LNG 3Q2017: 2018 looks to be breakout year, but depends on commercialization

In our opinion, Cheniere needs to buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles), but conversion unlikely before March 1, 2020. So, we feel investors won’t be concerned until 2H2019.
We like that Cheniere’s looking at ways to deploy future FCF, but not thrilled about foreign and liquids-based ventures. We believe there are many US opportunities involving E&P, pipelines or M&T
We believe CQH and CQP roll-up will happen in due time
LT, Chenier faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its 3rd-act, but no share buybacks.
As expect global LNG markets are tightening quicker than past expectations, but we wonder how much of it is due to Qatar sanctions imposed by neighbors
2018 likely to be driven by SPL 6 and CCL 3 FID and associated LT-contracts
We believe CNPC MOU will lead to LT-contract and both SPL 6 and CCL 3 will FID in 2018. We also look for additional LT-contracts to boost value.

Continue Reading →

PCG: ALJ PD on Diablo Canyon seems a bit capricious, so room for upside

The PD has adjustments to employee, community, and energy replacement programs that PG&E believes are inappropriate and advocates for the settlement agreement to go forward as is. The significant differences between the settlement agreement and the PD are as follows:

The PD proposes that replacement power for Diablo Canyon Power Plant (DCPP) should be handled through the Integrated Resource Plan (IRP) instead of separately through an independent track:
Our Analysis:
Instead of $350MM for the employee retention program, the PD proposes only $175MM, cutting the total provisions for employee assistance to $345MM from $520MM:
Our Analysis:
Complete denial of the $85MM in community assistance program (CAP):
Our Analysis:

Our Conclusion: Hearings are scheduled for November 28 with rebuttals due by December 4. We continue to expect a final decision (FD) by yearend. We’d expect the FD to … .

Continue Reading →

BKH 3Q2017: Little matters until we know how much capital is raised from E&P sale

Now that E&P is being sold, the question is how much? Previously we estimated the Mancos shale potential at around $1B or more; however, this was as PUDs for COSGP
Also, given that BKH thought it had enough from Mancos to supply its needs and that of another utility, the reserve potential is great, but how great? Even at $0.50/MCF this could raise $500MM.
BKH lowered 2017 AEPS guidance to $3.30-$3.40 from $3.45-$3.65, largely due to 3Q2017 results
We look for BKH to pull trigger on large acquisition within 12-18 months continuing its focus on Utilities using E&P sale to fund
Mountain West Transmission Group (MWTG) expressed interest in joining the Southwest Power Pool (SPP). If approved membership would start around late-2019.
Maintaining ST-Target at $81/share and our NIV/share at $95/share until we know more about the E&P sale and the disposition of the cash.

Continue Reading →

CNP 3Q2017: Predictability, stability, reliability, and flexibility, the CNP way

Raising ST-Target to $39 from $36 and NIV/share to $58 from $55 on 3Q2017 results and 2017 guidance
CNP believes it will finish year at or around high-end of its guidance, which reaffirms our belief CNP will perform at higher end of 2017E AEPS guidance, if not above, and we concur with CNP that it will perform at higher end or even above its targeted 4%-6% CAGR in AEPS thru 2018
We agree with Enable Midstream Partners (ENBL) divestiture and chosen sale method seems to be for stock, although we’d prefer cash and redeployment into a transformative acquisition even with the tax burden given bargain basement asset prices
However, stock transaction for ENBL tells us CNP prefers to continuously invest in CNP and buyer’s stock would be used as equity financing for organic expansion
We maintain CNP is best owner of Oncor, but now CNP has BIG target on its back
Wouldn’t surprise us if CNP delved back into pipelines, but strictly pipelines only
We like new tranny project into Freeport, TX, but await approval and more details before modeling.

Continue Reading →

DUK 3Q2017: Absent weather effects, DUK is performing to expectations

Reported $1.59 AEPS vs. our $1.76 and consensus’ $1.63. But, adjusting for bad weather including hurricane Irma, DUK would’ve come in at $1.73.
Due to subpar 3Q17 results, we lowered our 4Q17 expectations to fit narrowed AEPS guidance of $4.50-$4.60 from $4.50-$4.70
Macro-economic indicators are turning up and demographics picking-up momentum and now usage/customer is climbing too; we look for these trends to continue
We believe DUK is on track to meet its 4%-6% AEPS CAGR through 2021 thru development of both organic natural gas projects and acquired natural gas businesses, as well as electric infrastructure projects
DUK continues to use regulatory filings to drive growth
We believe another transformative gas-based acquisition is in the making within 12-18 months or by yearend 2018

Continue Reading →

PCG 3Q2017: After great quarter is PCG bad luck or have bad karma or bad mgmt.?

Given 9-months’ of strong results, PCG should’ve bumped-up guidance and celebrated. Then BAMO! Wildfires! We wonder why PCG goes through these periodic tragedies. So, is it bad luck or bad karma? We don’t know, but certainly the market has spoken.
Now it seems PCG’s going to be mired in wildfire controversy for months, if not years, which likely means PCG is going nowhere despite strong results, good strategy and good execution, in our opinion
Other than wildfires, PCG marked another uneventful quarter. And, PCG continues to talk-up MT-LT AEPS CAGR, which we agree with
Given wildfires, we’re no longer certain that it has no need for new equity starting 2018
We continue to be intrigued with PCG’s pursuit of independent transmission projects with TransCanyon but there’s no project to be had

Continue Reading →

NRG 3Q2017: As economy rises-up from ashes, feels like NRG’s poised to take flight

Reported 3Q17 AEPS of $0.78 vs. our $0.74 and consensus of $1.01
Revised commodity price curve, which resulted in higher NIV but slightly lower estimates
Raising ST-Target/share to $35 from $30 on strength of rising economy
NRG has done a great job of realigning its strategy starting with GenOn and moving-on to its B/S management, and now its strategic overhaul. We believe these are all the right moves, and we expect that these will translate into further upside for NRG.
With new strategy, we’d also expect that NRG can reduce its hedging exposure but NRG has yet to disavow share buybacks
We’re intrigued and titillated by potential of Boston Energy Trading and Marketing (BETM like “bet ‘em”)
As expected, it appears NRG will sell 100% of NYLD with rest of its renewable portfolio and believe that NRG would be successful without both
We look for NRG to aggressively expand its Retail business, especially in the PJM where it has excess generation relative to retail load, which would also allow it to reduce hedging
We look for continued modest recovery in commodity fundamentals and macro-economic tail wind to pick-up
We like aggressive debt repay and cost cutting efforts. Successful asset sales would be ST driver.
ST we expect proceeds to be applied to debt repay, but MT it is likely to be redeployed to acquisitions and other growth projects

Continue Reading →

EXC 3Q2017: Upside from FERC redesign of power pricing may boost EXC by 36%

3Q2017 results and earnings call didn’t change our thesis that EXC’s endgame is to create optionality for ExGen
To do so, we believe that EXC plans to use ExGen cash flow to propel Utilities’ CAGR in AEPS at some 6%-8% through 2020, while lagging dividend CAGR at 2.5%, allowing Utilities dividend payout to go from almost 100% to about 77%, making it possible for Utilities to self-fund equity needs beyond 2020
Key to this strategy is to ensure ExGen cash flow, which drives need for very high hedging levels far in advance
We look for EXC to expand its Retail business, curtail its hedging program commensurately, and potentially take a more open position
The plan also requires EXC to continually make timely regulatory filings to ensure returns consistent with authorized ROEs
We believe that EXC’s next major acquisition would continue in the utility space
EXC has upside from resiliency pricing, if FERC gets there.

Continue Reading →

AES 3Q2017: We expect strengthening global economy to provide strong tailwind

As expected, AES looks to complete Alto Maipo
We believe improving global economy will provide strong tailwind
We continue to feel AEPS guidance through 2020 is conservative: We feel it’s closer to 11%, given organic growth should be some 4% and with 1% inflation, AES is already at 5% CAGR
Then new projects totaling some 6.6GW (up from 4.6GW at 2/2017) on base of some 27.0 net GW, about a 25% increase, should boost growth above 8%-10% guidance
But, AES is trading as if growth prospects are negative
Gas-to-power could be major LT growth source, particularly in Asia – reentry into China?
Philippines exit is a surprise
AES pointing towards its MCAC LNG strategy and energy storage projects to boost MT-to-LT growth
Issues surrounding AES, include, but are not limited to: 1) continues to pay more than a nominal dividend, 2) hasn’t disavowed share buybacks, and 3) growth trajectory isn’t at potential, in our view

Continue Reading →

PNM: Recommended Decision (RD) creates unwanted drama; likely leads to May 2017 settlement agreement becoming effective

The RD is close to the SA but for two twists:

o Rates are recommended to be applied on a straight pro-rata basis

§ SA calls for higher rates for water processing company and industrial users

o Stop participation in Four Corners Power Plant (FCPP) immediately and stop PNM from recovering its investment in FCPP

· Statutory deadline for NMPRC to make a decision is January 6, 2018 but NMPRC may choose to delay the decision to as late as March 6, 2018 (two one-month suspension periods could be invoked)

· However, if the NMPRC does not make a decision by March 6, 2018 then PNM’s original December 2016 filing (OF) takes immediate effect, which, among other conditions, proposes a $99MM rate increase vs. the $62.3MM rate increase in the SA

· More importantly, if the NMPRC makes any changes to the SA, any signatory to the SA has the right to withdraw its support of the SA, and negotiations would have to start over

· However, regardless of whether or not negotiations are reopened, NMPRC must make a decision by March 6, 2018 or the OF takes effect

· Given this last condition, we believe that PNM has the advantage in negotiations given that if a decision cannot be made by March 6, 2018, its OF takes effect
Conclusion: Given the risks, we are of the opinion that the NMPRC would want to avoid drama, particularly for the two Commissioners that are up for re-election in November 2018, which implies to us that the NMPRC is likely to adopt the SA in whole to avoid reopening negotiations

Continue Reading →