage even higher. Only one other company, Integrys Energy Group, showed a 10% or higher increase in regulated assets as a percent of total assets for Integrys regulated assets grew

8 4 BUSINESS SEGMENTATION from 67% to 83% of total assets through a restructuring that reduced the size and scope of its non-regulated marketing and energy services businesses. Two major sales were completed in 2010 as part of this restructuring (see details at end of this section). In 2009, Integrys increased its regulated asset percentage from 56% to 67%, also due to a reduction in its non-regulated energy services assets. Competitive Energy Competitive Energy segment revenue increased 1.2% in 2010, rising $1.0 billion to $87.0 billion from $86.0 billion in The rise in overall electric sales due to favorable weather was offset by continued weak electricity prices. In 2009, Competitive Energy revenue decreased by $24.9 billion, or 22.5%, due to weaker electricity prices and lower sales volumes resulting from the economic downturn and unfavorable summer weather. Competitive Energy covers the generation and/or sale of electricity in competitive markets, including both wholesale and retail transactions. Wholesale buyers are typically electric utilities seeking to supplement generation capacity, along with regional power pools and large industrial customers. Competitive Energy also includes the trading and marketing of natural gas. Of the 36 companies that have Competitive Energy operations, 25, or 69%, increased these asset amounts during 2010, while 23 companies or 64% had revenue gains.. Natural Gas Distribution Natural Gas Distribution revenue fell by $1.5 billion, or 3.6%, in 2010, due to milder winter weather represented by a 27% decline in heating degree days across the U.S. Natural gas prices, which remained depressed at around $4/mm BTU for the second straight year, had much less of an impact on the change in revenue. Revenue fell by a much larger $9.8 billion, or 19.1%, in 2009 due to falling gas prices and the impact of the economic downturn. Natural gas prices peaked above $12/mm/BTU in a very volatile Heating degree days were relatively unchanged between 2008 and Overall, 24 of the 32 companies (75%) that report Natural Gas Distribution revenue showed year-to-year revenue declines in In comparison, 91% of companies had declines in natural gas delivery revenues in 2009, and 89% experienced gains in Natural Gas Distribution includes the delivery of natural gas to homes, businesses and industrial customers throughout the United States, while the Natural Gas Pipeline business concentrates on the transmission and storage of natural gas for local distribution companies, marketers and traders, electric power generators and natural gas producers. Added together, Natural Gas Distribution, Natural Gas Pipeline and Exploration & Processing (E&P) activities produced $47.3 billion of the industry s revenue in 2010, down from $48.6 billion in In percentage terms, the revenue contribution from natural gas activities remained relatively unchanged, falling from 12.7% in 2009 to 12.2% in The Natural Gas Pipeline and Natural Gas E&P segments have accounted for a declining share of total industry assets in recent years. This is due to a combination of growth in the other business segments and divestitures within these two segments. Natural Gas Pipeline and Natural Gas E&P fell from 3.7% and 2.1% shares on December 31, 2003 to 2.2% and 0.4% on December 31, 2010, with their combined total assets down by $19.3 billion, or 38%, over this sevenyear time frame Year-End List of Companies by Category Early each calendar year, we create a new list of shareholderowned electric utility holding companies by business category based on year-end business segmentation data presented in 10Ks and supplemented by discussions with parent companies. Our categories are as follows: Regulated (80% of holding company assets are regulated); Mostly Regulated (50%-79% of holding company assets are regulated); Diversified (less than 50% of holding company assets are regulated). We use assets rather than revenue for determining categories because we think assets provide a clearer picture of strategic trends. In recent years, fluctuating natural gas prices impacted revenue so greatly that some companies strategic approach to business segmentation was distorted by reliance on revenue data alone. Comparing the list of companies from year to year reveals company migrations between categories and indicates the general trend in industry business models. We also base our quarterly category financial data during the year on this list at the previous year end. The overall trend towards a more regulated industry continued in The Regulated group totaled 39 companies at year-end 2010, one more than at year-end Integrys Energy moved to the Regulated category from the Mostly Regulated, the result of a restructuring plan to reduce the size and scope of its non-regulated marketing and energy services operations. This included the sale of nearly all its wholesale electric marketing and trading business to Macquarie Cook Power in April and the sale of its Texas retail electric marketing business in June. By the end of 2010, 83% of Integrys assets were regulated, compared with 67% on December 31, Entergy also jumped to the Regulated category, after edging up to the 80% cut-off in recent years. Entergy s regulated asset ratio increased from 79.5% at yearend 2009 to 80.3% at year-end Maine and Maritimes dropped out of this group, as it was acquired by Canadianowned Emera, Inc. in December The only other change in 2010 relates to PPL Corp., which moved from the Diversified group to the Mostly Regulated group with an increase in its regulated asset per-

9 BUSINESS SEGMENTATION 5 centage from 42% to 62%. Most of this change came from the company s acquisition in November 2010 of E.ON U.S., the parent company of Kentucky s two major utilities, Louisville Gas & Electric and Kentucky Utilities Company. With these overall changes, the Mostly Regulated and Diversified Groups each had a net loss of one company from 2009, the Mostly Regulated falling to 19 companies and the Diversified to only four companies. List of Companies by Category at December 31, 2010 Regulated (39 of 62) ALLETE, Inc. Alliant Energy Corporation Ameren Corporation American Electric Power Company, Inc. Avista Corporation Central Vermont Public Service Corporation CH Energy Group, Inc. Cleco Corporation CMS Energy Corporation Consolidated Edison, Inc. DPL, Inc. DTE Energy Company El Paso Electric Company Empire District Electric Company Energy East Corporation Entergy Corporation Great Plains Energy Incorporated IDACORP, Inc. Integrys Energy Group IPALCO Enterprises, Inc. Northeast Utilities NorthWestern Energy NSTAR NV Energy, Inc. PG&E Corporation Pinnacle West Capital Corporation PNM Resources, Inc. Portland General Electric Company Progress Energy Puget Energy, Inc. Southern Company TECO Energy, Inc. UIL Holdings Corporation UniSource Energy Corporation Unitil Corporation Vectren Corporation Westar Energy, Inc. Wisconsin Energy Corporation Xcel Energy, Inc. Mostly Regulated (19 of 62) Allegheny Energy, Inc. Black Hills Corporation CenterPoint Energy, Inc. Dominion Resources, Inc. Duke Energy Corporation Edison International Exelon Corporation First Energy Corp. MGE Energy, Inc. MidAmerican Energy Holdings NextEra Energy, Inc. NiSource Inc. OGE Energy Corp. Otter Tail Corporation Pepco Holdings, Inc. PPL Corporation Public Service Enterprise Group, Inc. SCANA Corporation Sempra Energy Diversified (4 of 62) Constellation Energy Group, Inc. Energy Future Holdings Hawaiian Electric Industries, Inc. MDU Resources Group, Inc.