Fitch says slow growth in US power use likely to pressure some in electricity sector
Originally published January 14, 2013
Fitch Ratings said the expected small increases in U.S. electricity usage will add to the financial pressure on some power entities. The Energy Information Administration projects a 0.6 percent increase in consumption for industry and 0.7 percent for residences through 2040, Fitch noted. Consumption fell in 2008, 2009, and 2011 with a small increase in 2010.
Over the next three to five years, "we expect increasing challenges to the monopolistic utility business model as federal lighting standards will be fully effective in 2015" and competition introduced from energy efficiency and demand-response businesses "will hurt the utility credit profile," Fitch said. The avoidance of electricity consumption, measured as negawatts, "is already reflected in market pricing at PJM [Interconnection] capacity auctions and competes with traditionally supplied power," Fitch said. "Higher unit costs and stranded costs in less productive capital investments are the largest potential impact from slower electricity sales."
For competitive generation companies, "the dampening effect on electricity sales from energy efficiency has exacerbated the already depressed spot and forward wholesale power prices," the credit rating company said. Coal-fired generators are most vulnerable, as evidenced by the recent write-down by Ameren of its merchant genco business and Dominion's retirement of its Kewaunee nuclear power plant, Fitch said.
The impact on most public power entities "is not likely to be as material, given their cost-of-service business model and lower reliance on industrial sector sales," Fitch said. "Slower growth in usage could even delay investment in expensive new power supply resources for many public power utilities, thereby moderating production costs and necessary rate increases."
However, public power entities that rely heavily on the sale of excess power to subsidize retail revenue are likely to face continued pressure to raise rates in 2013, the credit rating company said. "We expect pressure on these entities to rise as wholesale market prices increase only modestly through 2015, natural gas prices remain low and most regions of the United States maintain excess capacity."
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