Several US investor-owned utilities took meaningful hits to earnings from weather in the first quarter, but investors seem more tuned into management strategies to reinforce balance sheets.

Despite any impact from mild winter weather, most utilities maintained full-year earnings guidance, and earnings call discussions focused on business reviews and planned asset sales by sector players including American Electric Power Co. Inc., Dominion Energy Inc., Duke Energy Corp. and Eversource Energy.

"We do not believe you will see any changes to earnings guidance until we get through the [third quarter] because Mother Nature may come to the rescue with a hot summer," Mizuho Securities analyst Anthony Crowdell wrote in a May 11 research report. "Where does this leave investors: earnings resiliency and balance sheets will likely continue to dominate the rest of the year."

Mizuho sees companies with "high-quality and strong balance sheets," such as CenterPoint Energy Inc., CMS Energy Corp., DTE Energy Co. and Xcel Energy Inc., providing the best protection for investors "regardless of the weather forecast."

Dominion executives on May 5 pointed to "10 cents of hurt from worse than normal weather" in their first-quarter results. Management also held off on providing full-year earnings guidance as the company continues its business review, telling analysts and investors that they would need to wait a little longer for clarity on the company's strategy.

Dominion launched a "top-to-bottom" business review in November 2022, with goals to boost stock performance and shareholder value, and management plans to provide an update during an investor day in the third quarter.

Among North American utilities, Dominion recorded the largest year-over-year decrease in market capitalization, at 32.2% to $46.70 billion as of March 31, according to S&P Global Market Intelligence data.

CreditSights analysts believe that Dominion will likely sell its Utah gas distribution business, which they value between $3 billion and $4 billion.

Guggenheim Securities analyst Shahriar Pourreza said Dominion investors "should not be concerned at this point that the analyst day won't be clear or less than an all-encompassing reset."

"As we have discussed in prior research, we believe assets like the LDCs are prime for their upcoming asset optimization strategy," Pourreza wrote in a May 5 research report.

It is also possible Dominion could reach a deal to sell a stake in its $9.8 billion, 2,587-MW Coastal Virginia Offshore Wind project after Virginia state lawmakers passed legislation earlier this year allowing the sale of a passive stake, or minority interest, in the planned 176-turbine wind farm.

Potential sales

After American Electric Power (AEP) and Canada's Algonquin Power & Utilities Corp. mutually agreed to pull the plug on their $2.65 billion deal for AEP's Kentucky Power Co. and AEP Kentucky Transmission Co. Inc. businesses, the two companies decided to pivot toward looking at other opportunities to improve their business mix and value.

AEP said it will launch a sale process for its AEP Energy Inc. retail and AEP Onsite Partners LLC distributed resources businesses. The sale process includes the NM Renewable Development LLC joint venture with PNM Resources Inc.

AEP also began a strategic review of certain transmission joint ventures within its AEP Transmission Holding Co. business.

"We're impressed with the proactive approach toward asset sales," Scotia Capital (USA) analyst Andrew Weisel wrote in a May 4 research report. "Several processes are now underway, which adds uncertainty but should bring in meaningful proceeds. [W]e estimate up to [$1 billion] to mitigate future equity needs."

Algonquin, meanwhile, launched a review of its competitive market renewables business.

Mizuho's Crowdell said the failed Kentucky business sale appears to be weighing on AEP's valuation, much like Eversource Energy's delayed sale of its ownership interests in three offshore wind projects.

Eversource expects to make two announcements in the second quarter involving two separate buyers for its 50% equity stakes in the 704-MW Revolution Wind Offshore, 924-MW Sunrise Wind Offshore and 132-MW South Fork Offshore Wind projects.

"Asset sales do not seem to be helping the valuation of utilities like they used to," Crowdell said. "Also dampening the 'equity alternative' plan has been the lower valuation, particularly in renewables, such as we have seen in Duke."

Duke executives said May 9 that they plan to close the sale of the company's commercial renewables business in the second half. Duke took a first-quarter impairment on the business of about $175 million, following a full-year 2022 impairment of $1.3 billion related to the sale of the business, disclosed in February.

Equity avoidance

At NiSource Inc., executives worked to assure investors that the company is on track to sell a 19.9% stake in electric and gas utility subsidiary Northern Indiana Public Service Co. (NIPSCO) in 2023 to support investment opportunities and eliminate all equity needs through at least 2025.

"The highly anticipated but still unannounced NIPSCO minority stake sale transaction remains a key catalyst, if not the primary focus for investors right now," Pourreza wrote May 3.

FirstEnergy Corp.'s stock, meanwhile, fell about 3% during intraday trading on April 28 after the company disclosed in a Form 10-Q filing that it "may utilize instruments other than senior notes to fund its liquidity and capital requirements, including hybrid securities."

"Concerns of potential equity dilution coming, or at least increased uncertainty around future financings seemed to trigger a sell on the news event," Pourreza wrote. "While we acknowledge that many investors have become increasingly cautious in the current market environment, we see the incremental equity fears that are weighing on [FirstEnergy] as overblown, particularly in light of the recent $3.5 billion [FirstEnergy Transmission LLC] transaction."

The company said the transaction is "equivalent to issuing common equity at $93 per share."

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