Electric Rates May Rise As Consumers Use Less

   NEW YORK - () - 1/6/2013 - The credit rating firm Fitch believes 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. Consumption fell in 2008, 2009, and 2011 with a small increase in 2010.     For competitive generation companies (gencos), the dampening effect on electricity sales from energy efficiency has exacerbated the already depressed spot and forward wholesale power prices. Coal-fired generators are most vulnerable as evidenced by the recent writedown by Ameren of its merchant genco business and Dominion's retirement of its Kewaunee nuclear power plant.
    "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 is introduced from energy efficiency and demand-response businesses, the economics of which compare favorably to utility supplied power and such lost sales will hurt the utility credit profile. The avoidance of electricity consumption, measured as 'negawatts', is already reflected in market pricing at PJM capacity auctions and competes with traditionally supplied power. Higher unit costs and stranded costs in less productive capital investments are the largest potential impact from slower electricity sales," the firm said.
    In Fitch's view, 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. 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. In addition to the reduction in usage, the firm expects 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 U.S. maintain excess capacity.
    For more information, see: www.fitchratings.com.

Photo by Steve Rensberry (c) 2014