The double-edged swords were raised high with the nation’s investor-owned utilities last year. Revenues, dividends and capital budgets were up, up, up, but so was long-term debt and pressure to deliver more flexibility and choice to customers.
The Edison Electric Institute’s 2014 Financial Review annual report was released in late October, detailing the multitude of ways that publicly traded utilities spent and earned their money last year. Overall, total operating revenues rose 7.2 percent to $376.9 billion nationwide, while those utilities in the EEI index also increased dividends by 3 percent to a combined $21 billion.
The pace of change is quickening in the 130-year-old electricity industry, EEI President Thomas Kuhn said in his letter leading off the 2014 Financial Review.
“Today, our industry is working at a breakneck speed to integrate new technologies and new innovations onto the electric power grid as they come to market,” Kuhn noted. “They want to be able to plug in all of their new devices or access new services.
“They expect us to continue to sustain a power grid that supports their needs, while also giving them flexibility and choice in how they use energy,” he added.
So far, so good. The industry’s net income rose slightly to a collective $28.2 billion in 2014, but long-term debt nearly hit $500 billion, an all-time high. Overall, the total long-term debt has risen 39 percent, or nearly $137 billion, since 2007.
Those debts are financing consistently high levels of capital expenditures by the utilities. The capital spent by investor-owned utilities combined on projects hit a record high of $98.1 billion in 2014 and is expected to top $108 billion this year, according to the EEI.
Fortunately, interest expenses fell 5.3 percent. The industry’s average credit rating improved to BBB+ from BBB, the first such change in 11 years, the report reads.
Those risk assessments and interest rates could change in coming years, even as utilities are under persistent pressure to meet stringent environment regulations. Rating agencies believe expenditures focused on meeting the EPA’s Clean Power Plan final rules will stress utilities in states which have to make the biggest reductions in CO2 emissions.
“S&P and Moody’s both expect the eventual credit impact of the CPP to be significant but not uniform across the U.S. electricity sector,” the report reads. “On June 3, Moody’s described the EPA’s draft rule as “credit-negative for coal-dependent utilities, power projects and merchant power generators because . . . the rule will likely result in reduced power volumes and higher costs for generation.”
Visit www.eei.org to see the report.