Utilities: Still Bleeding Cash, Now Worse

When we last looked at utilities in early August, the entire sector was already underwater. Twenty companies. Twenty F-grades. A median FCF margin deep in negative territory.

Now it's somehow worse.

The sector still has twenty companies. Nineteen now have F-grades. The single C-grade is NextEra Energy at 11.7% FCF margin, which would barely scrape a D in most other sectors. The median FCF margin sits at negative 9.9%. These companies are burning cash to operate, not generating it.

The Numbers Tell One Story

Look at the top five performers by FCF margin. NextEra at 11.7% stands alone in positive territory that matters. Then you get Public Service Enterprise Group and Consolidated Edison both at 0.2%. Essentially break-even. Eversource is already negative at -0.3%. Edison International sits at -3.7%.

Those are the five best in the sector.

The bottom tells you where most of this sector actually lives. Xcel Energy burns through cash at a -46.8% FCF margin. Sempra hits -44.6%. Dominion Energy comes in at -44.1%. These aren't rounding errors. These are structural problems.

The average debt-to-FCF ratio across the sector is 582.9x. That number would be almost funny if it weren't real. When your average company carries debt that's nearly 600 times its free cash flow, you're not running a business. You're running a debt service operation that happens to generate electricity.

The Trend Data Makes It Worse

Here's what should terrify anyone paying attention: eleven companies show improving trends. Eight are declining. One is stable.

That sounds like good news until you realize what it actually means. Most of these "improving" trends are companies getting slightly less terrible. Sempra is improving from an absolute disaster to just a regular disaster at -44.6%. Same story with Dominion at -44.1% and American Water Works at -24.2%.

Meanwhile, the companies that were merely bad are now declining. Xcel Energy is getting worse at -46.8%. Duke Energy is declining at -5.3%. Wisconsin Energy is declining at -10.4%. The sector isn't fixing itself. It's just redistributing which companies are drowning fastest.

Consolidated Edison deserves special mention. It's one of only two companies with a positive FCF margin above zero, sitting at 0.2%. Its trend? Declining. Even the few companies that aren't burning cash can't maintain momentum.

Why This Sector Exists In This State

Utilities operate under a specific business model that explains some of this. They're capital intensive by nature. They build infrastructure that costs billions and lasts decades. Regulators control their pricing. They're not designed to generate the kind of cash flow margins you see in software or consumer staples.

But that's not an excuse for nineteen F-grades.

Our grading system uses sector-adjusted thresholds specifically because we understand different industries have different economics. For utilities, an A-grade requires just 8% FCF margin. A B needs 6%. A C needs 4%. A D needs 2%.

Twenty companies. One hit 4%. Nineteen couldn't even clear 2%.

This isn't about unrealistic expectations. This is about an entire sector that has structured itself in a way that makes generating actual free cash flow nearly impossible. The regulated rate-of-return model gives utilities guaranteed returns on capital expenditures, which creates an incentive to spend rather than optimize. Add in the transition to renewable energy, which requires massive upfront investment, and you get a sector that's perpetually capital-starved.

What About The Debt

That 582.9x average debt-to-FCF ratio isn't a typo. It's what happens when you have companies generating minimal or negative free cash flow while carrying utility-scale debt loads.

NextEra, the only C-grade in the sector, probably has the best debt position by default. When you're the only company generating double-digit FCF margins, your debt becomes manageable even if the absolute number is large.

Everyone else is levered to a degree that would trigger immediate downgrades in our methodology if their FCF wasn't already so bad that the debt modifier is almost irrelevant. You can't downgrade an F for having too much debt. It's already an F.

The One Company That Works

NextEra Energy stands out not because it's great, but because it's the only one that's functional. An 11.7% FCF margin would earn a C-grade in this sector and probably a D in most others. But in utilities, it's enough to be the clear leader.

The company's improving trend suggests it's actually getting better, not just less terrible. That matters. It means the business model can work if executed correctly. The question is why NextEra figured it out and nineteen other companies haven't.

What This Means For Investors

Utilities are often pitched as stable, dividend-paying investments for conservative portfolios. The free cash flow data says that stability is an illusion built on debt and regulatory protection, not operational health.

Dividends get paid. But they're not being funded by cash the business generates. They're funded by debt issuance and capital recycling. That works until it doesn't. And when the sector median FCF margin is negative 9.9%, you're already past the point where it works.

If you own utilities, you're betting that the regulatory environment continues protecting these companies indefinitely, that debt markets continue funding their cash burn, and that the energy transition somehow gets cheaper instead of more expensive. Those are real bets. Just understand what you're betting on.

The sector has one C-grade, nineteen F-grades, and a median FCF margin of negative 9.9%. The trend data shows more companies improving than declining, but most of those improvements are just smaller losses. This isn't a sector in transition. This is a sector that fundamentally doesn't generate free cash flow at scale, and nothing in the current data suggests that's about to change.