Moody’s Investors Service released a pair of reports, finding that the outlook for the regulated power section is stable, but negative for the unregulated sector.
Credit metrics for regulated utilities are strong and the companies will continue to benefit from regulatory support, Moody’s said.
- The outlook for the unregulated power sector, however, is weak Moody’s said, as the companies continue to struggle with weak demand and oversupplied markets.
Regulated utilities’ financial condition is healthy with debt coverage ratio near 22%, Moody’s said. In addition, they are increasing their operating cash flows with investments in plant and equipment while cutting costs. Together those actions serve to offset flat power demand and lower allowed equity returns.
Moody’s did say that there are some signs of regulatory push back, especially in states with large failed projects such as Mississippi Power’s Kemper project and South Carolina Electric & Gas’ V.C. Summer nuclear project. The credit rating agency said there was nothing on the horizon for the next 12 to 18 months that is likely to materially affect its outlook on either the negative or positive side.
The unregulated power sector, however, faces steeper challenges. Moody’s left the outlook for the sector negative. There are positive credit factors are developing for the sector, but they are “not strong enough to change our view.”
The price of natural gas at Henry Hub, which is a major input to power prices in competitive markets, have stabilized, but they are still relatively low at around $3 per million British thermal units. Meanwhile, electricity demand remains weak because of increasing energy efficiency, particularly in the PJM Interconnection market.
Potential market reforms, such as the Department of Energy’s directive to the Federal Energy Regulatory Commission to consider cost recovery for baseload plants, could bolster prices but prolong oversupply problems. If the DOE’s reforms are implemented, they could increase revenues for nuclear and coal-fired generation, but they would also likely delay the closing of uneconomic plants, Moody’s said.