Public utilities are caught in the vortex of change. Many want to build new power plants to increase capacity and yet they face closer scrutiny of their financials and earnings. Others are looking to acquire another company or divest themselves of assets. These pressures converge when public utilities present their quarterly financial results to meet U.S. Securities and Exchange Commission requirements.

How are intensifying pressures affecting the quarterly financial presentations of public utilities? After the Enron fiasco, are utilities revealing bad news? It appears that utilities are increasingly open, although some reveal as little as possible.

Over the last five years, Barry Abramson, a senior utilities' analyst at Gabelli Funds, based in Rye, N.Y., has seen utilities' quarterly financial reports become "longer and loaded with more details than ever before." Utilities are providing more detailed financial data on earnings than they have in the past, which he attributes to the effects of Sarbanes-Oxley (SOX) regulations. In fact, utilities are more forthcoming about their operations, the status of their power plants, and even how the weather is affecting their businesses.

Meanwhile, the SEC's Fair Disclosure rules are also contributing to this more open atmosphere. Prior to their enactment in October 2000, analysts at larger financial firms or pension funds often had their questions answered earlier and more fully than analysts at smaller firms or individual investors. The so-called Regulation FD says all investors must have equal access to company news and financials, without any preference, or companies can face penalties and fines.

At the same time, technology is leveling the playing field. Cutting-edge utilities now transmit these earnings calls via teleconferencing and webcasting to analysts, individual investors and large pension funds alike, noted Patty Bruner, Scottsdale, AZ, managing director at Christensen, an investor relations consulting company.

Different Styles

Nevertheless, some utilities are revealing only the minimum about earnings and other financial results. Some utilities just send out press releases with earnings results. Other companies provide detailed information that is difficult to decipher.

"For me, bare bones is much worse than an absence of a conference call," says Justin McCann, analyst with Standard & Poor's. "Unless the company is particularly attractive for its earnings per share growth or its yield, one would be hesitant to recommend it to an investor." When a utility provides little information on earnings growth and future plans, analysts don't have enough data to recommend it. Hence, if investors follow the analysts' recommendation, utilities that reveal little are limiting their investor pool and shooting themselves in the foot.

How to report bad news? "Many utilities are much more forthcoming," says Gabelli's Abramson. "It seems the one thing they want to avoid is a big unpleasant surprise and they would prefer that the market become aware of something negative at an early stage." Analysts can then incorporate the "bad news" into their earnings predictions and valuations, preventing any major devaluation.

For example, American Electric Power (AEP) in April 2006 suffered an initial setback in legal rulings by the Texas District Court regarding recouping $1.8 billion in stranded recovery costs. It chose to bring these issues out in the open in a press release and at a follow-up earnings call. "It's important for us to be transparent about new information and provide timely reporting. Bad news or good news, we handle them both the same," said Julie Sloat, vice president of Investor Relations at AEP, based in Columbus, OH.

Even with utilities that are open to releasing data, analysts and investors still dig deeper into issues such as capital expenditures. For example, Abramson noted that capital-spending programs often trigger many questions about how much money was spent on construction in current and subsequent quarters. Analysts invariably ask how much progress has been made, and when completion is expected.

Since analysts base their forecasts on growth projections, they are constantly seeking guidance on future revenues in the next quarter and beyond. Consultant Bruner said utility executives are extremely careful about their future earnings. Most utilities forecast growth in a range of 5-7 percent for the next quarter. If they are more aggressive, "they can get punished for not performing as they communicated." She also suggested that the stock price will dip if revenue predictions aren't met.

In presenting their quarterly financials, most utilities focus on the key drivers of results and earnings, Bruner said. What is driving the revenue, and what new forces are operating? Did a hot summer cause more people to use air conditioning, which spiked quarterly revenues? Have stock options expensing affected revenue this quarter? Were there any major news announcements such as an acquisition or divestiture that boosted or lowered earnings this quarter?

The effects of SOX and Regulation FD are now incorporated into how most utilities present earnings at these quarterly updates, said Becky Johnson, manager of investor relations at Alliant Energy in Wisconsin. "The major sea change occurred five years ago. Since that time, we've become better at becoming transparent and providing the appropriate level of financial information. Now it's business as usual."