The U.S. electric industry's evolution over the past two decades has created new information needs for public power bond investors, and a newly released document is designed to provide issuers, analysts and investors with an updated framework for best disclosure practices.
On Tuesday, the National Federation of Municipal Analysts announced the release of a
The transition to cleaner forms of energy such as wind and solar, changing electricity demand patterns as well as the impact of extreme weather events and pension obligations on a utility's finances are among the topics the updated document is designed to address, according to Dan Aschenbach, principal consulting partner at AGVP Advisory, who chaired the NFMA subcommittee that produced the updated guidelines. The updated document also addresses cybersecurity-related disclosure.
"The electric industry has been going through [a] transition to cleaner energy that has established new risks, new information needs," Aschenbach said in an interview Tuesday. "And so there are a number of items that have resulted in the need for more guidance on what exactly gets disclosed or what should be disclosed."
When it comes to
The buying and selling of electricity in regional energy markets is also something investors need to have a better understanding of today compared with the past when sales were "bilateral," meaning they typically occurred between two utilities, Aschenbach said. The "resource mix" available today includes a lot more renewable energy, so it's important for investors to have detailed knowledge of how utilities interact with regional transmission organizations, he said.
"You know there are issues that occur with renewal energy when intermittency takes place and there's no energy available," Aschenbach said, adding that solar power for example might be impacted by cloud cover during certain periods. "And if you don't have a steady flow of electricity, it really creates problems for the energy grid then."
Aschenbach, who lives in New Jersey, quipped that earlier this week he had some personal experience with the perils of power interruption.
"We had 100-degree weather and we didn't have power for about 10 hours," he said. "So I understand what reliability is, how important it is."
Aschenbach also cited a shift in electricity demand patterns, including growing demand from artificial intelligence data centers.
"Definitely the demand that these data centers have created brings new sets of challenges, how it impacts the residential electric bill for example," he said. "One of the challenges is that the utility will have to manage its power supply more closely."
In addition to AI data centers, electric vehicles and the electrification of buildings are also creating new demand for electricity that has to be met, Aschenbach said.
The impact of extreme weather on utility finances is another area that could benefit from better disclosure, he said, adding that investors are interested in things like the level of insurance coverage and "how well FEMA reimbursements have been."
While some utilities have done a good job of disclosure, in other cases "you can look at an official statement and often you would never know there was an extreme weather event," he said.
Pension liability is an area that investors have begun to place greater emphasis on over the past decade or so, Aschenbach said.
"The impacts on utilities' financials weren't well-disclosed, even in financial statements," he said, adding that the purpose of NFMA's updated disclosure guidelines "is to get into some of these very challenging issues."
The updated document also addresses disclosure relating to cybersecurity. While cyberattacks have emerged as an area of "greater threat," utilities generally have been proactive about taking steps designed to combat such threats, he said.
"There is some concern regarding smaller utilities that maybe don't have the staff and the capabilities," Aschenbach said.
Founded in 1983, the NFMA is a professional organization with approximately 1,200 members, most of whom are research analysts who evaluate credit and other risks in the municipal market.
