Moody's Investors Service has released a report, Moody's Outlines Risk Profile for Electric Cooperatives, which finds that the era of deregulation will lead to an average credit quality decline for generation and transmission cooperatives (G&Ts), just as it will for investor-owned utilities (IOUs) over the next five to 10 years. The report stresses that both G&Ts and distribution cooperatives face increased business and financial risks. G&Ts, however, unlike IOUs, will be shielded in the near term from wholesale competition because the Energy Policy Act of 1992 protects their long-term, all-requirements contracts with their distribution cooperative members. The distribution co-ops also will be protected from competition for some time, because most of their revenues come from residential customers. However, G&Ts have a number of structural disadvantages in competing with IOUs, including generally higher rates, transmission constraints, lower equity ratios, and capacity planning problems. Moody's also notes that they must find new sources of funding to compensate for reduced availability of loans from the Rural Utilities Service.
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