DALLAS - Moody's Investors Service is maintaining a stable outlook for public power utilities in 2014, citing modest growth in demand and low volatility in natural gas prices.
Customer demand for electricity has been tracking the slow improvement in the economy, according to the report released Friday. Slower growth means less need to finance new energy and capacity.
"Moody's expects the liquidity and leverage ratios of the public power utilities to improve modestly in 2014," said Moody's vice president Dan Aschenbach. "The risks to the sector's stability are longer-term and mainly tied to environmental compliance."
Exposure to the wholesale power markets remains a significant credit risk for some public power electric utilities, the report indicated. Many have steered clear of regional markets in favor of local-area generation to reduce market-price volatility.
Development of regional energy and capacity markets through regional transmission organizations, or RTOs, can provide a means to improve transmission reliability, network security and price transparency, the report added.
"The evolving markets come with complicated rules and protocols that lend a degree of uncertainty and credit risk, particularly for smaller municipal electric utilities, such as Brownsville Public Utility Board (A2 stable) or Lafayette Utilities (A1 stable)," the report said.
"Many have enlisted the technical skills of organizations such as The Energy Authority (TEA) to manage the trading risks inherent in the new market environment, but an increased level of complexity holds with it unforeseen financial risks," analysts explained. "For example, the introduction of congestion pricing in the Midwest ISO market has hurt the cost of Prairie State generation, which was not contemplated when the plant was under construction."
There are now 10 RTOs operating bulk power systems, serving 60% of the US electric power supply. RTOs, such as the Southwest Power Pool (SPP) and Electric Reliability Council of Texas (ERCOT), are independent membership-based nonprofit organizations that work to ensure reliability of the power grid in their regions.
"While we believe that the RTOs and regional markets have positive features, there are potential longer-term implications for public power electric utilities," the analysts said. "For example, the movement in ERCOT to create a capacity market has the potential to hurt cost-recovery for new generation projects."
