Houston — Public power utilities and electric cooperatives face significant technological, regulatory and economic uncertainties in 2019, but such utilities are likely to maintain their financial strength, on the whole, a report released Tuesday shows, which elicited general agreement from industry observers.
The S&P Global Ratings report, entitled, "U.S. Public Power And Electric Cooperative Utilities 2019 Sector Outlook: Ratings Stability Persists In A Difficult Era," said stabilizing factors include "largely, if not fully, captive customers" and "autonomous ratemaking authority." Credit analyst David Bodek served as lead author.
The report listed the following risks:
**Behind-the-meter resources such as solar panels and batteries, and increasingly efficient lighting and appliances, "could frustrate utilities' recovery" of generation and grid investments.
**Plug-in electric vehicles and blockchain data mining could cause demand spikes at times when existing generation may be deficient.
**Tech-savvy malefactors persist in trying to hack into electric utilities, which could be disastrous.
**Environmental rules remain in flux.
**While "robust employment levels" may pressure wages upward for utilities' capital projects, S&P Global Ratings in December raised its estimate of the risk of a recession in 2019 to 15% to 20%, compared with August's 10% to 15%.
The report noted that total retail electricity sales have remained relatively stable over the past decade, ranging from a pre-recession maximum of 3,765 TWh in 2007 to a minimum of about 3,597 TWh in the depths of the 2009 recession.
Through October, retail electricity sales totaled 3,208 TWh, compared with 3,128 TWh for the first 10 months of 2017, the US Energy Information Administration reports.
"In my humble opinion, we are just beginning to see end-use energy efficiency take hold," said Nat Treadway, managing partner of DEFG, a management consultancy focused on energy. "There is a huge potential for consumers to receive the same level of service with greater investments in highly efficient devices."
Regarding electric vehicles' demand-spike risk, Matthew Cordaro, a former Midcontinent Independent System Operator CEO who now resides in New York, said, "Big increases in power demand due to electric vehicles and other developments are still too far off to represent a near-term risk for public utilities."
But Cordaro added, "Among challenges to this type of utility, however, are political influences that may result in oversubscribed renewable and other green labeled programs."
Bill Peacock, Texas Public Policy Foundation vice president for research, attributed "many of these risks" in the S&P Global Ratings report to "government interference with the market."
"These would include environment regulation, renewable subsidies and even things like behind-the-meter generation," Peacock said. "But rather than take steps to reduce the interference and thus the risk, most people push for even more government involvement."
S&P Global Ratings' outlook was stable or positive for about 96% of the public power and co-op utilities, but exceptions included utilities associated with the abandoned V.C. Summer nuclear expansion in South Carolina and the five-year-late, billions-over-budget A.W. Vogtle nuclear expansion in Georgia.
In particular, S&P Global Ratings has negative outlooks for the state-owned Santee Cooper and its largest customer, Central Electric Power Cooperative, involved in the Summer project, plus Oglethorpe Power, the Municipal Electric Authority of Georgia, Dalton Utilities, PowerSouth Energy Cooperative and JEA involved in the Vogtle expansion.
The S&P Global Ratings report cited California's law established in September mandating carbon-free electricity by 2045 in a section about "environmental regulations and legislation [that] are neither technologically nor economically feasible."
Scott Miller, Western Power Trading Forum executive director, said public utilities and co-ops "may be in market situations where they lose generation or transmission revenue to changes in resource use due to penetration of renewables." Such entities, by themselves, might encounter problems complying with emissions restrictions.
However, he added that "some costs associated with emission reductions in the West are mitigated to the extent they can participate in a regional market" such as the California Independent System Operator or the Western Energy Imbalance Market.
David Sapper, Customized Energy Solutions' director of market intelligence for the Midcontinent Independent System Operator, said MISO's munis and co-ops "seem to be similarly situated with investor-owned utilities" regarding resource mix and technology challenges, but the utilities "pushing or preparing most for change" are those "closer to the edges of the MISO region, where traditional grid benefits are limited by geography."
The Georgetown, Texas, municipal utility committed to a 100% renewable energy starting this past July. However, a late-summer drop in energy market prices caused a $6.8 million loss for the muni, which drew criticism in public reports.
The TPPF's Peacock said the problem was not that Georgetown committed too early to fixed-price renewable deals, but that it committed to renewables at all.
"Renewables simply cannot compete on price with mineral-based forms of energy," Peacock said. "Georgetown did, though, commit to 100 percent renewables in a way that maximized the losses its citizens must pay for."
-- Mark Watson, firstname.lastname@example.org
-- Edited by Matt Eversman, email@example.com