Dive Brief:
- Distributed generation is a threat to the traditional utility ratemaking structure, but in the near-term Moody's Investors Service said it believes power distributors will continue to receive fair treatment by regulators.
- The "death spiral" scenario caused by a large number of customers disconnecting from the utility grid is unlikely, though Moody's said slow attrition is possible, Platts reports.
- Technological developments are inherently uncertain and could be disruptive, but Moody's said the value of the utility grid left it convinced that regulators would ease change and ensure a level of regulatory certainty.
Dive Insight:
The doom-and-gloom phrase "utility death spiral" is probably a bit overblown, say analysts at Moody's Investors Service. While in the long run distributed generation does represent a threat to the traditional utility industry, changes will likely be gradual and distribution companies can continue to count on fair rate treatment, the ratings agency said.
"Distributed generation poses a threat under traditional ratemaking but it's premature to call a 'death spiral' for the sector," says Moody's Senior Vice President Mihoko Manabe in the report "US Utilities: Regulatory Response Looks to Stay Ahead of the Distributed Generation Curve."
Moody's said that proactive regulatory response to distributed generation is credit positive as it gives utilities improved rate designs and helps in the long-term planning for their infrastructure. In some states, such as California, New York and Hawaii, regulators are going even further by pursuing brand new utility business models that embrace distributed generation, but most are tackling rate design and policy issues first.
"The electric grid is a critical piece of infrastructure, and its value could be even greater in the future," says Manabe. "Consequently, we believe utilities will continue to receive reasonable regulatory treatment."
