Limited Positive Surprise In Electric Utilities: Merrill Lynch (EIX, RRI, SO, FPL, NVE, DUK)

Merrill Lynch expects many utilities to reaffirm their ’10 earnings guidance owing to higher near term prices, modest upturn in sales fueled by economic recovery and refinancing savings. However, decline in power prices in ’11 and ’12 (3-6%) since the companies last updated investors after Q3 may lead company updates (esp. those issuing ’10 guidance for the first time) on the power market outlook to be generally negative.

Potential positive surprises are expected in Edison International (NYSE: EIX) due to higher power prices in ’10. Negative surprises could be seen in RRI Energy (NYSE: RRI) , Southern Company (NYSE: SO), FPL Group (NYSE: FPL), NV Energy (NYSE: NVE) and Duke Energy (NYSE: DUK).

Alliant Energy (NYSE: LNT) is expected to give guidance in Feb ’10 while also sharing the views on lowa and Wisconsin rate orders and the outlook on the wind business. CMS Energy (NYSE: CMS) is expected to provide 2010 guidance of $1.35 and reiterate its long term earnings growth rate of 6-8%.

Merrill Lynch has raised DPL Inc.’s (NYSE: DPL) estimates for 2010E by $0.07 to reflect higher power prices and lower interest expense. DTE Energy (NYSE: DTE) is expected to have lower than expected equity needs due to lower capex while Duke Energy (NYSE: DUK) is expected to have a long term growth rate reduction. Edison International’s (NYSE: EIX) estimates have been raised to $3.50 reflecting benefits from higher power prices in 2010 while FirstEnergy’s (NYSE: FE) estimates for 2011-13 have been reduced slightly due to higher coal price assumptions. FPL Group (NYSE: FPL) is expected to revise guidance downward and comment on tougher wind development.

Merrill Lynch has lowered NSTAR (NYSE: NST) guidance based on higher net interest expense and property taxes while for NV Energy (NYSE: NVE), it believes consensus EPS forecast at $1.06 and $1.11 for 2010 and 2011 will have to come down. PG&E Corp. (NYSE: PGE) is expected to maintain its earnings guidance in the range provided earlier. If Pinnacle West Capital (NYSE: PNW) can cut O&M, then it can maintain relatively flat earnings in 2011, based on which Merrill Lynch has increased the price objective to $37 per share. SCANA Corp. (NYSE: SCG) will update investors on new nuclear projects and retail operations, also equity issuance needs. TECO Energy (NYSE: TE) expects to offset the impact of weaker sales through cost cutting. Given the improvements in met coal pricing over Q4, Merrill Lynch expects TECO Energy to post upside in margins.