Electric Co-op Today

Electric co-ops have a stable financial outlook for 2009, as well as for the next three to four years, Fitch Ratings said in a recent report.

The firm’s rating of the utility sector that includes co-ops contrasted with its view of IOUs, which it gave negative short- and long-term outlooks.

Fitch’s ratings were contained in its report, “U.S. Utilities, Power and Gas 2009 Outlook.” The report pointed out that the sector containing co-ops continued to maintain its solid credit fundamentals, including local control over rate-setting without state commission oversight, a cost advantage compared with neighboring IOUs, and benefits associated with predominantly residential and commercial customer bases.

The firm noted that its outlook for 2009 was based on the assumption that the U.S. economy would continue to contract and that credit markets would gradually stabilize.

“However,” it added, “Fitch expects that higher-cost capital and tight credit availability will persist in 2009 and perhaps 2010.”

“The utilities segment is not immune to the economic challenges facing corporate America, but is relatively well positioned,” the report noted. Fitch indicated that its stable public power outlook took into account increasing negative credit pressures affecting co-ops and munis.

“These current issues are in addition to ongoing credit drivers such as volatile fuel costs, the increasing costs associated with building new baseload generation and uncertainties regarding future costs associated with changing ‘green-based’ environmental regulations,” the report said.

Utilities, whether directly mandated by the state, like IOUs, or governed by locally established standards, like co-ops, “must now assess how to meet long-term load growth within an evolving environmental and in some ways more restrictive and costlier regulatory framework,” Fitch said.

The firm said it believed that their business model would continue to allow co-ops to perform well in 2009.

“Electric co-ops are not immune from the recession’s effects, but are much better positioned than many other types of entities to weather an extended economic downturn,” noted Russ Wasson, NRECA director of tax, finance and accounting.

Tags: Business and Finance, Electric Utility Industry, Financial Outlook