TAKING THE PULSE: U.S. power companies faced declining electricity demand and sliding power prices in the first quarter, likely trimming earnings for utilities and generators alike.

Power output nationally fell 3% for the first three months of the year, as ongoing weakness in the economy continued to erode demand. Faced with declining sales, regulated utilities have cut costs and begun to turn to state regulators to raise rates. Analysts aren't expecting major cuts by utilities to earning guidance this early in the year.

Companies with power plants that sell electricity in deregulated states continued to face slumping prices in the first quarter. Natural gas prices, which drive power prices in many of the U.S.'s regional electricity markets, sit at six-and-a-half-year lows. Most generators protect themselves against commodity price swings in the short term through hedging programs, but ongoing weakness could result in cuts by companies to earnings outlooks.

 
   COMPANIES TO WATCH:

Southern Co. (SO) - reports April 29

Wall Street Expectations: Analysts surveyed by Thomson Reuters anticipate earnings of 41 cents a share on revenue of $3.5 billion, compared with year-earlier earnings of 47 cents a share on revenue of $3.68 billion.

Key Issues: Southern and other regulated utilities face ongoing earnings pressure from declines in power sales, especially in the industrial sector. Cost cutting has been one way to balance the dropoff, but reductions likely are getting harder. American Electric Power Co. (AEP) cut profit guidance for the year last month, while Entergy Corp. (ETR) warned investors that earnings for the year could finish at the low end of guidance. But "meaningful" cuts to annual earnings outlooks aren't likely by companies in the coming weeks, especially with three quarters still to go, wrote J.P. Morgan analyst Andrew Smith in a recent note to clients.

Entergy Corp. (ETR) - reports May 4

Wall Street Expectations: Analysts forecast earnings of $1.44 a share on revenue of $3.08 billion, compared with $1.56 and $2.86 billion, respectively.

Key Issues: Entergy is one company being watched for potential merger and acquisition activity. The company, which indicated its interest in February, could buy an independent power producer or individual plants, although Credit Suisse analyst Dan Eggers in a recent note to clients wrote he isn't convinced either will happen. Also, Exelon Corp. (EXC) continues to pursue its unsolicited bid for NRG Energy Inc. (NRG).

Reliant Energy Inc. (RRI)- no date announced

Wall Street Expectations: Analysts forecast a loss of 11 cents a share on revenue of $621 million, compared with earnings of $1.07 a share, including $558 million in unrealized gains from energy derivatives, on revenue of $2.82 billion.

Key Issues: Reliant and other independent power producers are the most exposed to swings in natural gas and power prices. That leaves their earnings guidance vulnerable to revisions if prices don't rebound as the year goes on. Also, some generators find their older, coal-fired power plants face competition from newer, natural-gas fired plants because of the slide in gas prices. Shares of merchant generators have rallied in recent months, in part because of speculation they may be scooped up if M&A activity picks up.

(The Thomson Reuters estimate and year-earlier net may not be comparable due to one-time items and other adjustments.)

-By Mark Peters, Dow Jones Newswires; 201-938-4604; mark.peters@dowjones.com