Q: Reviewing the earnings today and the most obvious impact to reported NI was the dramatic increase in 'energy purchases and fuel'.
Given that I assume that means nat gas and what not that their power stations need to create electricity, pls comment on their ability to adjust their pricing on the assumption that fuel costs will stay higher longer and if not, would one continue to hold cpx?
Given that I assume that means nat gas and what not that their power stations need to create electricity, pls comment on their ability to adjust their pricing on the assumption that fuel costs will stay higher longer and if not, would one continue to hold cpx?
5i Research Answer:
CPX does have meaningful pricing power, but it is not fully insulated. Almost 75% of its earnings are secured by long-term contracts, and management has a disciplined hedging approach where 80% is hedged in year one, stepping down to 65% and 50% in years two and three, and so as a result, elevated fuel costs do flow through on the unhedged merchant portion.
Overall, we would continue to hold. The fuel cost pressure is real in the near-term, but the contracted base is solid, and we continue to feel it should benefit from the long-term data center and AI power secular growth theme.