Electric utilities incur indirect financial costs when they turn to unregulated generators (NUGs) to buy power. These indirect costs can lead to lower bond ratings and undermine competitive...
S&P: Municipal Tactics as Effective as Mergers
Standard & Poor's (S&P) CreditWeek Municipal notes that municipal electric utilities are resisting the investor-owned utility (IOU) merger trend in favor of competing through internal cost controls and sharing of services. The main reason, according to S&P directors Marla Fox and William Cox, is that municipals are political entities governed by city councils or appointed boards, and mergers would result in less authority for those decisionmakers. Another factor is that many municipals provide revenue to support their governments' general fund; however, that practice is being scaled back due to increased competition. Municipals are cutting costs by reducing workforces, renegotiating contracts, and paying down high-cost debt. They have also formed alliances, and shared services in procurement and generating and operating functions. Such methods, the report concludes, "could be just as effective as the [IOU] mergers to date."
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