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Hurricane Florence Losing Strength: 3 Utilities in Focus


Hurricane Florence, which was earlier predicted to hit the coasts of Carolina and Virginia as a Category 4 storm, has been losing intensity over the past couple of days. Notably, Florence has been downgraded to a Category 2 storm, according to the latest National Hurricane Center (NHC) advisory. Though this information should have come as a source of relief, it is far from being so. This is because the hurricane is growing in size and may now impact Georgia.

According to a report by BBC News, the hurricane is weakening. This implies that this slow-moving tropical storm could linger for days, thereby causing catastrophic flooding in its pathway. This would further add to the perils of the more than 10 million residents in Carolina and Virginia who are under a storm warning, according to the National Weather Service (NWS).

In times of natural calamities like hurricanes, the Utility sector tends to suffer. The rampage caused by heavy winds and catastrophic flooding affects transmission lines, forcing thousands to deal with power cuts. Although, as of now, Florence seems to have lost its initial strength, its difficult to determine the extent of impact when it hits the coastal regions of Carolina, Virginia and Georgia.

Estimated Economic Impact of Florence

The wind strength of Florence is not expected to weaken further any time soon and the forward speed of the hurricane is also dropping. This further increases the possibility of the hurricane lingering near the coastline from Sep 13 through Sep 15. This means that torrential rainfall may last for significant periods and cause catastrophic flooding, including in inland areas such as Alabama, Tennessee, Kentucky and West Virginia (according to BBC News).

While the loss of lives could be avoided by timely evacuation, property and infrastructural losses are inevitable. According to an analysis by global property and analytics firm CoreLogic, reconstruction costs for all 758,657 homes in the likely path of the storm is expected to be a massive $170.2 billion. However, the estimate was provided at a time when Florence was still a Category 4 storm. Now that it has been downgraded to a Category 2 storm, we may expect a notable drop in the estimate.

AccuWeather now predicts $60 billion in economic impact and damage as a result of Florence.

Impact on Utilities

According to the latest predictions by NHC, the hurricane is moving closer to the coast of North and South Carolina.

Power outages remain the prime concern as devastating storms followed by catastrophic floods can disrupt supply for days. Moreover, flooding may affect regional power plants. We note that in 2016 hurricane Matthew flooded cooling ponds at Duke Energy's Lee coal plant.

Duke Energy DUK had earlier said that Florence is expected to affect electricity supply for three-quarters of its 4 million customers in North and South Carolinaand the outages could last for weeks. The company also added that 1 million to 3 million homes and businesses might lose power for lengthy periods, depending on the storm's track.

Analysts also remain concerned about the unlined coal ash pits in the states of Carolinas and Virginia. Duke Energy and Dominion Energy D still have several such facilities along the coast and inland that leave communities vulnerable to potential flooding or leaks from the sites as stated by Frank Holleman, a senior attorney at the Southern Environmental Law Center.

How Are Utilities Preparing?

Keeping in mind how hurricanes like Harvey and Irma had devasted the states of Texas and Florida respectively, utility providers having operations in Florence’s expected pathway are bracing up for another round of powerful storms. Last year, Harvey cost utilities in the Gulf Coast region around $520 million in damage, per an analysis done by S&P Global.

Therefore, to avoid such expenses, utilities operating in the region – Duke Energy, Dominion and Aqua America WTR – are taking necessary measures. For instance, Aqua America’s North Carolina unit, Aqua has prepared its employees and resources for system assessments and restoration service once it is safe to do so. Duke Energy has deployed more than 20,000 of its employees to restore power – the largest resource mobilization ever for the company.

Moreover, per a Bloomberg report, Florence is now headed toward Duke Energy’s Brunswick nuclear plant on North Carolina’s southern coast. Per a company spokesperson, it plans to shut the 1,870-megawatt plant two hours before tropical storm-force winds reach the facility, which could happen as early as Sep 13 morning, according to the National Hurricane Center. The shutdown of this plant will create scarcity of power supply in the area.

Dominion’s crew is working to secure power lines above and below ground since they anticipate flooding and downed trees to cause power outages. The crew has put some of the vulnerable lines underground to avoid major outages.

To Conclude

There’s no doubt that utilities in Florence’s expected pathway are doing their best to restore power in the event of an outage and taking necessary infrastructural initiatives to weather storm effects. However, as warned by Duke Energy, the company’s “customers could be without power for a very long time – not days, but weeks."

This Zacks Rank #3 (Hold) company further added that despite the necessary measures, restoring power after a massive storm can be extremely challenging for utility repair crews due to strong winds and widespread flooding.

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

Thus, the fate of the aforementioned utilities currently hangs in the balance. The infrastructural strength of these utilities will be put to test when the hurricane actually hits. Their share price performance may also take a hit.

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