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NextEra's Texas Expansion Plans Hit by Regulatory Blockage

Zacks Equity Research

NextEra Energy’s NEE plans to acquire Energy Future Holdings Corp (“EFH”) for $18.4 billion was hit by an obstacle when Texas regulators decided to stop the deal, as their primary finding suggests the deal was not in public interest.

The members of the Texas commission felt that Energy Future's plan to merge with NextEra and exit nearly three-year bankruptcy placed too much risk on ratepayers. Energy Future is the majority owner of Oncor, the state's largest power network. This is the second plan to sell Oncor that has met regulatory resistance.

NextEra’s Plans Impacted

The decision will impact NextEra Energy’s long term plans. The company was aiming to expand its operation in Texas through inorganic route.

The move was in sync with the company’s focus to increase its regulated generation mix. NextEra Energy expected the Oncor deal to help it achieve the targeted annual earnings growth rate of 6–8% through 2018, off a 2014 base.

Exelon Deal Hit But Approved

Last year, Exelon Corp. EXC was able to complete acquisition of Pepco Holdings even though the deal was initially disapproved by Public Service Commission of the District of Columbia. Exelon and Pepco filed another version of their merger proposal, which was finally approved by the regulators.

Will NextEra Walk in the Same Path?

NextEra and Energy Future Holdings did not comment on the decision of the Texas regulators. NextEra Energy might follow in the footsteps of Exelon by appealing against the decision and filing a fresh proposal for approval.

In any case, the Texas commission is planning to meet and formally vote on the NextEra deal at an April meeting.

Price Movement

In the last six months, NextEra Energy’s shares returned 5.7%, outperforming the Zacks categorized Utility – Electric Power industry’s increase of 4.3%.

Improving economic condition in its service territories and additions to renewable generation assets will boost NextEra Energy’s performance.  Its 2017 Zacks Consensus Estimate moved up by 1.1% to $6.66 per share in the last 60 days.

Zacks Rank

NextEra Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other stocks in the industry sharing the same rank are Entergy Corp. ETR and Fortis Inc. FTS.

Entergy Corporation reported a positive earnings surprise in last four quarters with an average beat of 104.4%. Its 2017 Zacks Consensus Estimate moved up by 10.3% to $5.02 per share in the last 60 days.

Fortis reported a positive earnings surprise in last two quarters with an average beat of 20.6%. Its 2017 Zacks Consensus Estimate moved up by 4.9% to $1.92 per share in the last 60 days.

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