A warmer-than-normal summer across parts of the United States could position some utilities to report strong third quarter earnings next month, according to a BofA Global Research report issued Monday.
The research note identifies investor-owned utilities BofA sees as “well positioned to outperform vs guidance” based on third-quarter cooling degree days, or CDDs, compared with a trailing 10-year average. Those poised to benefit include: Oklahoma Gas & Electric, Portland General Electric, Black Hills, Idacorp, Avista, CenterPoint and Evergy.
BofA’s research does not include states in which utility earnings have been decoupled from sales, but analysts note “for non-decoupled electric utilities, higher temperatures in summer months increase electricity sales, positively impacting earnings.”
“Utilities typically base full-year earnings guidance on 'normal' weather, thus large changes vs normal CDDs represents upside,” the bank said.
Among utilities BofA looked at, Oklahoma Gas & Electric saw the greatest increase in cooling degree days relative to the 10-year trailing average, at 18%. OGE closed Monday at nearly $35/share yesterday, while BofA analysts have a $44/share “price objective” for the utility.
Oregon’s Portland General saw a 17% increase in cooling degree days relative to a 10-year trailing average, said BofA. Shares closed around $42/share on Monday, and BofA has a $54 price objective for the stock. Risks to the price target include wildfires and other natural disasters, analysts said, along with interest rates, load growth or contraction, and other factors.
In Texas, higher cooling degree days in CenterPoint’s territory follow an already-favorable second quarter “weather-related earnings impact, further improving the FY22 earnings outlook for the company,” BofA said. Analysts did not give a price target for CenterPoint.
While some utilities stand to benefit from warmer temperatures, consumers are feeling the pinch from higher electric use in the hot weather combined with higher electricity prices.
According to data from the National Energy Assistance Directors Association, which represents state directors of the federal government’s Low Income Home Energy Assistance Program, U.S. families have about $16 billion in utility debt, up from $8.1 billion at the end of 2019.
The federal government expects the price of electricity will continue to rise into 2023, and consumer advocates warn that customer arrears are following suit. The U.S. Energy Information Administration says the average price of electricity for residential consumers could reach $0.1524/kWh in 2023. That would represent about a 3.3% increase from this year, and the agency says prices are already 7.5% higher than they were in 2021.
