Moody’s: Moderate demand will temper power prices in 2014

HOUSTON — Low natural gas prices and slow growth in power demand will help moderate increases in the cost of electricity in 2014, Moody’s analysts project.

In Moody’s recently released forecast for the utility sector, analysts note that power demand, which largely stagnated during the sluggish economy, will continue to be slow next year, delaying utilities’ needs for pricey facility upgrades and expansions.

According to federal projections, electricity demand will grow by an average of less than 1 percent annually through 2040, as appliances become more energy efficient and the economy recovers slowly.

“U.S. energy demand remains sluggish, owing to a slowly recovering economy and expanded energy-efficiency programs,” the report noted. That “will reduce the ability of utilities to spread costs over a larger customer base, … a pressure that will require the industry to continuously adapt in order to maintain stable financial metrics, either through minor rate changes or spending reductions.”

The credit rating firm gave a stable outlook for the power industry, but noted that environmental regulations and the rise of solar power could pose a threat to the utility industry in coming years.

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Companies heavily invested in coal power generation face a number of federal regulations targeting power plant emissions, such as the Mercury and Air Toxics Standards set to take effect in April 2015, Moody’s said.

If natural gas prices stay low, however,  they could moderate the cost of compliance. If the domestic price of natural gas remains at a relatively low $4 per million British thermal units, moving away from higher-carbon coal would provide a financial boost for power generators, the report said.

The rise of solar power, on the other hand, could threaten to overhaul the current power system. Improvements in solar power generation, including growing use home rooftop systems, “have the potential to break the utilities’ monopoly hold on the electricity customer,” the report states.

Moody’s notes that the risk is long-term, but warns that utilities would need to adapt.

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