Public power sector remains stable but demand may decline

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The U.S. public power sector remains stable due to its relative resilience through the coronavirus outbreak and resulting economic downturn, according to Moody's Investors Service analysts.

Nonprofit public power utilities that provide essential services have strong liquidity while they continue to benefit from cost recovery through self-regulated rate-setting, but electricity demand has fallen sharply in some service sectors hit hard by the virus that causes COVID-19, said a report led by Moody's senior analyst Jennifer Chang on April 22.

Florida Municipal Power Agency General Manager Jacob Williams said 21 of its municipal members plan to reduce electric bills to help customers cope with the COVID-19 pandemic.

"We expect an overall decline in liquidity and coverage ratios in 2020-21 given a likely decline in demand in 2020 resulting in lower sales revenues and cash flow coupled with most utilities temporarily suspending disconnects during the stay-at-home orders," she said.

Moody's said it projects a 4.3% cumulative business activity contraction over the first and second quarters of 2020, before a modest recovery in the U.S. Utilities that planned rate increases in 2020 may postpone them to later in the year or delay them until next year as businesses slowly reopen and the current situation normalizes.

"Some municipal utilities in Florida have already lowered prices over the next few months, passing on the benefit of lower fuel costs [for] natural gas to customers," Chang said.

The Florida Municipal Power Agency, an Orlando-based wholesale supplier, said that 21 out of 31 of its municipal members have announced plans to reduce electric bills to help customers cope with the COVID-19 pandemic.

Combined, the 21 utilities serve more than 3.5 million Floridians, who will benefit from about $60 million in savings, FMPA said. Some utilities whose municipal owners are not members of FMPA are also reducing bills.

“People are facing financial challenges due to the pandemic,” said FMPA General Manager Jacob Williams. “We recognize this issue and are working with our member utilities to help them evaluate options for keeping money in the pockets of their customers.”

FMPA said not all cities can reduce rates due to various financial situations. The agency said it doesn't know if those members are prioritizing the use of revenues in order to pay debt service on outstanding bonds.

"Each city is doing what they can to help people during this time," said FMPA spokesman Ryan Dumas. "FMPA is not aware of the reasons for every decision. While we worked with many of the cities on potential opportunities, some were able to do this on their own."

Florida Gov. Ron DeSantis issued a stay-at-home order to begin April 3 limiting the movements of residents and visitors for a month. He had already taken some actions to close some businesses, such as preventing restaurants from hosting diners and allowing take-out business only.

Since many businesses began laying off workers and sending them home as well, nearly 1.9 million people submitted unemployment claims between March 15 and April 25, according to the state's Department of Economic Opportunity. The state has processed 610,000 claims.

Many people who lost jobs are expected to reduce their power usage, and closed businesses will contribute flat or reduced electric revenues.

Moody's said it expects some utilities may tap rate stabilization reserves, when available, as well as existing discretionary liquidity, rather than passing on rate increases to spread the loss of revenues associated with nonessential services’ shutdowns, among remaining customers.

"Given the severe economic downturn, we expect this will lead to an increase in bad debts and an increase in working capital requirements for public power utilities since they will continue to serve customers who ultimately may not be able to pay or may be able to pay at a slower pace, adding to the downward pressure on financial metrics," Moody's said.

Florida's governor has formed an executive committee and three industry working groups to be part of his Re-Open Florida Task Force, none of which include any municipally owned utility. Three investor owned utilities on the task force advising on reopening the state's economy are Tampa Electric Co., Florida Power & Light Co., and Duke Energy.

FMPA's Dumas said that neither public power nor the state's electric cooperatives have a representative on the governor’s task force.

"Public power will work with the task force on reopening the state as we are asked," Dumas said.

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Municipal utility districts Coronavirus Ron DeSantis State of Florida Florida