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.

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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.

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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

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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

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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

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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.

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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

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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

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We’re sad CPN got taken out at basement price; A sad last goodbye

CPN looks to be on track to be privatized by 1Q2018 end
CPN is getting taken out at $15.25/share, well below our NIV of some $48/share and ST-Target of $34/share
We would expect an IPO of CPN once the FERC restructures the wholesale power market pricing mechanism to not only properly incorporate the true marginal pricing of renewable generation, but also to properly value ALL ancillary services and reliability and resiliency features
CPN reported 3Q2017 AEPS of some $0.63 and $669MM in AEBITDA vs. our estimate of $0.61 in AEPS and $727MM in AEBITDA, while consensus estimated AEPS at about $0.65
As of this note, while we will continue to monitor the company, we will no longer be publishing on CPN unless the privatization is reversed or another bid is accepted

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EIX 3Q2017: Strong 3Q17 performance lifts guidance; Focus on 2018 GRC

Management is showing confidence by again raising 2017FY AEPS guidance this time by about $0.05
Waiting on PD for 2018 GRC; FD unlikely in 2017
Strong execution, strategic evolution and focus on core strengths makes for attractive investment
Strategically, we like focus on utility projects with minimal distractions
Renewable integration’s challenging but no big surprises, yet.
Dividend payout ratio has caught up to earnings power of SCE logging-in at some 51%
LT investments should drive LT AEPS CAGR above 7%-9% forecast range, in our opinion

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