Dive Brief:

• Because publicly-owned utilities, including cooperatives, typically own or contract for sufficient electricity generation, the potential for summer capacity constraints and blackouts “are not viewed as a near-term risk” to their credit quality, Fitch Ratings said in a Friday research note.
• Customers of public utilities should still anticipate rate increases due to “general economic inflationary pressures,” the ratings agency said.
• Fitch noted that the Texas grid operator faces a tight supply-demand balance this summer and was forced to call on consumers to cut energy consumption twice last week. But any blackouts would likely be short and “would not impact long-term public power utility credit quality,” according to the note.

Dive Insight:

Higher temperatures combined with reduced hydroelectric supplies and the closure of some fossil fuel generators have increased the risk of blackouts in multiple regions, Fitch said. But not all utilities will be impacted similarly.

“Summer capacity constraints and rolling blackouts are not viewed as a near-term risk to US public power and electric cooperative credit quality,” Fitch said Friday.

Along with the Electric Reliability Council of Texas, or ERCOT, the California Independent System Operator and the Midwest ISO face potential shortages, Fitch said. However, the firm’s portfolio of public power issuers “typically own or contract for sufficient electric generation during the summer months to match or exceed their expected load demand, providing a financial hedge against market scarcity and volatile energy prices,” Fitch said.

There are some risks for public power entities, however. These utilities “tend to own or contract for generation supplies conservatively ... but there may be residual risk if temperatures cause demand to be substantially higher than anticipated,” Fitch said.

Customer “tolerance” for rate increases could be reduced if they are forced to endure rolling blackouts, Fitch said. And if utilities cannot pass along necessary rate increases, “utility financial profiles would likely weaken and could put pressure on credit quality over the longer term.”

ERCOT was able to avoid rolling blackouts last week, twice asking customers to reduce demand and on Wednesday by also utilizing the state’s industrial demand response program. Utility regulators on Thursday voted to expand the budget for the demand response service, adding $25 million to the program’s budget and signaling a willingness to revisit the issue as needed.