Roger S. Conrad

So far in fourth quarter 2018, the Dow Jones Utility Average has returned 5.4 percent. That’s against a -9.3 percent loss by the S&P 500. Utilities are also now well ahead for the full year, after lagging behind for most of it. I’m not surprised money is flowing into essential service companies, given the level of investor fear of a potential recession, bear market and US/China trade war. And utilities’ strong third quarter results, which I again highlight in the Utility Report Card, confirm their businesses will hold up again if the worst does happen. On the other hand, this is a world where stock market ownership has been increasingly concentrated into fewer hands. In this case, it’s giant exchange traded funds that are managed by passive strategies, governed by what appear to be remarkably similar algorithms. That means a lot of money moves in a hurry, and not always for good reason. Favorite stocks like NextEra Energy (NYSE: NEE), for example, have been driven relentlessly higher to nosebleed valuations. Meanwhile, “risk off” moves have tanked most high yielders, most recently Amerigas Partners (NYSE: APU).

In little more than a decade, shale-drilling technology has converted the US to a net exporter of energy. And frac water recycling, more efficient proppants and use of information technology continue to drive down costs, increasing industry staying power.

It’s been an up and down 2018 so far for Conservative Holding Dominion Energy (NYSE: D). Downside began shortly after New Year’s, following a daring takeover bid for SCANA Corp (NYSE: SCG). That was just as South Carolina regulators and legislators were turning utilities into election year punching bags for cancelling the Summer nuclear construction project.

It’s “risk off” time again in the US stock market. Stocks of companies considered resistant to US/China trade war pressures and a possible recession are catching bids at their most frenetic pace in two years.

Dominion Energy (NYSE: D) reached a “definitive merger agreement” to buy out minority unitholders in its Dominion Midstream Partners (NYSE: DM) affiliate. The final terms reduce the effective distribution cut in the first year of the deal to a bit less than 15 percent. That includes the additional distribution payment of 36.9 cents and Dominion Energy’s expected 10 percent dividend increase in January.

California's historic Camp Fire, so far has claimed more than 60 lives, and estimates of damage to property are in already in the tens of billions. With super-dry conditions in the west and hurricanes in the east recurring more frequently," US utilities now face an increasing challenge ensuring grid resiliency and safety in a new abnormal of violent weather.

This year's autumn rains are late arriving in bone-dry California, resulting in another season of devastating fires. Smoke from the massive “Camp Fire” in northern California currently shrouds San Francisco and the ongoing Edison Electric Institute's annual Financial Conference in the city’s downtown area. Executives from PG&E (NYSE: PCG), the utility serving the affected region, withdrew from the conference to deal with the crisis.

The Dow Jones Utility Average finished the month of October up 1.9 percent. That was almost 9 percentage points better than the S&P 500, and despite rising interest rates. Historically, a positive October for utilities has meant a solid finish to the year. This time, the sector will have two other potential catalysts to help it along: Strong third quarter earnings and guidance, and what appear to be mostly supportive outcomes from the recent nationwide elections. I highlight numbers and guidance for the 200 plus essential service companies of our coverage universe in the Utility Report Card.