20221227-瑞士信贷集团-US_Utilities_Week_Ahead-ETR_SERI_Update_CPUC_Commission_Change_Robust_Reg_DataPts_into_YE_AES_Credit_Weekly_Analysis_14页_555kb

US Utilities: Week Ahead Summary

Core Content and Key Information

The week ahead for US utilities is marked by continued regulatory activity and evolving market dynamics. The sector outperformed the S&P 500, with the UTY index gaining 150 basis points (bps) versus a 20 bps loss for the SPX. 10YR and 30YR Treasuries widened by 27 bps and 28 bps respectively, reflecting a broader market environment. The performance of various segments was mixed, with Large Caps (+1.7%), Small Caps (+2.1%), LDCs (+1.4%), and Diversified (+1.5%) all showing gains, while some companies like ETR and SWX saw declines.

Main Points and Expectations

• Regulatory Activity:

  • ETR is expected to receive an ALJ recommendation for its Oncor rate case, with the equity layer being the main focus. The final ruling is anticipated by 1Q23.
  • AEP SWEPCo is set to have staff testimony for its RFP in Louisiana on Dec. 27th.
  • WEC WI rate cases are expected to have their final written decision by the end of the year.
  • The CPUC has announced new commissioner appointments, including the reappointment of John Reynolds and the addition of Karen Douglas, which is viewed as neutral for California utilities.
  • The FERC issued orders related to SERI issues, including a refund of ~$150Mn for leaseback claims and $69Mn for uncertain tax positions. ETR is still awaiting updates on the prudence and ROE complaints.

• Key Developments:

  • SRE received DOE approval for LNG re-export from Mexican terminals, which could support its growth initiatives.
  • AES faced a rating downgrade by S&P due to concerns over the ESP 4 filing and its financial outlook, though Fitch affirmed the rating at 'BB' with a stable outlook.
  • AEP issued an RFP for solar and wind off-takers in PJM and ERCOT, aiming to support retail and wholesale loads in Texas and Ohio.
  • ETR filed a $9.6Bn resilience plan for its Texas operations, with a focus on storm resiliency and infrastructure hardening.

• Market and Price Movements:

  • The Henry Hub natural gas spot price dropped by ~20% over the last month, with forward prices also lower.
  • Weekly power price volatility was elevated, with the Dec '23 pricing down by 12%.
  • The UTY index saw a 1.5% gain, with some companies like D, SO, and NWE performing strongly, while others like ETR, SWX, and PCG underperformed.

Regulatory Catalyst Calendar

• Dec. 27, 2022: SRE Oncor rate case ALJ recommendation expected; AEP SWEPCo staff testimony for LA RFP.
• Dec. 29, 2022: WEC WI rate cases final written decision.
• Jan. 1, 2023: KY sale expected to close for AEP; new rates effective for MN and MA.
• Jan. 10, 2023: AEP KY rate case settlement expected.
• Jan. 17, 2023: SO staff and independent construction monitor hearing expected.
• Jan. 20, 2023: AEP KY rate case settlement expected.

Valuation and Rating Overview

• AEP (Outperform): Target price $100. Valued using SOTP with a 17.7x P/E multiple for the electric group and a 15% premium for TransCo. Risks include regulatory delays, Kentucky sale execution, and coal retirement impacts.
• AES (Neutral): Target price $26. Valued using SOTP with a 11.2x P/E multiple for 2023 EPS. Risks include regulatory outcomes, Fluence ownership exposure, and international currency and political risks.
• CMS (Outperform): Target price $64. Valued using SOTP with a 17.5x implied multiple for its electric and gas segments. Risks include construction delays and increased severe weather events.
• ETR (Outperform): Target price $117. Valued using a P/E approach with a 16.3x multiple for 2024E EPS. Risks include regulatory outcomes, hurricane activity, and labor/inflationary pressures.
• PCG (Outperform): Target price $17. Valued using SOTP with a 25% discount to electric earnings and 15% to gas earnings. Risks include wildfires, debt levels, and adverse rate case outcomes.

Summary of Top and Bottom Performers

• Top Performers: D (+3.7%), SO (+3.3%), NWE (+3.1%), PEG (+3.1%), NRG (+2.8%), CMS (+2.8%), AGR (+2.7%), EXC (+2.6%), DUK (+2.6%), FE (+2.6%).
• Bottom Performers: ETR (-0.9%), SWX (-2.3%), PCG (-0.1%), PNW (0.0%), ATO (0.3%), SRE (0.3%), EIX (0.1%), PNM (-0.6%), CEG (-0.2%), NEE (0.0%).

Key Themes

• Regulatory activity remains robust, with multiple rate cases and approvals in the pipeline.
• Legacy issues, particularly those related to SERI, are being addressed by several companies, with ETR reaffirming its EPS guidance and adjusting outlooks.
• The sector is showing resilience against market headwinds, with a focus on renewable energy and infrastructure improvements.
• Credit rating changes and regulatory risks are influencing market performance and investor sentiment.
• The impact of climate change, including increased hurricane activity and wildfires, is a key concern for several utilities.