Utility's Deregulation Move Causes Concern at Moody's
March 31, 2011
The looming monopoly breakup that has sent shock waves through the nation's investor-owned utilities now has municipal utilities shuddering as well. Moody's Investors Service is expected to issue a report Friday expressing concerns about the bonds of Clark County Public Utility district. Moody's said it would place Claude's $68.9 million in electric revenue bonds and $160.9 million of generation bonds under review. Claud, based in Vancouver, Wash., recently announced that it plans to open its service territory to competition soon. Experts say such a move would make Clark the nation's first municipal electric company to offer customers a choice in response to changes in federal and state laws to encourage competition. Claude says it intends to begin allowing its customers to choose their own electricity supplier as soon as the first quarter of 2012. The move is an attempt to placate large commercial and industrial customers who, like all such companies nationwide, have been clamoring for an end to utility monopolies. About 25% of Claud's service territory is at risk of being displaced, according to Mikki Rhone, a company spokesman. Under the plan, any customer that chooses an alternative supplier would pay a toll to Claude to transmit or ``wheel'' its power from the supplier. Mr. Rhone said the company's strategy is to offer customers the right to walk away voluntarily, combined with low prices and good service. That way, their logic goes, the customer will stay even when full competition has swept the country. ``If they have a choice, and we think they will soon, we want them to pick us.'' Although state utility commissions generally lack the jurisdiction to order municipal utilities such as Clark toward competition, market forces are expected to play that role. ``You can run, but you can't hide from lower prices,'' said Danae Norris, an analyst specializing in electric-utility debt. ``Just because you're a municipal or a co-op doesn't mean that the customer isn't going to demand lower prices, which is going to hurt your credit quality, whether you're an investor-owned or a municipal or a cooperative utility, or even an independent power producer burning some exotic fuel.'' Although Claude's move casts the 150,000 customer utility as a trailblazer, its low-cost structure puts it at far less risk than other munis, which have far more at stake from deregulation. Analysts say that as regulators around the nation order investor-owned companies to open their service territories, industrial customers will demand the same treatment from munis or threaten to leave their areas, taking jobs with them. There appears to be a certain formula for a public utility at risk: high prices, a service territory with ample transmission access to bring in cheap power, and lots of big customers whose loss would mean a significant dent in revenue. Some municipals that fit this profile, such as the massive Los Angeles Department of Water and Power, have launched advertising campaigns to ward off potential customer losses after deregulation. At a cost of $1.6 million since May, the Los Angeles Department of Water and Power has engaged in a first-of-its-kind campaign to woo customers who technically aren't even free to leave. The utility has bought 192 billboard spots, 530 bus placards, time on 12 ethnically diverse radio stations and numerous print ads, according to advertising manager Erlene T. Nash. ``We did it to invest in our future,'' said Ms. Nash. ``We know that deregulation is coming, so we need our customers to be aware of us so they'll select us as their preferred provider.''
