Moody's Investors Service has released a report that finds the most significant long-term implication of Order 888 for investors is for potential divestiture of transmission assets by investor-owned utilities.
The Moody's study, FERC Order 888 and Wholesale Competition: Catalyst for a New Market Model, also finds that divestiture by a vertically integrated utility may leave bondholders secured by a lien on relatively risky generating assets of often questionable market value, as opposed to the presently more diverse and balanced asset portfolio.
Moody's finds that Order 888 eliminates many advantages traditionally associated with vertical integration across generation, transmission and distribution. This elimination reduces the incentive for some utilities to retain their relatively lower return transmission assets. Second, it makes clear the FERC's commitment to eliminate potential abuses of vertical market power, which may lead to forced divestiture if independent system operators are unable to address such issues adequately. Reducing such risk to the bondholder are obstacles to divestiture inherent in many utility indentures (em the desire of some more conservative managements to remain diversified, possible success by the independent system operators in addressing market power concerns and possible legal hurdles to FERC-mandated divestiture.