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Outlook for utilities 'positive' under Trump: analyst

The new political landscape and shifts in energy policy likely to begin when Donald Trump officially takes over the presidency appear "slightly positive" for U.S. electric utilities, a senior analyst with S&P Global Ratings said.

The biggest plus for utilities under the Trump administration will be the elimination of aggressive deadlines for carbon emissions reductions from the generation fleet that are prescribed under the U.S. EPA's Clean Power Plan, Todd Shipman, U.S. utility sector lead for S&P Global Ratings, said in an interview.

Shipman said that in regard to the CPP, utilities are "not so much fighting being less carbon-intensive going forward," but they are concerned about having enough time and flexibility to meet the carbon rule's targets. The CPP, whose implementation was stayed by the Supreme Court while the D.C. Circuit Court of Appeals deliberates the legality of the rule, seeks to cut carbon emissions from existing power plants by 32% from 2005 levels by 2030, with interim CO2 reduction goals to be met by 2022.

Utilities want to ensure that "there wasn't anything that would disrupt their operations, hurt reliability or force them to have to spend a whole lot of money sooner rather than being able to stretch it out and blend all of those costs into rates over time," Shipman said.

The general concept of reducing emissions is not the issue, Shipman said, as many utility executives believe that such a move to a low-carbon economy is "going to happen … for economic or market reasons as much as any regulatory reasons."

Impacts of CPP survival muted under new administration

The rating agency, however, has not taken a position on or attempted to predict the fate of the CPP. The carbon rule "could survive in some way, shape or form," as the public has expressed an interest in tackling carbon emissions, Shipman said. Even if that were to happen, "we think with the new administration, new Congress and what's going on at the state level that [utilities will] have more time to be able to absorb" the impact, he added.

Trump has not offered many details on his energy policies beyond a desire to promote domestic energy production and make the country energy independent. His recent Cabinet picks for secretaries of state and energy as well as his nominee to lead the EPA have backgrounds in line with this vision and have been regarded by Democratic critics as friends to Big Oil and the natural gas industry.

"The biggest impact on utilities to any kind of a policy shift towards … making life a little easier for the fossil fuel folks would be [from] the impact on the commodity prices," Shipman said.

"Commodity prices coming down or staying low creates more headroom [for utilities] to be able to absorb other cost increases," he said. "So if commodity prices were to react to that kind of a policy shift by staying lower than we thought they might or resisting a move upward, it does give the utilities more room to basically spend money."

Shipman prefaced this with the contention that utilities are regulated, with rates set by state commissions "full of politicians … so they're very sensitive to rate changes."

Shipman continued: "[Utilities] can spend money to grow their rate base" and get closer "to those growth targets that they're touting to the equity side, to the stock analysts."

He added, "There seems to be a general consensus that utilities need to invest in their nuts and bolts, the wires and the pipes in their service territory, their physical assets, to bring them up to more modern standards," capable of deploying smart meters, smart grids and other technologies and efficiencies that require a smarter system.

But the only way utilities can spend money on upgrades and improvements is "if commodity prices are on their way down or staying low because that gives them that headroom to increase rates at a level that the regulators can live with politically," Shipman said.

Utilities will not have a role in saving coal

As for Trump's campaign promise to save the coal industry, Shipman said he does not know what the president-elect's ideas are for restoring coal mining jobs, but he doesn't think utilities would be a big part of the plan.

"I can't imagine anyone is going to announce a new coal plant because of the change in administration in Washington, D.C.," he said. "There's plenty of demand for coal overseas. There's plenty for coal miners to do besides dig out the stuff they put in the utility boiler, that's for sure."

He noted that "the trend away from coal is a real one, and … coal plants are shutting down as much because they can't compete with natural gas as anything else."

He added that natural gas-fired power plants are the direction in which the utility industry is already headed and will continue. But he offered that there is also a sense that utilities are jumping on the renewables bandwagon.

He said he would not be surprised to see more utility-scale and community solar projects, which are more cost-effective and help utilities grow their rate base as opposed to purchasing solar power from independent developers or having customers pursue rooftop solar.

Jasmin Melvin is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is a division of S&P Global Inc. S&P Global Ratings is also a division of S&P Global Inc.