New York City-based financial authority Moody's Investors Services released its 2016 outlook for the US public power electric utilities industry on December 2, saying that overall the sector “… is stable, reflecting the expectation that utilities are ready and able to raise consumer rates to recover costs and support operations, financial performance, debt service coverage, and liquidity metrics.”
Moody's anticipates stagnant electricity demand growth will persist, in part due to energy efficiency programs, according to the new report, "Public Power Utilities — US 2016 Outlook — Stable Outlook But Carbon Reduction Presents Challenges." Utilities plan on increasing energy efficiency programs, and their rate structures will change in order to recover their costs.
Debt levels are anticipated to remain steady in 2016 amid weak growth in power demand, the company said. The median debt ratio for generators is expected to hold at 2015 levels of around 40 percent. The median debt ratio for the 50 largest utilities by debt outstanding will continue at around 55 percent.
However, efforts to reduce carbon emissions and expand renewable energy will be a source of new debt in the next few years.
"For 2016, we expect the median fixed obligation charge coverage ratio for generators will be 1.61x in 2015 and 2016, and that median days of liquidity on hand for generators will be about 214," Moody's Senior Vice President Dan Aschenbach commented.
Moody's says the transition to cleaner power sources while maintaining customer rates and reliability is a developing risk to the stable outlook over the next several years, as increasing debt leverage could affect cost competitiveness.
Utilities that rely heavily on coal-fired generation will face more immediate impacts from new regulatory rules on plant emissions. While the majority of public power electric utilities have a diverse range of fuel sources, the Midwest and Southeast account for over 70 percent of coal-fired generation. The shift to energy efficiency systems in these regions creates reliability challenges.
