skills/full-company-analysis/references/modules/M082-electric-utilities-analyst-playbook.md

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<!-- Module: 082 | Title: Electric Utilities Analyst Playbook -->

## PART XV - SECTOR PLAYBOOKS | MODULE 082

# Electric Utilities Analyst Playbook

> Mission. Build a sector-specific research system for Electric Utilities that converts operating data into financial outcomes, highlights the accounting areas most likely to distort comparability, and selects valuation methods that reflect the sector's economics.

## Economic engine and binding constraints

Model rate base, allowed ROE, equity layer, capex, depreciation, regulatory lag, load growth, fuel/purchased power recovery, storm costs, financing, and customer affordability. Value creation depends on earning allowed returns on prudent investment.

## Primary KPI stack

| KPI | Construction / analyst control |
| --- | --- |
| rate base | Net regulatory investment on which the utility is permitted to earn a return, including eligible plant and working-capital components less accumulated depreciation and deferred items. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |
| allowed ROE | Regulator-authorized return on common equity embedded in customer rates for the relevant jurisdiction and rate case. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| load growth | load growth = current period / comparable prior period - 1; decompose organic, price, volume, mix, FX, and M&A where material. |
| capex | Maintenance capex is the spending required to preserve current earning power, estimated from asset replacement and operating evidence rather than management labels alone |
| FERC/state mix | Share of earnings, rate base, or revenue governed by FERC versus state commissions, measured on a consistent economic base. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |
| earned ROE | Regulated net income attributable to common equity divided by average common equity supporting the regulated business. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| customer count | Average or period-end customer accounts served, segmented by class and adjusted for acquisitions/dispositions. Validation: Reperform the count from the defined population, inspect every material exception, and confirm the denominator/universe did not change between periods. |
| debt cost | Interest expense, net of capitalized interest where appropriate, divided by average interest-bearing debt, or weighted coupon/yield on debt outstanding. Validation: Recalculate price/cost from underlying dollars and physical units; test mix, rebates, FX, timing, and unit-definition effects; reconcile to reported revenue or expense. |



## Sector-specific accounting and comparability traps

- Regulatory assets: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Storm costs: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Decommissioning: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Pension: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Capitalized afudc: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

## Valuation frameworks

- P/E: common equity value per share divided by normalized diluted EPS; normalize taxes, one-time items, dilution, cyclicality, and non-operating income.

- P/B versus ROE: price-to-book or price-to-tangible-book interpreted against sustainable ROE/ROTCE, growth, payout, risk, and cost of equity rather than as a standalone multiple.

- Dividend yield: annualized sustainable common dividend divided by share price; test payout coverage, regulatory/capital constraints, cyclicality, and reinvestment needs.

- Rate-base DCF: project rate-base growth, allowed and earned returns, capital structure, depreciation, taxes, customer bill impact, and financing needs under regulatory lag.

## Sector diligence questions

- What is the most important leading indicator for Electric Utilities, and how many months does it lead reported revenue or cash flow?

## Sector stress and falsification

- Stress rate base and allowed ROE together in the direction most likely to break the equity story; flow the result through working capital, capex, liquidity, financing, dilution, and valuation.

- Explicitly test regulatory assets. Determine whether it can make the reported sector comparison look better or worse without equivalent economic change.

## 99-point standalone execution extension

### Model architecture and forecast chain

Model rate base, allowed ROE, load growth, generation mix, fuel, purchased power, capex, depreciation, financing, and customer rates by jurisdiction.

### Leading-indicator dashboard

Track rate cases, regulatory orders, load forecasts, weather, data-center connections, fuel spreads, capex plans, credit metrics, and political affordability pressure.

### Primary-source map

SEC and FERC filings; state public-utility commission rate cases; integrated-resource plans; EIA generation/fuel data; ISO/RTO market data; debt and rating-agency disclosures.

### Accounting normalization test

Regulatory assets/liabilities, securitization, storm costs, pension, decommissioning, and capitalized AFUDC can make GAAP earnings differ from cash.

### Valuation implementation

Use regulated-asset and dividend/FCFE frameworks, P/E relative to growth and allowed returns, and credit-sensitive DCF. Capital needs and dilution are central.

### Worked numerical mini-case

> Illustrative rate-base case.

Beginning rate base $10bn, capex $1.5bn, depreciation $0.7bn and retirements $0.1bn imply ending rate base near $10.7bn before adjustments. At a 9.5% allowed ROE and 52% equity layer, estimate incremental earnings only after regulatory lag.

Growth capex creates value only if prudently included in rate base and earned above the financing cost.

### Monitoring and falsification cadence

Breaks include adverse regulatory outcomes, cost overruns, wildfire/nuclear liabilities, financing pressure, load forecasts that fail to materialize, or customer affordability backlash.

At every quarterly update, rebuild the driver bridge from operating units to revenue, margin, cash flow and valuation; compare leading indicators with the prior forecast; record definition changes; and precommit the threshold that would trigger a thesis reset rather than a cosmetic estimate change.

## Sector exit standard

The Electric Utilities work is complete only when the analyst can explain the business in its native operating units, reproduce the KPI history, identify the binding growth constraint and marginal price setter, normalize sector-specific accounting, quantify a coherent adverse case, and translate the current market price into the operating expectations that must be met or exceeded.