As the coronavirus pandemic has hammered demand for electricity across the country, the impact is likely to be greater for investor-owned utilities than for the public power sector, according to Moody’s Investor Service. In recent report, the bond rating agency said its outlook for the public sector “remains stable because we expect the sector to be relatively resilient….”
Public power systems — municipal, state-owned, and rural electric cooperatives — said Moody’s, benefit because they have “strong liquidity, continue to deleverage and benefit from cost recovery hrough self-regulated rate-setting.” But the public power sector will “likely face lower liquidity and coverage” this year and next.
Public power electric systems, says Moody’s, are likely to face lower load demand in the year ahead, rather than the flat growth the bond raters earlier expected. That’s a result of state stay-at-home orders and other social distancing policies. If those policies remain in effect “for a prolonged period,” the outlook could deteriorate.
Unlike investor-owned utilities in state-regulated or wholesale competitive markets, public power systems set their own rates, allowing them to recover revenue shortfalls and increased costs more easily. But, says Moody’s, that might not suffice in the future, “especially for utilities providing serivce in already weaker economic service areas.”
Moody’s also noted, in a separate report, that investor-owned utilities could face “higher underfunded pension liabilities” as a result of the pandemic. “This could result in lower cash flow coverage” as the bond agency includes “underfunded pension liabilities” in its calculations of financial health. Moody’s noted that most utilities pension assets “fell by 22% to 33% in 2008,” at the beginning of the Great Recession. Many economists predict that the current pandemic economic effects could exceed that downturn.
But if the pension assets are largely invested in highly-rated corporate bonds, those have “no sensitivity to the stock market, and at the same time may match well with pension liability fluctuations.”
Looking at the electric reliability impacts of the pandemic, the North American Electric Reliability Corporation said the coronavirus attack “has elevated the electric reliability risk profile due to potential workforce disruptions, supply chain interruptions, and increased cybersecurity threats.” NERC said the implications for the industry imply “preparing to operate with a significantly smaller workforce, an encumbered supply chain, and limited support services for an extended period of time.”
Looking at the impact of the pandemic on staffing at nuclear power plants, the U.S. Nuclear Regulation Commission has given its licensees flexibility to exceed traditional limits on hourly shift limits for licensed reactor operators. To avoid fatigue, the NRC has always limited shift time, which could impact reactor safety. The NRC has now given nuclear operators the ability to schedule operators to work up to 16-hour shifts at the controls of the reactor.
The NRC staff is also working a relaxing regulations on the frequency of inspections, as Utility Dive reported. Ed Lyman of the Union of Concerned Scientists criticized the NRC. He said, “ The key question here is how much additional risk will the NRC allow nuclear plants to accept in order to keep them running during this crisis?”
— Kennedy Maize