Stable Year Seen for Public Power Utilities, Despite Trump-Driven Uncertainty

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DALLAS – The nation's energy and environmental policies are expected to shift toward less regulation under President Trump, but public power utilities committed to emissions reduction should see a stable ratings environment in 2017, according to Moody's Investors Service.

"While it is early in the process to assess the policy choices of the next presidential administration, it could reconsider federal policies such as the Clean Power Plan, which could slow the pace of regulation over the next several years," analyst Dan Aschenbach wrote. "However, we expect that utility policies aimed at reducing carbon emissions will remain."

The sector report, which included contributions from Moody's analysts Thomas Brigandi, Kevin G. Rose, Sarah Lee, Gaurav Purohit, and A.J. Sabatelle, did not mention Trump's promises to restore jobs in the coal-producing states or how that might happen amid extremely low natural gas prices.

In his campaign for president Trump called man-made global warming a "hoax" promoted by China but said after his election that he would keep an "open mind" on the subject. At events attended by coal miners, Trump promised to bring back some of the more than 190,000 jobs lost in the mining industry since September 2014.

In a Sept. 22 campaign speech in Pennsylvania Trump promised to "end the war on coal."

"I will rescind the coal mining lease moratorium, the excessive Interior Department stream rule, and conduct a top-down review of all anti-coal regulations issued by the Obama Administration," Trump said, promising to scrap the Clean Power Plan and other initiatives to improve the environment.

About one third of the nation's electricity is currently generated from coal, a figure that has declined in recent years.

Trump reportedly will appoint Oklahoma Attorney General Scott Pruitt, a Republican, to head the U.S. Environmental Protection Agency.

Pruitt opposed the EPA's power sector regulations under President Obama and has fought stricter environmental rules. He is one of the leaders of a lawsuit federal carbon rules under the Clean Power Plan.

Against the political backdrop, business conditions for public utilities should remain favorable through next year, according to Moody's.

"Low natural gas prices and more affordable renewable power have made it cheaper for some utilities to buy energy in the regional energy markets than to generate it themselves, which means their costs are lower," Aschenbach wrote. "However, some of the coal-fired or smaller nuclear plants owned by utilities will remain less price competitive."

Low natural gas prices have also made running some coal-fired or smaller nuclear plants uneconomical at certain times of the day, causing some to run less often or to be shut down, Moody's said.

For example, between February and April 2016, San Antonio City Public Service officials reported that the Aa1-rated utility did not run its coal-fired generation units for 57 days, because purchasing energy on the Electric Reliability Council of Texas grid was less expensive.

"A major feature of the ERCOT market is that a significant amount of wind energy is available at a lower variable cost, compared with running the utility's coal units," Aschenbach wrote. Texas has the deepest penetration of wind generation relative to other states.

The U.S. Energy Information Administration expects that residential energy demand will decline 1.4% in 2017, and that industrial sales will decline 0.3%, about the same pace of decline as this year.

"Historically, energy demand has followed positive and negative trends in the economy," Aschenbach wrote. "But the relationship has decoupled over the past decade amid energy-efficiency standards. We expect that the US economy will grow about 2.2% in 2017 and 2.1% in 2018."

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