Beyond the Presidency: Elections Utility Investors Should Watch

As November draws near, investors are eyeing political races for insight into how election outcomes may impact stocks. For the utilities sector1, the stakes are high for many state elections.

This blog is the second in a two-part series reviewing the impact of various elections. Last week, we looked at the implications of national elections. This blog considers the effects of several key state elections on utility companies.

Governor races in Missouri, Indiana and North Carolina: In each of these states the governor appoints state utility commissioners, which gives the governor more control over utility regulations than in most states. The next governor in each of these states could influence decisions on whether to keep or phase out coal-fired plants.

The Indiana race has become particularly tight. In the state, incumbent Governor Eric Holcomb is running against Dr. Woody Myers, a pro-renewables candidate. Polls conducted in April of this year showed Holcomb with a comfortable 20+ point lead, however a more recent September poll shows Holcomb with a much slimmer 6+ point lead.

The stakes in Indiana’s state election are high for some utilities. Indiana is coal heavy; it is the second largest coal consumer, eighth largest coal producer and eighth largest emitter of carbon dioxide in the country. At 15 gigawatts2 of generation, coal comprises the majority of electricity produced in state, while wind supplies just 5%.3 This comes despite Indiana ranking in the top third of U.S. states in terms of wind energy potential.4

Utilities in the state have recently proposed retiring a significant amount of coal fired generation and replacing it with wind. However, efforts to do this have run into political resistance, namely HB 1414, which was signed into law by Governor Holcomb in March. This legislation temporarily delays coal plant retirements until May 2021. Critics worry that this could provide lawmakers an opportunity in the 2021 legislative session to change ‘temporary’ to something more permanent. A Holcomb defeat could see renewable energy produced in the state rise substantially.

Meanwhile, in North Carolina, Democratic Governor Roy Cooper is running for re-election. He has made North Carolina the first state in the Southeast to set aggressive carbon reduction goals. He has also made several appointments to the state’s seven-member utility commission, which has undertaken and furthered a series of carbon reduction and clean energy initiatives. Parts of his plan for the state may require the passage of new laws in the 2021 legislative session. The legislature is currently Republican controlled and so the November elections hold significance for the direction of and continuity of clean energy goals in the state.

Utility commissioner races in Georgia, Arizona and New Mexico. In other states, the public elects utility commissioners. In Georgia, two of five commissioners are up for re-election. The elections could sway how the commission views a large nuclear plant at one state utility. The existing commission has been supportive of the plant so far, though there has been consternation over cost overruns. A commissioner who has previously been a long-time supporter of the plant (he is up for election in 2022) recently took a more cautionary tone towards continued cost approval. A further shift in the makeup of the commission could create cause for concern.

In Arizona, three of five commissioners are up for election. The elections come after a favorable 2017 rate case for one of the state’s largest utilities, which caused a significant spike in many customers’ power bills. Some candidates are running largely on an anti-utility, anti-corporate spending platform in its wake.

In New Mexico, meanwhile, not only are two commission seats on the ballot, but another initiative will decide whether future commission seats are elected or appointed by the governor. The governor has favored a clean energy transition in the state. If she can appoint commissioners, it would likely be easier for companies that invest in solar energy to increase rates to cover the costs of those clean energy investments.

With high stakes elections taking place in so many different states this November, utility investors should keep an eye on plenty more than just the presidential election.

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Reaves Asset Management is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration does not imply any skill or training. Reaves is a privately held, independently owned “S” corporation organized under the laws of the State of Delaware.

The information provided in this blog does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities and sectors listed. Investors should consider the investment objective, risks, charges and expenses of all investments carefully before investing. Any projections, outlooks or estimates contained herein are forward looking statements based upon specific assumptions and should not be construed as indicative of any actual events that have occurred or may occur.

1The S&P 500 Utilities Index is a capitalization-­weighted index containing electric and gas utility stocks (including multiutilities and independent power producers). Prior to July 1996, this index included telecommunications equities.

2A Gigawatt is a unit of power equal to one billion watts.

3“Indiana has about 15,000 megawatts of coal-fired capacity, even though 3,400 megawatts have retired since 2010. More than 3,100 additional megawatts of coal-fired capacity are scheduled for retirement in the next decade. From 2010 to 2019, the share of generation from natural gas-fired power plants increased from 5% to 31% of the state’s net generation. Renewable resources, primarily wind, supplied about 7% of Indiana’s electricity generation in 2019, and other gases, including those produced by refineries, fueled 2%.”

4“Strong in clean energy manufacturing, renewables, and efficiency technologies, Indiana ranks in the top third of states in wind energy potential, with a capacity of more than 148,227 megawatts—enough to generate more than four times the state’s current electricity consumption.”

Past performance is no guarantee of future results.
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All data is presented in U.S. dollars.

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