Dive Brief:

• Threats to utility credit and capital have yet to emerge, but investor-owned utilities and pipeline companies are still urging federal regulators to consider potential long-term capital risks from COVID-19.
• Despite no liquidity issues or substantive delays in their capital-intensive projects, Duke Energy, American Electric Power, FirstEnergy and electric utility trade group Edison Electric Institute told the Federal Energy Regulatory Commission during a virtual panel that future uncertainty remains a "significant threat to the sector" that will require "adequate and timely" cost recovery. And pipeline company Kinder Morgan pointed to additional concerns outside COVID market uncertainty, including the movement to decarbonize and a recent D.C. Circuit Court ruling.
• Ultimately, the gas sector faces a higher risk in a beyond-COVID-19 economy than the electric sector, Christine Tezak, managing director at Clearview Energy Partners, said during the panel. State carbon reduction targets as well as a growing trend of cities banning new gas hookups "challenge the prospects" for new gas infrastructure, she said, while the electric sector is not expected to be harmed by this shift.

Dive Insight:

Utility efforts to recover costs at the state level have thus far been unsuccessful — they have seen a load decline of about 5% nationwide, according to Brattle Group, but a direct rate recovery has been deemed likely too large to put directly on ratepayers, according to analysts.

On Thursday's panel, utilities broadly acknowledged that the COVID-19 pandemic and ensuing economic shutdown has not put their companies at any real risk, but continued to caution that greater hazards could appear in the future, and encouraged FERC to provide flexibility and certainty.

"Most of our infrastructure projects at this time, we've been able to find ways to proceed at a reasonable pace," Duke Executive Vice President and Chief Financial Officer Steve Young said during the panel. "But if this situation extends for a longer period, and the second wave becomes more of a problem for the workforce or the supply chain, then we may find ourselves with a needed piece of infrastructure that has to be delayed."

The only delay the company could report was a setback installing computer equipment within its transmission and power plant infrastructure.

"We're getting that back on track, but you could see further delays of that nature. So I do think the commission would be wise to think about various aspects of allowing even a suspended project to continue," Young said.

FirstEnergy CEO Charles Jones said his utility had a similar experience with COVID-19. "We have about 1000 projects in the pipeline to execute on this year. We're doing fine with keeping those on practice. The supply chain has been pretty durable," he said. But "if there's a second round of this virus that's worse than the first round, and those supply chain get disrupted, then we need to look at what are we going to do for projects that are in the pipeline started but can't be finished, as a result of the pandemic?"

The greatest risk to utilities comes from state proceedings, Roger Collanton, vice president and general counsel for the California Independent System Operator (CAISO), said on behalf of the ISO/RTO Council.

CAISO has "not observed increased credit risk" among any of its market participants, including investor-owned utilities or public power companies. The biggest risk to load serving entities comes from "issues of nonpayment or reduced load that impact the cash flow and revenues for the load," he said, and encouraged the commission "to conduct outreach" to state commissions to convey this.

Utilities tend to paint their risks as high in any case, Paul Patterson, analyst at Glenrock Associates, told Utility Dive. "The idea is the higher the risk the greater the return."

For the pipeline industry, risk has been much greater, company executives said — but that risk was not created by the current pandemic.

"Beyond the COVID-19 crisis, secular shifts challenge the prospects for natural gas and liquid pipeline infrastructure," Tezak said. "Many states are lowering the carbon emissions of their electric generation portfolios and in some cases full decarbonisation by a date certain has called into question longer term demand growth rates for natural gas, and by extension natural gas pipeline infrastructure."

Pipeline executives blamed recent shutdowns of the Dakota Access Pipeline and the Keystone Pipeline, the cancellation of the Atlantic Coast Pipeline project, and a D.C. Circuit Court of Appeals ruling that prevents FERC from issuing tolling orders for uncertainty in the market.

"This has gotten more difficult over time. The environmentalists are trying to stop pipes at every turn, you've got long term demand uncertainty from ... the no fossil fuels movement and electric vehicles, etcetera," Kinder Morgan President Kimberly Dang said during the panel.

Because of increased electrification as a result of decarbonization efforts, the electric sector will not see this same impact, said Tezak.

"These are not negatives for the electric transmission sector, which we expect will continue to be vetted and authorized by regulators to replace aging infrastructure to accommodate new, lower low carbon generation resources and potential incremental demand and transportation electrification," Tezak said.

Another major issue commissioners are considering and sought input on is the return on equity for transmission projects, something that the commission has been mulling for a while, said Patterson. In June, the commission issued a white paper on potential transmission incentives, including providing a higher return on equity for utilities who voluntarily apply certain Critical Infrastructure Protection Reliability Standards to facilities that are not currently subject to those requirements.

"The electric transmission system is vital to reliable service and efficient energy market pricing. And it really goes back to base ROE incentive policy and getting that right," Antonio Smyth, senior vice president of transmission ventures strategy & policy at American Electric Power, said during the panel. Additionally, the commission should not be "biased by volatile market conditions," he said.

Patterson said he's skeptical that FERC will be able to address the issue any time soon. "COVID-19 is still a big question mark," he said. "I don't know how realistic it is that they'll be able to come up with some plan to address the issue right now, simply because so much is unknown about the COVID situation and the cost of capital moving forward."

Thursday marked the second day of FERC's technical conference on COVID-19 impacts to the power sector. FERC Chair Neil Chatterjee said the commission will provide opportunity for public comments post-conference. "We will be putting out a notice requesting comments soon," he said.