The prospect of increased regulation is becoming a concern for the public power industry, experts said at the Standard & Poor’s electric cooperative and public power conference.
While relatively low fuel costs have allowed utility systems to absorb some of the revenue shortfalls in the weaker economic environment, regulation could challenge credit qualilty. Jeffrey Panger, director at Standard & Poor’s, said. President Obama may try to pass increased regulation by the 2014 midterm election.
Panger said more units may be forced to shut down as restrictions on emissions raise costs. Still, with natural gas prices relatively low, many systems will be able to raise base rates to help their margins when factoring in the costs of regulation. Many units also have price autonomy and lack competition, relieving margin compression.
Lower demand in recent years also gave public power systems time to address the regulation, Panger said. Still, natural gas and coal prices are expected to increase, raising costs for power producers.
Until stricter regulation is passed, Standard & Poor’s will not include the risk of regulation in its ratings, giving public power systems more time to prepare, Panger said.
