Fitch says public power utilities are well positioned financially headed into 2021

by APPA News
December 14, 2020

U.S. public power utilities are well positioned financially headed into next year, as lower expenses have helped preserve margins and liquidity in the wake of pandemic-driven declines in electric demand and revenue, according to Fitch Ratings.

However, Fitch’s 2021 outlook report points to some concerns related to the lingering effects of the coronavirus pandemic and economic contraction, as well as more aggressive climate issues, the rating agency said on Dec. 9.

The rating outlook for the public power sector is stable.

“The operational and financial resilience exhibited by the public power sector through 2020, together with improving operating fundamentals, support Fitch’s stable outlook,” said Managing Director Dennis Pidherny.

Fitch said that electric demand is expected to stabilize in 2021 as the U.S. economy recovers from recession and achieves pre-pandemic gross domestic product levels.

“A continuance of low, stable energy prices and interest rates should also help preserve operating margins and affordability. These factors are to expected ease upward pressure on electric rates, support strong cash flow and moderate leverage throughout the sector,” Fitch said.

At the same time, uncertainty surrounding the lingering effects of the pandemic and the potential for more aggressive environmental mandates could disrupt longer term performance, according to the rating agency.

Greater support from public power systems may be required by local governments facing pandemic-related fiscal challenges, particularly those facing severe declines in tax revenue, Fitch said.

Meanwhile, Fitch said that an increased focus on carbon dioxide emissions reduction by federal leadership is expected to develop under President-elect Biden and could lead to more aggressive environmental policies with an evenly divided Senate.

“While many states continue to forge their own paths to address climate issues, the implementation of a national renewable standard could pressure operating costs, as well as the affordability metrics, at public power systems located in states with no standards or targets, or that have exemptions in place,” Fitch said.

Moody’s says 2021 outlook for public power is stable

Moody’s Investors Service this month said its outlook for the U.S. public power sector is stable because the rating agency expects the sector to be relatively resilient through the ongoing global recession.

“Public power utilities’ business model inherently helps maintain stability; they provide essential services in a non-profit oriented manner, have strong liquidity and have self-regulated rate-setting ability to help manage cost recovery,” Moody’s said in a Dec. 7 report.