Q1_2008_FrontMatter

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Q1_2008_FrontMatter

  1. 1. Cash Flow Statement Q1 2008 FINANCIAL UPDATE QUARTERLY REPORT OF THE U.S. SHAREHOLDER-OWNED ELECTRIC UTILITY INDUSTRY
  2. 2. About EEI We Welcome Your Feedback The Edison Electric Institute is the association of U.S. shareholder- EEI is interested in ensuring that our financial publications and owned electric companies. Our members serve 95% of the ultimate industry data sets best address the needs of member companies customers in the shareholder-owned segment of the industry, and and the financial community. We welcome your comments, represent approximately 70% of the U.S. electric power industry. suggestions and inquiries. We also have 79 international electric companies as Affiliate mem- bers and more than 190 industry suppliers and related organiza- Contact: tions as Associate members. Mark Agnew Manager, Financial Analysis About EEI’s Quarterly Financial Updates (202) 508-5049, magnew@eei.org EEI’s quarterly financial updates present industry trend analyses Amanda Morey and financial data covering 70 U.S. shareholder-owned electric Financial Analyst utility companies. These 70 companies include 61 electric utility (202) 508-5526, amorey@eei.org holding companies whose stocks are traded on major U.S. stock exchanges and nine electric utilities who are subsidiaries of non- utility or foreign companies. Financial updates are published for Future EEI Finance Meetings the following topics: 43rd EEI Financial Conference November 9-12, 2008 Dividends Fuel Marriott Desert Ridge Stock Performance Income Statement Phoenix, Arizona Credit Ratings Balance Sheet Construction Cash Flow Statement Rate Case Summary Business Segmentation EEI International Financial Conference March 8-11, 2009 London Hilton on Park Lane For EEI Member Companies London, United Kingdom 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 For more information about EEI Finance Meetings, industry financial data and trend analyses for use in: please contact Debra Henry, (202) 508-5496, dhenry@eei.org 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. 20004-2696 202-508-5000 www.eei.org
  3. 3. The 70 U.S. Shareholder-Owned Electric Utilities Allegheny Energy, Inc. (AYE) FirstEnergy Corp. (FE) Public Service Enterprise Group Inc. ALLETE, Inc. (ALE) FPL Group, Inc. (FPL) (PEG) Alliant Energy Corporation (LNT) Great Plains Energy Incorporated (GXP) Puget Energy, Inc. (PSD) Ameren Corporation (AEE) Green Mountain Power Corporation SCANA Corporation (SCG) American Electric Power Company, Inc. Hawaiian Electric Industries, Inc. (HE) Sempra Energy (SRE) (AEP) IDACORP, Inc. (IDA) Sierra Pacific Resources (SRP) Aquila, Inc. (ILA) Ipalco Enterprises, Inc. Southern Company (SO) Avista Corporation (AVA) Integrys Energy Group, Inc. (TEG) TECO Energy, Inc. (TE) Black Hills Corporation (BKH) Kentucky Utilities ** UIL Holdings Corporation (UIL) CenterPoint Energy, Inc. (CNP) KeySpan Corporation (KSE) UniSource Energy Corporation (UNS) Central Vermont Public Service Louisville Gas and Electric ** Unitil Corporation (UTL) Corporation (CV) Vectren Corporation (VVC) Maine & Maritimes Corporation (MAM) CH Energy Group, Inc. (CHG) Westar Energy, Inc. (WR) MDU Resources Group, Inc. (MDU) Cleco Corporation (CNL) Wisconsin Energy Corporation (WEC) MGE Energy, Inc. (MGEE) CMS Energy Corporation (CMS) Xcel Energy, Inc. (XEL) MidAmerican Energy Company Consolidated Edison, Inc. (ED) Niagra Mohawk Power Corporation Constellation Energy Group, Inc. (CEG) Note: Includes the 61 shareholder-owned electric NiSource Inc. (NI) utility holding companies plus an additional 9 electric Dominion Resources, Inc. (D) utilities (shown in italics) that are not listed on U.S. Northeast Utilities (NU) DPL, Inc. (DPL) stock exchanges for one of the following reasons — NorthWestern Corporation (NWEC) i. they are a subsidiary of an independent power DTE Energy Company (DTE) producer, ii. they are a subsidiary of a foreign-owned NSTAR (NST) company, or iii. they were acquired by an investment Duke Energy Corporation (DUK) OGE Energy Corp. (OGE) firm. Stock symbols are shown in parentheses. Duquesne Light Holdings, Inc. *Portland General transitioned from private owner- Otter Tail Corporation (OTTR) Edison International (EIX) ship to become a publicly traded company on April Pepco Holdings, Inc. (POM) 3, 2006. The EEI Index includes Portland General El Paso Electric Company (EE) beginning on January 1, 2007. PG&E Corporation (PCG) Empire District Electric Company (EDE) **Kentucky Utilities and Louisville Gas and Electric, Pinnacle West Capital Corporation (PNW) both subsidiaries of E.ON AG, were added to the Energy East Corporation (EAS) PNM Resources, Inc. (PNM) EEI coverage universe effective January 1, 2007. Energy Future Holdings Corp. (formerly TXU EEI’s historical industry financial data now includes Portland General Electric Company their results. Corp.)^ (POR) * Entergy Corporation (ETR) ^TXU (now Energy Future Holdings Corp.) was PPL Corporation (PPL) acquired by the Texas Energy Future Holdings Exelon Corporation (EXC) Limited Partnership (TEF) on 10/10/2007. TEF was Progress Energy (PGN) formed by a group of investors led by Kohlberg Kravis Roberts and Texas Pacific Group to facilitate the merger.
  4. 4. Companies Listed by Category (as of 12/31/07) Please refer to the Quarterly Financial Updates webpage for previous years’ lists. G iven the diversity of utility holding company corporate strategies, no single company categorization approach will be useful for all EEI members and utility industry analysts. Never-the- Categorization of the 61 publicly traded utility holding compa- nies is based on year-end business segmentation data presented in 10Ks, supplemented by discussions with company IR departments. less, we believe the following classification provides an informative Categorization of the nine non-publicly traded companies (shown in framework for tracking financial trends and the capital markets’ italics) is based on estimates derived from FERC Form 1 data and response to business strategies as companies depart from the tradi- information provided by parent company IR departments. tional regulated utility model. The EEI Finance and Accounting Division continues to evaluate our approach to company categorization and business Regulated 80%+ of total assets are regulated segmentation. In addition, we can produce customized categoriza- Mostly Regulated 50% to 80% of total assets are regulated tion and peer group analyses in response to member company Diversified Less than 50% of total assets are regulated requests. We welcome comments, suggestions and feedback from EEI member companies and the financial community. Regulated (44 of 70) NorthWestern Energy First Energy Corp. ALLETE, Inc. NSTAR FPL Group, Inc. Ameren Corporation PG&E Corporation Integrys Energy Group American Electric Power Company, Inc. Pinnacle West Capital Corporation MidAmerican Energy Holdings Aquila, Inc. PNM Resources, Inc. NiSource Inc. Avista Corporation Portland General Electric Company OGE Energy Corp. Central Vermont Public Service Progress Energy Otter Tail Corporation Corporation Puget Energy, Inc. Pepco Holdings, Inc. CH Energy Group, Inc. Sierra Pacific Resources PPL Corporation Cleco Corporation Southern Company Public Service Enterprise Group, Inc. CMS Energy Corporation TECO Energy, Inc. SCANA Corporation Consolidated Edison, Inc. UIL Holdings Corporation DPL, Inc. UniSource Energy Corporation Diversified (7 of 70) Duquesne Light Holdings, Inc. Unitil Corporation Allegheny Energy, Inc. El Paso Electric Company Vectren Corporation Black Hills Corporation Empire District Electric Company Westar Energy, Inc. Constellation Energy Group, Inc. Energy East Corporation Wisconsin Energy Corporation Energy Future Holdings* Great Plains Energy Incorporated Xcel Energy, Inc. Hawaiian Electric Industries, Inc. Green Mountain Power Corporation MDU Resources Group, Inc. IDACORP, Inc. Mostly Regulated (19 of 70) Sempra Energy IPALCO Enterprises, Inc. Alliant Energy Corporation Kentucky Utilities CenterPoint Energy, Inc. Note: Based on assets at 12/31/07 KeySpan Corporation Dominion Resources, Inc. *TXU (now Energy Future Holdings Corp.) was acquired by the Texas Energy Future Holdings Louisville Gas and Electric DTE Energy Company Limited Partnership (TEF) on 10/10/2007. TEF was Maine & Maritimes Corporation Duke Energy Corporation formed by a group of investors led by Kohlberg Kravis Roberts and Texas Pacific Group to facilitate MGE Energy, Inc. Edison International the merger. Niagara Mohawk Power Corporation Entergy Corporation Northeast Utilities Exelon Corporation
  5. 5. Q1 2008 Cash Flow Statement HIGHLIGHTS I. Free Cash Flow U.S. Shareholder-Owned Electric Utilities ■m“Net Cash Provided by Operating Activities” in- $ Billions 10.0 3.8 creased by $1.8 billion, or 9.7%, to $20.7 billion in Q1 1.7 5.0 2008. - ■m“Net Cash Used in Investing Activities” increased by (5.0) (1.5) (1.5) 22.5%, rising from $15.4 billion in Q1 2007 to $18.9 bil- (10.0) (6.0) (6.6) lion in Q1 2008. The increase was due to a $1.8 billion, (15.0) or 10.7%, increase in capital expenditures and a $1.1 bil- (20.0) (14.8) (13.2) lion, or 7.5%, decrease in cash from asset sales. (25.0) (19.9) (24.1) ■mCapex is being impacted by rising construction costs. 07 08 00 01 02 03 04 05 06 07 20 20 20 20 20 20 20 20 20 20 According to the latest Handy-Whitman Index of Public Q1 Q1 Utility Construction Costs, construction costs have in- $ Billions Q1 Q1 2002 2003 2004 2005 2006 2007 2007 2008 creased at an average rate of 4.8% per year since 2000 for Net Cash Provided by transmission (for a total of 32%) and 5.4% per year for Operating Activities 56.3 57.0 58.1 50.2 69.4 61.7 18.9 20.7 — Capital distribution (for a total of 37%). Expenditures (49.0) (43.0) (41.1) (48.4) (59.9) (69.1) (16.4) (18.1) ■mEEI’s Finance Department is currently revising our — Dividends Paid to Common Shares (13.4) (12.3) (13.2) (15.1) (16.1) (16.6) (4.1) (4.1) capex projections based on the latest company data, and Free Cash Flow (6.0) 1.7 3.8 (13.2) (6.6) (24.1) (1.5) (1.5) expects to release updated figures for 2008-2010 in the Source: SNL Financial and EEI Finance Department / r = revised coming weeks. II. Capital Spending — Trailing 12 months COMMENTARY $ Billions U.S. Shareholder-Owned Electric Utilities 70.0 Net Cash Provided by Operating Activities 66.0 “Net Cash Provided by Operating Activities” increased by 62.0 $1.8 billion, or 9.7%, to $20.7 billion in Q1 2008. As shown 58.0 in Table IV, the key components of the change were a $3.1 54.0 billion increase in the cash contribution from “Change in 50.0 Working Capital” and a $447 million increase in “Net In- 46.0 come.” These were partially offset by a $1.9 billion decrease 42.0 in “Other Operating Changes in Cash”. The swing in 38.0 “Change in Working Capital” was led by Progress Entergy’s 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 $768 million move from negative $392 million last year to a Source: SNL Financial and EEI Finance Department 1 EEI Q1 2008 Financial Update
  6. 6. 2 CASH FLOW STATEMENT III. Net Change in Long-Term Debt IV. Consolidated Cash Flow Statement $ Billions U.S. Shareholder-Owned Electric Utilities U.S. Shareholder-Owned Electric Utilities 12.1 13.4 ($Millions) Q1 2008 Q1 2007 % Change 12.9 Cash Flows from Operating Activities: 12.0 6.3 Net Income 7,501 7,054 6.3 8.0 0.0 5.2 4.3 Depreciation and Amortization 9,278 8,991 3.2 1.9 1.8 4.0 -0.1 0.5 Deferred Taxes and Investment Credits 819 849 -3.5 Operating Changes in AFUDC (121) (69) 75.0 0.0 Change in Working Capital 1,931 (1,168) NM -4.0 -1.0 -0.4 -2.4 -0.3 Other Operating Changes in Cash 1,319 3,246 -59.4 -8.0 -5.0 -4.8 -6.2 Net Cash Provided by -6.9 Operating Activities 20,727 18,903 9.7 -12.0 -10.5 -10.0 Cash Flows from Investing Activities: 1 1 Q1 Q1 Q1 Q1 Q Q 07 08 Capital Expenditures (18,115) (16,365) 10.7 03 04 05 06 20 20 20 20 20 20 Asset Sales 13,997 15,140 -7.5 Source: SNL Financial and EEI Finance Department Asset Purchases (14,494) (14,453) 0.3 Note: Figures taken from Consolidated Balance Sheet Net Non-Operating Asset Sales and Purchases (497) 687 NM positive $376 million in Q1 2008. This was mostly due to a Change in Nuclear Decommissioning Trust (211) (255) -17.3 $331 million increase in cash provided from receivables, pri- Investing Changes in AFUDC 52 36 42.5 marily related to the settlement of $247 million of derivative Other Investing Changes in Cash (150) 453 NM receivables for Progress Energy’s former synthetic fuels busi- Net Cash Used in Investing Activities (18,921) (15,443) 22.5 nesses. Income taxes (net) also impacted the overall change, going from negative $237 million last year to a positive $60 Cash Flows from Financing Activities: Net Change in Short-term Debt (790) 355 NM million in the first quarter of 2008. The change was mostly Net Change in Long-term Debt 4,698 2,010 133.7 due to a $252 million tax payment in 2007 for the sale of the Proceeds from Issuance of Preferred Equity - - - company’s natural gas drilling and production business. Preferred Share Repurchases (132) (50) 162.9 Overall, the “Change in Working Capital” contribution was Net Change in Preferred Issues (132) (50) 162.9 higher for 56% of companies in the first quarter of 2008 Proceeds from Issuance of Common Equity 599 1,304 -54.0 Common Share Repurchases (697) (1,947) -64.2 versus the year ago period. Net Change in Common Issues (97) (643) -84.9 The contribution from “Other Operating Changes in Dividends Paid to Common Shareholders (4,109) (4,067) 1.0 Cash” declined from $3.2 billion in Q1 2007 to $1.3 billion Dividends Paid to Preferred Shareholders (21) (20) 3.9 in Q1 2008. The largest factor was CMS Energy’s net de- Other Dividends (163) (60) 173.4 crease of $784 million, from $521 million in Q1 2007 to a Dividends Paid to Shareholders (4,292) (4,146) 3.5 negative $263 million in Q1 2008. The 2007 results were Other Financing Changes in Cash (228) (220) 3.5 impacted by two primary adjustments, a $266 million loss on Net Cash (Used in) Provided by Financing Activities (842) (2,695) -68.7 the sale of assets and $242 million in impairment charges related to a natural gas business in Argentina, an electric gen- Other Changes in Cash (4) 50 NM erating plant in Jamaica, and CMS’ investment in Power- Cash and cash equivalents at Smith, a 124 MW natural gas power plant in Oklahoma. beginning of period 14,047 15,368 -8.6 Cash and cash equivalents at end of period 15,008 16,182 -7.3 Net increase (decrease) in cash Cash Flows from Investing Activities and cash equivalents 961 814 18.0 “Net Cash Used in Investing Activities” increased by 22.5%, Source: SNL Financial and EEI Finance Department / r= revised rising from $15.4 billion in Q1 2007 to $18.9 billion in Q1 2008. The increase was due to a $1.8 billion, or 10.7%, in- crease in capital expenditures and a $1.1 billion, or 7.5%, increased capex by 169%, from $68 million in Q1 2007 to decrease in cash from asset sales. $182 million in Q1 2008, with two-thirds of its 2008 total Overall, 75% of the shareholder-owned electrics in- related to Kansas City Power & Light’s Comprehensive En- creased their capital expenditures over last year’s first quar- ergy Plan. The plan was approved by the Missouri and Kan- ter, while Great Plains Energy, Otter Tail Power and sas commissions in 2005, and includes capital expenditures FirstEnergy had the largest percentage gains. Great Plains for new electricity generation from coal and wind; environ- EEI Q1 2008 Financial Update
  7. 7. CASH FLOW STATEMENT 3 mental upgrades at existing plants; investment in afforda- ■ Industry capex is projected to reach approximately bility, efficiency and demand response programs; and trans- $75 billion in 2008 and $75.5 billion in 2009. mission and distribution network improvements. Otter Tail’s ■ 2007’s total capital spending was allocated approxi- capex rose by 142%, from $24 million in 2007 to $58 million mately as follows: Generation, 31%; Distribution, in 2008. The company’s electric utility accounted for 73% of 30%; Environmental, 14%; Transmission, 12%; the increase, mainly for construction of wind generation at Natural Gas-related, 6%, Other, 7%. the Langdon Wind Energy Center. FirstEnergy recorded a ■ All components of capex are growing, with environ- 140% jump in capex, from $296 million in 2007 to $711 mil- mental spending growing at the fastest rate. Environ- lion in 2008. First Energy is projecting capex of $2.0 billion mental capex nearly doubled from 2005 to 2006. for all of 2008, a 36% increase over last year, and $5.6 billion in 2009-2012 for improvement of existing facilities and new EEI’s Finance Department is currently revising these generating capacity, environmental compliance, transmission figures based on the latest company data, and expects to re- and distribution lines, substations and other assets. lease updated projections for 2008-2010 in the coming Industry-wide capex began to rise in 2005, which saw weeks. the first significant full-year increase since the industry’s competitive generation build-out peaked in 2001 ($56.8 bil- Cash Flows from Financing Activities lion was spent on capex in 2001). The recent steady increase “Net Cash Used in Financing Activities” decreased by in capex is depicted in Table II. The $71.4 billion spent dur- 68.7%, from $2.7 billion in Q1 2007 to $842 million in Q1 ing the 12 months ending March 31, 2008 is $31.2 billion, or 2008. The majority of the decrease came from a $2.7 billion, 77.7%, above the $40.2 billion spent during the 12-months or 133.7%, rise in the net change in long-term debt and a ending September 30, 2004, the cyclical low following the $1.3 billion, or 64.2%, drop in common share repurchases. competitive generation build-out. Companies are boosting These factors were offset by a $704 million, or 54.0%, de- spending on environmental compliance, transmission and crease in the proceeds from issuance of common equity. distribution upgrades, and new generation projects in many Common share repurchases fell from $1.9 billion in 2007 to power markets to ensure adequate reserve margins over the $697 million in 2008. FirstEnergy had the biggest impact, at long term. $891 million in Q1 2007 compared to no repurchases in Capex is also being driven higher by rising construction 2008. FirstEnergy repurchased 14.4 million shares, or 4.5% costs. According to the latest Handy-Whitman Index of Pub- of its outstanding common stock, in March 2007. In Decem- lic Utility Construction Costs, construction costs have in- ber 2007, the company concluded its plan to repurchase up creased at an average rate of 4.8% per year since 2000 for to 16 million shares through June 30, 2008. transmission (for a total of 32%) and 5.4% per year for dis- “Proceeds from the Issuance of Common Equity” decreased tribution (for a total of 37%). from $1.3 billion in Q1 2007 to $599 million in Q1 2008, A 2006 study by Cambridge Energy Research Associates continuing the decline that started last year. Common equity (CERA) projects the industry’s total capex over the next 15 issuance jumped from $5.0 billion and $5.6 billion in 2000 years at $900 billion, and that’s without incorporating the and 2001, respectively, to $13.1 billion in 2002, and averaged effects of likely climate legislation. According to EEI’s $10.3 billion from 2002 through 2006, then fell by $5.2 bil- spring 2007 study of industry capital spending, based on lion, or 51.9%, to $4.8 billion in 2007. The industry’s strong 2006 10K data, company presentations and discussions with stock performance over the period, in addition to a wide- companies: spread desire to strengthen debt-to-capitalization ratios, drove the higher stock issuance.■ EEI Q1 2008 Financial Update

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