A report released by Standard & Poor's Rating Services said it expects that the current recession will present U.S. electric cooperatives and public power utilities with significant challenges at a time when the prospects for regulation have never been higher and capital needs abound.
"We believe that recession-related issues include declining energy sales; regional capacity surpluses that render some units uncompetitive; increasing payment delinquencies and bad debt expense; and political pressure to hold down rates or provide increasing support to help plug the budget gaps of municipal governments," said Standard & Poor's credit analyst Jeffrey Panger in the report, entitled "Will The Recession Pull The Plug On U.S. Public Power Companies And Electricity Co-ops?".
The industry faces sizable costs related to carbon regulation and reduced dependence on fossil fuels through investment in renewable energy. Public power and electric cooperatives are also in the midst of their largest capital building program in roughly 40 years. Combined with a huge increase in global demand for electricity, we expect that the result will be very high construction costs.
However, S&P believes that the recession, which it expects to last through this year and into 2010, will create the most immediate problems for public power and electric cooperatives.