Utility’s COVID-19 Relief Efforts Underscore Sector’s Financial Strength

The nation’s largest electric producer is making a move that both shareholders and stakeholders can cheer. To ease the financial hardships many consumers will face amid COVID-19, Florida Power & Light (FPL), a subsidiary of NextEra Energy, Inc., has proposed a one-time bill reduction in May that will reduce the typical residential customer’s bill by nearly 25%.

First and foremost, we applaud any financial relief companies provide to consumers right now. But the move also highlights structural changes within the sector that investors should cheer. Namely, utility companies are making clean energy and technology investments that we believe may both lower customer bills and improve earnings growth and financial strength. FPL’s bill reduction during the pandemic is a microcosm of what we see as positive changes afoot within the sector.

Dissecting the Bill Reduction, and What Enabled It

The bill reduction, which is subject to Florida Public Service Commission approval, accelerates the pass through of lower fuel costs to customers. These costs savings are usually spread out over many months. The decision to pass those fuel costs through early speaks to the financial stability of the company. It’s also a savvy move to build constructive regulatory and customer relations.

As FPL highlights in their March 30, 2020 announcement about the reduction, the lower fuel costs are due in part to lower natural gas prices but also due to investments the company has made.

“FPL has also invested in new, ultra-efficient natural gas power plants, large- scale solar energy facilities and a variety of cutting-edge technologies – all of which helped FPL reduce the amount of fuel it needs to provide electricity,” the announcement from the company states. “Just like driving a new car instead of one built in the 1970s, FPL’s smart investments in modern technology have helped the company reduce operating and fuel expenses.”

FPL is not alone. We believe many utility companies are in the early innings of a massive capital expenditure cycle that could make the power grid greener, and power prices more stable. Utilities earn a set return on the amount of invested capital they deploy, so when they invest in current popular programs such as renewable energy they don’t just lower customer bills … they can generate significant growth.

We believe these changes may improve the earnings stability and growth profile of the sector over the next decade.

Q&A with the CEO & Co-Portfolio Manager of Reaves Asset Management, Jay Rhame

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