ARMONK, N.Y.--(BUSINESS WIRE)--In a study released today on the electric Investor Owned Utilities (IOU) sector, National Public Finance Guarantee Corporation (National) notes that IOUs have largely recovered from the turmoil of the last decade, albeit with modestly weaker credit profiles, primarily due to effective industry regulation and strong company management.
Managing Director John Jordan, National’s Utility Sector Manager, credited the turnaround to a renewed focus on core businesses and regulated operations. “The effort was also aided by a period of constructive regulatory rulings that provided IOUs with effective cost recovery mechanisms and timely rate-case rulings with sufficient operating margins,” said Mr. Jordan.
Tangible evidence of this was seen during the recent financial market turmoil as IOUs maintained ready access to the capital markets.
“Going forward, we could see a return to a more stressful environment,” Mr. Jordan continued. “Each type of electric IOU faces challenges over the coming years. For example, transmission and distribution utilities must invest in system reliability, efficiency and so-called ‘smart grid’ technology, while the generating sector is undergoing a fundamental shift in resource planning and supply strategies where the low cost option is no longer the obvious choice to pursue. What distinguishes electric IOUs from their Public Power counterparts is their lack of control over the rate-setting process. Their challenge will be to maintain sufficiently strong financial metrics in the face of these headwinds given the near-certain reluctance of regulators to approve the sizable rate increases that will be required.”
“Our study highlights a variety of factors affecting the financial stability of these entities,” added Analyst Branden Kfoury, one of the study’s primary authors. “Readers are also provided with an overview of the critical risks inherent in the electric IOU sector and, as with our previous studies, a summary of key credit metrics for a portion of our exposure in this area is provided.”
The study can be found on National’s website at www.nationalpfg.com, along with studies of other public finance sectors including Transportation, Public Power, Airports, Military Housing and Higher Education. National’s next sector study will be an analysis of the Florida Community Development District market.
National Public Finance Guarantee Corporation, headquartered in Armonk, New York is the world’s largest U.S. public finance-only financial guarantee insurance company, with offices in New York and San Francisco. The company’s financial strength is highlighted by its $5.6 billion in claims-paying resources, $2.1 billion in statutory capital and strong embedded profitability from its $499.2 billion insured portfolio and $5.3 billion investment portfolio. National has insurance financial strength ratings of A with a developing outlook from Standard and Poor’s and Baa1 with a developing outlook from Moody’s Investors Service. Please visit National’s Web site at www.nationalpfg.com.
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