Citing credit uncertainties stemming from impending deregulation, Moody's Investors Service has posted negative ratings outlooks for the U.S. electric, telecommunications, and natural gas industries (with the exception of the pipeline segment). Moody's acknowledges, however, that the impact of deregulation will depend on market maturity, relative cost structure, degree of integration, and regulatory flexibility.
Competition
Power-supply costs and nonproduction operation and maintenance (O&M) costs differ markedly, both between regions and between utilities within regions. In an open market, only companies with a competitive cost structure will be able to compete effectively.
High costs reflect high embedded costs; above-market, long-term coal-supply and power-purchase contracts; and relatively high nonproduction O&M expenses.
Stranded commitments (SC), because they are potentially huge, may be a show stopper for increased competition in the U.S. electricity industry. Utility shareholders, industrial customers, and small commercial and residential customers are likely to wage tough battles before state and federal regulatory commissions as they seek to reduce their exposure to these costs.
A competitive market for electric power raises the point that some utility investments might be overvalued, giving rise to "stranded investment." Nevertheless, actual utility exposure to stranded investment may prove less severe than reported, according to a recent study we conducted at Resource Data International, Inc. (RDI), Retail Power Markets in the U.S., (em perhaps the first detailed analysis of stranded investment from generating assets, performed on a unit-by-unit basis for all power plants in the United States.
2 percent of California's gross state product. Competitively priced electricity is vital to California's $800-billion-a-year economy, one would think.