Washington Watch

ELECTION SPECIAL: Politics and Utilities

Last night, Americans were glued to their televisions while ballots were counted precinct by precinct in the hotly contested US mid-term elections. Although there were a large number of election surprises, the outcome was clear and the Republicans won the Senate – taking full control of Congress.

We have put together some of our notes on how election results could impact utilities and your investments. Now that the results are clear we will continue to research and analyze the impact that Washington may have on your portfolio. Subscribe to Conrad’s Utility Investor to stay informed.

Although the uncertainty of election season usually induces a few wobbles in the stock market, you can count on more gridlock in Washington no matter which party comes out on top in the Senate. And the level of rancor will only increase as the 2016 presidential election approaches.

For the more than 200 essential-services companies covered in my Utility Report Card, gubernatorial elections have far more important regulatory implications. And a dozen of these races are still too close to call.

Here’s my abbreviated take on a number of key gubernatorial elections and what could be at stake for utilities.

• Arkansas: Republican Asa Hutchinson continues to hold a lead in this race to succeed Democratic Gov. Mike Beebe. State regulators historically have had a testy relationship with local utilities. A party switch holds promise of better days ahead for Entergy Corp (NYSE: ETR) and other electric utilities in the state.
• Colorado: A victory by Republican challenger Bob Beauprez could have major implications for the state’s aggressive renewable-energy portfolio standards. But incumbent Democrat John Hickenlooper appears to have carved out a small lead. Investors in Xcel Energy (NYSE: XEL) should watch this race closely.
• Connecticut: According to the polls, Democratic Gov. Dan Malloy and Republican challenger Tom Foley are neck and neck. The incumbent is still favored, but Malloy’s defeat could bring a major improvement in relations between utilities and state regulators.
• Florida: Polls indicate that the race between Republican Gov. Rick Scott and his predecessor Charlie Crist, who switched his affiliation to the Democratic Party, is too close to call. Stakes are high for utilities. In his previous term, Crist went to far as to replace the state’s entire Public Service Commission (PSC) with political appointees. Crist has promised to overhaul the PSC once again and push aggressively for renewable-energy mandates. The potential negatives of a Crist victory for Duke Energy Corp (NYSE: DUK) and NextEra Energy (NYSE: NEE) are good reasons not to chase either stock now.
• Georgia: The Peach state has its first competitive gubernatorial race in years, with Democrat Jason Carter running neck and neck with incumbent Republican Nathan Deal. No utility has as much on the line as Southern Company (NYSE: SO), which is in the middle of building two new nuclear reactors at the Vogtle site. Many observers expect this race to go to a run-off on Dec. 2, with Carter ultimately coming up short. If Carter wins, the costs associated with the Vogtle project may come under greater scrutiny. But new government mandates on utilities have not been a part of his campaign, nor are they a hot button issue for the majority of Georgians.
• Illinois: Democratic Gov. Pat Quinn appears less likely to lose than a few weeks ago. But despite an often contentious relationship between regulators and utilities, continuity could be a positive for utilities like Exelon Corp (NYSE: EXC), which appears to be winning its argument for capacity payments to keep its nuclear power plants running.
• Kansas: Relations between regulators and utilities have improved considerably under Republican Gov. Sam Brownback. Though unlikely, his defeat would be trouble for Westar Energy (NYSE: WR).
• Maine: Even a three-candidate race may not save controversial Republican Gov. Paul LePage. Regardless of which party holds the governor’s seat, Maine has a long history of combative relations between regulators and utilities
• Massachusetts: The chance of a Republican upset in this race to succeed a retiring Democratic Gov. Deval Patrick has increased, with recent polls showing Republican Charlie Baker and Democrat Martha Coakley running neck and neck. If the governorship goes to Baker, the consistently dismal relations between utilities and regulators likely would improve.
• Michigan: For more than a decade, governors from both parties have routinely appointed regulators willing to work with the state’s utilities. That’s unlikely to change if Democratic challenger Mark Schauer manages to unseat Republican Gov. Rick Snyder.
• Pennsylvania: Democratic challenger Tom Wolf appears to have this election in the bag. Wolf supports oil and gas development, but likely will push for the state to get a bigger cut of the spoils. Utility regulators appointed by both parties usually support a fair recovery of investment.
• Wisconsin: In a conference call to discuss Wisconsin Energy Corp’s (NYSE: WEC) second-quarter results, CEO Gale Klappa went out of his way to highlight his friendship with Democratic nominee Mary Burke. However, with the company trying to win regulatory approval for its merger with Integrys Energy Group (NYSE: TEG), Klappa might be happier if Republican Gov. Scott Walker is re-elected. Polls indicate that Walker continues to lead in this race.

The November issue of Conrad’s Utility Investor will include a full wrap-up and analysis of federal and state election results. We’ll also look at the implications of Dilma Roussef’s narrow victory in Brazil for Companhia Energetica Minas Gerais (Sao Paulo: CMIG4, NYSE: CIG) and the country’s other electric utilities.

If you haven’t already subscribed to Conrad’s Utility Investor, sign up for a risk-free trial today to make sure that you don’t miss out on this must-read issue and my favorite dividend-paying utility stocks.