Is Stock Performance Tied to Grid Reliability?

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In this week’s Industry Perspectives, Chris Evanich, manager of microgrids at S&C Electric, explores whether stock performance is directly tied to grid reliability. 

energy reliability

Chris Evanich, manager of microgrids, S&C Electric

During tax season, Americans tend to evaluate the performance of their investments to verify whether they are investing correctly. It’s also a good time to look at how the markets are doing overall, including the electric power industry’s.

Over the last year, the Standard & Poor’s 500 (S&P 500) did great, with a positive return of 12.82 percent. The S&P 500 is a stock market index that includes the largest companies traded on either the New York Stock Exchange or NASDAQ. A positive return in the S&P 500 is an overall indication of growth in our economy – and growth in the economy is good for investments. There are a lot of factors that go into the growth of every company’s stock, but this got me thinking specifically about the electric utility industry and brought up some good questions:

 

  • What factors influence utility stock?
  • Are utilities measured by their performance from the previous year?
  • How do the utilities in the S&P 500 compare to each other?
  • Do utilities with better grid reliability provide more value to shareholders, resulting in increased stock performance?

To answer my questions, I plotted the performance of three electric utility stocks from the S&P 500 and compared them to the overall S&P’s performance between April 2017 and April 2018. Some 28 U.S. based electric utilities are included in the S&P 500.

Energy Reliability

Source: Yahoo Finance

The first utility I plotted (the dark blue line in the chart above) had a 25.31 percent rate of return. The rate of return for the two other utilities (noted in pink and light blue lines) fell more than a 10 percent. With the S&P having an overall 12.82 percent positive gain (the purple line), a decrease for any S&P 500 company is a big deal.

I then reviewed the reliability metrics collected by the U.S. Energy Information Administration on electric utilities and their duration and frequency of outages. The power industry acknowledges that the biggest pain point for electric utility customers is power outages, so reviewing outages was the best way to compare utility performance.

Of the three utilities I looked at, the one with the best financial return had the lowest System Average Interruption Duration Index (SAIDI) at 61.62. This means, on average, the utility’s electricity customers would experience a total of 61 outage minutes a year.

The next factor I looked at was the System Average Interruption Frequency Index (SAIFI), which is the measure of the frequency of outages a customer experiences. The utility with the best financial return (the dark blue line) had the lowest SAIDI of the three utilities I compared. Their SAIFI indicated that each of their electric customers experience an average of 0.74 outages a year. On average, the other utilities’ customers experienced twice the number of outages in the last year.

Overwhelmingly, the utility with the highest financial performance had the highest energy reliability scores. It should come as no surprise that this utility has been investing in automation equipment to create a more reliable, more resilient smart grid. Their investments have included automatic feeder switchgear and automatic lateral switching that enable their customers to experience fewer outages that are shorter in duration.

Electric utilities recognize grid reliability is a growing concern and are working to provide greater value to their customers. If the chart above is any indication, improving reliability also increases the value of the utility.

 Chris Evanich is manager of microgrids at S&C Electric. 

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Comments

  1. Chris, you are showing a correlation, not a causation. Demonstrating a causation link would need more data.

    • Christopher Evanich says:

      Hi Benoit,
      Thank you for your comment. Perhaps this article will spark interest in additional research.
      Thanks,
      Chris

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