North American Utilities Face Potential Credit Issues

2023/4 saw North American Utilities identified by several credit rating agencies as riskier with both Morningstar and Fitch citing credit metrics weakening on both rising CAPEX and regulatory lag. “Credit metrics for the North American utilities sector are weakening, in part because of regulatory lag, major capital needs and macroeconomic pressures, according to analysts with Morningstar DBRS,”  according to a recent article in UtilityDive[1].  The issue appears to be that on the one hand, North American utilities need to invest more in terms of readying for the energy transition while on the other, they must think about customer affordability. “Fitch expects utility CAPEX to grow by double digits in 2024, underpinned by investments needed to make the electric infrastructure more resilient against extreme weather events and to accommodate renewable generation, including distributed sources,” said Fitch[2]. Indeed, ratings agencies find much to be worried about in this sector that also includes weather and renewable project execution risk. With inflationary and other pressures in the US, slow customer bill payment and defaults could also be an issue. Indeed, more than 20 million households are already behind on their utility bills according to the National energy Assistance Directors association[3] and utility debt has… continue reading