Each assumes a vertical breakup, but watch out for securitization.
It can prove difficult to detect any overt difference of opinion among financial credit rating agencies. That appears to be the case in today's electric utility industry, where Moody's, Duff & Phelps, and Standard & Poor's each predicts that a breakup of the vertically integrated utility is now virtually inevitable. The result, they say, will leave us with an industry made up of disaggregated high-risk power generators, and lower-risk companies engaged in transmission, distribution, and other related services.
Surprisingly, each firm also appears to agree that disaggregation by itself should not make any real difference in credit evaluation. Instead, disaggregation simply unbundles all of the risk factors and financial attributes that were already present (though hidden) within the consolidated credit rating of the vertically integrated utility. As a sculptor merely unearths the figure that already lies buried within the stone, disggregation only illuminates the strengths and weaknesses always inherent in each of the traditional utility functions: generation, transmission, and distribution.
Nevertheless, the rating agencies expect to see the industry credit profile become more diverse and unpredictable. In fact, their comments can reveal subtle differences, especially in the area of stranded investment, and the presumed effects of the various cost recovery and "securitization" schemes now under consideration.
Revealing What's Already There