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Moody’s says 2021 outlook for public power is stable

December 10, 2020

by Paul Ciampoli
APPA News Director
December 10, 2020

Moody’s Investors Service 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.

At the same time, the rating agency said that while it expects financial metrics to weaken over the next 12-18 months as a result of lower sales revenues and continued moratoriums on service disconnects, “metrics should still remain within our range for a stable outlook.”

Load demand

Moody’s expects overall net negative load demand nationally for 2020, with continued recovery and demand growth through 2021.

But loads have not declined evenly throughout the country because of varying degrees of shelter-in-place orders and weather-related reasons, it pointed out.

“We also expect demand growth and recovery to vary depending on how long it takes local economies to recover. In the event of another national wave, there could be another significant reduction in commercial and some industrial activity, with more permanent job losses because of permanent closures of commercial establishments unable to recover.”

Depending on the proportion of industrial and commercial customers of particular issuers, as well as the types of industries located in their service territories, “some issuers may actually experience load demand growth, as in food products, hygiene and medical supply-related industries, as well as home improvement industries.”

The report said that although there was an increase in residential load demand across the board given shelter-in-place orders, “for the most part, this increase is not enough to offset the decline in commercial and industrial load expected for the full year 2020, as a result of significantly reduced commercial and industrial activity in the first half.” But demand has continued to improve since the peak declines observed in April and May.

Moody’s said that issuers with service territories with high poverty levels are likely to be more severely affected “because job losses during the pandemic have disproportionately fallen on lower income individuals, many of whom work in the commercial sectors where the virus has caused the most upheaval, such as retail, restaurants, apparel, hotels, entertainment and transportation.”

These workers will continue to face job insecurity as long as COVID-19 remains a health threat, “with implications for consumer confidence and spending, demands for social services, and in some economies, a further divide in access to healthcare.”

Although the Coronavirus Aid, Relief and Economic Security (CARES) Act funded $900 million to a program that helps low income households make home energy payments, “according to the American Public Power Association (APPA), more funding is needed,” the report noted.

Moody’s said that federal aid to local governments has provided only limited short-term relief and is unlikely to alleviate budgetary stress in 2021.

“The CARES Act stipulates that funds may be used only to cover coronavirus-related expenses, not to replace lost revenue. Further, the relief package has been focused on states, with cities and counties receiving no more than 45% of each state’s allocation. Disbursement of this aid is on a reimbursement basis for costs incurred through 30 December 2020.”

The rating agency’s forecast assumes limited additional federal aid.

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