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The Blurb and Footnotes for Utilities
Every stock covered in The Value Line Investment Survey has a business description—known in our parlance as the “blurb”—and footnotes. The business blurb gives key information about the company, and the footnotes point out unusual items and other information of note that is related to the statistical array or the quarterly revenues, earnings, or dividends box. Some aspects of these are unique to utilities.
Every blurb starts with the full name of the company. For many utilities, the parent company is actually a holding company for utility subsidiaries (and perhaps nonutility operations, too). In most cases, the name of each utility subsidiary and a description of the utility or utilities’ service area follows. (Some companies, such as American Electric Power (AEP) and FirstEnergy (FE), have too many utilities to list them all.) Any nonutility operations are described after the utility’s service area.
The next data provided are breakdowns of electric revenues by customer class and generating sources by fuel (including purchased power). Utilities are not required to provide this information, but most do, except those that have nonregulated generating assets. Fuel costs (including purchased power expenses and the cost of natural gas for gas utilities) are shown as a proportion of revenues.
As is true for most nonutility companies, we show depreciation rates. For utilities, however, we usually show the reported depreciation rate or rates that are shown in the footnotes of the utilities’ financial statements. Combination utilities usually have different depreciation rates for electric and gas plant, so each of these is listed in the blurb.
In contrast to nonutility companies, we do not show insider ownership or major stockholders for utilities. Insider ownership for utilities is typically very low, so this isn’t an important consideration for investors. As for major stockholders, even a disgruntled institutional investor isn’t going to make a hostile takeover bid for a utility—it’s hard to imagine that such an offer would win regulatory approval—so we omit this data, too.
The last few lines of the blurb, which display the number of employees, board chairman and top officers, state of incorporation, address, phone number, and Internet address, are the same for utilities as for nonutilities.
The footnotes for utilities are similar to those for nonutility companies, but there are some differences that investors need to keep in mind. Each company’s gains and/or losses from nonrecurring or extraordinary items or discontinued operations are listed. Utilities usually have more of these than most nonutility companies. One reason is the write-offs or writedowns of utility assets that happen from time to time as part of the regulatory process. Another is the exiting of nonregulated businesses that occurred in the past decade as many utilities adopted a “back to basics” strategy.
Each utility has intangible assets that we display in a footnote. They can be listed on the company’s balance sheet as intangible assets, goodwill, deferred charges, or regulatory assets, which we combine into one figure. (A regulatory asset is a cost that is deferred because it will eventually be recovered through the regulatory process.)
For most utilities, the last footnote begins with a description of the rate base that is used in the regulatory process (e.g., original cost, net of depreciation). Then, the allowed return on equity, and the year in which it was established, are shown. That’s why the year displayed is not necessarily the most recent year. For instance, the allowed ROE for NSTAR (NST) was last set in 2006. Then, the ROE that the company earned in the most recent complete year (adjusted for any nonrecurring and other items listed in a previous footnote) is displayed. Finally, we show the regulatory climate (Above Average, Average, or Below Average) in the state or states where the utility operates.
At the time of this writing, the author did not have positions in any of the companies mentioned.