Moody’s Investors Service on Friday lowered its outlook for the U.S. regulated utility sector to negative, warning that high natural gas prices, inflation and rising interest rates could mean power providers struggle to promptly recover their costs.
“The outlook could return to stable if the sector's regulatory support remains intact,” the ratings agency said.
Fuel prices and economic factors “raise residential customer affordability issues, increasing the level of uncertainty with regard to the timely recovery of costs for fuel and purchased power, as well as for rate cases more broadly,” the firm said.
About one in six American families are behind on their utility bills and in total owe utilities more than $16 billion as of August, according to the National Energy Assistance Directors Association.
Moody’s warned that high natural gas prices and inflation “may persist into 2023, which could hurt cash flow recovery should regulators seek to limit the impact on customer bills by delaying recovery or approving
lower rate increases.”
“We still think most state regulators will remain supportive, but utilities and commissions will face heightened public scrutiny amid affordability concerns,” the firm said.
The U.S. Energy Information Administration on Tuesday said it expects power prices will continue to rise. Average U.S. residential electricity prices will reach almost 15 cents/kWh in 2022 and 15.33 cents/kWh in 2023. The price of natural gas at the benchmark Henry Hub will decline, however, from an average of $6.49/MMBtu this year to $5.46/MMBtu in 2023, the agency said.
“Utilities have substantial purchased power and fuel costs to recoup in addition to rate base growth investments,” Moody’s said. “These costs have the potential to lead to substantial rate hikes, increasing the risk that regulators will defer some cost recovery to later dates.”
“Utilities that operate in service territories with poor demographics or weak local economies are at higher risk because high inflation could limit the willingness of regulators to allow utilities to pass through their costs to customer all at once,” Moody’s added.