[BETA] Fortnightly

A new Standard & Poor's (S&P) report, Direct Access Threatens Utility Revenues, predicts that electric utility revenues would decline 6 to 16 percent ($10 to $26 billion) if retail direct access is implemented. S&P bases its findings on two scenarios: In the severe case, direct access occurs immediately for all customer classes and no surcharge mechanism recovers lost revenues. The more reasonable scenario assumes that only large commercial and industrial (C/I) users will exercise their right to choose direct access and that 50 percent of C/I lost revenues will be recovered in rates. S&P expects actual recovery to be larger and to vary according to state.

The report lists the top 20 utilities most impacted by direct access under the reasonable scenario, due to high generation costs and, in some cases, heavy industrial customer base. The top three are Cleveland Electric Illuminating Co., PECO Energy Co., and Toledo Edison Co. S&P notes, however, that various risk-mitigating options are available, and that many utilities have begun to cut costs to preserve financial integrity. The 10 least- vulnerable utilities under direct access (em those with low generating costs and a modest industrial customer base (em include five Pacific Northwest utilities that have substantial hydrogeneration capabilities. S&P says that even these companies will need to make adjustments to maintain their competitive advantage.

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